<PAGE>
[LOGO OF NEW ENGLAND FINANCIAL/TM/
A METLIFE AFFILIATE APPEARS HERE]
----------------------------------------------------------------------------
ZENITH FUND
VARIABLE PRODUCTS
SEMIANNUAL REPORTS
JUNE 30, 1999
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Back Bay Advisors Money Market Series....................................... 1
Back Bay Advisors Bond Income Series........................................ 7
Salomon Brothers Strategic Bond Opportunities Series........................ 14
Salomon Brothers U.S. Government Series..................................... 24
Back Bay Advisors Managed Series............................................ 30
Loomis Sayles Balanced Series............................................... 39
Alger Equity Growth Series.................................................. 48
Capital Growth Series....................................................... 54
Davis Venture Value Series.................................................. 59
Goldman Sachs Midcap Value Series........................................... 66
Loomis Sayles Small Cap Series.............................................. 72
MFS Investors Series........................................................ 80
MFS Research Managers Series................................................ 86
Westpeak Growth and Income Series........................................... 93
Westpeak Stock Index Series................................................. 100
Morgan Stanley International Magnum Equity Series........................... 110
Notes to Financial Statements............................................... 119
Footnotes to Portfolio Manager Commentary................................... 125
Fidelity VIP Equity-Income Portfolio........................................
Fidelity VIP Overseas Portfolio.............................................
</TABLE>
Important:
Some funds appearing in this report may not be available under your variable
life or variable annuity product.
<PAGE>
August, 1999
To Our Policyholders/Contract Owners:
We are pleased to provide you with the 1999 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, 1999, as well as the outlook and strategy of each fund. It is intended to
help you make an informed decision regarding the investment of the contract
value of your variable product.
New England Financial and its affiliates offer many variable life and variable
annuity products to help you meet your financial objectives. We are committed
to meeting your expectations by providing quality products with strong
performance potential and excellent personal service.
Please feel free to contact your Registered Representative with any questions
you may have regarding your financial objectives. Thank you for choosing a
Zenith Variable product.
Sincerely,
David Allen
Senior Vice President
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.
[RECYCLING LOGO APPEARS HERE]
Printed on recycled, recyclable paper
<PAGE>
The National Association of Securities Dealers Regulation, Inc. (NASDR) has a
"Public Disclosure Program" which provides current and historical information
on registered representatives and Financial Institutions registered with the
NASD. If you would like information pertaining to the "Public Disclosure
Program", including an informational brochure that describes the program, you
may contact the NASD directly by calling the NASDR, Inc. Public Disclosure
Hotline at 800-289-9999 or by visiting the NASDR, Inc.'s website at NASDR.com.
If you would like to contact New England Financial concerning any aspect of
your variable annuity contract, please call our customer service team at 800-
435-4117. Please call 800-388-4000 if you have any questions on our variable
life products.
<PAGE>
Back Bay Advisors Money Market Series
Portfolio Manager: John Maloney
Back Bay Advisors, L.P.
[PHOTO OF JOHN MALONEY APPEARS HERE]
Q. How did this series perform during the past six months relative to its
index and relative to its peers?
A. For the six months ending June 30, 1999, the Back Bay Advisors Money Market
Series returned 2.3% compared to the 2.2% return of the Lipper Variable Prod-
ucts Money Market Fund Average/1/. The Series ranked 17th out of 110 funds,
which places it in the second decile of its peer group. As of June 30, 1999,
the Series' seven-day yield was 4.68%.
Q. Briefly discuss the investment and market environment during the past six
months.
A. In the first half of 1999, economic growth started to rekindle in many
areas of the globe, helped by interest-rate cuts implemented by many major
central banks. In addition, the U.S. economy sustained the strong growth ten-
dencies of the past year. U.S. consumer confidence was high due to strong job
and income growth. Retail demand for homes, home furnishings, automobiles, and
electronics was high. At the same time, strong productivity gains helped keep
consumer price inflation restrained. The Federal Reserve raised the Federal
Funds rate to 5 percent from 4.75 percent on June 30th as a pre-emptive move
to slow demand and keep inflation in check.
Q. Given this investment environment, what was your investment strategy? What
changes did you make since the start of the year?
A. For most of the period, the Series invested in securities with longer
maturities to benefit from the attractive yield advantage they offered versus
shorter-term alternatives. The Series' average maturity remained in the 75 to
80-day range. In the second quarter of 1999, with the Fed changing to a
"tightening bias", the Series looked to shorten its average maturity, allowing
it to reinvest more quickly.
Q. What were the principal factors affecting your performance (on both an
absolute and relative basis) during the past six months? What investment
decisions were most effective and which ones were least effective?
A. The fact that the Series maintained an average maturity longer than its
peer group led to its outperformance.
Q. What is your outlook for the market and your portfolio for the next six
months? What changes, if any, will you make to the way you manage your
portfolio?
A. With the possibility of more rate hikes by the Federal Reserve, the Series
will look to shorten its average maturity to a more neutral stance. This will
allow us to participate if yields increase.
.. Fund Facts
Goal: The highest possible level
of current income consistent with
the preservation of capital.
Start date: August 1, 1983
Size: $221 million as of June 30,
1999
Manager: John Maloney has served
as portfolio manager since 1996.
Mr. Maloney also manages the New
England Tax Exempt Money Market
Fund.
*The Back Bay Money Market Series is neither insured nor guaranteed by the
U.S. Government. These funds seek 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.
1
<PAGE>
New England Zenith Fund
(Back Bay Advisors Money Market Series)
Investments as of June 30, 1999 (Unaudited)
Investments--100.2% of Total Net Assets
<TABLE>
<CAPTION>
Face Interest Maturity
Value Description Rate Date Value (a)
<C> <S> <C> <C> <C>
Certificates of Deposit--21.0%
$2,000,000 Toronto Dominion Bank............. 5.640% 07/08/99 $ 2,000,206
1,000,000 National Westminster Bank, Plc. .. 5.655% 07/26/99 1,000,378
1,000,000 National Westminster Bank, Plc. .. 5.655% 07/30/99 1,000,339
1,000,000 Societe Generale.................. 5.710% 08/03/99 1,000,451
2,000,000 Rabobank Nederland NV............. 5.580% 08/18/99 2,001,426
3,000,000 Bank of Novia Scotia.............. 5.060% 09/08/99 3,000,548
3,000,000 ABN-Amro Bank NV.................. 5.250% 09/14/99 3,000,861
2,000,000 Commerzbank AG New York........... 5.140% 09/15/99 2,000,615
4,000,000 Commerzbank AG New York........... 5.010% 01/10/00 3,998,959
1,000,000 Societe Generale.................. 5.020% 01/14/00 999,580
1,500,000 Societe Generale.................. 5.025% 01/14/00 1,500,152
2,000,000 Canadian Imperial Bank............ 5.000% 01/27/00 1,999,112
2,000,000 Canadian Imperial Bank............ 5.010% 02/07/00 1,999,533
4,000,000 Deutsche Bank AG New York......... 5.050% 02/09/00 3,997,268
2,000,000 Toronto Dominion Bank............. 5.050% 02/14/00 1,996,809
3,000,000 Rabobank Nederland NV............. 5.125% 02/18/00 2,999,854
1,000,000 Toronto Dominion Bank............. 5.270% 03/02/00 999,272
2,000,000 Deutsche Bank AG New York......... 5.330% 03/09/00 2,001,688
1,000,000 Commerzbank AG New York........... 5.230% 05/11/00 999,821
5,000,000 Bank of Montreal.................. 5.200% 05/12/00 4,997,917
3,000,000 Commerzbank AG New York........... 5.295% 05/19/00 2,998,595
------------
Total Certificates of Deposit
(Cost $46,493,384)................ 46,493,384
------------
Commercial Paper--79.2%
Asset Backed--4.6%
2,000,000 Clipper Receivables Corp.......... 5.900% 07/01/99 2,000,000
3,580,000 Clipper Receivables Corp.......... 4.980% 07/02/99 3,579,505
1,500,000 Clipper Receivables Corp.......... 4.820% 07/06/99 1,498,996
3,190,000 Clipper Receivables Corp.......... 5.060% 08/17/99 3,168,927
------------
10,247,428
------------
Automotive--11.5%
2,500,000 Ford Motor Credit Co.............. 4.800% 07/09/99 2,497,333
890,000 General Motors Acceptance Corp.... 4.800% 07/09/99 889,051
3,470,000 General Motors Acceptance Corp.... 4.810% 07/15/99 3,463,509
2,030,000 General Motors Acceptance Corp.... 4.800% 07/16/99 2,025,940
3,000,000 American Honda Finance............ 4.850% 07/19/99 2,992,725
1,370,000 General Motors Acceptance Corp.... 4.850% 07/20/99 1,366,493
3,245,000 Ford Motor Credit Co.............. 4.900% 07/22/99 3,235,725
3,000,000 American Honda Finance............ 5.100% 07/27/99 2,988,950
670,000 American Honda Finance............ 5.000% 08/03/99 666,929
2,000,000 General Motors Acceptance Corp.... 5.020% 08/10/99 1,988,845
3,380,000 Ford Motor Credit Co.............. 4.950% 08/19/99 3,357,227
------------
25,472,727
------------
Banking--13.6%
4,150,000 Svenska Handelsbanken............. 5.380% 07/12/99 4,143,178
1,143,000 Svenska Handelsbanken............. 4.820% 07/14/99 1,141,011
500,000 Wells Fargo & Co.................. 4.810% 07/16/99 498,998
3,000,000 Wells Fargo & Co.................. 4.860% 08/03/99 2,986,635
1,505,000 Deutsche Bank Finance, Inc........ 4.820% 08/09/99 1,497,141
2,000,000 Dresdner Bank..................... 4.830% 08/09/99 1,989,535
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
New England Zenith Fund
(Back Bay Advisors Money Market Series)
Investments as of June 30, 1999 (Unaudited)
Investments--(Continued)
<TABLE>
<CAPTION>
Face Interest Maturity
Value Description Rate Date Value (a)
<C> <S> <C> <C> <C>
Banking--(Continued)
$3,000,000 Wells Fargo & Co. ................ 5.020% 08/24/99 $ 2,977,410
1,750,000 Bank of Nova Scotia............... 4.950% 09/03/99 1,734,600
2,560,000 Wells Fargo & Co. ................ 5.040% 09/07/99 2,535,629
2,000,000 Societe Generale.................. 4.880% 09/13/99 1,979,937
5,000,000 Lloyds Bank, Plc. ................ 4.800% 10/04/99 4,936,667
2,735,000 UBS Finance Delaware, Inc......... 4.920% 10/12/99 2,696,500
1,000,000 Svenska Handelsbanken............. 4.860% 12/20/99 976,780
------------
30,094,021
------------
Biotechnology--4.4%
3,000,000 Monsanto Co. ..................... 4.870% 07/12/99 2,995,536
2,000,000 Monsanto Co. ..................... 4.870% 07/13/99 1,996,753
1,150,000 Monsanto Co. ..................... 4.820% 08/12/99 1,143,533
600,000 Monsanto Co. ..................... 4.900% 09/02/99 594,855
999,000 Monsanto Co. ..................... 4.850% 09/28/99 987,022
1,500,000 Monsanto Co. ..................... 5.000% 10/06/99 1,479,792
500,000 Monsanto Co. ..................... 4.880% 11/09/99 491,121
------------
9,688,612
------------
Diversified Conglomerates--1.3%
3,000,000 USAA Capital Corp. ............... 5.020% 08/24/99 2,977,410
------------
Energy--1.7%
2,390,000 Chevron Corp. .................... 5.010% 07/29/99 2,380,687
1,320,000 Chevron Corp. .................... 5.070% 08/20/99 1,310,705
------------
3,691,392
------------
Finance--23.8%
3,000,000 American Express Co. ............. 5.200% 07/01/99 3,000,000
750,000 Transamerica Finance Corp. ....... 5.750% 07/01/99 750,000
2,000,000 Transamerica Finance Corp. ....... 4.820% 07/07/99 1,998,393
4,000,000 CIT Group Holdings, Inc. ......... 4.790% 07/14/99 3,993,081
420,000 General Electric Capital Corp. ... 4.810% 07/16/99 419,158
2,500,000 Commercial Credit Co. ............ 4.950% 07/19/99 2,493,813
2,000,000 Household Finance Corp. .......... 4.900% 07/20/99 1,994,828
2,500,000 Commercial Credit Co. ............ 4.950% 07/21/99 2,493,125
3,000,000 Household Finance Corp. .......... 4.900% 07/21/99 2,991,833
1,085,000 Household Finance Corp. .......... 4.900% 07/23/99 1,081,751
2,000,000 Transamerica Finance Corp. ....... 4.800% 07/23/99 1,994,133
3,775,000 Transamerica Finance Corp. ....... 4.840% 07/26/99 3,762,312
455,000 General Electric Capital Corp. ... 4.870% 07/29/99 453,277
1,185,000 CIT Group Holdings, Inc. ......... 5.000% 08/05/99 1,179,240
3,420,000 Commercial Credit Co. ............ 5.110% 08/06/99 3,402,524
1,000,000 General Electric Capital Corp. ... 4.840% 08/09/99 994,757
2,000,000 General Electric Capital Corp. ... 4.840% 08/11/99 1,988,976
3,070,000 CIT Group Holdings, Inc. ......... 5.000% 08/13/99 3,051,665
Associates Corp. of North
2,325,000 America .......................... 4.990% 08/16/99 2,310,176
Associates Corp. of North
2,000,000 America .......................... 5.070% 08/16/99 1,987,043
Associates Corp. of North
3,000,000 America .......................... 4.830% 08/23/99 2,978,668
2,000,000 Transamerica Finance Corp. ....... 4.940% 09/01/99 1,982,984
1,000,000 General Electric Capital Corp. ... 4.830% 09/30/99 987,791
1,530,000 General Electric Capital Corp. ... 5.130% 10/04/99 1,509,288
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
New England Zenith Fund
(Back Bay Advisors Money Market Series)
Investments as of June 30, 1999 (Unaudited)
Investments--(Continued)
<TABLE>
<CAPTION>
Face Interest Maturity
Value Description Rate Date Value (a)
<C> <S> <C> <C> <C>
Finance--(Continued)
$ 860,000 General Electric Capital Corp. .. 5.000% 10/07/99 $ 848,293
2,000,000 General Electric Capital Corp. .. 5.200% 10/07/99 1,971,689
------------
52,618,798
------------
Insurance--4.1%
2,235,000 Prudential Funding Corp.......... 4.820% 07/08/99 2,232,904
1,800,000 Prudential Funding Corp.......... 4.980% 07/30/99 1,792,779
2,000,000 Prudential Funding Corp.......... 4.920% 08/02/99 1,991,255
3,000,000 Prudential Funding Corp.......... 4.920% 08/04/99 2,986,060
------------
9,002,998
------------
Leasing--1.0%
International Lease Finance
2,100,000 Corp. ........................... 4.800% 08/11/99 2,088,520
------------
Retail--4.1%
1,640,000 Sears Roebuck Acceptance Corp. .. 4.900% 07/27/99 1,634,195
5,000,000 Sears Roebuck Acceptance Corp. .. 4.960% 07/28/99 4,981,400
2,500,000 Sears Roebuck Acceptance Corp. .. 5.110% 08/26/99 2,480,128
------------
9,095,723
------------
Securities--9.1%
1,500,000 Merrill Lynch & Co. ............. 4.810% 07/06/99 1,498,998
1,000,000 J.P. Morgan & Co., Inc. ......... 4.820% 07/07/99 999,197
355,000 Merrill Lynch & Co. ............. 4.920% 07/14/99 354,369
1,000,000 J.P. Morgan & Co., Inc........... 5.100% 07/15/99 998,017
3,000,000 Goldman Sachs Group, Inc......... 4.810% 09/01/99 2,975,148
1,000,000 Goldman Sachs Group, Inc......... 4.810% 09/02/99 991,583
2,000,000 Goldman Sachs Group, Inc......... 4.840% 09/16/99 1,979,296
3,000,000 Goldman Sachs Group, Inc......... 4.910% 10/01/99 2,962,356
2,000,000 J.P. Morgan & Co., Inc........... 4.820% 10/04/99 1,974,561
5,000,000 J.P. Morgan & Co., Inc........... 4.970% 10/06/99 4,933,043
500,000 J.P. Morgan & Co., Inc........... 5.100% 10/08/99 492,987
------------
20,159,555
------------
Total Commercial Paper (Cost
$175,137,184).................... 175,137,184
------------
Total Investments--100.2% (Cost
$221,630,568)(b)................. 221,630,568
Other assets less liabilities.... (455,462)
------------
Total Net Assets--100%........... $221,175,106
============
</TABLE>
(a) See Note 1A of Notes to Financial Statements.
(b) The aggregate cost for federal income tax purposes was $221,630,568.
See accompanying notes to financial statements.
4
<PAGE>
New England Zenith Fund
(Back Bay Advisors Money Market Series)
Statement of Assets & Liabilities
June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets
Investments at value................................. $221,630,568
Cash................................................. 1,010
Receivable for:
Fund shares sold..................................... 1,447,765
Accrued interest..................................... 1,157,764
------------
Total Assets........................................ 224,237,107
Liabilities
Payable for:
Fund shares redeemed................................. $2,140,365
Dividends declared................................... 786,876
Accrued expenses:
Management fees...................................... 61,419
Deferred trustees fees............................... 34,280
Other expenses....................................... 39,061
----------
Total Liabilities................................... 3,062,001
------------
Net Assets............................................ $221,175,106
============
Net assets consist of:
Capital paid in...................................... $221,175,106
------------
Net Assets............................................ $221,175,106
============
Computation of offering price:
Net asset value and redemption price per share
($221,175,106 divided by 2,211,751 shares of
beneficial interest)................................. $ 100.00
============
Cost of investments................................... $221,630,568
============
</TABLE>
Statement of Operations
Six Months Ended June 30, 1999
(Unaudited)
<TABLE>
<S> <C> <C>
Investment Income
Interest.................................................. $5,237,873
----------
Expenses
Management fees........................................... $363,891
Trustees' fees and expenses............................... 8,636
Custodian................................................. 25,674
Audit and tax services.................................... 4,996
Legal..................................................... 4,035
Printing.................................................. 11,454
Insurance................................................. 1,750
Miscellaneous............................................. 4,435
--------
Total Expenses............................................ 424,871
----------
Net Investment Income...................................... 4,813,002
----------
Net Increase (Decrease) in Net Assets From Operations...... $4,813,002
==========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
New England Zenith Fund
(Back Bay Advisors Money Market Series)
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30,
1998 1999
------------ ------------
<S> <C> <C>
From Operations
Net investment income............................. $ 6,811,539 $ 4,813,002
------------ ------------
Increase (decrease) in net assets from operations. 6,811,539 4,813,002
------------ ------------
From Distributions to Shareholders
Net Investment Income............................. (6,811,539) (4,813,002)
------------ ------------
Total distributions............................... (6,811,539) (4,813,002)
------------ ------------
From Capital Share Transactions
Proceeds from sale of shares...................... 490,854,641 262,288,157
Reinvestment of distributions..................... 6,569,907 3,913,372
Cost of shares redeemed........................... (404,836,059) (248,623,437)
------------ ------------
Increase (decrease) in net assets from capital
share transactions............................... 92,588,489 17,578,092
------------ ------------
Total increase (decrease) in net assets........... 92,588,489 17,578,092
Net Assets
Beginning of the period........................... 111,008,525 203,597,014
------------ ------------
End of the period................................. $203,597,014 $221,175,106
============ ============
Number of shares of the Fund:
Issued from the sale of shares.................... 4,908,547 2,622,882
Issued in reinvestment of distributions........... 65,699 39,133
Redeemed.......................................... (4,048,361) (2,486,234)
------------ ------------
Net Change........................................ 925,885 175,781
============ ============
</TABLE>
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended
---------------------------------------------- June 30,
1994 1995 1996 1997 1998 1999
------- ------- -------- -------- -------- ----------
<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.. 3.89 5.50 4.99 5.08 5.13 2.30
------- ------- -------- -------- -------- --------
Total From Investment
Operations............ 3.89 5.50 4.99 5.08 5.13 2.30
------- ------- -------- -------- -------- --------
Less Distributions
Distributions From Net
Investment Income..... (3.89) (5.50) (4.99) (5.08) (5.13) (2.30)
------- ------- -------- -------- -------- --------
Total Distributions.... (3.89) (5.50) (4.99) (5.08) (5.13) (2.30)
------- ------- -------- -------- -------- --------
Net Asset Value, End of
Period................. $100.00 $100.00 $ 100.00 $ 100.00 $ 100.00 $ 100.00
======= ======= ======== ======== ======== ========
Total Return (%)........ 4.0 5.6 5.1 5.3 5.3 2.3(a)
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.40 0.50 0.50 0.45 0.45 0.41(b)
Ratio of Net Investment
Income to Average Net
Assets (%)............. 3.89 5.50 4.99 5.21 5.15 4.60(b)
Net Assets, End of
Period (000)........... $73,960 $90,148 $116,999 $111,009 $203,597 $221,175
The Ratios of operating
expenses to average net
assets without giving
effect to the voluntary
expense agreement
described in Note 4 to
the Financial
Statements would have
been (%)............... -- 0.51 0.50 -- -- --
</TABLE>
(a) Not computed on an annualized basis.
(b) Computed on an annualized basis.
See accompanying notes to financial statements.
6
<PAGE>
Back Bay Advisors Bond Income Series
Portfolio Manager: Catherine L. Bunting
Back Bay Advisors, L.P.
[PHOTO OF CATHERINE L. BUNTING APPEARS HERE]
Q. How did this series perform during the past six months relative to its index
and relative to its peers?
A. The Back Bay Bond Income Series posted a -1.8% return for the first six
months of 1999, compared with a -2.2% return for the Lipper Variable Products
A-Rated Corporate Bond Fund Average/6/ and a -0.6% return for Lehman Brothers
Intermediate Government/Corporate Bond Index/5/. The Series ranked 12th out of
32 funds in its peer group.
Q. Briefly discuss the investment and market environment during the past six
months.
A. The first half of 1999 was a challenging time in fixed income markets. At
the beginning of the year, conditions in the bond market had improved consider-
ably from late 1998. We had overcome problems associated with the well-publi-
cized near collapse of certain hedge funds, global liquidity improved, Asia
started to show signs of recovery, and inflation remained under control. By
May, however, continued signs of recovery in emerging markets and the persis-
tent strength of the U.S. economy shifted the Federal Reserve's concerns from
potential instability in capital markets to increasing inflationary pressures.
Expecting a potential Fed move, fixed income markets drove up interest rates,
effectively pricing in 0.75% of tightening by the end of the year. On June 30,
the Fed confirmed initial market expectations by raising the Fed Funds rate by
0.25%, though on a positive note, changed its bias to "neutral." The corporate
bond market also started the year strong, but struggled in May and June due to
record supply from corporate issuers attempting to boost liquidity ahead of po-
tential Year 2000 problems.
Q. Given this investment environment, what was your investment strategy? What
changes did you make since the start of the year?
A: In anticipation of a rising interest rate environment, we reduced portfolio
duration from 1.5 years longer than the Lehman Aggregate Index to only 1.0 year
longer. Corporate bonds continued to offer value and we maintained a seventy-
four percent (74%) weighting in the corporate sector. Within corporates, the
fund remained overweight in sectors with strong fundamentals, such as telecom-
munications and cable and media. Our expectations of a continued global eco-
nomic recovery led us to increase the fund's exposure to cyclical industries--
particularly the oil and chemical sectors--and to add select Yankee bonds.
Q. What were the principal factors affecting your performance (on both an
absolute and relative basis) during the past six months? What investment
decisions were most effective and which ones were least effective?
A. Rising interest rates and the relatively long duration of the Series nega-
tively affected performance. Positive factors included: 1) an overweight posi-
tion in corporates, which despite record new issuance generated 1.0% of excess
returns over similar duration U.S. Treasuries; 2) a shift into cyclical indus-
tries, which outperformed corporate averages; 3) a full allocation to high
yield bonds and a greater weighting in Yankees--two sectors that benefited from
the continued global economic recovery and generated 4.6% and 1.5% of excess
returns respectively; and 4) the Series' position in Canadian Government bonds,
which returned 3.6% compared with a -2.5% return in U.S. Treasuries.
Q. What is your outlook for the market and your portfolio for the next six
months? What changes, if any, will you make to the way you manage your
portfolio?
A. Our economic outlook calls for moderating growth with steady inflation. We
believe the bond market has correctly priced in an additional 0.25% of Fed
tightening and therefore interest rates should stay close to current ranges. We
plan to keep duration 0.5 to 1.0 year longer than the Lehman Aggregate Index.
We remain constructive on corporate bonds over the remainder of 1999. These se-
curities are cheap by historical standards, corporate earnings should be
strong, and supply is expected to trail-off as companies complete their financ-
ing by the third quarter, ahead of Year 2000 concerns at the close of the year.
7
<PAGE>
A $10,000 investment compared to the Lehman Brothers Intermediate
Government Corporate Bond Index
[CHART APPEARS HERE]
Bond Income Lehman Int/Gov't/corp
6/30/89 10,000 10,000
Jun-90 10,690 10,783
Jun-91 11,783 11,918
Jun-92 13,672 13,487
Jun-93 15,642 14,903
Jun-94 15,438 14,864
Jun-95 17,698 16,404
Jun-96 18,657 17,224
Jun-97 20,611 18,468
Jun-98 22,949 20,046
6/30/99 23,554 20,885
Average Annual Total Return
Lipper Variable
Lehman Intermediate A-Rated Corp.
Bond Income Government Corp. Bond Avg.
6 months -1.8% -0.6% -2.2%
1 year 2.7 4.2 1.8
3 years 8.1 6.6 6.7
5 years 8.8 7.0 7.3
10 years 8.9 7.6 7.8
Since Inception 9.8 9.1 n/a
.. Fund Facts Back Bay Advisors Bond Income Series
Goal: A high level of current income consistent with the protection of capital.
Start date: August 26, 1983
Size: $283 million as of June 30, 1999
Manager: Catherine Bunting has managed the Series since 1989. She has also
served 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.
8
<PAGE>
New England Zenith Fund
(Back Bay Advisors Bond Income Series)
Investments as of June 30, 1999 (Unaudited)
Bonds & Notes--97.9% of Total Net Assets
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
Building Materials--0.5%
$ 1,500,000 Cemex SA
9.250%, 6/17/02 144A.............................. $ 1,526,250
-----------
Business Services--1.0%
3,000,000 Equifax, Inc., 6.900%, 7/1/28...................... 2,818,530
-----------
Chemicals--1.3%
250,000 Rohm & Haas Co.,
6.950%, 7/15/04 144A.............................. 251,130
4,000,000 Rohm & Haas Co.,
7.400%, 7/15/09 144A.............................. 3,499,160
-----------
3,750,290
-----------
Electric Utilities--9.2%
5,800,000 Arizona Public Service Corp,
8.000%, 12/30/15.................................. 6,118,826
1,000,000 BVPS II Funding Corp.,
8.680%, 6/1/17.................................... 1,075,950
6,500,000 BVPS II Funding Corp.,
8.890%, 6/1/17.................................... 7,142,980
3,000,000 CalEnergy, Inc., 9.500%, 9/15/06................... 3,341,250
2,843,000 EIP Funding Corp.,
10.250%, 10/1/12.................................. 3,263,508
4,950,000 Endesa SA,
8.500%, 4/1/09 144A............................... 4,881,591
-----------
25,824,105
-----------
Federal Agencies--3.5%
10,678 Federal Home Loan Mortgage
9.000%, 5/1/01.................................... 10,691
4,528 Federal Home Loan Mortgage
9.000%, 9/1/01.................................... 4,604
102,335 Government National Mortgage Association 9.000%,
10/15/16.......................................... 108,986
914,896 Government National Mortgage Association, 8.500%
with various maturities to 2022................... 961,255
2,331,686 Government National Mortgage Association 7.500%,
7/15/23........................................... 2,357,172
3,209,080 Government National Mortgage Association 7.000%,
2/15/24........................................... 3,175,994
1,880,903 Government National Mortgage Association 7.000%,
9/15/25........................................... 1,857,975
1,410,529 Government National Mortgage Association 7.500%,
10/15/25.......................................... 1,424,181
-----------
9,900,858
-----------
</TABLE>
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
Finance & Banking--18.1%
$ 7,180,000 American General Financing Corp. 8.450%, 10/15/09... $ 7,888,307
3,360,000 Associates Corp of North America 8.550%, 7/15/09.... 3,710,213
2,500,000 Associates Corp of North America 7.950%, 2/15/10.... 2,660,050
2,500,000 Bank of America Corp.,
6.625%, 6/15/04.................................... 2,477,625
6,000,000 Bank of America Corp.,
5.875%, 2/15/09.................................... 5,529,120
3,645,000 BB&T Corp., 6.375%, 6/30/05......................... 3,524,788
2,500,000 BB&T Corp., 7.250%, 6/15/07......................... 2,528,350
7,450,000 Merita Bankk, Ltd.
7.500%, 12/29/49 144A.............................. 7,227,856
4,800,000 NCNB Corp., 9.375%, 9/15/09......................... 5,596,944
8,000,000 PDVSA Finance, Ltd.,
8.750%, 2/15/04 144A............................... 7,989,760
1,800,000 Pitney Bowes Credit Corp.,
8.550%, 9/15/09.................................... 2,038,536
-----------
51,171,549
-----------
Foreign--6.0%
15,000,000 Government of Canada
7.500%, 12/1/03 (CAD).............................. 10,968,081
3,600,000 Government of Canada
7.250%, 6/1/07 (CAD)............................... 2,703,973
4,500,000 Province of British Columbia
7.750%, 6/16/03 (CAD).............................. 3,263,715
-----------
16,935,769
-----------
Media & Entertainment--9.2%
6,100,000 Continental Cablevision, Inc.,
9.500%, 8/1/13..................................... 7,057,151
2,000,000 CSC Holdings, Inc.,
7.875%, 12/15/07................................... 2,017,580
2,000,000 CSC Holdings, Inc.,
7.625%, 7/15/18.................................... 1,901,120
1,800,000 News America Holdings, Inc.,
7.750%, 2/1/24..................................... 1,766,934
6,000,000 TCI Communications, Inc.,
8.750%, 8/1/15..................................... 6,882,840
500,000 Tele-Communications, Inc.,
9.800%, 2/1/12..................................... 614,295
2,935,000 Tele-Communications, Inc.,
9.250%, 1/15/23.................................... 3,240,798
400,000 Tele-Communications, Inc.,
8.750%, 2/15/23.................................... 413,052
2,150,000 USA Networks, Inc.,
6.750%, 11/15/05................................... 2,083,027
-----------
25,976,797
-----------
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
New England Zenith Fund
(Back Bay Advisors Bond Income Series)
Investments as of June 30, 1999 (Unaudited)
Bonds & Notes--(Continued)
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
Oil & Gas--2.8%
$ 600,000 Gulf Canada Resources, Ltd.,
8.350%, 8/1/06.................................... $ 595,854
4,000,000 Occidental Petroleum Corp.
7.650%, 2/15/06................................... 4,042,760
2,400,000 Pioneer Natural Resources Co.,
6.500%, 1/15/08................................... 2,063,352
500,000 Union Pacific Resources Group, Inc., 7.300%,
4/15/09........................................... 483,695
700,000 Union Pacific Resources Group, Inc., 7.950%,
4/15/29........................................... 680,470
-----------
7,866,131
-----------
Paper--0.8%
1,500,000 Abitibi-Consolidated, Inc.
6.950%, 4/1/08.................................... 1,426,425
1,000,000 Pope and Talbot, Inc.,
8.375%, 6/1/13.................................... 882,590
-----------
2,309,015
-----------
Telecommunications--11.8%
4,300,000 AT & T Corp., 8.350%, 1/15/25...................... 4,589,949
5,000,000 AT & T Corp., 8.625%, 12/1/31...................... 5,334,850
1,000,000 Global Crossings Holdings, Ltd.,
9.625%, 5/15/08................................... 1,065,000
1,000,000 GTE Corp., 9.100%, 6/1/03.......................... 1,085,390
1,200,000 GTE Corp., 7.510%, 4/1/09.......................... 1,248,504
4,800,000 GTE Corp., 7.900%, 2/1/27.......................... 4,908,720
4,500,000 LCI International, Inc. 7.250%, 6/15/07............ 4,412,295
3,000,000 McLeodUSA, Inc.
8.125%, 2/15/09 144A.............................. 2,820,000
1,900,000 Nextlink Communications, Inc.,
10.750%, 6/1/09................................... 1,952,250
2,500,000 Orange, Plc.,
8.750%, 6/1/06 144A............................... 2,506,250
1,186,000 Qwest Communications International, Inc., 10.875%,
4/1/07............................................ 1,355,005
2,000,000 Qwest Communications International, Inc., 7.500%,
11/1/08........................................... 1,989,120
-----------
33,267,333
-----------
U.S. Government--14.5%
2,500,000 U.S. Treasury Notes
8.000%, 5/15/01................................... 2,609,500
10,000,000 U.S. Treasury Notes
6.625%, 3/31/02................................... 10,236,200
6,000,000 U.S. Treasury Notes
5.750%, 4/30/03................................... 5,995,380
3,000,000 U.S. Treasury Notes
5.750%, 8/15/03................................... 2,994,330
</TABLE>
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
U.S. Government--(Continued)
$ 7,000,000 U.S. Treasury Notes
4.250%, 11/15/03................................. $ 6,593,580
11,300,000 U.S. Treasury Notes
4.750%, 11/15/08................................. 10,373,852
2,400,000 U.S. Treasury Bonds
5.500%, 8/15/28.................................. 2,197,488
------------
41,000,330
------------
Yankee--19.2%
1,000,000 Bridas Corp., 12.500%, 6/10/03.................... 1,050,000
5,600,000 Freeport Terminal Malta, Plc.,
7.250%, 5/15/28 144A............................. 5,122,936
9,500,000 Hydro Quebec, 8.050%, 7/7/24...................... 10,290,400
2,500,000 Malaysia 8.750%, 6/1/09........................... 2,540,525
3,000,000 Multicanal SA, 9.250%, 2/1/02..................... 2,640,000
3,700,000 Multicanal SA,
13.125%, 4/15/09 144A............................ 3,413,250
615,000 Multicanal SA, 10.500%, 4/15/18................... 485,850
1,000,000 Pemex Finance, Ltd.,
5.720%, 11/15/03 144A............................ 978,570
2,000,000 Pemex Finance, Ltd.,
8.020%, 5/15/07 144A............................. 1,880,000
5,200,000 Pemex Petroleos Mexicanos,
8.625%, 12/1/23 144A............................. 3,939,000
500,000 Pemex Petroleos Mexicanos,
8.625%, 12/1/23.................................. 378,750
1,000,000 Pemex Petroleos Mexicanos,
9.500%, 9/15/27.................................. 942,500
1,000,000 Republic of Colombia
7.250%, 2/23/04.................................. 842,500
3,000,000 Republic of Colombia
7.625%, 2/15/07.................................. 2,265,000
2,000,000 Republic of Colombia
8.660%, 10/7/16 144A............................. 1,650,000
4,000,000 Republic of Colombia
8.375%, 2/15/27.................................. 2,830,000
5,100,000 Smurfit Capital Funding, Plc.,
6.750%, 11/20/05................................. 4,991,370
1,955,470 Transgas de Occidente SA,
9.790%, 11/1/10.................................. 1,679,260
2,400,000 YPF Sociedad Anonima,
7.250%, 3/15/03.................................. 2,323,776
3,050,000 YPF Sociedad Anonima,
7.750%, 8/27/07.................................. 2,920,466
1,000,000 YPF Sociedad Anonima,
8.000%, 2/15/04.................................. 985,950
------------
54,150,103
------------
Total Bonds & Notes (Identified Cost
$284,522,837).................................... 276,497,060
------------
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
New England Zenith Fund
(Back Bay Advisors Bond Income Series)
Investments as of June 30, 1999 (Unaudited)
Short Term Investment--1.8%
<TABLE>
<CAPTION>
Face
Amount Value(a)
<C> <S> <C>
$5,050,000 Household Finance Corp., 5.500%, 7/1/99........... $ 5,050,000
------------
Total Short-Term Investment (Identified Cost
$5,050,000)...................................... 5,050,000
------------
Total Investments--99.7% (Identified Cost
$289,572,837)(b)................................. 281,547,060
Other assets less liabilities..................... 968,599
------------
Total Net Assets--100%............................ $282,515,659
============
</TABLE>
(a) See Note 1A of Notes to Financial Statements.
(b) Federal Tax Information: At June 30, 1999 the net unrealized depreciation
on investments based on cost of $289,572,837 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.......... $ 1,826,576
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value.......... (9,852,353)
------------
Net unrealized depreciation................................. $ (8,025,777)
============
Key to Abbreviations:
CAD--Canadian Dollar
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 $47,685,753 or 16.9% of
net assets.
See accompanying notes to financial statements.
11
<PAGE>
New England Zenith Fund
(Back Bay Advisors Bond Income Series)
Statement of Assets & Liabilities
June 30, 1999 (unaudited)
<TABLE>
<S> <C> <C>
Assets
Investments at value................................. $281,547,060
Cash................................................. 1,129
Receivable for:
Fund shares sold..................................... 351,765
Accrued interest..................................... 4,935,601
------------
Total Assets......................................... 286,835,555
Liabilities
Payable for:
Fund shares redeemed................................. $ 377,239
Securities purchased................................. 3,750,290
Accrued expenses:
Management fees...................................... 91,851
Deferred trustees fees............................... 42,689
Other expenses....................................... 57,827
----------
Total Liabilities.................................... 4,319,896
------------
Net Assets $282,515,659
============
Net assets consist of:
Capital paid in...................................... $280,431,101
Undistributed net investment income.................. 9,566,439
Accumulated net realized gains (losses).............. 544,187
Unrealized appreciation (depreciation) on investments
and foreign currency................................ (8,026,068)
------------
Net Assets $282,515,659
============
Computation of offering price:
Net asset value and redemption price per share
($282,515,659 divided by 2,618,418 shares of
beneficial interest)................................ $ 107.90
------------
Identified cost of investments....................... $289,572,837
============
</TABLE>
Statement of Operations
Six Months Ended June 30, 1999
(unaudited)
<TABLE>
<S> <C> <C>
Investment Income
Interest........................................... $10,109,930
-----------
Expenses
Management fees.................................... $ 550,557
Trustees' fees and expenses........................ 10,056
Custodian.......................................... 47,269
Audit and tax services............................. 7,316
Legal.............................................. 8,892
Printing........................................... 39,963
Insurance.......................................... 1,841
Miscellaneous...................................... 393
-----------
Total Expenses..................................... 666,287
-----------
Net Investment Income............................... 9,443,643
-----------
Realized and Unrealized Gain (Loss)
Realized gain (loss) on:
Investments--net................................... 25,259
Foreign currency transactions--net................. 90,747 116,006
-----------
Unrealized appreciation (depreciation)
Investments--net................................... (14,728,221)
Foreign currency transactions--net................. (291) (14,728,512)
----------- -----------
Net gain (loss)..................................... (14,612,506)
-----------
Net Increase (Decrease) in Net Assets From
Operations......................................... ($5,168,863)
===========
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
New England Zenith Fund
(Back Bay Advisors Bond Income Series)
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six months
Year ended ended
December 31, June 30,
1998 1999
------------ ------------
<S> <C> <C>
From Operations
Net investment income............................. $ 15,272,855 $ 9,443,643
Net realized gain (loss).......................... 3,843,514 116,006
Unrealized appreciation (depreciation)............ 978,516 (14,728,512)
------------ ------------
Increase (decrease) in net assets from operations. 20,094,885 (5,168,863)
------------ ------------
From Distributions to Shareholders
Net Investment Income............................. (14,982,245) 0
Net realized gain................................. (3,901,599) 0
------------ ------------
Total distributions............................... (18,883,844) 0
------------ ------------
From Capital Share Transactions
Proceeds from sale of shares...................... 107,261,482 66,221,065
Reinvestment of distributions..................... 18,883,844 0
Cost of shares redeemed........................... (62,453,829) (46,327,064)
------------ ------------
Increase (decrease) in net assets from capital
share transactions............................... 63,691,497 19,894,001
------------ ------------
Total increase (decrease) in net assets........... 64,902,538 14,725,138
Net Assets
Beginning of the period........................... 202,887,983 267,790,521
------------ ------------
End of the period................................. $267,790,521 $282,515,659
============ ============
Undistributed (overdistributed) Net Investment
Income
End of the period................................. $ 122,796 $ 9,566,439
============ ============
Number of shares of the Fund:
Issued from the sale of shares.................... 947,129 604,106
Issued in reinvestment of distributions........... 172,542 0
Redeemed.......................................... (552,385) (422,624)
------------ ------------
Net Change........................................ 567,286 181,482
============ ============
</TABLE>
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended
------------------------------------------------ June 30,
1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 106.14 $ 95.53 $ 108.67 $ 105.63 $ 108.52 $ 109.89
-------- -------- -------- -------- -------- --------
Income From Investment
Operations
Net Investment Income.. 7.05 7.34 7.72 7.43 6.76 3.60
Net Realized and
Unrealized Gain (Loss)
on Investments........ (10.61) 12.85 (2.70) 4.05 3.00 (5.59)
-------- -------- -------- -------- -------- --------
Total From Investment
operations............ (3.56) 20.19 5.02 11.48 9.76 (1.99)
-------- -------- -------- -------- -------- --------
Less Distributions
Distributions From Net
Investment Income..... (7.05) (7.05) (7.74) (7.51) (6.64) 0.00
Distributions From Net
Realized Capital
Gains................. 0.00 0.00 (0.32) (1.08) (1.75) 0.00
-------- -------- -------- -------- -------- --------
Total Distributions.... (7.05) (7.05) (8.06) (8.59) (8.39) 0.00
-------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period................. $ 95.53 $ 108.67 $ 105.63 $ 108.52 $ 109.89 $ 107.90
======== ======== ======== ======== ======== ========
Total Return (%)........ (3.4) 21.2 4.6 10.9 9.0 (1.8)(a)
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.44 0.55 0.52 0.52 0.48 0.48 (b)
Ratio of Net Investment
Income to Average Net
Assets (%)............. 6.75 7.22 7.22 6.97 6.66 6.86 (b)
Portfolio Turnover Rate
(%).................... 82 73 98 40 82 100 (b)
Net Assets, End of
Period (000)........... $126,234 $167,712 $180,359 $202,888 $267,791 $282,516
</TABLE>
(a) Not computed on an annualized basis.
(b) Computed on an annualized basis.
See accompanying notes to financial statements.
13
<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 APPEARS HERE]
[PHOTO OF PETER WILBY APPEARS HERE]
[PHOTO OF DAVID SCOTT APPEARS HERE]
Q. How did the Series perform during the past six months relative to its index
and relative to its peers?
A. The Salomon Brothers Strategic Bond Opportunities Series returned -0.3% for
the six-month period ended June 30, 1999 versus the Lehman Brothers Aggregate
Bond Index/2/ return of -1.4%. The Lipper Variable Products General Bond Fund
Average/9/ returned -0.5% for the six-month period.
Q. Briefly discuss the investment and market environment during the past six
months?
A. Financial markets began the new year under the shadow of the 1998 meltdown.
Caution prevailed among fixed income investors who remained overweighted in
high quality bonds such as Treasuries. Investor fears proved to be well founded
as by mid-January Brazil devalued its currency and saw its interest rates rise
sharply. Rather than Brazil serving as the catalyst for another vicious round
of contagion, financial markets seemed to shrug it off. In effect, the episode
became a bottoming event that boosted the confidence of market participants.
This change in investor sentiment eliminated the "insurance" value of U.S.
Treasuries and lead to a virulent rise in interest rates during February.
Strong domestic economic growth heightened the obstinate fears about the pros-
pect for higher inflation. The Federal Reserve tempered some of those concerns
when it increased its short-term lending rate at the conclusion of its mid year
Federal Open Market Committee meeting. The Federal Funds rate now stands at
5.00%. U.S. economic growth will likely remain steady as low unemployment and
high consumer confidence will nourish the demand for goods. A rise in the rate
of inflation, however, will likely remain benign during the second half of the
year.
Q. What were the principal factors affecting your performance (on both an
absolute and relative basis) during the past six months?
A. The Series' outperformance relative to the index can be attributed to its
overweight stance in the high yield and emerging markets debt sectors, which
had a stellar six months.
Q. What is your outlook for the market and for your portfolio for the next six
months?
A. In general, we would expect continued volatility going forward, though we
don't necessarily expect a major correction. The Federal Reserve has engineered
a nice balance of strong economic growth, low inflation and favorable interest
rates. Those factors, coupled with strong expected quarterly earnings, should
provide for a favorable performance for the Series.
14
<PAGE>
A $10,000 investment compared to the Lehman Brothers Aggregate Bond Index
since the Series' inception
[CHART APPEARS HERE]
Strategic Bond Opp. Series Lehman Aggregate Bond
10/31/94 10,000 10,000
6/30/95 11,075 11,197
6/30/96 12,422 11,758
6/30/97 14,145 12,715
6/30/98 15,375 14,055
6/30/99 15,220 14,497
Average Annual Return
Lipper Variable
Strategic Bond Lehman General Bond
Opp. Series Aggregate Bond Fund Average
6 months -0.3% -1.4% -0.5%
1 year -1.0 3.2 0.7
3 years 7.1 7.2 6.5
Since Inception 9.4 8.3 n/a
.. Fund Facts
Goal: A high level of total return consistent with the preservation of capital.
Start date: October 31, 1994
Size: $96 million as of June 30, 1999
Managers: Peter Wilby and David Scott have co-managed the Series since its
inception in October 1994. Mr. Lavan began co-managing the Series in June 1998.
Mr. Wilby and Mr. Scott have also managed the Salomon Brothers Investment
Series--Strategic Bond Fund since March 1995 and the North American Strategic
Income Fund since March 1995. Mr. Wilby has also managed the Salomon Brothers
Investment Series--High Yield Bond Fund since March 1995. Mr. Lavan has also
managed the Salomon Brothers Investment Series--U.S. Government Income Fund and
North American U.S. Government Securities Fund since January 1992 and the
Salomon Brothers U.S. Government Series since 1994. He joined Salomon Brothers
in 1990.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts. If these charges were included, the returns shown would
be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
15
<PAGE>
New England Zenith Fund
(Salomon Brothers Strategic Bond Opportunities Series)
Investments as of June 30, 1999 (Unaudited)
Bonds & Notes--86.7% of Total Net Assets
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
Apparel & Textiles--0.5%
$ 250,000 Collins & Aikman Floorcovering 10.000%, 1/15/07.... $ 252,500
250,000 Synthetic Industries, Inc.
9.250%, 2/15/07................................... 257,500
-----------
510,000
-----------
Automotive--1.0%
250,000 Breed Technologies, Inc. 144A,
9.250%, 4/15/08(d)................................ 37,500
250,000 Foamex L.P./Foamex Capital Corp. 9.875%, 6/15/07... 213,750
250,000 Hayes Lemmerz International, Inc. 144A, 8.250%,
12/15/08(d)....................................... 236,250
250,000 Key Plastics, Inc. Series B
10.250%, 3/15/07.................................. 245,000
250,000 Lear Corp. 144A 8.110%, 5/15/09(d)................. 241,135
-----------
973,635
-----------
Banks--2.2%
450,000 Bangkok Sentral NG
8.600%, 6/15/27................................... 380,925
325,000 Bankamerica Corp. 5.750%, 3/01/04.................. 311,652
1,250,000 Commerzbank Overseas Finance N.V. 10.250%, 4/28/00
(AUD)............................................. 856,855
600,000 U.S. Bank NA 5.700%, 12/15/08...................... 549,840
-----------
2,099,272
-----------
Biotechnology--0.2%
250,000 Monsanto Co. 144A
5.875%, 12/01/08(e)(d)............................ 232,795
-----------
Cable & Other Media--3.1%
250,000 Adelphia Communications Corp. Series B 10.500%,
7/15/04........................................... 268,125
500,000 Avalon Cable 144A,
0/11.125%, 12/01/08(c)(d)......................... 335,000
250,000 Capstar Broadcasting
9.250%, 7/01/07................................... 258,750
125,000 Century Communications Corp.
Zero Coupon, 1/15/08.............................. 56,250
500,000 Charter Communications Holdings Corp.144A 0/9.920%,
4/01/11(c)(d)..................................... 311,250
150,000 CSC Holdings, Inc.
10.500%, 5/15/16.................................. 169,500
150,000 Diamond Cable Communications 0/11.750%,
12/15/05(c)....................................... 132,750
</TABLE>
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
Cable & Other Media--(Continued)
$ 250,000 Falcon Holdings Group LP Series B, 8.375%, 4/15/10. $ 247,500
200,000 Jacor Communications Co.
9.750%, 12/15/06.................................. 216,500
500,000 LIN Holdings Corp.
0/10.000%, 3/01/08(c)............................. 326,250
375,000 Mediacom LLC/Mediacom Capital Corp. 8.500%,
4/15/08........................................... 360,000
99,000 SFX Broadcasting, Inc.
10.750%, 5/15/06.................................. 109,271
250,000 Telewest Communication Plc. 0/11.000%, 10/01/07(c). 223,750
-----------
3,014,896
-----------
Capital Goods/
Building Products--2.7%
225,000 Alvey Systems, Inc. 11.375% 1/31/03................ 226,688
250,000 Cabot Safety Corp.
12.500%, 7/15/05.................................. 271,250
250,000 High Voltage Engineering Corp. 10.500%, 8/15/04.... 233,750
250,000 International Knife & Saw, Inc.
11.375%, 11/15/06................................. 246,875
250,000 Jordan Industries, Inc. Series B 0/11.750%,
4/01/09(c)........................................ 162,188
250,000 Motors & Gears, Inc. Series D,
10.750%, 11/15/06................................. 254,375
250,000 Neenah Corp. Series D,
11.125%, 5/01/07.................................. 247,812
250,000 Packard Biosciences Co. Series B, 9.375%, 3/01/07.. 236,250
250,000 Panolam Industries International 144A, 11.500%,
2/15/09(d)........................................ 257,500
500,000 Praxair, Inc. 6.150%, 4/15/03...................... 492,200
-----------
2,628,888
-----------
Consumer Products--2.8%
250,000 American Safety Razor Series B
9.875%, 8/01/05................................... 252,500
250,000 Anchor Advanced Products, Inc. 11.750%, 4/01/04.... 256,250
300,000 Ekco Group, Inc. Series B
9.250%, 4/01/06................................... 302,625
250,000 French Fragrances, Inc.
10.375%, 5/15/07.................................. 254,063
97,000 Hines Horticulture, Inc.
11.750%, 10/15/05................................. 103,548
250,000 Indesco International, Inc.
9.750%, 4/15/08................................... 165,000
250,000 North Atlantic Trading, Inc. Series B 11.000%,
6/15/04........................................... 251,875
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
New England Zenith Fund
(Salomon Brothers Strategic Bond Opportunities Series)
Investments as of June 30, 1999 (Unaudited)
Bonds & Notes--(Continued)
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
Consumer Products--(Continued)
$ 100,000 Pierce Leahy Command Co.
8.125%, 5/15/08................................... $ 95,000
105,000 Purina Mills, Inc. 9.000% 3/15/10.................. 82,950
300,000 Revlon Worldwide Series B,
Zero Coupon, 3/15/01.............................. 204,750
150,000 Shop Vac Corp. 10.625%, 9/01/03.................... 165,563
250,000 Simmons Co. 144A,
10.250%, 3/15/09(d)............................... 255,000
375,000 United Industries Corp. 144A,
9.875%, 4/01/09(d)................................ 356,250
-----------
2,745,374
-----------
Containers/Packaging--0.7%
250,000 Huntsman Corp 144A
9.500%, 7/01/07(d)................................ 240,000
250,000 Huntsman Packaging Corp.
9.125%, 10/01/07.................................. 247,500
200,000 Radnor Holdings Corp.
10.000%, 12/01/03................................. 201,500
-----------
689,000
-----------
Defense & Aerospace--0.6%
125,000 L-3 Communications Corp. Series B 8.000%, 8/01/08.. 125,156
250,000 Raytheon Co. 6.150%, 11/01/08...................... 235,928
250,000 Stellex Industries, Inc.
9.500%, 11/01/07.................................. 227,187
-----------
588,271
-----------
Electronics--0.8%
250,000 Amphenol Corp. 9.875%, 5/15/07..................... 255,938
250,000 Jordan Telecommunication Products 9.875%, 8/01/07.. 245,312
250,000 Micron Technology, Inc.
7.000%, 7/01/04................................... 252,500
-----------
753,750
-----------
Energy--1.3%
250,000 Bellwether Exploration Co.
10.875%, 4/01/07.................................. 236,250
150,000 Benton Oil & Gas Co.
11.625%, 5/01/03.................................. 108,000
250,000 Frontier Oil Corp. 9.125%, 2/15/06................. 238,125
350,000 PennzEnergy Co. 10.250%, 11/1/05................... 378,602
250,000 Transamerican Energy Corp. Series B, 0/13.000%,
6/15/02(c)(h)..................................... 30,000
250,000 Transamerican Energy Corp. Series B, 11.500%,
6/15/02(h)........................................ 32,500
250,000 United Refining Co. Series B,
10.750%, 6/15/07.................................. 183,125
-----------
1,206,602
-----------
</TABLE>
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
Finance--2.1%
$ 270,000 Ford Motor Credit Co.
5.800%, 1/12/09................................... $ 247,406
370,000 General Electric Capital Corp.
5.875%, 7/7/00 (AUD).............................. 245,909
620,000 KFW International Finance
16.300%, 6/24/03 (PLN)............................ 185,732
310,000 Merrill Lynch & Co., Inc.
6.000%, 11/15/04.................................. 302,641
450,000 PaineWebber Group, Inc.
7.750%, 9/01/02................................... 461,988
550,000 TPSA Finance BV 144A,
7.750%, 12/10/08(d)............................... 542,745
-----------
1,986,421
-----------
Financial/Leasing--1.1%
250,000 Airplanes Pass Through Trust
10.875%, 3/15/19.................................. 249,825
250,000 ContiFinancial Corp.
8.125%, 4/01/08................................... 207,500
250,000 Navistar International Corp. Series B, 8.000%,
2/01/08........................................... 259,375
100,000 United States Leasing International Capital Corp.
8.450%, 1/25/05................................... 106,618
250,000 Williams Scotsman, Inc.
9.875%, 6/01/07................................... 242,188
-----------
1,065,506
-----------
Food & Beverages--1.1%
250,000 CFP Holdings, Inc. Series B
11.625%, 1/15/04.................................. 217,500
250,000 Delta Beverage Group, Inc.
9.750%, 12/15/03.................................. 258,125
200,000 Dole Foods, Inc. 6.750%, 7/15/00................... 200,562
250,000 Imperial Holly Corp.
9.750%, 12/15/07.................................. 247,500
350,000 NEBCO Evans Holdings Co. 0/12.375%, 7/15/07(c)..... 132,563
-----------
1,056,250
-----------
Foreign--2.1%
990,000 Algeria Tranche 6.375%, 3/04/10.................... 561,825
700,000 European Bank For Reconstruction
& Development
10.500%, 1/25/01 (PLN)............................ 175,423
400,000 Korea Development Bank
9.600%, 12/01/00.................................. 412,812
690,477 Morocco Loan Tranche
6.062%, 1/01/09................................... 557,560
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
New England Zenith Fund
(Salomon Brothers Strategic Bond Opportunities Series)
Investments as of June 30, 1999 (Unaudited)
Bonds & Notes--(Continued)
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
Foreign--(Continued)
$ 600,000 Nordiska Investeringsbanken
17.750%, 4/15/02 (PLN)............................ $ 174,201
550,000 Sudwest Landes Bank
17.500%, 5/05/03 (PLN)............................ 166,422
-----------
2,048,243
-----------
Foreign Government--22.6%
380,000 Federal Republic of Brazil
5.875%, 4/15/06(e)................................ 294,500
3,586,109 Federal Republic of Brazil
8.000%, 4/15/14(e)................................ 2,205,457
129,000 Federal Republic of Germany
4.000%, 9/17/99 (EUR)............................. 133,332
370,000 Government of Canada
6.000%, 6/01/08 (CAD)............................. 260,068
820,000 Government of Spain
6.000%, 1/31/08 (EUR)............................. 918,432
2,100,000 Ivory Coast 2.000%, 3/29/18(e)..................... 724,500
2,100,000 Kingdom of Sweden
6.500%, 5/05/08 (SEK)............................. 273,007
2,550,000 Ministry Finance of Russia
12.750%, 6/24/28.................................. 1,415,378
950,000 National Republic of Bulgaria
2.500%, 7/28/12(e)................................ 568,127
750,000 National Republic of Bulgaria
5.875%, 7/28/11(e)................................ 508,125
90,000 New South Wales Treasury Corp. 7.375%, 2/21/07
(AUD)............................................. 62,023
4,000,000 Norwegian Treasury Bills
6.500%, 9/15/99 (NOK)............................. 507,696
1,600,000 Republic of Argentina
11.000%, 12/04/05................................. 1,472,000
1,225,000 Republic of Argentina
11.375%, 1/30/17.................................. 1,064,525
775,000 Republic of Columbia
10.875%, 3/09/04.................................. 742,063
911,664 Republic of Croatia
5.8125%, 7/31/06(e)............................... 756,482
1,000,000 Republic of Ecuador
4.000%, 2/28/25(e)................................ 395,000
82,900,000 Republic of Greece
11.000%, 2/25/00 (GRD)............................ 267,983
101,000,000 Republic of Greece
7.600%, 1/22/02 (GRD)............................. 325,212
31,000,000 Republic of Greece
8.700%, 4/08/05 (GRD)............................. 108,959
273,400,000 Republic of Greece
8.900%, 4/01/03 (GRD)............................. 931,474
140,000 Republic of Italy
5.250%, 11/1/29 (EUR)............................. 137,955
</TABLE>
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
Foreign Government--(Continued)
$ 550,000 Republic of Panama
4.000%, 7/17/14(e)................................ $ 402,875
1,900,000 Republic of Peru 4.500%, 3/07/17(e)................ 1,166,220
370,000 Republic of Slovenia
5.375%, 5/27/05 (EUR)............................. 389,806
1,600,000 Republic of Venezuela
13.625%, 8/15/18.................................. 1,440,000
1,142,850 Republic of Venezuela
6.000%, 3/31/07................................... 862,852
404,760 Republic of Venezuela
6.3125%, 12/18/07(e).............................. 307,577
680,000 U.K. Treasury Notes
6.500%, 12/7/03 (GBP)............................. 1,117,404
1,400,000 United Mexican States
6.25%, 12/31/19................................... 1,032,500
1,000,000 United Mexican States
9.875%, 1/15/07................................... 1,003,800
-----------
21,795,332
-----------
Government Agencies--9.3%
121,417 Federal Home Loan Mortgage
10.000%, 05/15/20................................. 131,345
1,762 Federal Home Loan Mortgage 1156.500%, 06/15/21(f).. 49,816
8,451,600 Federal National Mortgage Association 0.542%,
10/17/36(f)....................................... 217,722
3,449,370 Federal National Mortgage Association 0.604%,
03/17/20(f)....................................... 80,881
9,882,917 Federal National Mortgage Association 1.044%,
06/25/38(f)....................................... 568,831
5,010,276 Federal National Mortgage Association 1.642%,
02/25/35(f)....................................... 367,454
55,579 Federal National Mortgage Association 10.400%,
04/25/19.......................................... 58,278
13,086 Federal National Mortgage Association 13.000%,
11/15/15.......................................... 15,318
776,638 Federal National Mortgage Association 6.500%,
03/01/26.......................................... 750,177
6,000,000 Federal National Mortgage Association 7.000%,
04/01/30.......................................... 5,636,220
93,884 Federal National Mortgage Association 7.000%,
05/01/26.......................................... 92,798
166,351 Federal National Mortgage Association 7.000%,
11/18/15.......................................... 167,382
785,861 Federal National Mortgage Association 7.368%,
08/17/03.......................................... 789,857
-----------
8,926,079
-----------
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
New England Zenith Fund
(Salomon Brothers Strategic Bond Opportunities Series)
Investments as of June 30, 1999 (Unaudited)
Bonds & Notes--(Continued)
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
Gaming--1.7%
$ 250,000 Empress Entertainment, Inc.
8.125%, 7/01/06................................... $ 253,125
250,000 Harrah's Operating Co., Inc.
7.875%, 12/15/05.................................. 242,500
250,000 Horseshoe Gaming
9.375%, 6/15/07................................... 253,750
150,000 Mohegan Tribal Gaming
8.750%, 1/01/09................................... 148,500
250,000 Park Place Entertainment Corp. 144A, 7.875%,
12/15/05(d)....................................... 238,125
250,000 Sun International Hotels
8.625%, 12/15/07.................................. 251,250
250,000 Waterford Gaming 144A,
9.500%, 3/15/10(d)................................ 250,000
-----------
1,637,250
-----------
Healthcare--0.8%
200,000 Alaris Medical Systems, Inc.
9.750% 12/01/06................................... 204,250
250,000 Dade International, Inc. Series B, 11.125%,
5/01/06........................................... 270,938
250,000 Maxxim Medical, Inc.
10.500%, 8/01/06.................................. 268,750
-----------
743,938
-----------
Hotel/Lodging--0.6%
350,000 HMH Properties, Inc. Series B,
7.875%, 8/01/08................................... 322,000
250,000 Prime Hospitality Corp.
9.750%, 4/01/07................................... 246,875
-----------
568,875
-----------
Housing Related--0.3%
250,000 CB Richards Ellis Services, Inc.
8.875%, 6/01/06................................... 249,375
-----------
249,375
-----------
Insurance--0.4%
400,000 Aetna Services, Inc.
7.625%, 8/15/26................................... 392,544
-----------
392,544
-----------
Metals/Mining/Steel--0.6%
185,000 Envirosource, Inc. 9.750%, 6/15/03................. 116,550
250,000 Murrin Murrin Holdings Property, Ltd. 9.375%,
8/31/07........................................... 220,625
250,000 P&L Coal Holdings Corp.
9.625%, 5/15/08................................... 252,500
-----------
589,675
-----------
</TABLE>
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
Mortgage--11.7%
$ 1,800,000 Commercial Mortgage Asset Trust 7.350%, 08/17/13... $ 1,751,679
900,000 Contimortgage Home Equity Loan Trust 144A, 7.000%,
12/25/29(d)....................................... 779,836
933,203 Countrywide Mortgage Backed Securities Corp.
7.750%, 06/25/24.................................. 944,288
9,689,378 DLJ Commercial Mortgage Corp. 0.706%, 05/10/23(f).. 417,341
8,943,512 DLJ Commercial Mortgage Corp. 0.851%, 11/12/31(f).. 470,178
246,018 First Union Residential Securitization 7.000%,
08/25/28.......................................... 222,788
992,781 GE Capital Mortgage Services, Inc. 6.750%,
11/25/28.......................................... 931,303
1,621,539 Green Tree Financial Corp.
7.070%, 01/15/29.................................. 1,608,859
1,472,878 Mid State Trust VI
7.340%, 07/01/35.................................. 1,483,924
443,831 PNC Mortgage Securities Corp.
6.735%, 02/25/28.................................. 390,826
346,098 PNC Mortgage Securities Corp.
6.750%, 05/25/28.................................. 306,929
747,390 PNC Mortgage Securities Corp.
6.772%, 03/25/29.................................. 709,133
469,551 PNC Mortgage Securities Corp.
6.838%, 05/25/28.................................. 418,171
647,389 PNC Mortgage Securities Corp.
6.904%, 04/25/29.................................. 583,298
410,714 RG Receivables Co.
9.600%, 2/28/05................................... 234,107
-----------
11,252,660
-----------
Publishing--0.4%
250,000 Big Flower Press Holdings, Inc.
8.625%, 12/01/08.................................. 232,500
125,000 Garden State Newspapers, Inc.
8.750%, 10/01/09.................................. 118,750
-----------
351,250
-----------
Real Estate--0.1%
150,000 Spieker Properties LP
7.250%, 5/1/09.................................... 144,359
-----------
144,359
-----------
Retail--1.9%
400,000 Archibald Candy Corp.
10.250%, 7/01/04.................................. 405,000
250,000 Cole National Group, Inc.
9.875%, 12/31/06.................................. 241,250
250,000 Finlay Fine Jewelry Corp.
8.375%, 5/01/08................................... 245,000
321,000 Guitar Center Management Co., Inc. 11.000%,
7/01/06........................................... 334,643
</TABLE>
See accompanying notes to financial statements.
19
<PAGE>
New England Zenith Fund
(Salomon Brothers Strategic Bond Opportunities Series)
Investments as of June 30, 1999 (Unaudited)
Bonds & Notes--(Continued)
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
Retail--(Continued)
$ 250,000 Musicland Group, Inc. Series B,
9.875%, 3/15/08...................................... $ 252,188
400,000 Staples, Inc. 7.125%, 8/15/07......................... 399,351
-----------
1,877,432
-----------
Retail--Food & Drug--0.4%
250,000 NBTY, Inc. Series B, 8.625%, 9/15/07.................. 221,563
125,000 Pueblo Xtra International
9.500%, 8/01/03...................................... 121,250
-----------
342,813
-----------
Services--3.9%
250,000 Allied Waste North America, Inc. 7.875%, 1/01/09...... 232,188
350,000 Coach USA, Inc. 9.375%, 7/01/07....................... 360,500
350,000 Comdisco, Inc. 6.000%, 1/30/02........................ 345,580
330,000 First Data Corp. 6.375%, 12/15/07..................... 321,704
250,000 Integrated Electric Services, Inc. 144A 9.375%,
2/01/09(d)........................................... 246,250
250,000 Intertek Finance Plc, Series B,
10.250%, 11/01/06.................................... 244,063
250,000 Iron Mountain, Inc.
10.125%, 10/01/06.................................... 265,625
125,000 Iron Mountain, Inc. 8.750%, 9/30/09................... 123,435
250,000 Loomis Fargo & Co.
10.000%, 1/15/04..................................... 247,500
250,000 Marsulex, Inc. 9.625%, 7/01/08........................ 257,188
250,000 Primark Corp. 144A,
9.250%, 12/15/08(d).................................. 245,938
250,000 Protection One Alarm, Inc. 144A, 8.125%, 1/15/09(d)... 237,500
250,000 Safety Kleen Services
9.250%, 6/01/08...................................... 261,250
400,000 Service Corporation International 6.000%, 12/15/05.... 368,960
-----------
3,757,681
-----------
Technology/Electronics--0.1%
200,000 DecisionOne Corp.
9.750%, 8/01/07(g)................................... 6,000
125,000 Unisys Corp. 7.875%, 4/01/08.......................... 125,938
-----------
131,938
-----------
Telecommunications--2.1%
250,000 Centennial Cellular Corp. 144A, 10.750%, 12/15/08(d).. 258,750
200,000 GTE Corp. 6.940%, 4/15/28............................. 191,128
275,000 ICG Holdings, Inc.
0/13.500%, 9/15/05(c)................................ 242,000
</TABLE>
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
Telecommunications--(Continued)
$ 175,000 Intermedia Communications, Inc. 8.600%, 6/01/08....... $ 162,750
350,000 International Cabletel, Inc.
0/11.500%, 2/01/06(c)................................ 297,500
250,000 Metronet Communications Corp. 0/9.950%, 6/15/08(c).... 186,250
200,000 Nextel Communications, Inc.
0/9.750%, 8/15/04(c)................................. 204,000
250,000 Nextel Communications, Inc.
0/9.950%, 2/15/08(c)................................. 173,120
400,000 United International Holdings Series B, 0/10.750%,
2/15/08(c)........................................... 264,000
-----------
1,979,498
-----------
Transportation--1.0%
250,000 Atlantic Express Transportation Corp. 10.75%, 2/01/04. 250,000
150,000 Enterprises Shipholding Corp.
8.875%, 5/01/08...................................... 105,000
200,000 Holt Group, Inc. 144A
9.750%, 1/15/06(d)................................... 140,000
250,000 Stena AB 10.500%, 12/15/05............................ 251,563
400,000 TFM, SA 0/11.750%, 6/15/09(c)......................... 239,000
-----------
985,563
-----------
U.S. Government--6.5%
2,000,000 United States Treasury Bonds
5.250%, 11/15/28..................................... 1,771,360
910,000 United States Treasury Bonds
5.500%, 8/15/28...................................... 832,523
200,000 United States Treasury Bonds
6.125%, 11/15/27..................................... 198,518
2,200,000 United States Treasury Notes
4.750%, 11/15/08..................................... 2,019,688
1,500,000 United States Treasury Notes
5.25%, 5/31/01....................................... 1,492,965
-----------
6,315,054
-----------
Total Bonds & Notes
(Identified Cost $87,486,324)........................ 83,640,219
-----------
Preferred Stocks--0.0%
<CAPTION>
Shares Value (a)
<C> <S> <C>
840 TCR Holdings, Class B................................. 50
462 TCR Holdings, Class C................................. 26
1,219 TCR Holdings, Class D................................. 65
2,521 TCR Holdings, Class E................................. 159
-----------
Total Preferred Stocks
(Identified Cost $300)............................... 300
-----------
</TABLE>
See accompanying notes to financial statements.
20
<PAGE>
New England Zenith Fund
(Salomon Brothers Strategic Bond Opportunities Series)
Investments as of June 30, 1999 (Unaudited)
Warrants--0.1%
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
2,800 Republic of Argentina............................... $ 23,800
200 In Flight Phone Corp.(g)............................ 0
615 United Mexico States................................ 39,668
-----------
Total Warrants (Identified Cost $83,388)............ 63,468
-----------
</TABLE>
Short-Term Investment--16.8%
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
$16,213,000 Repurchase Agreement with State Street Corp. dated
6/30/1999 at 4.7% to be repurchased at $16,215,117
on 7/1/1999, collateralized by $13,750,000 U.S.
Treasury Bonds, 7.875% due 2/15/21 with a value of
$16,542,873....................................... $16,213,000
-----------
Total Short-Term Investments
(Identified Cost $16,213,000)..................... 16,213,000
-----------
Total Investments--103.6%
(Identified Cost $103,783,012)(b)................. 99,916,987
Other assets less liabilities...................... (3,445,931)
-----------
Total Net Assets--100%............................. $96,471,056
===========
</TABLE>
Forward Contracts Outstanding at June 30, 1999
<TABLE>
<CAPTION>
Local Aggregate Unrealized
Currency Delivery Currency Face Total Appreciation/
Contract Date Amount Value Value (Depreciation)
<S> <C> <C> <C> <C> <C>
Australian Dollar
(sold) 7/28/1999 180,000 $ 117,108 $ 119,023 $(1,915)
Australian Dollar
(sold) 7/28/1999 870,000 574,679 575,279 (600)
Australian Dollar
(bought) 7/28/1999 180,000 116,562 119,023 2,461
Euro Currency (sold) 7/28/1999 170,994 180,780 176,627 4,153
Euro Currency (sold) 7/28/1999 216,527 224,173 223,660 513
Euro Currency (sold) 7/28/1999 255,626 266,022 264,047 1,975
Euro Currency
(bought) 7/28/1999 712,215 738,639 735,677 (2,962)
Pound Sterling (sold) 7/28/1999 717,224 1,141,190 1,130,710 10,480
Norwegian Krone
(sold) 7/28/1999 2,090,000 266,564 264,967 1,597
Norwegian Krone
(Bought) 7/28/1999 2,090,000 266,022 264,967 (1,055)
Swedish Krona (sold) 7/28/1999 1,890,000 222,092 223,016 (924)
Swedish Krona
(bought) 7/28/1999 1,890,000 224,173 223,016 (1,157)
-------
Net unrealized appreciation on Forward Currency contracts $12,566
=======
</TABLE>
(a) See Note 1A of Notes to Financial Statements.
(b) Federal Tax Information: At June 30, 1999 the net unrealized depreciation
on investments based on cost of $103,783,012 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............... $ 964,938
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value............... (4,830,963)
-----------
Net unrealized depreciation.................................... $(3,866,025)
===========
</TABLE>
(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.
(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 $5,441,824 or 5.6% of net
assets.
(e) Variable or floating rate security. Rate disclosed is as of June 30, 1999.
(f) Interest only certificate. This security receives monthly interest
payments but is not entitled to principal payments.
(g) Non-Income producing security
(h) Non-Income producing; issuer filed petition under Chapter 11 of the
Federal Bankruptcy Code.
Key to abbreviations:
AUD--Australian Dollar
CAD--Canadian Dollar
EUR--Euro Currency
GBP--Pound Sterling
GRD--Greek Drachma
NOK--Norwegian Krone
PLN--Polish Zloty
SEK--Swedish Krona
See accompanying notes to financial statements.
21
<PAGE>
New England Zenith Fund
(Salomon Brothers Strategic Bond Opportunities Series)
Statement of Assets & Liabilities
June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets
Investments at value................................. $ 99,916,987
Foreign cash at value (Identified cost $93,230)...... 92,175
Receivable for:
Securities sold...................................... 1,165,552
Fund shares sold..................................... 85,311
Open forward currency contracts--net................. 12,566
Accrued interest..................................... 1,529,971
Unamortized organization expense..................... 684
------------
Total Assets......................................... 102,803,246
Liabilities
Payable for:
Fund shares redeemed................................. $ 225,212
Securities purchased................................. 6,017,418
Due to custodian bank................................ 565
Withholding taxes.................................... 347
Accrued expenses:
Management fees...................................... 51,712
Deferred trustees fees............................... 4,066
Other expenses....................................... 32,870
----------
Total Liabilities.................................... 6,332,190
------------
Net Assets............................................ $ 96,471,056
============
Net assets consist of:
Capital paid in...................................... $100,069,894
Undistributed net investment income.................. 3,615,233
Accumulated net realized gains (losses).............. (3,358,349)
Unrealized appreciation (depreciation) on investments
and foreign currency................................ (3,855,722)
------------
Net Assets............................................ $ 96,471,056
============
Computation of offering price:
Net asset value and redemption price per share
($96,471,056 divided by 8,463,096 shares of
beneficial interest)................................. $ 11.40
============
Identified cost of investments........................ $103,783,012
============
</TABLE>
Statement of Operations
Six Months Ended June 30, 1999
(Unaudited)
<TABLE>
<S> <C> <C>
Investment Income
Interest.......................................... $ 4,055,403(a)
-----------
Expenses
Management fees................................... $ 308,005
Deferred expense reimbursement.................... 12,296
Trustees' fees and expenses....................... 7,121
Custodian......................................... 42,402
Audit and tax services............................ 9,278
Legal............................................. 3,548
Printing.......................................... 9,134
Amortization of organization expense.............. 996
Insurance......................................... 437
Miscellaneous..................................... 1,306
----------
Total expenses.................................... 394,523
-----------
Net Investment Income.............................. 3,660,880
Realized and Unrealized Gain (Loss)
Realized gain (loss) on:
Investments--net.................................. (761,040)
Foreign currency transactions--net................ (43,833) (804,873)
----------
Unrealized appreciation (depreciation) on:
Investments--net.................................. (3,081,126)
Foreign currency transactions--net................ 7,626 (3,073,500)
---------- -----------
Net gain (loss).................................... (3,878,373)
-----------
Net Increase (Decrease) in Net Assets From
Operations........................................ $ (217,493)
===========
</TABLE>
(a)Net of foreign taxes of: $13,721
See accompanying notes to financial statements.
22
<PAGE>
New England Zenith Fund
(Salomon Brothers Strategic Bond Opportunities Series)
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30,
1998 1999
------------ ------------
<S> <C> <C>
From Operations
Net investment income............................. $ 6,207,055 $ 3,660,880
Net realized gain (loss).......................... (2,493,823) (804,873)
Unrealized appreciation (depreciation)............ (2,329,435) (3,073,500)
------------ ------------
Increase (decrease) in net assets from operations. 1,383,797 (217,493)
------------ ------------
From Distributions to Shareholders
Net investment income............................. (6,162,469) 0
Net realized gain................................. (87,409) 0
In excess of net realized gain.................... (137,672) 0
------------ ------------
Total distributions............................... (6,387,550) 0
------------ ------------
From Capital Share Transactions
Proceeds from sale of shares...................... 48,659,454 17,272,307
Reinvestment of distributions..................... 6,387,550 0
Cost of shares redeemed........................... (25,795,325) (16,033,629)
------------ ------------
Increase (decrease) in net assets from capital
share transactions............................... 29,251,679 1,238,678
------------ ------------
Total increase (decrease) in net assets........... 24,247,926 1,021,185
Net Assets
Beginning of the period........................... 71,201,945 95,449,871
------------ ------------
End of the period................................. $ 95,449,871 $ 96,471,056
============ ============
Undistributed (overdistributed) Net Investment
Income
End of the period................................. $ (45,647) $ 3,615,233
============ ============
Number of shares of the Fund:
Issued from the sale of shares.................... 3,992,202 1,510,484
Issued in reinvestment of distributions........... 558,777 0
Redeemed.......................................... (2,123,814) (1,401,103)
------------ ------------
Net change........................................ 2,427,165 109,381
============ ============
</TABLE>
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
October 31, 1994(a) Six Months
through Year Ended December 31, Ended
December 31, --------------------------------- June 30,
1994 1995 1996 1997 1998 1999
------------------- ------ ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $10.00 $ 9.74 $ 10.85 $ 11.62 $ 12.01 $ 11.43
------ ------ ------- ------- ------- -------
Income From Investment
Operations
Net Investment Income.. 0.12 0.58 0.51 0.75 0.80 0.43
Net Realized and
Unrealized Gain (Loss)
on Investments........ (0.26) 1.30 1.05 0.54 (0.56) (0.46)
------ ------ ------- ------- ------- -------
Total From Investment
operations............ (0.14) 1.88 1.56 1.29 0.24 (0.03)
------ ------ ------- ------- ------- -------
Less Distributions
Distributions From Net
Investment Income..... (0.12) (0.55) (0.60) (0.76) (0.79) 0.00
Distributions From Net
Realized Capital
Gains................. 0.00 (0.22) (0.19) (0.14) (0.02) 0.00
Distributions in Excess
of Net Realized
Capital Gains......... 0.00 0.00 0.00 0.00 (0.01) 0.00
------ ------ ------- ------- ------- -------
Total Distributions.... (0.12) (0.77) (0.79) (0.90) (0.82) 0.00
------ ------ ------- ------- ------- -------
Net Asset Value, End of
Period................. $ 9.74 $10.85 $ 11.62 $ 12.01 $ 11.43 $ 11.40
====== ====== ======= ======= ======= =======
Total Return (%)........ (1.4)(b) 19.4 14.4 11.1 2.0 (0.3)(b)
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.85 (c) 0.85 0.85 0.85 0.85 0.83 (c)
Ratio of Net Investment
Income to Average Net
Assets (%)............. 7.05 (c) 8.39 7.79 7.32 7.20 7.73 (c)
Portfolio Turnover Rate
(%).................... 403 (c) 202 176 258 283 264 (c)
Net Assets, End of
Period (000) $3,450 $9,484 $35,808 $71,202 $95,450 $96,471
The ratios of operating
expenses to average net
assets without giving
effect to the voluntary
expense agreement
described in Note 4 to
the Financial
Statements would have
been (%)............... 2.01 (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.
23
<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 past six months relative to its index
and relative to its peers?
A. The Salomon Brothers U.S. Government Bond Series returned -1.0% for the six
month period ending June 30, 1999, versus the Lehman Brothers Intermediate Gov-
ernment Bond Index/4/, which returned -0.5%. The Lipper Variable Products U.S.
Mortgage/GNMA Fund Average/17/ returned -0.4% for the six-month period.
Q. Briefly discuss the investment and market environment during the past six
months?
A. Financial markets began the new year under the shadow of the 1998 meltdown.
Caution prevailed among fixed income investors who remained overweighted in
high quality bonds such as U.S. Treasuries. Investor fears proved to be well
founded as by mid-January Brazil devalued its currency and saw its interest
rates rise sharply. Rather than Brazil serving as the catalyst for another vi-
cious round of contagion, financial markets seemed to shrug it off. In effect,
the episode became a bottoming event that boosted the confidence of market par-
ticipants. This change in investor sentiment eliminated the "insurance" value
of U.S. Treasuries and lead to a virulent rise in interest rates during Febru-
ary.
Strong domestic economic growth heightened the obstinate fears about the pros-
pect for higher inflation. The Federal Reserve tempered some of those concerns
when it increased its Short-Term lending rate at the conclusion of its mid year
Federal Open Market Committee meeting. The Federal Funds rate now stands at
5.00%. U.S. economic growth will likely remain steady as low unemployment and
high consumer confidence will nourish the demand for goods. A rise in the rate
of inflation, however, will likely remain benign during the second half of the
year.
Q. What were the principal factors affecting your performance (on both an
absolute and relative basis) during the past six months?
A. The Series' underperformance relative to the benchmark was due primarily to
a longer duration position that made the portfolio more sensitive to changes in
interest rates. It also has been hampered by the nearly 100 basis points rise
in interest rates during the first half of 1999. Fortunately, the Series was
overweighted in mortgage securities whose prices declined considerably less
than comparable Treasury securities. For the first half of 1999, mortgage pass-
throughs outperformed comparable on-the-run Treasuries by 59 basis points.
Q. What is your outlook for the market and for your portfolio for the next six
months?
A. Federal Reserve action of raising the Federal Funds rate 0.25% on June 30th
did not prove alarming, although we were surprised that they adopted a neutral
bias. However, we would note that the Federal Reserve has often adopted a neu-
tral bias after raising rates in the past, whether or not they subsequently
raised rates later. Thus, we believe that the markets will remain volatile over
the next few months as investors focus on economic data points to try to get a
sense of whether the Federal Reserve may need to tighten again.
24
<PAGE>
A $10,000 investment compared to Lehman Intermediate Government Index
since the Series' inception
[CHART APPEARS HERE]
US Government Lehman Intermediate U.S. Government
10/31/94 10,000 10,000
6/30/95 11,009 10,891
6/30/96 11,445 11,428
6/30/97 12,319 12,221
6/30/98 13,410 13,245
6/30/99 13,820 13,832
Average Annual Return
Lehman Lipper Variable
US Government Intermediate US Mortgage
Series US Government and GNMA
6 months -1.0% -0.5% -0.4%
1 year 3.1 4.4 3.2
3 years 6.5 6.6 6.9
Since Inception 7.2 7.2 n/a
.. 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: $50 million as of June 30, 1999
Managers: Roger Lavan has managed the Series since its inception in 1994. Mr.
Lavan has managed the Salomon Brothers Investment Series--U.S. Government Income
Fund and the North American U.S. Government Securities Fund since January 1992.
He joined Salomon Brothers Asset Management, Inc. in 1990. Mr. Lavan has also
co-managed the Strategic Bond Opportunities Series since June 1998.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts. If these charges were included, the returns shown would
be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
25
<PAGE>
New England Zenith Fund
(Salomon Brothers U.S. Government Series)
Investments as of June 30, 1999 (Unaudited)
Bonds & Notes--84.2% of Total Net Assets
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
Federal Agency--78.2%
$ 300,000 Federal Home Loan Banks 5.940%, 6/13/00.............. $ 301,359
1,000,000 Federal Home Loan Banks 5.800%, 9/2/08............... 957,430
164,833 Federal Home Loan Mortgage Corp. 7.500%, 5/1/07...... 168,026
13,270 Federal Home Loan Mortgage Corp. 6.000%, 10/1/10..... 12,818
263,261 Federal Home Loan Mortgage Corp. 7.000%, 7/1/11...... 264,659
46,928 Federal Home Loan Mortgage Corp. 11.750%, 1/1/12..... 53,102
439,289 Federal Home Loan Mortgage Corp. 6.500%, 8/1/13...... 433,249
609,249 Federal Home Loan Mortgage Corp. 10.000%, 3/1/16..... 655,009
154,814 Federal Home Loan Mortgage Corp. 8.250%, 4/1/17...... 161,273
116,115 Federal Home Loan Mortgage Corp. 9.000%, 10/1/17..... 122,031
256,551 Federal Home Loan Mortgage Corp. 8.000%, 12/1/19..... 263,365
270,668 Federal Home Loan Mortgage Corp. 10.500%, 6/1/20..... 291,642
613,844 Federal Home Loan Mortgage Corp. 8.000%, 7/1/20...... 634,751
900,000 Federal Home Loan Mortgage Corp. 6.247%, 3/25/21..... 881,330
183,522 Federal Home Loan Mortgage Corp. 7.000%, 4/15/21..... 184,440
219,656 Federal Home Loan Mortgage Corp. 6.500%, 3/1/26...... 212,449
49,082 Federal Home Loan Mortgage Corp. 6.500%, 5/1/26...... 47,472
49,181 Federal Home Loan Mortgage Corp. 6.500%, 6/1/26...... 47,567
725,319 Federal Home Loan Mortgage Corp. 6.500%, 7/1/26...... 701,521
1,309,459 Federal Home Loan Mortgage Corp. 6.000%, 10/1/28..... 1,231,297
2,595,835 Federal Home Loan Mortgage Corp. 6.000%, 11/1/28..... 2,440,890
167,633 Federal National Mortgage Association 6.500%, 6/1/08. 166,154
58,854 Federal National Mortgage Association 6.500%,
12/1/10............................................. 58,174
31,491 Federal National Mortgage Association 6.500%, 4/1/13. 31,029
156,189 Federal National Mortgage Association 6.500%, 4/1/13. 153,894
678,271 Federal National Mortgage Association 6.500%, 4/1/13. 668,307
590,165 Federal National Mortgage Association 6.500%, 7/1/13. 581,496
</TABLE>
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
$ 42,995 Federal National Mortgage Association 13.000%,
11/1/14............................................ $ 50,331
14,414 Federal National Mortgage Association 14.500%,
11/1/14............................................ 17,053
45,159 Federal National Mortgage Association 12.500%,
9/1/15............................................. 52,469
396,453 Federal National Mortgage Association 12.000%,
10/1/15............................................ 444,983
24,143 Federal National Mortgage Association 12.000%,
1/1/16............................................. 27,810
200,545 Federal National Mortgage Association 12.500%,
1/1/16............................................. 230,752
13,291 Federal National Mortgage Association 11.500%,
9/1/19............................................. 14,726
137,185 Federal National Mortgage Association 7.000%,
11/1/23............................................ 135,813
299,774 Federal National Mortgage Association 6.500%,
3/1/26............................................. 289,561
131,541 Federal National Mortgage Association 7.000%,
7/1/26............................................. 130,020
659,637 Federal National Mortgage Association 7.000%,
2/1/28............................................. 652,005
677,343 Federal National Mortgage Association 7.000%,
10/1/28............................................ 669,506
490,188 Federal National Mortgage Association 7.000%,
11/1/28............................................ 484,517
1,252,954 Federal National Mortgage Association 6.764%,
12/28/28........................................... 1,239,131
750,546 Federal National Mortgage Association 7.000%,
2/1/29............................................. 741,862
125,491 Federal National Mortgage Association 7.000%,
2/1/29............................................. 124,039
1,500,149 Federal National Mortgage Association 6.500%,
4/1/29............................................. 1,447,164
1,255,000 Federal National Mortgage Association 6.527%,
5/25/30............................................ 1,221,209
2,000,000 Federal National Mortgage Association 6.000%, TBA... 1,878,740
5,900,000 Federal National Mortgage Association 6.500%, TBA... 5,691,612
1,400,000 Federal National Mortgage Association 7.000%, TBA... 1,404,802
5,000,000 Federal National Mortgage Association 7.000%, TBA... 4,942,150
127,489 Government National Mortgage Association 9.000%,
10/20/16........................................... 135,456
198,835 Government National Mortgage Association 9.000%,
12/15/16........................................... 210,465
5,000,000 Government National Mortgage Association 7.500%,
TBA................................................ 5,046,850
300,000 Student Loan Marketing Association 7.500%, 3/8/00... 304,071
63,998 U. S. Department of Veteran Affairs 7.250%,
10/15/10........................................... 63,897
------------
39,375,728
------------
</TABLE>
See accompanying notes to financial statements.
26
<PAGE>
New England Zenith Fund
(Salomon Brothers U.S. Government Series)
Investments as of June 30, 1999 (Unaudited)
Bonds & Notes--(Continued)
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
U.S. Government--6.0%
$ 600,000 U.S. Treasury Notes 4.750%, 2/15/04................ $ 577,122
1,050,000 U.S. Treasury Notes 4.750%, 11/15/08............... 963,942
100,000 U.S. Treasury Bonds 6.375%, 8/15/27................ 102,469
1,500,000 U.S. Treasury Bonds 5.250%, 2/15/29................ 1,347,660
------------
2,991,193
------------
Total Bonds & Notes (Identified Cost $42,882,958).. 42,366,921
------------
Short-Term Investments--50.6%
3,450,000 Consolidated Coal Co. 5.250%, 7/12/99.............. 3,444,466
3,450,000 Englehard Corp.
5.250%, 7/12/99................................... 3,444,466
3,450,000 Imperial Tobacco Financial, Plc. 5.300%, 7/6/99.... 3,447,460
3,450,000 TRW, Inc.
6.000%, 7/1/99.................................... 3,450,000
2,688,000 Repurchase Agreement with State Street Corp. dated
6/30/1999 at 4.7% to be repurchased at $2,688,351
on 7/1/1999, collateralized by $2,280,000 U.S.
Treasury Bonds, 7.875% due 2/15/21 with a value of
$2,743,109........................................ 2,688,000
9,000,000 Repurchase Agreement with Warburg Dillon Reed LLC
dated 6/30/1999 at 4.8% to be repurchased at
$9,001,200 on 7/1/1999, collateralized by
$7,643,000 U.S. Treasury Bonds, 8.00% due
11/15/2021 with a value of $9,181,154............. 9,000,000
------------
Total Short-Term Investments
(Identified Cost $25,474,392)..................... 25,474,392
------------
Total Investments--134.8%
(Identified Cost $68,357,350)(b).................. 67,841,313
Other assets less liabilities...................... (17,507,367)
------------
Total Net Assets--100%............................. $ 50,333,946
============
</TABLE>
(a) See Note 1A of Notes to Financial Statements.
(b) Federal Tax Information:
At June 30, 1999 the net unrealized depreciation on investments based on
cost of $68,357,350 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............... $ 119,505
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value............... (635,542)
---------
Net unrealized depreciation.................................... $(516,037)
=========
</TABLE>
See accompanying notes to financial statements.
27
<PAGE>
New England Zenith Fund
(Salomon Brothers U.S. Government Series)
Statement of Assets & Liabilities
June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets
Investments at value................................. $67,841,313
Receivable for:
Securities sold...................................... 1,199,150
Fund shares sold..................................... 120,644
Accrued interest..................................... 291,560
Unamortized organization expense..................... 683
-----------
Total Assets......................................... 69,453,350
Liabilities
Payable for:
Fund shares redeemed................................. $ 137,052
Securities purchased................................. 18,936,971
Accrued expenses :
Management fees...................................... 22,782
Deferred trustees fees............................... 3,666
Other expenses....................................... 18,933
-----------
Total Liabilities.................................... 19,119,404
-----------
Net Assets............................................ $50,333,946
===========
Net assets consist of :
Capital paid in...................................... $50,293,822
Undistributed net investment income.................. 1,376,729
Accumulated net realized gains (losses).............. (820,568)
Unrealized appreciation (depreciation) on
investments......................................... (516,037)
-----------
Net Assets............................................ $50,333,946
===========
Computation of offering price :
Net asset value and redemption price per share
($50,333,946 divided by 4,432,194 shares of
beneficial interest)................................. $ 11.36
===========
Identified cost of investments....................... $68,357,350
===========
</TABLE>
Statement of Operations
Six Months Ended June 30, 1999
(Unaudited)
<TABLE>
<S> <C> <C>
Investment Income
Interest............................................ $ 1,528,033(a)
-----------
Expenses
Management fees..................................... $131,836
Trustees' fees and expenses......................... 6,211
Custodian........................................... 19,635
Audit and tax services.............................. 9,184
Legal............................................... 1,376
Printing............................................ 4,463
Amortization of organization expense................ 996
Insurance........................................... 269
Miscellaneous....................................... 1,160
--------
Total expenses..................................... 175,130
Less expenses assumed by the investment adviser.... (7,340) 167,790
-------- -----------
Net Investment Income................................ 1,360,243
Realized and Unrealized Gain (Loss)
Realized gain (loss) on:
Investments--net................................... (918,604)
Unrealized appreciation (depreciation) on:
Investments--net.................................... (918,861)
-----------
Net gain (loss)...................................... (1,837,465)
-----------
Net Increase (Decrease) in Net Assets From
Operations.......................................... $ (477,222)
===========
</TABLE>
(a) Net of interest expense of $6,150.
See accompanying notes to financial statements.
28
<PAGE>
New England Zenith Fund
(Salomon Brothers U.S. Government Series)
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30,
1998 1999
------------ -----------
<S> <C> <C>
From Operations
Net investment income............................... $ 1,753,711 $ 1,360,243
Net realized gain (loss)............................ 273,855 (918,604)
Unrealized appreciation (depreciation).............. 196,244 (918,861)
----------- -----------
Increase (decrease) in net assets from operations... 2,223,810 (477,222)
----------- -----------
From Distributions to Shareholders
Net Investment Income............................... (1,671,941) 0
Net realized gain................................... (240,092) 0
----------- -----------
Total distributions................................. (1,912,033) 0
----------- -----------
From Capital Share Transactions
Proceeds from sale of shares........................ 35,229,571 15,531,907
Reinvestment of distributions....................... 1,912,033 0
Cost of shares redeemed............................. (13,790,161) (10,527,306)
----------- -----------
Increase (decrease) in net assets from capital share
transactions....................................... 23,351,443 5,004,601
----------- -----------
Total increase (decrease) in net assets............. 23,663,220 4,527,379
Net Assets
Beginning of the period............................. 22,143,347 45,806,567
----------- -----------
End of the period................................... $45,806,567 $50,333,946
=========== ===========
Undistributed (overdistributed) Net Investment Income
End of the period................................... $ 16,486 $ 1,376,729
=========== ===========
Number of shares of the Fund:
Issued from the sale of shares...................... 3,026,984 1,358,013
Issued in reinvestment of distributions............. 167,118 0
Redeemed............................................ (1,189,557) (918,981)
----------- -----------
Net change.......................................... 2,004,545 439,032
=========== ===========
</TABLE>
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
October 31, 1994(a) Six Months
through Year Ended December 31, Ended
December 31, --------------------------------- June 30,
1994 1995 1996 1997 1998 1999
------------------- ------ ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $10.00 $ 9.96 $ 11.04 $ 10.83 $ 11.14 $ 11.47
------ ------ ------- ------- ------- -------
Income From Investment
Operations
Net Investment Income.. 0.10 0.33 0.58 0.53 0.47 0.31
Net Realized and
Unrealized Gain (Loss)
on Investments........ (0.04) 1.16 (0.21) 0.40 0.37 (0.42)
------ ------ ------- ------- ------- -------
Total From Investment
operations............ 0.06 1.49 0.37 0.93 0.84 (0.11)
------ ------ ------- ------- ------- -------
Less Distributions
Distributions From Net
Investment Income..... (0.10) (0.33) (0.56) (0.53) (0.45) 0.00
Distributions From Net
Realized Capital
Gains................. 0.00 (0.08) (0.02) (0.05) (0.06) 0.00
Distributions in Excess
of Net Realized
Capital Gains......... 0.00 0.00 0.00 (0.04) 0.00 0.00
------ ------ ------- ------- ------- -------
Total Distributions.... (0.10) (0.41) (0.58) (0.62) (0.51) 0.00
------ ------ ------- ------- ------- -------
Net Asset Value, End of
Period................. $ 9.96 $11.04 $ 10.83 $ 11.14 $ 11.47 $ 11.36
====== ====== ======= ======= ======= =======
Total Return (%)........ 0.6(b) 15.0 3.3 8.6 7.5 (1.0)(b)
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.70(c) 0.70 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 5.70 5.67 (c)
Portfolio Turnover Rate
(%).................... 1,409(c) 415 388 572 496 576 (c)
Net Assets, End of
Period (000)........... $2,012 $7,542 $13,211 $22,143 $45,807 $50,334
The ratios of operating
expenses to average net
assets without giving
effect to the voluntary
expense agreement
described in Note 4 to
the Financial
Statements would have
been (%)............... 2.54(c) 2.90 1.37 0.98 0.77 0.73 (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.
29
<PAGE>
Back Bay Advisors Managed Series
Peter W. Palfrey, CFA
Back Bay Advisors, L.P.
[PHOTO OF PETER W. PALFREY APPEARS HERE]
Q. How did this series perform during the past six months relative to its index
and relative to its peers?
A. The Back Bay Advisors Managed Series posted a 7.1% return for the first six
months of 1999, compared with a 5.9% return for the Lipper Variable Products
Flexible Portfolio Fund Average/8/ and 7.0% for a static 65% S&P 500/35%
Lehman Gov't/Corp./3/ composite index. The Series ranked 28th out of 92 funds
in the peer group.
Q. Briefly discuss the investment and market environment during the past six
months.
A. With U.S. Gross Domestic Product (GDP) growth on track to post an "above
trend" 4% pace through the first half of 1999 (spurred by continued strong con-
sumer spending, and by rebounding U.S. and global manufacturing activity), in-
vestors backed away from the fixed income market. This pushed Treasury yields
0.9% to 1.0% higher across the yield curve by the end of the second quarter.
The worst damage occurred in intermediate maturities. By late June (but before
the Federal Open Market Committee [FOMC] meeting), investors had priced into
the market as many as three 0.25% Fed tightenings (for a total of 0.75%) by the
end of 1999. Following a dramatic tightening in credit spreads through the
first part of 1999, uncertainty in the Treasury market flowed over in to the
spread market, pushing swap spreads back towards the wides of last fall. This,
combined with record new issuance in the agency, corporate, and Yankee sectors
thus far this year, caused non-Treasury spreads to widen sharply in May and
June, exacerbating the negative performance in these sectors during the second
quarter. Thus far this year, bonds have posted their worst performance since
1994. U.S. equities, in stark contrast to bonds, have rallied through the first
and second quarters of 1999 on solid corporate earnings growth and on re-
bounding European and Asian economic activity, while largely ignoring the pro-
nounced back-up in U.S. interest rates and widening credit spreads. Despite
considerable volatility, U.S. equities posted low double-digit returns through
the first six months of 1999.
Q. Given this investment environment, what was your investment strategy? What
changes did you make since the start of the year?
A. The asset allocation has been managed within +/-2% of the Series' neutral
allocation of 65% stocks/35% bonds during the first half of the year. Stocks
continue to appear "fully" valued by most historical measures, including
Price/Earnings (P/E) ratio versus expected earnings growth, the current price
to book versus historical, and the Earnings/Price ratio to the 30-year bond
yield. The favorable backdrop of low double digit earnings growth must be bal-
anced against the rise in interest rates since the beginning of the year, and
against the recent shift to tighter monetary policy by the Federal Reserve.
With the market appreciation of the bond portfolio fairly limited thus far this
year and stocks returning approximately 13%, I have rebalanced the portfolio
several times by monetizing a portion of the stock appreciation and shifting
the cash proceeds to the fixed income portion of the portfolio.
Q. What were the principal factors affecting your performance (on both an
absolute and relative basis) during the past six months? What investment
decisions were most effective and which ones were least effective?
A. The primary driver of performance this year has been the stock/bond split,
given the sharp divergence in the two markets thus far this year. With stock
valuations remaining very full through the first half of the year by historical
measures, I maintained a neutral allocation to stocks. Clearly, an overweight
position in stocks through this period would have improved the relative and ab-
solute performance. Within the stock portion of the portfolio, the low P/E por-
tion (approximately 20% of the stock portfolio) performed poorly during the
first quarter as "value" was slow to improve versus large cap growth, but
turned in an extraordinary performance during the second quarter, outperforming
the broader market by over 6.5%. The fixed income portfolio performed very well
relative to broader fixed income indices, despite the longer relative duration
of the Managed portfolio, given the solid performance in select Yankee issues,
particularly Asian Yankee issues, as well as in more cyclical corporate hold-
ings. Canadian dollar securities benefited from a 5% appreciation in the cur-
rency as well as from substantial spread tightening versus comparable duration
U.S. Treasuries.
30
<PAGE>
Q. What is your outlook for the market and your portfolio for the next six
months? What changes, if any, will you make to the way you manage your
portfolio?
A. Investors got some relief from the Federal Reserve at the June FOMC meeting
when the Fed chose to raise the Fed Funds rate by the widely anticipated
0.25%, but switched from a tightening bias to an neutral bias. This change in
the policy bias indicates to markets that the Federal Reserve intends to take
a more "gradualist" approach to monetary policy, so long as inflation remains
benign. I expect U.S. economic growth to moderate somewhat during the second
half of the year, particularly if consumers and businesses go into a "bunker"
mentality around the end of the year because of Y2K fears. This would take
some of the pressure off of the Fed to move more aggressively towards tighter
monetary policy. This is a positive for fixed income markets, but could create
some pressure on U.S. corporate earnings growth, with a corresponding negative
impact on equity valuations. Over the near term, I expect to maintain a
neutral allocation between stocks and bonds. However, if U.S. economic activ-
ity starts to slow more dramatically than current market expectations, I will
move to an underweight position in equities versus bonds. The allocation to
spread product within the fixed income portfolio is concentrated in less cy-
clical U.S. industries and in the Yankee sector, and as such, should not be
negatively impacted by a U.S. slowdown later this year.
A $10,000 Investment Compared to the S&P 500 and
Lehman Brothers Government/Corporate Indices for the past 10 years
[CHART APPEARS HERE]
Managed Series Lehman Govt. Corp. S&P 500
6/30/89 10,000 10,000 10,000
Jun-90 11,272 10,711 11,640
Jun-91 12,108 11,807 12,501
Jun-92 13,638 13,480 14,187
Jun-93 15,531 15,253 16,114
Jun-94 15,348 15,030 16,330
Jun-95 18,587 16,949 20,584
Jun-96 21,981 17,738 25,949
Jun-97 27,775 19,114 34,917
Jun-98 34,202 21,270 45,462
Jun-99 38,988 21,844 55,794
Average Annual Total Return
Lipper Variable
Lehman Flexible Portfolio
Managed Series S&P Government/Corp. Fund Average
6 months 7.1% 12.2% -2.3% 5.9%
1 year 14.0 22.7 2.7 9.3
3 years 21.0 29.1 7.2 15.8
5 years 20.5 27.9 7.8 16.1
10 years 14.6 18.8 8.1 13.4
Since Inception 13.4 16.8 8.4 n/a
.. Fund Facts
Goal: A favorable total return through investment in a diversified portfolio.
The Series' portfolio is expected to include a mix of common stocks and fixed
income securities.
Start date: March 30, 1987
Size: $224 million as of June 30, 1999
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.
31
<PAGE>
New England Zenith Fund
(Back Bay Advisors Managed Series)
Investments as of June 30, 1999 (Unaudited)
Common Stocks--65.3% of Total Net Assets
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Aerospace--0.4%
11,276 Boeing Co. .............................................. $ 498,258
10,800 Lockheed Martin Corp. ................................... 402,300
1,900 Rockwell International Corp. ............................ 115,425
------------
1,015,983
------------
Air Transportation--0.5%
4,700 AMR Corp.(c)............................................. 320,775
5,800 Delta Air Lines, Inc. ................................... 334,225
10,400 FDX Corp.(c)............................................. 564,200
------------
1,219,200
------------
Automobile & Related--1.1%
4,892 Delphi Automotive Systems Corp.(c)....................... 90,808
21,500 Ford Motor Co. .......................................... 1,213,406
7,000 General Motors Corp. .................................... 462,000
4,500 Goodyear Tire & Rubber Co. .............................. 264,656
7,200 PACCAR, Inc. ............................................ 384,300
6,200 Tenneco, Inc. ........................................... 148,025
------------
2,563,195
------------
Banks--5.0%
25,589 Bank of America Corp. ................................... 1,875,994
15,100 Bank of New York Co., Inc. .............................. 553,981
12,440 Bank One Corp. .......................................... 740,958
9,000 Chase Manhattan Corp. ................................... 779,625
35,466 Citigroup, Inc. ......................................... 1,684,635
10,500 First Union Corp. ....................................... 493,500
12,500 Fleet Financial Group, Inc. ............................. 554,688
2,800 Golden West Financial Corp. ............................. 274,400
4,800 J.P. Morgan & Co., Inc. ................................. 674,400
8,500 KeyCorp ................................................. 273,063
8,000 National City Corp. ..................................... 524,000
10,000 Republic New York Corp. ................................. 681,875
7,100 Summit Bancorp........................................... 296,865
15,900 U.S. Bancorp............................................. 540,600
14,400 Washington Mutual, Inc. ................................. 509,400
17,200 Wells Fargo & Co. ....................................... 735,300
------------
11,193,284
------------
Business Machines--2.7%
26,838 Compaq Computer Corp. ................................... 635,725
31,000 Dell Computer Corp.(c)................................... 1,147,000
33,000 International Business Machines Corp. ................... 4,265,250
------------
6,047,975
------------
Business Services--1.1%
9,700 America Online, Inc.(c).................................. 1,071,850
22,100 Browning-Ferris Industries, Inc. ........................ 950,300
9,200 H & R Block, Inc. ....................................... 460,000
------------
2,482,150
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Chemicals--1.7%
8,000 AlliedSignal, Inc. ...................................... $ 504,000
4,300 Dow Chemical Co. ........................................ 545,563
15,100 E.I. du Pont de Nemours & Co. ........................... 1,031,519
11,000 Great Lakes Chemical Corp. .............................. 506,688
11,600 Monsanto Co. ............................................ 457,475
7,800 Pitney Bowes, Inc. ...................................... 501,150
5,100 Union Carbide Corp. ..................................... 248,624
------------
3,795,019
------------
Communication--7.3%
12,300 Ameritech Corp. ......................................... 904,050
51,076 AT&T Corp. .............................................. 2,850,679
22,424 Bell Atlantic Corp. ..................................... 1,465,969
32,400 Bellsouth Corp. ......................................... 1,518,750
11,100 Frontier Corp. .......................................... 654,900
10,600 GTE Corp. ............................................... 802,950
12,800 Harris Corp. ............................................ 501,600
35,336 Lucent Technologies, Inc. ............................... 2,382,972
21,700 MCI Worldcom, Inc.(c).................................... 1,867,556
11,900 Nortel Networks Corp. ................................... 1,033,069
28,274 SBC Communications, Inc. ................................ 1,639,892
14,200 U S WEST, Inc. .......................................... 834,250
------------
16,456,637
------------
Computers & Business Equipment--1.4%
40,200 Cisco Systems, Inc.(c)................................... 2,590,388
10,600 EMC Corp.(c)............................................. 583,000
------------
3,173,388
------------
Conglomerates--0.2%
6,200 Minnesota Mining & Manufacturing Co. .................... 539,013
------------
Construction--0.6%
18,000 Home Depot, Inc. ........................................ 1,159,875
10,900 Masco Corp. ............................................. 314,738
------------
1,474,613
------------
Consumer Durables--2.0%
34,900 General Electric Co. .................................... 3,943,700
6,900 Whirlpool Corp. ......................................... 510,600
------------
4,454,300
------------
Containers--0.1%
8,000 Bemis Co. ............................................... 318,000
------------
Data Processing--3.8%
12,900 Automatic Data Processing, Inc. ......................... 567,600
35,400 Intel Corp. ............................................. 2,106,300
57,400 Microsoft Corp.(c)....................................... 5,176,763
15,525 Oracle Corp.(c).......................................... 576,366
------------
8,427,029
------------
</TABLE>
See accompanying notes to financial statements.
32
<PAGE>
New England Zenith Fund
(Back Bay Advisors Managed Series)
Investments as of June 30, 1999 (Unaudited)
Common Stocks--(Continued)
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Domestic Oil--1.2%
4,300 Amerada Hess Corp. ...................................... $ 255,850
5,400 Atlantic Richfield Co. .................................. 451,238
10,300 Chevron Corp. ........................................... 980,431
7,200 Halliburton Co. ......................................... 325,800
3,601 Sunoco, Inc. ............................................ 108,705
15,600 Unocal Corp. ............................................ 618,150
------------
2,740,174
------------
Drugs & Medicine--5.0%
17,600 Abbott Laboratories...................................... 800,800
16,100 American Home Products Corp. ............................ 925,750
12,800 Bausch & Lomb, Inc. ..................................... 979,200
7,600 Baxter International, Inc. .............................. 460,750
19,200 Becton, Dickinson & Co. ................................. 576,000
17,000 C.R. Bard, Inc. ......................................... 812,813
6,300 Corning, Inc. ........................................... 441,788
15,800 Eli Lilly & Co. ......................................... 1,131,675
27,400 Merck & Co., Inc. ....................................... 2,027,600
13,800 Pfizer, Inc. ............................................ 1,514,550
18,400 Schering-Plough Corp. ................................... 975,200
8,700 Warner-Lambert Co. ...................................... 603,562
------------
11,249,688
------------
Electronics--2.6%
20,900 EG&G, Inc. .............................................. 744,563
9,200 Emerson Electric Co. .................................... 578,450
11,000 Hewlett-Packard Co. ..................................... 1,105,500
8,000 Motorola, Inc. .......................................... 758,000
15,400 Raytheon Co., Class B.................................... 1,083,775
10,200 Scientific-Atlanta, Inc. ................................ 367,200
14,400 Tektronix, Inc. ......................................... 434,700
5,400 Texas Instruments, Inc. ................................. 783,000
------------
5,855,188
------------
Energy & Utilities--1.9%
11,700 Consolidated Edison, Inc. ............................... 529,425
40,200 Edison International..................................... 1,075,350
10,700 PECO Energy Co. ......................................... 448,063
22,000 PG&E Corp. .............................................. 715,000
7,700 Public Service Enterprise Group, Inc. ................... 314,738
8,900 Texas Utilities Co. ..................................... 367,125
21,200 Unicom Corp. ............................................ 817,524
------------
4,267,225
------------
Energy Raw Materials--0.3%
27,200 Occidental Petroleum Corp. .............................. 574,600
------------
Finance--2.4%
4,800 American Express Co. .................................... 624,600
8,858 Associates First Capital Corp. .......................... 392,520
6,100 Bear Stearns Companies, Inc. ............................ 285,175
6,800 Charles Schwab Corp. .................................... 747,150
6,900 Countrywide Credit Industries, Inc. ..................... 294,975
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Finance--(Continued)
9,000 Federal Home Loan Mortgage Corp. ........................ $ 522,000
11,000 Federal National Mortgage Association.................... 752,125
4,700 Lehman Brothers Holdings, Inc. .......................... 292,575
6,500 Merrill Lynch & Co., Inc. ............................... 519,594
6,100 Morgan Stanley Dean Witter & Co. ........................ 625,250
6,300 SLM Holding Corp. ....................................... 288,619
------------
5,344,583
------------
Food & Agriculture--2.5%
26,200 Coca-Cola Co. ........................................... 1,637,500
20,450 H.J. Heinz Co. .......................................... 1,025,056
15,600 PepsiCo, Inc. ........................................... 603,525
10,200 Ralston Purina Co. ...................................... 310,463
32,000 Sara Lee Corp. .......................................... 726,000
30,400 Supervalu, Inc. ......................................... 780,900
6,607 Unilever N.V. (ADR)...................................... 460,838
------------
5,544,282
------------
Gas Utilities--0.3%
14,200 Eastern Enterprises...................................... 564,450
------------
Gold--0.1%
8,900 Barrick Gold Corp. ...................................... 172,438
------------
Health Care--0.4%
5,600 Mallinckrodt, Inc. ...................................... 203,700
7,732 Tyco International, Ltd. ................................ 732,607
------------
936,307
------------
Hotels & Restaurants--0.5%
18,200 Hilton Hotels Corp. ..................................... 258,213
14,200 McDonald's Corp. ........................................ 586,638
3,070 Tricon Global Restaurants, Inc.(c)....................... 166,163
------------
1,011,014
------------
Household Products--0.1%
8,000 American Greetings Corp. ................................ 241,000
------------
Industrial Parts & Machinery--0.4%
11,100 Caterpillar, Inc. ....................................... 666,000
8,800 National Service Industries, Inc. ....................... 316,800
------------
982,800
------------
Insurance--2.6%
11,500 Aetna, Inc. ............................................. 1,028,531
28,536 Allstate Corp. .......................................... 1,023,729
14,400 American General Corp. .................................. 1,085,400
14,553 American International Group, Inc. ...................... 1,703,611
8,100 CIGNA Corp. ............................................. 720,900
4,600 Loews Corp. ............................................. 363,975
------------
5,926,146
------------
</TABLE>
See accompanying notes to financial statements.
33
<PAGE>
New England Zenith Fund
(Back Bay Advisors Managed Series)
Investments as of June 30, 1999 (Unaudited)
Common Stocks--(Continued)
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
International Oil--2.3%
29,900 Exxon Corp. ............................................. $ 2,306,033
8,300 Mobil Corp. ............................................. 821,700
22,800 Royal Dutch Petroleum Co. (ADR).......................... 1,373,700
9,600 Texaco, Inc. ............................................ 600,000
------------
5,101,433
------------
Leisure--0.6%
22,200 Brunswick Corp. ......................................... 618,825
13,600 Carnival Corp. .......................................... 659,600
------------
1,278,425
------------
Liquor--0.5%
6,600 Anheuser-Busch Companies, Inc. .......................... 468,188
11,700 Seagram Company, Ltd. ................................... 589,387
------------
1,057,575
------------
Media--1.5%
13,800 CBS Corp.(c)............................................. 599,438
6,000 Gannett Company, Inc. ................................... 428,250
9,700 MediaOne Group, Inc.(c).................................. 721,437
13,100 Time Warner, Inc. ....................................... 962,850
12,400 Viacom, Inc., Class B(c)................................. 545,600
------------
3,257,575
------------
Miscellaneous--0.7%
20,000 IMS Health, Inc. ........................................ 625,000
21,200 Milacron, Inc. .......................................... 392,200
7,600 Nacco Industries, Inc. .................................. 558,600
------------
1,575,800
------------
Non-Ferrous Metals--0.5%
13,800 Alcoa, Inc. ............................................. 853,875
7,926 Newmont Mining Corp. .................................... 157,529
------------
1,011,404
------------
Office Equipment--0.8%
31,200 Xerox Corp. ............................................. 1,842,750
------------
Optical Photo Equipment--0.1%
3,600 Eastman Kodak Co. ....................................... 243,900
------------
Paper & Forest Products--0.5%
7,200 Georgia-Pacific Corp. ................................... 341,100
9,100 Kimberly-Clark Corp. .................................... 518,700
8,400 Westvaco Corp. .......................................... 243,600
------------
1,103,400
------------
Pollution Control--0.2%
6,887 Waste Management, Inc. .................................. 370,176
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Publishing--0.3%
12,000 Knight-Ridder, Inc. ..................................... $ 659,250
------------
Railroads & Shipping--0.4%
9,900 Burlington Northern Santa Fe............................. 306,900
5,100 CSX Corp. ............................................... 231,094
13,500 Norfolk Southern Corp. .................................. 406,687
------------
944,681
------------
Retail--4.2%
19,000 Albertson's, Inc. ....................................... 979,688
12,200 J.C. Penney Co., Inc. ................................... 592,463
38,900 Kmart Corp. ............................................. 639,419
7,100 Limited, Inc. ........................................... 322,163
8,100 Longs Drug Stores Corp. ................................. 279,956
26,400 Mattel, Inc. ............................................ 697,950
18,600 May Department Stores Co. ............................... 760,274
11,600 NIKE, Inc. Class B....................................... 734,425
17,600 Sears, Roebuck & Co. .................................... 784,300
30,000 Walgreen Co. ............................................ 881,250
56,200 Wal-Mart Stores, Inc. ................................... 2,711,650
------------
9,383,538
------------
Soaps & Cosmetics--3.2%
20,100 Alberto-Culver Co., Class B.............................. 535,163
39,240 Bristol-Myers Squibb Co. ................................ 2,763,968
18,000 Gillette Co. ............................................ 738,000
6,600 International Flavours & Fragrances, Inc. ............... 292,875
16,500 Johnson & Johnson........................................ 1,617,000
14,100 Procter & Gamble Co. .................................... 1,258,424
------------
7,205,430
------------
Steel--0.1%
11,520 USX-U.S. Steel Group..................................... 311,040
------------
Telecommunications--0.3%
3,050 Vodafone Airtouch, Plc. (ADR)............................ 600,850
------------
Tobacco--0.5%
25,900 Philip Morris Companies, Inc. ........................... 1,040,856
------------
Transportation--0.1%
44,300 Laidlaw, Inc. ........................................... 326,713
------------
Travel & Recreation--0.3%
21,805 The Walt Disney Co. ..................................... 671,869
------------
Total Common Stocks (Identified Cost $79,364,828)........ 146,556,346
------------
</TABLE>
See accompanying notes to financial statements.
34
<PAGE>
New England Zenith Fund
(Back Bay Advisors Managed Series)
Investments as of June 30, 1999 (Unaudited)
Bonds & Notes--34.0%
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
Electric Utilities--0.1%
$ 250,000 CE Generation, Llc.,
7.416%, 12/15/18, 144A............................ $ 242,966
------------
242,966
------------
Federal Agencies--0.2%
184,549 Government National Mortgage Association,
10.000%, 9/15/18.................................. 196,936
211,809 Government National Mortgage Association,
11.500%, with various maturities to 2013.......... 234,100
------------
431,036
------------
Finance & Banking--0.4%
1,000,000 Lehman Brothers Holdings, Inc.,
6.625%, 2/15/06................................... 959,610
------------
959,610
------------
Foreign--8.9%
4,000,000 Government of Canada,
10.250%, 3/15/14 (CAD)............................ 3,964,414
5,000,000 Government of Canada,
Zero Coupon, 3/15/21 (CAD)........................ 981,426
15,000,000 Government of Canada,
Zero Coupon, 6/1/25 (CAD)......................... 2,385,229
3,000,000 Province of Ontario,
8.100%, 9/8/23 (CAD).............................. 2,529,392
30,000,000 Province of Ontario,
Zero Coupon, 9/8/23 (CAD)......................... 4,619,083
15,000,000 Province of Quebec Stripped,
Zero Coupon, 1/16/23 (CAD)........................ 2,306,180
3,600,000 Province of Quebec,
8.500%, 4/1/26 (CAD).............................. 3,122,552
------------
19,908,276
------------
Media & Entertainment--3.3%
1,000,000 CSC Holdings, Inc.,
7.875%, 12/15/07.................................. 1,008,790
2,000,000 CSC Holdings, Inc.,
7.875%, 2/15/18................................... 1,960,620
4,000,000 News America Holdings, Inc.,
10.125%, 10/15/12................................. 4,476,640
------------
7,446,050
------------
Retail--1.9%
4,285,000 Great Atlantic & Pacific Tea, Inc., 7.750%,
4/15/07........................................... 4,167,762
------------
</TABLE>
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
Telecommunications--3.8%
$ 7,000,000 MCI Communications Corp.,
7.125%, 6/15/27.................................... $ 7,202,370
1,400,000 Nextlink Communications, Inc., 10.750%, 6/1/09...... 1,438,500
------------
8,640,870
------------
Transportation--1.3%
2,750,000 Norfolk Southern Corp.,
7.050%, 5/1/37..................................... 2,787,593
------------
U.S. Government--1.0%
2,650,000 U.S. Treasury Bonds,
5.250%, 11/15/28................................... 2,348,987
------------
Yankee--13.1%
2,000,000 Endesa SA
8.500%, 4/1/09, 144A............................... 1,972,360
2,000,000 Malaysia,
8.750%, 6/1/09..................................... 2,032,420
2,000,000 Multicanal SA,
13.125%, 4/15/09, 144A............................. 1,845,000
2,200,000 NatSteel Electronics, Ltd.
1.500%, 6/30/04, 144A.............................. 2,277,000
1,250,000 PDVSA Finance, Ltd.,
8.750%, 2/15/04, 144A.............................. 1,248,400
500,000 PDVSA Finance, Ltd.,
6.650%, 2/15/06.................................... 432,930
1,500,000 Pemex Finance, Ltd.,
9.150%, 11/15/18, 144A............................. 1,413,750
2,000,000 Pemex Petroleos Mexicanos,
9.500%, 9/15/27.................................... 1,660,000
925,000 Pindo Deli Finance Mauritius, Ltd.,
10.750%, 10/1/07................................... 652,125
5,000,000 Republic of Columbia,
7.625%, 2/15/07.................................... 3,775,000
4,958,000 Republic of Panama,
8.875%, 9/30/27.................................... 4,053,165
1,050,000 Republic of Panama,
8.875%, 9/30/27.................................... 858,375
500,000 Republic of Panama,
9.375%, 4/1/29..................................... 471,250
3,000,000 Sumitomo Bank International Finance NV,
8.500%, 6/15/09.................................... 3,013,680
2,000,000 Total Access Communication Public,
8.375%, 11/4/06, 144A.............................. 1,508,840
2,000,000 YPF Sociedad Anonima,
9.125%, 2/24/09.................................... 2,113,040
------------
29,327,335
------------
Total Bonds & Notes
(Identified Cost $76,833,210)...................... 76,260,485
------------
</TABLE>
See accompanying notes to financial statements.
35
<PAGE>
New England Zenith Fund
(Back Bay Advisors Managed Series)
Investments as of June 30, 1999 (Unaudited)
Warrants--0.0%
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
5,500 Republic of Argentina............................. $ 39,188
1,550 Republic of Argentina............................. 15,693
------------
54,881
------------
Total Warrants
(Identified Cost $166,344)....................... 54,881
------------
Short-Term Investment--0.2%
<CAPTION>
Face
Amount
<C> <S> <C>
$302,000 Household Finance Corp.,
5.500%, 7/1/99................................... 302,000
------------
Total Short-Term Investment
(Identified Cost $302,000)....................... 302,000
------------
Total Investments--99.5%
(Identified Cost $156,666,382)(b)................ 223,173,712
Other assets less liabilities..................... 1,103,163
------------
Total Net Assets--100%............................ $224,276,875
============
(a) See Note 1A of Notes to Financial Statements.
(b) Federal Tax Information:
At June 30, 1999 the net unrealized appreciation on investments based on cost
of $156,666,382 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.......... $ 72,414,882
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value.......... (5,907,552)
------------
Net unrealized appreciation.................................. $ 66,507,330
============
</TABLE>
(c) Non-Income producing security.
Key to Abbreviations:
CAD-- Canadian Dollar
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 $10,508,316 or 4.7% of
net assets.
ADR/GDR--An American Depositary Receipt (ADR) or Global Depositary Receipt
(GDR) is a certificate issued by a Custodian Bank representing the
right to receive securities of the foreign issuer described. The value
of ADRs and GDRs are significantly influenced by trading on exchanges
not located in the United States or Canada.
See accompanying notes to financial statements.
36
<PAGE>
New England Zenith Fund
(Back Bay Advisors Managed Series)
Statement of Assets & Liabilities
June 30, 1999 (unaudited)
<TABLE>
<S> <C> <C>
Assets
Investments at value.................................... $223,173,712
Cash.................................................... 55,086
Receivable for:
Fund shares sold........................................ 126,940
Dividends and interest.................................. 1,316,142
------------
Total Assets........................................... 224,671,880
Liabilities
Payable for:
Fund shares redeemed.................................... $201,517
Withholding taxes....................................... 639
Accrued expenses:
Management fees......................................... 90,086
Deferred trustees fees.................................. 59,158
Other expenses.......................................... 43,605
--------
Total Liabilities...................................... 395,005
------------
Net Assets.............................................. $224,276,875
============
Net assets consist of:
Capital paid in......................................... $131,791,532
Undistributed net investment income..................... 3,434,853
Accumulated net realized gains (losses)................. 22,542,485
Unrealized appreciation (depreciation) on investments
and foreign currency................................... 66,508,005
------------
Net Assets............................................... $224,276,875
============
Computation of offering price:
Net asset value and redemption price per share
($224,276,875 divided by 1,007,786 shares of beneficial
interest)............................................... $ 222.54
============
Identified cost of investments........................... $156,666,382
============
</TABLE>
Statement of Operations
Six Months Ended June 30, 1999
(unaudited)
<TABLE>
<S> <C> <C>
Investment Income
Dividends........................................ $ 1,061,792(a)
Interest......................................... 3,007,582
-----------
4,069,374
Expenses
Management fees.................................. $ 539,904
Trustees' fees and expenses...................... 8,992
Custodian........................................ 48,109
Audit and tax services........................... 8,343
Legal............................................ 7,400
Printing......................................... 24,975
Insurance........................................ 1,584
Miscellaneous.................................... 4,249
-----------
Total expenses................................... 643,556
-----------
Net Investment Income............................. 3,425,818
Realized and Unrealized Gain (Loss)
Realized gain (loss) on:
Investments--net................................. 18,709,031
Foreign currency transactions--net............... (313) 18,708,718
-----------
Unrealized appreciation (depreciation) on:
Investments--net................................. (7,181,005)
Foreign currency transactions--net............... 674 (7,180,331)
----------- -----------
Net gain (loss)................................... 11,528,387
-----------
Net Increase (Decrease) in Net Assets From
Operations....................................... $14,954,205
===========
</TABLE>
(a)Net of foreign taxes of $13,838.
See accompanying notes to financial statements.
37
<PAGE>
New England Zenith Fund
(Back Bay Advisors Managed Series)
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30,
1998 1999
------------ ------------
<S> <C> <C>
From Operations
Net investment income............................. $ 6,318,249 $ 3,425,818
Net realized gain (loss).......................... 11,371,308 18,708,718
Unrealized appreciation (depreciation)............ 18,240,693 (7,180,331)
------------ ------------
Increase (decrease) in net assets from operations. 35,930,250 14,954,205
------------ ------------
From Distributions to Shareholders
Net investment income............................. (6,267,551) 0
Net realized gain................................. (12,208,852) 0
------------ ------------
Total distributions............................... (18,476,403) 0
------------ ------------
From Capital Share Transactions
Proceeds from sale of shares...................... 28,307,821 22,961,419
Reinvestment of distributions..................... 18,476,403 0
Cost of shares redeemed........................... (39,381,579) (27,277,942)
------------ ------------
Increase (decrease) in net assets from capital
share transactions............................... 7,402,645 (4,316,523)
------------ ------------
Total increase (decrease) in net assets........... 24,856,492 10,637,682
Net Assets
Beginning of the period........................... 188,782,701 213,639,193
------------ ------------
End of the period................................. $213,639,193 $224,276,875
============ ============
Undistributed (overdistributed) Net Investment
Income
End of the period................................. $ 9,035 $ 3,434,853
============ ============
Number of shares of the Fund:
Issued from the sale of shares.................... 137,877 106,241
Issued in reinvestment of distributions........... 88,585 0
Redeemed.......................................... (192,507) (126,768)
------------ ------------
Net change........................................ 33,955 (20,527)
============ ============
</TABLE>
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended
------------------------------------------------ June 30,
1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period................ $ 137.18 $ 130.30 $ 163.52 $ 170.37 $ 189.85 $ 207.76
-------- -------- -------- -------- -------- --------
Income From Investment
Operations
Net Investment Income.... 5.42 6.34 6.43 6.38 6.56 3.40
Net Realized and
Unrealized Gain (Loss)
on Investments.......... (6.92) 34.33 18.21 38.47 30.50 11.38
-------- -------- -------- -------- -------- --------
Total From Investment
operations.............. (1.50) 40.67 24.64 44.85 37.06 14.78
-------- -------- -------- -------- -------- --------
Less Distributions
Distributions From Net
Investment Income....... (5.38) (6.34) (6.34) (6.42) (6.51) 0.00
Distributions in Excess
of Net Investment
Income.................. 0.00 (0.23) 0.00 0.00 0.00 0.00
Distributions From Net
Realized Capital Gains.. 0.00 (0.88) (11.45) (18.95) (12.64) 0.00
-------- -------- -------- -------- -------- --------
Total Distributions...... (5.38) (7.45) (17.79) (25.37) (19.15) 0.00
-------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period................... $ 130.30 $ 163.52 $ 170.37 $ 189.85 $ 207.76 $ 222.54
======== ======== ======== ======== ======== ========
Total Return (%).......... (1.1) 31.3 15.0 26.6 19.7 7.1(a)
Ratio of Operating
Expenses to Average Net
Assets (%)............... 0.54 0.64 0.62 0.61 0.58 0.60(b)
Ratio of Net Investment
Income to Average Net
Assets (%)............... 3.98 4.06 3.64 3.20 3.15 3.17(b)
Portfolio Turnover Rate
(%)...................... 76 51 72 65 25 64(b)
Net Assets, End of Period
(000)......................$121,877 $147,536 $160,888 $188,783 $213,639 $224,277
</TABLE>
(a) Not computed on an annualized basis.
(b) Computed on an annualized basis.
See accompanying notes to financial statements.
38
<PAGE>
Loomis Sayles Balanced Series
Portfolio Managers: Tricia Mills, Tom Kolefas and John Hyll
Loomis, Sayles & Company, L.P.
(PHOTO OF TRICIA MILLS APPEARS HERE)
(PHOTO OF BARR SEGAL APPEARS HERE)
(PHOTO OF MERI ANNE BECK APPEARS HERE)
Q. How did the Series perform during the past six months relative to its index
and relative to its peers?
A. The Loomis Sayles Balanced Series had a total return of 3.4% in the first 6
months of 1999 compared to the 12.2% return for the Standard and Poor's 500
Stock Index/25/ and a -2.3% return of the Lehman Brothers Government/Corporate
Bond Index/3/ and a 7.0% return for a static 65% S&P 500/35% Lehman
Government/Corporate Composite index. The Lipper Variable Products Balanced
Fund Average/7/ returned 6.6% in this same time period.
Q. Briefly discuss the investment and market environment during the past six
months.
A. On the equity side, the investment environment was very inhospitable for
value managers in the first three months of the year, and the returns of the
Series suffered, declining 2.2% versus an S&P 500 return of 5.0%. The percep-
tion that we were in a global economic recession and that corporate earnings
growth would be difficult to achieve carried over from 1998 into the first
quarter of 1999. In such an environment, the few large growth companies that
can achieve stable earnings growth (e.g. Cisco, Lucent, Pfizer, GE) are rare,
and therefore, are bid up by investors looking for the certainty and comfort of
rising earnings. Starting in March and continuing into the second quarter, new
evidence of improved economic conditions in Asia (especially South Korea and
Hong Kong, but also Japan) and Central Bank monetary stimulus in Europe began
changing investor perceptions of economic growth and corporate earnings growth
in the U.S. In the meantime, the U.S. economy was exceptionally strong, as con-
sumer spending stimulated GDP growth to a 4% + level in the first half of the
year. Lastly, the agreement that Organization of Petroleum Exporting Countries
(OPEC) reached to curtail oil production helped lift the price of oil from $11
to $19 per barrel, greatly alleviating the economic pressures in Russia, South
America, Indonesia, and the Middle East. With greater clarity on a worldwide
economic recovery, investors became bargain hunters again, looking to pay lower
P/E multiples for a given level of earnings growth. This naturally led them to
buy "beaten up", cyclical value stocks, which had built up huge disparities in
valuation relative to growth stocks. This helped our performance in the second
quarter. The Series returned 5.7% Compared to a 4.1% return of a 65%/35% blend
of the S&P 500 and Lehman Government Corporate Bond Index.
In the Fixed Income markets, the U.S. Treasury Thirty-Year long bond's yield
rose 0.88% from 5.09% on December 31, 1998 to 5.97% on June 30, 1999. The Ten-
Year Treasury note rose even more, 1.14% from 4.64% to 5.78 % over the same six
month period. The reason for this increase in yields was a change in Fed policy
during the second quarter and a continued robust U.S. economy that led to in-
flation fears and finally to a Fed interest rate increase of 0.25% on June 30,
1999. On a nominal basis, the Lehman Corporate Bond Index beat the Lehman Gov-
ernment Index in the first quarter. Both sectors suffered losses, but corporate
securities outperformed government securities. Despite their longer duration,
corporate securities were able to outperform as strong economic growth eased
credit fears, allowing spreads to tighten. However, in the second quarter cor-
porate spreads widened and the corporate sector performed poorly compared to
governments. Both sectors now have similar year-to-date returns of -2.3%.
Q. Given this investment environment, what was your investment strategy? What
changes did you make since the start of the year?
A. Our investment strategy for the equities has always been to find undervalued
stocks relative to their industry peers, and to be broadly diversified among
industries. The stocks we buy typically trade at below market price to earnings
or price to cash flow ratios and are typically greater than $2 billion in mar-
ket capitalization. In short, we track the large cap value indices such as Rus-
sell 1000 Value and S&P Barra Value. We tilted the portfolio toward more cycli-
cally sensitive names as we became more confident in the global economic envi-
ronment. We added holdings in Energy, (i.e. Baker Hughes) Basic Industry (i.e.
Dow Chemical, Willamette, Rohm and Haas) and Capital Goods (i.e. Owens Illi-
nois, Eaton) and Consumer Cyclicals (i.e. Dana). In retrospect, we did not make
a sudden
39
<PAGE>
and sizeable "bet" in cyclicals that may have kept us from capitalizing even
more in April and May. However, our more balanced approach proved to be benefi-
cial in June, as the market rotated back to the tried and true steady growth
stocks when investors feared the Fed would raise interest rates rapidly, and
thereby slow down the economy. The Fed's muted response of a 0.25% increase in
the Fed Funds rate on June 30th and a move back to a "neutral" stance should
make for a more balanced market going forward. Nevertheless, the disparity be-
tween Value and Growth stock valuation is still quite high and we are posi-
tioned to take advantage of the closing of that gap.
Our focus on intermediate maturity bonds and an overweighting in corporate
bonds did not add to performance. We think corporate bonds continue to be at-
tractive at current wide yield spreads and thus have not changed our
overweighting. There has been no change in our bulleted maturity structure with
currently 78% of the fixed income portion of the fund positioned in medium term
bonds with a 5-10 year maturity. Mortgage securities remain approximately 19%
of the fixed income portfolio and are generally discount securities. Since the
start of the year we added to our corporate bond holdings in the energy sector
with such names as Trans-Canada Pipelines, Calpine Corp and Nabors Industries.
We also added to our existing mortgage holdings GNMA 6.5% and FNMA 5.5% mort-
gages. We sold names like MGM Grand and KN Energy as credit quality weakened.
Q. What were the principal factors affecting your performance (on both an
absolute and relative basis) during the past six months? What investment
decisions were most effective and which ones were least effective?
A. The principal factors affecting our equity performance were: 1) the
growth/value cycle as described above, which we believe affected most value
managers, and 2) our balanced sector approach that probably had a neutral ef-
fect in the second quarter, but made us lag some of our deeper value peers who
were very overweighted in Energy, Basic Industry and other cyclicals. In terms
of sector returns, our overweighting in Telecommunications, Capital Goods and
Energy proved to be good decisions. Our overweighting (relative to the S&P 500)
in Financials and in Consumer Cyclicals hurt performance as rising interest
rates tend to hurt valuations in these areas.
The principal factor affecting our fixed income performance during the first
half of the year was our slightly longer duration and bulleted yield curve
placement that was negative for performance. Our overweighting in corporate
bonds and underweighting in U.S. Government bonds was neutral. During the first
quarter corporate bonds performed better than government securities, while
mortgage, asset-backed and high yield securities were the best performing fixed
income securities. During the second quarter, government securities generally
outperformed corporate securities. The only sectors of the corporate market to
outperform government securities for the second quarter were the commodity
cyclicals (chemicals, energy, paper, metals & mining), electric utilities and
tobacco. Helped by rising oil prices and firming overseas economies, the com-
modity cyclicals had performed very well in the first quarter and continued
that pattern into April and May. In June, the cyclicals succumbed to the forces
affecting the rest of the credit market, but still managed to score positive
excess returns for the quarter. Our energy, paper and chemical holdings did
well and contributed to performance. Our other industrial and financial hold-
ings performed poorly in this environment. Relative to the Lehman Government
Corporate Index, we were overweighted in industrial and financial securities.
Q. What is your outlook for the market and your portfolio for the next six
months? What changes, if any, will you make to the way you manage your
portfolio?
A. Our outlook for the equity market is constructive (i.e. flat to up 5%) in
the latter half of the year based on continuing non-inflationary economic
growth and easy earnings comparisons for the cyclical parts of the market,
which suffered from the global financial crisis last year, in the August to Oc-
tober period. This gives us optimism that value stocks are well positioned for
the economic environment. The risks to this forecast are that economic growth
suddenly slows again (i.e. the foreign economies fail to re-ignite) or economic
growth is too strong and the U.S. Federal Reserve Bank and other Central Banks
"slam on the brakes" by raising interest rates. We believe the risk of the for-
mer will keep the latter from happening. We believe that The U.S. Federal Re-
serve Bank will not aggressively raise rates while it is still uncertain that
the rest of the world is all the way back. We believe the healing process will
take several more quarters, if not years, and this bodes well for both value
investing and for the mid-cap sector of the market (which we participate in) to
do better in the period ahead.
From a fixed income perspective, we believe the U.S. Federal Reserve Bank may
tighten one more time during the next six months. We think that interest rates
will remain in a narrow range between 5.5% and 6.25%. Although most of the good
news is out in terms of inflation, we do not think it will get out of hand. The
economy should slow moderately and this will be positive for interest rates. We
will not make any major changes in the way we manage this portfolio. We intend
to remain overweighted in corporate bonds and will increase our U.S. Government
Agency holdings as they are currently at attractive spread levels versus U. S.
Treasury notes.
40
<PAGE>
A $10,000 investment compared to the S&P 500 and
Lehman Brothers Gov't/Corp. Indices
since the Series' inception
[CHART APPEARS HERE]
Balanced Series Lehman Govt. Corp. S&P 500
10/31/94 10,000 10,000 10,000
6/30/95 11,568 11,232 11,746
6/30/96 12,999 11,756 14,807
6/30/97 15,812 12,668 19,924
6/30/98 17,993 14,097 25,942
6/30/99 19,104 14,477 31,837
Average Annual Return
Lipper Variable
Balanced Lehman Balanced Fund
Series Government/Corp. S&P 500 Average
6 months 3.4% -2.3% 12.2% 6.6%
1 year 6.2 2.7 22.7 11.5
3 years 13.7 7.2 29.1 16.6
Since Inception 14.9 8.3 28.2 n/a
.. 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: $210 million as of June 30, 1999
Managers: Tricia Mills, John Hyll and Tom Kolefas serve as portfolio managers of
Loomis Sayles Balanced Series. Ms. Mills and Mr. Hyll have served as portfolio
managers since the Series inception. Mr. Kolefas joined the management of the
Series in September 1998.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts. If these charges were included, the returns shown would
be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
41
<PAGE>
New England Zenith Fund
(Loomis Sayles Balanced Series)
Investments as of June 30, 1999 (Unaudited)
Common Stocks--65.2% of Total Net Assets
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Aerospace/Defense--1.0%
30,300 Northrop Grumman Corp.................................... $ 2,009,269
------------
Auto & Related--1.9%
30,100 Dana Corp................................................ 1,386,481
21,300 Ford Motor Co. .......................................... 1,202,119
20,800 General Motors Corp...................................... 1,372,800
------------
3,961,400
------------
Banks--8.4%
34,774 Bank of America Corp. ................................... 2,549,369
21,700 Chase Manhattan Corp..................................... 1,879,763
61,550 Citigroup, Inc........................................... 2,923,623
69,500 Fleet Financial Group, Inc............................... 3,084,063
39,700 KeyCorp.................................................. 1,275,363
52,600 PNC Bank Corp. .......................................... 3,031,075
65,600 Wells Fargo & Co......................................... 2,804,400
------------
17,547,656
------------
Building & Related--2.7%
34,800 Black & Decker Corp...................................... 2,196,750
23,000 Koninklijke Philips Electronics N.V. (ADR)............... 2,320,125
43,100 Masco Corp............................................... 1,244,513
------------
5,761,388
------------
Chemicals--Major--0.7%
10,900 Dow Chemical Co. ........................................ 1,382,938
------------
Chemicals--Specialty--2.6%
67,700 Crompton & Knowles Corp.................................. 1,324,381
31,700 Rohm and Haas Co......................................... 1,359,138
64,100 Solutia, Inc............................................. 1,366,131
74,300 W.R. Grace & Co.(c)...................................... 1,365,263
------------
5,414,913
------------
Computer--Hardware--3.7%
78,000 Compaq Computer Corp..................................... 1,847,625
14,300 Hewlett-Packard Co. ..................................... 1,437,150
34,500 International Business Machines Corp..................... 4,459,125
------------
7,743,900
------------
Containers--Metal/Glass--0.7%
45,200 Owens-Illinois, Inc.(c).................................. 1,477,475
------------
Electric Companies--3.0%
44,600 CMS Energy Corp.......................................... 1,867,625
29,400 DQE, Inc................................................. 1,179,675
49,200 Texas Utilities Co....................................... 2,029,500
32,500 Unicom Corp. ............................................ 1,253,281
------------
6,330,081
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Electronics--1.4%
40,700 Raytheon Co. Class B..................................... $ 2,864,263
------------
Entertainment--1.6%
46,600 Time Warner, Inc......................................... 3,425,100
------------
Financial--Consumer Diversified--3.5%
49,300 Associates First Capital Corp............................ 2,184,606
48,500 CIT Group, Inc. ......................................... 1,400,437
27,500 Federal National Mortgage Association.................... 1,880,313
36,900 FINOVA Group, Inc........................................ 1,941,863
------------
7,407,219
------------
Health Care--Drugs--0.6%
18,600 Bristol-Myers Squibb Co.................................. 1,310,138
------------
Health Care--Services--0.5%
59,300 Tenet Healthcare Corp.(c)................................ 1,100,756
------------
Household Products--1.6%
22,500 Kimberly-Clark Corp...................................... 1,282,500
42,900 Newell Rubbermaid, Inc. ................................. 1,994,850
------------
3,277,350
------------
Insurance--4.4%
84,000 ACE, Ltd. ............................................... 2,373,000
44,000 Allstate Corp............................................ 1,578,500
29,800 Everest Reinsurance Holdings, Inc........................ 972,225
23,700 Hartford Financial Services Group, Inc................... 1,382,006
66,400 ReliaStar Financial Corp................................. 2,905,000
------------
9,210,731
------------
Investment Banking/Broker/ Management--1.4%
31,900 Bear Stearns Companies, Inc.............................. 1,491,325
14,100 Morgan Stanley Dean Witter & Co.......................... 1,445,250
------------
2,936,575
------------
Leisure Time--1.1%
86,150 Hasbro Inc............................................... 2,406,816
------------
Machinery--0.5%
24,900 Deere & Co............................................... 986,663
------------
Maufacturing--Diversified--0.6%
14,800 Eaton Corp............................................... 1,361,600
------------
Natural Gas--1.5%
27,600 Columbia Energy Group.................................... 1,730,175
23,100 Consolidated Natural Gas Co. ............................ 1,403,325
------------
3,133,500
------------
</TABLE>
See accompanying notes to financial statements.
42
<PAGE>
New England Zenith Fund
(Loomis Sayles Balanced Series)
Investments as of June 30, 1999 (Unaudited)
Common Stocks--(Continued)
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Oil & Gas/Major Integrated--5.4%
25,311 BP Amoco P.L.C. (ADR).................................... $ 2,746,244
46,700 Conoco Inc............................................... 1,301,763
39,700 Exxon Corp. ............................................. 3,061,863
38,200 Royal Dutch Petroleum Co. (ADR).......................... 2,301,550
59,300 USX--Marathon Group...................................... 1,930,955
------------
11,342,375
------------
Oil & Gas--Drilling Equipment--0.5%
32,000 Baker Hughes, Inc........................................ 1,072,000
------------
Paper & Forest Products--0.5%
22,600 Willamette Industries, Inc. ............................. 1,041,013
------------
Photography/Imaging--1.0%
35,500 Xerox Corp............................................... 2,096,719
------------
Retail--Food & Drug--0.7%
49,200 Kroger Co.(c)............................................ 1,374,525
------------
Retail--General--1.6%
37,800 Dillard's, Inc........................................... 1,327,725
38,200 Federated Department Stores, Inc.(c)..................... 2,022,213
------------
3,349,938
------------
Retail--Specialty--1.2%
72,800 TJX Companies, Inc. ..................................... 2,425,150
------------
Telephone--6.8%
56,000 Ameritech Corp........................................... 4,116,000
75,500 BellSouth Corp. ......................................... 3,539,063
51,700 GTE Corp................................................. 3,916,275
44,200 U S West, Inc............................................ 2,596,750
------------
14,168,088
------------
Telephone/Long Distance--2.4%
45,450 AT & T Corp.............................................. 2,536,673
46,600 Sprint Corp. ............................................ 2,461,063
------------
4,997,736
------------
Tobacco--0.7%
38,000 Philip Morris Companies, Inc............................. 1,527,125
------------
Transportation--0.5%
30,000 CNF Transportation, Inc.................................. 1,151,250
------------
Waste Management--0.5%
19,100 Waste Management, Inc.................................... 1,026,625
------------
Total Common Stocks (Identified Cost $116,804,562)....... 136,622,275
------------
</TABLE>
Medium & Long Term Bonds & Notes--32.7%
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
Banks--0.6%
$1,280,000 Mellon Bank N. A. 7.000%, 3/15/06................... $ 1,285,901
50,000 Norwest Corp. 7.650%, 3/15/05....................... 52,245
------------
1,338,146
------------
Consumer--2.8%
1,325,000 Amerco, Inc. 7.850%, 5/15/03........................ 1,275,551
1,995,000 Coca-Cola Enterprises, Inc. 6.750%, 1/15/38......... 1,820,737
880,000 Dell Computer Corp. 6.550%, 4/15/08................. 840,655
1,100,000 Dillard's, Inc. 6.430%, 8/01/04..................... 1,062,226
950,000 FMC Corp. 7.125%, 11/25/02.......................... 946,665
------------
5,945,834
------------
Electric Utilities--0.5%
1,000,000 Calpine Corp. 7.625%, 4/15/06....................... 968,490
------------
Energy--2.5%
125,000 Coastal Corp. 8.125%, 9/15/02....................... 130,631
1,040,000 Kerr-McGee Corp. 6.625%, 10/15/07................... 990,579
940,000 Nabors Industries, Inc. 6.800%, 4/15/04............. 917,167
1,250,000 Occidental Petroleum Corp. 6.400%, 4/1/03........... 1,224,738
1,230,000 Tosco Corp. 7.625%, 5/15/06......................... 1,252,632
740,000 USX-Marathon Group
8.500%, 3/1/23..................................... 785,932
------------
5,301,679
------------
Equipment Trust--0.0%
25,000 American Airlines 10.180%, 1/2/13................... 29,498
------------
Federal Agencies--6.4%
1,241,949 Federal Home Loan Mortgage 6.000%, 12/01/27......... 1,169,370
1,965,237 Federal National Mortgage Association 5.500%,
1/1/14............................................. 1,835,079
620,000 Federal National Mortgage Association 6.000%,
2/25/24............................................ 572,415
1,111,490 Federal National Mortgage Association 6.000%,
3/1/28............................................. 1,044,100
2,130,413 Federal National Mortgage Association 6.000%,
4/1/28............................................. 2,001,246
7,084,213 Government National Mortgage Association 6.500%,
4/15/29............................................ 6,837,825
------------
13,460,035
------------
Finance--3.2%
225,000 Bankers Trust N.Y. Corp. 7.625%, 8/15/05............ 230,078
1,040,000 Bear Stearns Companies, Inc. 6.750%, 12/15/07....... 1,003,870
</TABLE>
See accompanying notes to financial statements.
43
<PAGE>
New England Zenith Fund
(Loomis Sayles Balanced Series)
Investments as of June 30, 1999 (Unaudited)
Medium & Long Term Bonds & Notes--
(Continued)
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
Finance--(Continued)
$ 260,000 Dean Witter Discover & Co. 6.750%, 1/1/16........... $ 245,604
200,000 Donaldson Lufkin & Jenrette, Inc. 6.875%, 11/1/05... 197,268
1,180,000 Household Finance Corp. 6.500%, 11/15/08............ 1,125,142
200,000 Lehman Brothers Holdings, Inc. 7.360%, 12/15/03..... 201,748
440,000 National Health Investors, Inc. 7.300%, 7/16/07..... 382,228
280,000 Oasis Residential, Inc. 7.000%, 11/15/03............ 271,919
840,000 Prologis Trust 7.050%, 7/15/06...................... 808,937
1,130,000 Provident Companies, Inc. 6.375%, 7/15/05........... 1,096,179
480,000 Salomon, Inc. 7.000%, 3/15/04....................... 486,192
145,000 Salomon, Inc. 7.500%, 2/1/03........................ 149,293
520,000 Sears Roebuck Acceptance Corp. 6.950%, 5/15/02...... 528,674
------------
6,727,132
------------
Leisure Time--1.3%
1,100,000 Carnival Corp. 7.050%, 5/15/05...................... 1,112,837
960,000 Royal Caribbean Cruises, Ltd. 7.000%, 10/15/07...... 929,174
760,000 Royal Caribbean Cruises, Ltd. 7.500%, 10/15/27...... 712,706
------------
2,754,717
------------
Manufacturing--1.2%
260,000 Koninklijke Phillips Electronics N.V. 7.250%,
8/15/13............................................ 247,741
1,370,000 Oakwood Homes Corp. 8.125%, 3/1/09.................. 1,316,419
670,000 Raytheon Co. 6.300%, 3/15/05........................ 657,572
200,000 Tektronix, Inc. 7.625%, 8/15/02..................... 201,042
------------
2,422,774
------------
Real Estate--0.4%
790,000 Liberty Property L.P. 6.950%, 12/1/06............... 735,308
------------
Service--2.1%
300,000 La Quinta Inns, Inc. 7.400%, 9/15/05................ 250,332
1,070,000 Nielsen Media Research, Inc. 7.600%, 6/15/09........ 1,082,947
100,000 Secured Finance, Inc. 9.050%, 12/15/04.............. 107,867
1,375,000 TransCanada Pipelines, Ltd. 7.150%, 6/15/06......... 1,384,598
</TABLE>
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
Service--(Continued)
$1,500,000 Tricon Global Restaurants, Inc. 7.450%, 5/15/05...... $ 1,497,075
------------
4,322,819
------------
Telephone--0.7%
950,000 Sprint Spectrum L.P., 0/12.500%, 8/15/06(d).......... 865,146
680,000 U S West Capital Funding, Inc. 6.250%, 7/15/05....... 659,104
------------
1,524,250
------------
Transportation--1.2%
100,000 AMR Corp. 10.290%, 3/8/21............................ 124,632
1,355,640 Federal Express Corp. 7.020%, 1/15/16................ 1,271,252
460,000 Norfolk Southern Corp. 7.050%, 5/1/37................ 466,288
600,000 Northwest Airlines Corp. 8.375%, 3/15/04............. 577,476
------------
2,439,648
------------
U.S. Government--9.8%
1,300,000 United States Treasury Bonds 10.375%, 11/15/12....... 1,656,486
500,000 United States Treasury Notes 5.625%, 2/15/06......... 492,500
4,500,000 United States Treasury Notes 6.125%, 8/15/07......... 4,548,510
3,000,000 United States Treasury Notes 6.500%, 10/15/06........ 3,097,500
2,600,000 United States Treasury Notes 6.500%, 5/15/05......... 2,679,612
2,305,000 United States Treasury Notes 6.500%, 8/15/05......... 2,375,948
3,290,000 United States Treasury Notes 6.625%, 5/15/07......... 3,426,239
2,050,000 United States Treasury Notes 7.000%, 7/15/06......... 2,171,400
------------
20,448,195
------------
Total Bonds & Notes (Identified Cost $70,478,446).... 68,418,525
------------
</TABLE>
See accompanying notes to financial statements.
44
<PAGE>
New England Zenith Fund
(Loomis Sayles Balanced Series)
Investments as of June 30, 1999 (Unaudited)
Short-Term Investment--1.5%
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
$3,132,640 Associates First Capital Corp., 5.250%, 7/01/99..... $ 3,132,640
------------
Total Short-Term Investments (Identified Cost
$3,132,640)........................................ 3,132,640
------------
Total Investments--99.4%
(Identified Cost $190,415,648)(b).................. 208,173,440
Other assets less liabilities....................... 1,367,069
------------
Total Net Assets--100%.............................. $209,540,509
============
</TABLE>
(a) See Note 1A of Notes to Financial Statements.
(b) Federal Tax Information: At June 30, 1999 the net unrealized appreciation
on investments based on cost of $190,415,648 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............... $ 23,165,345
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value............... (5,407,553)
------------
Net unrealized appreciation.................................... $ 17,757,792
============
</TABLE>
(c) Non-Income producing security.
(d) Step Bond: Coupon rate is zero or below market for an initial period and
then increased to a higher coupon rate at a specified date.
Key to Abbreviations:
ADR/GDR--An American Depositary Receipt (ADR) or Global Depositary Receipt
(GDR) is a certificate issued by a Custodian Bank representing the
right to receive securities of the foreign issuer described. The value
of ADRs and GDRs are significantly influenced by trading on exchanges
not located in the United States or Canada.
See accompanying notes to financial statements.
45
<PAGE>
New England Zenith Fund
(Loomis Sayles Balanced Series)
Statement of Assets & Liabilities
June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets
Investments at value.................................... $208,173,440
Receivable for:
Securities sold......................................... 565,445
Fund shares sold........................................ 396,985
Dividends and interest.................................. 1,221,207
Unamortized organization expense........................ 669
------------
Total Assets........................................... 210,357,746
Liabilities
Payable for:
Fund shares redeemed.................................... $330,003
Securities purchased.................................... 324,781
Accrued expenses:
Management fees......................................... 117,871
Deferred trustees fees.................................. 5,698
Other expenses.......................................... 38,884
--------
Total Liabilities...................................... 817,237
------------
Net Assets............................................... $209,540,509
============
Net assets consist of:
Capital paid in......................................... $184,634,353
Undistributed net investment
income................................................. 2,669,995
Accumulated net realized gains (losses)................. 4,478,369
Unrealized appreciation (depreciation) on investments... 17,757,792
------------
Net Assets............................................... $209,540,509
============
Computation of offering price:
Net asset value and redemption price per share
($209,540,509 divided by 13,059,970 shares of beneficial
interest)............................................... $ 16.04
============
Identified cost of investments........................... $190,415,648
============
</TABLE>
Statement of Operations
Six Months Ended June 30, 1999
(Unaudited)
<TABLE>
<S> <C> <C>
Investment Income
Dividends........... $1,071,545
Interest............ 2,342,905
----------
3,414,450
Expenses
Management fees..... $682,357
Trustees' fees and
expenses........... 8,594
Custodian........... 28,774
Audit and tax
services........... 10,275
Legal............... 5,644
Printing............ 21,844
Amortization of
organization
expense............ 997
Insurance........... 1,452
Miscellaneous....... 1,456
--------
Total expenses...... 761,393
----------
Net Investment
Income.............. 2,653,057
Realized and
Unrealized Gain
(Loss)
Realized gain (loss)
on:
Investments--net.... 3,753,175
Unrealized
appreciation
(depreciation) on:
Investments--net.... 612,961
----------
Net gain (loss)...... 4,366,136
----------
Net Increase
(Decrease) in Net
Assets From
Operations.......... $7,019,193
==========
</TABLE>
(a) Net of foreign taxes of $12,547.
See accompanying notes to financial statements.
46
<PAGE>
New England Zenith Fund
(Loomis Sayles Balanced Series)
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30,
1998 1999
------------ ------------
<S> <C> <C>
From Operations
Net investment income............................. $ 4,446,775 $ 2,653,057
Net realized gain (loss).......................... 3,801,920 3,753,175
Unrealized appreciation (depreciation)............ 6,024,365 612,961
------------ ------------
Increase (decrease) in net assets from operations. 14,273,060 7,019,193
------------ ------------
From Distributions to Shareholders
Net investment income............................. (4,483,422) 0
Net realized gain................................. (3,664,526) 0
------------ ------------
Total distributions............................... (8,147,948) 0
------------ ------------
From Capital Share Transactions
Proceeds from sale of shares...................... 85,422,334 41,606,643
Reinvestment of distributions..................... 8,147,948 0
Cost of shares redeemed........................... (46,561,460) (29,662,387)
------------ ------------
Increase (decrease) in net assets from capital
share transactions............................... 47,008,822 11,944,256
------------ ------------
Total increase (decrease) in net assets........... 53,133,934 18,963,449
Net Assets
Beginning of the period........................... 137,443,126 190,577,060
------------ ------------
End of the period................................. $190,577,060 $209,540,509
============ ============
Undistributed (overdistributed) Net Investment
Income
End of the period................................. $ 16,934 $ 2,669,995
============ ============
Number of shares of the Fund:
Issued from the sale of shares.................... 5,541,834 2,686,186
Issued in reinvestment of distributions........... 527,948 0
Redeemed.......................................... (3,032,615) (1,913,176)
------------ ------------
Net change........................................ 3,037,176 773,010
============ ============
</TABLE>
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
October 31, 1994(a)
through Year Ended December 31, Six Months
December 31, ------------------------------------ Ended June
1994 1995 1996 1997 1998 30, 1999
------------------- ------- ------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period................ $10.00 $ 9.94 $ 11.95 $ 13.55 $ 14.86 $ 15.51
------ ------- ------- -------- -------- --------
Income From Investment
Operations
Net Investment Income.... 0.05 0.26 0.27 0.28 0.38 0.20
Net Realized and
Unrealized Gain (Loss)
on Investments.......... (0.06) 2.20 1.73 1.90 0.97 0.33
------ ------- ------- -------- -------- --------
Total From Investment
operations.............. (0.01) 2.46 2.00 2.18 1.35 0.53
------ ------- ------- -------- -------- --------
Less Distributions
Distributions From Net
Investment Income....... (0.05) (0.26) (0.27) (0.27) (0.38) 0.00
Distributions From Net
Realized Capital Gains.. 0.00 (0.19) (0.13) (0.60) (0.32) 0.00
Distributions in Excess
of Net Realized Capital
Gains................... 0.00 0.00 0.00 0.00 0.00 0.00
------ ------- ------- -------- -------- --------
Total Distributions...... (0.05) (0.45) (0.40) (0.87) (0.70) 0.00
------ ------- ------- -------- -------- --------
Net Asset Value, End of
Period................... $ 9.94 $ 11.95 $ 13.55 $ 14.86 $ 15.51 $ 16.04
====== ======= ======= ======== ======== ========
Total Return (%).......... (0.1)(b) 24.8 16.9 16.2 9.1 3.4(b)
Ratio of Operating
Expenses to Average Net
Assets (%)............... 0.85 (c) 0.85 0.85 0.85 0.82 0.78(c)
Ratio of Net Investment
Income to Average Net
Assets (%)............... 4.16 (c) 4.03 3.08 2.79 2.72 2.72(c)
Portfolio Turnover Rate
(%)...................... 0 (c) 72 59 60 72 56(c)
Net Assets, End of Period
(000)...................... $2,722 $18,823 $58,525 $137,443 $190,577 $209,541
The Ratios of operating
expenses to average net
assets without giving
effect to the voluntary
expense agreement
described in Note 4 to
the Financial Statements
would have been (%)...... 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.
47
<PAGE>
Alger Equity Growth Series
Portfolio Managers: David D. Alger (Pictured) and Ron Tartaro
Fred Alger Management, Inc.
[PHOTO OF DAVID D.ALGER APPEARS HERE]
Q. How did the Series perform during the past six months relative to its index
and relative to its peers?
A. For the six month period ended June 30, 1999, the Alger Equity Growth Series
posted a return of 16.3%, outperforming its index, the S&P 500/25/, which re-
turned 12.2%. Performance was also favorable when compared to the Lipper Vari-
able Products Growth Fund Average/10/, which returned 12.6% for the same peri-
od.
Q. Briefly discuss the investment and market environment during the past six
months?
A. During the first quarter of 1999, after fluctuations amid profit taking, the
stock market approached the 10,000 level late in the quarter, before finally
closing over 10,000 on March 29th. Meanwhile, the economy was robust, interest
rates and inflation were at low levels, and we saw the beginnings of a techno-
logical revolution led by the Internet. All of these factors contributed to a
strong quarter for the Alger Equity Growth Series and the stock market in gen-
eral.
The second quarter also saw the stock market approach new heights, crossing the
11,000 boundary during the period, only to close out the period slightly below
that level. Internet stocks also played a prominent role during the quarter,
this time reversing the previous trend, and, in some cases, posting huge loss-
es. Inflation remained one of the paramount concerns in the market as the Fed
shifted to a tightening bias at the May 18th meeting. Subsequently at the June
meeting the Fed raised rates a quarter of a percentage point, but shifted back
to a neutral bias. The economy was still robust, although there were some signs
of slowing. All of these factors contributed to a challenging quarter for the
Series as Small Cap stocks performed better than their larger cap peers did.
Q. Given this investment environment, what was your investment strategy? What
changes did you make since the start of the year?
A. The management of the Series remained unchanged, a research intensive, bot-
tom-up approach focusing on rapidly growing large cap stocks. Consistent cash
inflows helped fuel investment opportunities and precluded the selling of core
holdings in order to satisfy redemptions. As of June 30, 1999, the Alger Equity
Growth Series held 65 stocks representing 96.2% of the $613 million in total
net assets.
Q. What were the principal factors affecting your performance (on both an
absolute and relative basis) during the past six months? What investment
decisions were most effective and which ones were least effective?
A. During the first quarter, the Series' favorable performance relative to the
S&P 500 Index was augmented by holding weighted positions in technology, and
specifically in Internet stocks, which were strong performers. Among the best
performing stocks held for the quarter were America On Line Inc. (+89.5%), EMC
Corp. (+50.3%) and Yahoo Inc. (+42.1%).
Overweighting in the weak performing consumer cyclicals sector as well as the
poor performance of Internet related holdings hindered the Series' overall re-
turns for the second quarter. Previously strong performing Internet related
holdings gave back some of their gains during the quarter. At Home Corp.
(-31.5%), Amazon.Com Inc. (-27.3%) and America On Line Inc. (-25.2%) were the
Series' three worst performing holdings.
Q. What is your outlook for the market and for your portfolio for the next six
months? What changes, if any, will you make to the way you manage your
portfolio?
A. While the economy still appears to be robust, there are signs of slowing.
Interest rates on the long end of the market should be considerably lower by
year-end, and the Fed will hopefully maintain its neutral bias. This should
spark a year-end rally, pushing the market to a new high. Setting our sights
even further ahead it appears that 2000 will be a year of moderate growth and
even lower interest rates. Continuing forward, the Alger Equity Growth Series
will continue to seek out and invest in companies that we feel will grow their
earnings rapidly and consistently.
48
<PAGE>
A $10,000 Investment compared to the S&P 500 Index
since the Series inception
[CHART APPEARS HERE]
Alger Equity Growth S&P 500
10/31/94 10,000 10,000
6/30/95 12,687 11,746
6/30/96 15,020 14,807
6/30/97 18,812 19,924
6/30/98 25,530 25,942
6/30/99 34,810 31,837
Average Annual Return
Equity Growth S&P 500 Lipper Variable Growth
Series Fund Average
6 months 16.3% 12.2% 12.6%
1 year 36.4 22.7 20.5
3 years 32.4 29.1 24.5
Since Inception 30.6 28.2 n/a
.. Fund Facts
Goal: Long-term capital appreciation.
Start date: October 31, 1994
Size: $613million as of June 30,1999
Manager: David D. Alger and Ron Tartaro have managed the Alger Equity Growth
Series since its inception in 1994. Mr. Alger is President and Chief Executive
Officer of Fred Alger Management, Inc., and has been portfolio manager of The
Alger Growth Portfolio since 1986, The Alger American Fund Growth Portfolio
since 1989 and the Alger Retirement Fund since 1993. Mr. Tartaro has been
employed by Alger since 1990 and has been a Senior Vice President since 1995.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts. If these charges were included, the returns shown would
be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
49
<PAGE>
New England Zenith Fund
(Alger Equity Growth Series)
Investments as of June 30, 1999 (Unaudited)
Common Stocks--96.2% of Total Net Assets
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Aerospace & Defense--4.1%
92,000 AlliedSignal, Inc....................................... $ 5,796,000
266,000 United Technologies Corp................................ 19,068,875
------------
24,864,875
------------
Airlines--0.4%
76,200 Southwest Airlines Co................................... 2,371,725
------------
Automotive--0.9%
108,000 Harley-Davidson, Inc.................................... 5,872,500
------------
Banks--5.4%
115,400 Bank of America Corp.................................... 8,460,263
391,750 Citigroup, Inc.......................................... 18,608,125
47,000 Mercantile Bancorporation, Inc.......................... 2,684,875
41,400 State Street Corp....................................... 3,534,525
------------
33,287,788
------------
Broadcasting--2.7%
225,600 MediaOne Group, Inc.(c)................................. 16,779,000
------------
Business Services--1.2%
138,900 Ceridian Corp.(c)....................................... 4,540,294
39,300 Omnicom Group........................................... 3,144,000
------------
7,684,294
------------
Casinos & Resorts--0.8%
100,000 Carnival Corp........................................... 4,850,000
------------
Communications--0.5%
44,740 Lucent Technologies, Inc................................ 3,017,154
------------
Computer Related & Business
Equipment--10.4%
74,200 Altera Corp.(c)......................................... 2,731,488
301,150 Cisco Systems, Inc.(c).................................. 19,405,353
240,900 Dell Computer Corp.(c).................................. 8,913,300
96,500 International Business Machines Corp.................... 12,472,625
46,400 Linear Technology Corp.................................. 3,120,400
183,000 Sun Microsystems, Inc.(c)............................... 12,604,125
81,600 Xilinx, Inc.(c)......................................... 4,671,600
------------
63,918,891
------------
Computer Software--5.0%
42,400 Intuit, Inc.(c)......................................... 3,821,300
295,200 Microsoft Corp.(c)...................................... 26,623,350
------------
30,444,650
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Consumer Products--5.8%
164,200 Corning, Inc............................................ $ 11,514,525
86,300 Starbucks Corp.(c)...................................... 3,241,644
217,640 Tyco International, Ltd................................. 20,621,390
------------
35,377,559
------------
Electronics--4.1%
160,200 Motorola, Inc........................................... 15,178,950
51,000 Solectron Corp.(c)...................................... 3,401,063
44,500 Teradyne, Inc.(c)....................................... 3,192,875
21,500 Texas Instruments, Inc.................................. 3,096,000
------------
24,868,888
------------
Financial Services--6.6%
33,500 American Express Co..................................... 4,359,188
122,600 Federal Home Loan Mortgage Corp......................... 7,110,800
208,800 Household International, Inc............................ 9,891,900
189,000 Morgan Stanley Dean Witter & Co......................... 19,372,500
------------
40,734,388
------------
Health Care--3.6%
289,800 Boston Scientific Corp.(c).............................. 12,733,088
293,000 IMS Health, Inc......................................... 9,156,250
------------
21,889,338
------------
Insurance--2.3%
120,220 American International Group, Inc....................... 14,073,254
------------
Internet Services--6.1%
170,200 America Online Inc.(c).................................. 18,807,100
154,344 At Home Corp.(c)........................................ 8,324,930
40,900 Broadcast.com, Inc.(c).................................. 5,462,706
33,500 eBay, Inc.(c)........................................... 5,058,500
------------
37,653,236
------------
Miscellaneous--2.8%
110,000 Cintas Corp............................................. 7,390,625
161,300 Intel Corp.............................................. 9,597,350
------------
16,987,975
------------
Oil Services--0.9%
121,700 Halliburton Co.......................................... 5,506,925
------------
Pharmaceuticals--6.0%
273,100 Amgen, Inc.(c).......................................... 16,624,963
25,900 Pfizer, Inc............................................. 2,842,525
79,500 Smithkline Beecham, Plc. (ADR).......................... 5,251,969
170,700 Warner-Lambert Co....................................... 11,842,313
------------
36,561,770
------------
</TABLE>
See accompanying notes to financial statements.
50
<PAGE>
New England Zenith Fund
(Alger Equity Growth Series)
Investments as of June 30, 1999 (Unaudited)
Common Stocks--(Continued)
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Railroad--1.0%
97,100 Kansas City Southern Industries, Inc.................... $ 6,196,194
------------
Retail--14.8%
63,000 Abercrombie & Fitch Co.(c).............................. 3,024,000
45,400 Amazon.com, Inc.(c)..................................... 5,680,675
51,400 Best Buy Co., Inc....................................... 3,469,500
84,200 Costco Companies, Inc.(c)............................... 6,741,263
240,200 Home Depot, Inc. ....................................... 15,477,888
587,400 Kroger Co.(c)........................................... 16,410,488
176,250 Office Depot, Inc.(c)................................... 3,888,516
366,100 Safeway, Inc.(c)........................................ 18,121,950
158,850 Staples, Inc.(c)........................................ 4,914,420
274,600 Wal-Mart Stores, Inc.................................... 13,249,450
------------
90,978,150
------------
Semi-Conductors--3.4%
284,200 Applied Materials, Inc.(c).............................. 20,995,275
------------
Telecom Networks--7.4%
199,200 Comcast Corp.(c)........................................ 7,656,750
69,900 Cox Communications, Inc.(c)............................. 2,573,194
177,600 Frontier Corp........................................... 10,478,400
209,800 MCI Worldcom, Inc.(c)................................... 18,055,912
65,000 Nextel Communications, Inc.(c).......................... 3,262,183
55,000 SBC Communications, Inc................................. 3,190,000
------------
45,216,439
------------
Total Common Stocks
(Identified Cost $459,277,408)......................... 590,130,268
------------
</TABLE>
Short-Term Investments--4.8%
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
$8,000,000 AT&T Corp.,
5.080%, 7/01/99.................................... $ 8,000,000
8,000,000 CSC Enterprises,
5.270%, 7/16/99.................................... 7,982,433
5,000,000 Hertz Corp.,
4.990%, 7/08/99.................................... 4,995,149
8,000,000 Progress Capital Holdings, Inc.,
5.210%, 7/12/99.................................... 7,987,264
589,346 State Street Global Advisors, Money Market Fund..... 589,346
------------
Total Short-Term Investments
(Identified Cost $29,554,192)...................... 29,554,192
------------
Total Investments--101.0%
(Identified Cost $488,831,600)(b).................. 619,684,460
Other assets less liabilities....................... (6,490,357)
------------
Total Net Assets--100%.............................. $613,194,103
============
</TABLE>
(a) See Note 1A of Notes to Financial Statements.
(b) Federal Tax Information:
At June 30, 1999 the net unrealized appreciation on investments based on
cost of $488,831,600 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................ $133,392,520
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value................ (2,539,660)
------------
Net unrealized appreciation..................................... $130,852,860
============
</TABLE>
(c) Non-income producing security.
Key to Abbreviations:
ADR/GDR--An American Depositary Receipt (ADR) or Global Depositary Receipt
(GDR) is a certificate issued by a Custodian Bank representing the
right to receive securities of the foreign issuer described. The value
of ADRs and GDRs are significantly influenced by trading on exchanges
not located in the United States or Canada.
See accompanying notes to financial statements.
51
<PAGE>
New England Zenith Fund
(Alger Equity Growth Series)
Statement of Assets & Liabilities
June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets
Investments at value................................ $619,684,460
Receivable for:
Securities sold..................................... 17,603,181
Fund shares sold.................................... 1,106,263
Dividends and interest.............................. 153,112
Foreign taxes....................................... 1,708
Unamortized organization expense.................... 669
------------
Total Assets........................................ 638,549,393
Liabilities
Payable for:
Fund shares redeemed................................ $ 696,615
Securities purchased................................ 24,209,875
Withholding taxes................................... 1,812
Accrued expenses:
Management fees..................................... 348,464
Deferred trustees fees.............................. 10,288
Other expenses...................................... 88,236
-----------
Total Liabilities................................... 25,355,290
------------
Net Assets........................................... $613,194,103
============
Net assets consist of:
Capital paid in..................................... $406,289,629
Undistributed net investment loss................... (254,718)
Accumulated net realized gains (losses)............. 76,306,332
Unrealized appreciation (depreciation) on
investments........................................ 130,852,860
------------
Net Assets........................................... $613,194,103
============
Computation of offering price:
Net asset value and redemption price per share
($613,194,103 divided by 21,002,954 shares of
beneficial interest)................................ $ 29.20
============
Identified cost of investments....................... $488,831,600
============
</TABLE>
Statement of Operations
Six Months Ended June 30, 1999
(Unaudited)
<TABLE>
<S> <C> <C>
Investment Income
Dividends.......................................... $ 928,595(a)
Interest........................................... 840,698
-----------
1,769,293
Expenses
Management fees.................................... $1,869,159
Trustees' fees and expenses........................ 12,338
Custodian.......................................... 40,694
Audit and tax services............................. 8,131
Legal.............................................. 19,445
Printing........................................... 65,034
Amortization of organization expense............... 997
Insurance.......................................... 4,757
Miscellaneous...................................... 4,063
----------
Total expenses..................................... 2,024,618
-----------
Net Investment Loss................................. (255,325)
Realized and Unrealized Gain (Loss)
Realized gain (loss) on:
Investments--net................................... 52,287,382
Unrealized appreciation (depreciation) on:
Investments--net................................... 23,583,923
-----------
Net gain (loss)..................................... 75,871,305
-----------
Net Increase (Decrease) in Net Assets From
Operations......................................... $75,615,980
===========
</TABLE>
(a) Net of foreign taxes of: $10,398
See accompanying notes to financial statements.
52
<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,
1998 1999
------------ ------------
<S> <C> <C>
From Operations
Net investment income (loss)...................... $ 547,361 $ (255,325)
Net realized gain (loss).......................... 37,574,347 52,287,382
Unrealized appreciation (depreciation)............ 78,578,213 23,583,923
------------ ------------
Increase (decrease) in net assets from operations. 116,699,921 75,615,980
------------ ------------
From Distributions to Shareholders
Net investment income............................. (608,527) 0
Net realized gain................................. (13,814,120) 0
------------ ------------
Total distributions............................... (14,422,647) 0
------------ ------------
From Capital Share Transactions
Proceeds from sale of shares...................... 151,770,313 183,290,184
Reinvestment of distributions..................... 14,422,647 0
Cost of shares redeemed........................... (63,063,040) (56,437,690)
------------ ------------
Increase (decrease) in net assets from capital
share transactions............................... 103,129,920 126,852,494
------------ ------------
Total increase (decrease) in net assets........... 205,407,194 202,468,474
Net Assets
Beginning of the period........................... 205,318,435 410,725,629
------------ ------------
End of the period................................. $410,725,629 $613,194,103
============ ============
Undistributed (overdistributed) Net Investment
Income
End of the period................................. $ 607 $ (254,718)
============ ============
Number of shares of the Fund:
Issued from the sale of shares.................... 7,106,627 6,732,367
Issued in reinvestment of distributions........... 576,135 0
Redeemed.......................................... (2,982,315) (2,083,286)
------------ ------------
Net change........................................ 4,700,447 4,649,081
============ ============
</TABLE>
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
October 31, 1994(a) Six Months
through Year Ended December 31, Ended
December 31, ------------------------------------- June 30,
1994 1995 1996 1997 1998 1999
------------------- ------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $10.00 $ 9.56 $ 13.80 $ 15.58 $ 17.62 $ 25.11
------ ------- -------- -------- -------- --------
Income From Investment
Operations
Net Investment Income
(Loss)................ 0.02 0.01 0.04 0.02 0.04 (0.01)
Net Realized and
Unrealized Gain (Loss)
on Investments........ (0.44) 4.65 1.78 3.92 8.37 4.10
------ ------- -------- -------- -------- --------
Total From Investment
operations............ (0.42) 4.66 1.82 3.94 8.41 4.09
------ ------- -------- -------- -------- --------
Less Distributions
Distributions From Net
Investment Income..... (0.02) (0.01) (0.04) (0.02) (0.04) 0.00
Distributions From Net
Realized Capital
Gains................. 0.00 (0.41) 0.00 (1.88) (0.88) 0.00
------ ------- -------- -------- -------- --------
Total Distributions.... (0.02) (0.42) (0.04) (1.90) (0.92) 0.00
------ ------- -------- -------- -------- --------
Net Asset Value, End of
Period................. $ 9.56 $ 13.80 $ 15.58 $ 17.62 $ 25.11 $ 29.20
====== ======= ======== ======== ======== ========
Total Return (%)........ (4.2)(b) 48.8 13.2 25.6 47.8 16.3 (b)
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.85 (c) 0.85 0.90 0.87 0.83 0.81 (c)
Ratio of Net Investment
Income to Average Net
Assets (%)............. 1.07 (c) 0.14 0.24 0.12 0.19 (0.10)(c)
Portfolio Turnover Rate
(%).................... 32 (c) 107 78 137 119 129 (c)
Net Assets, End of
Period (000)........... $1,917 $46,386 $120,456 $205,318 $410,726 $613,194
The ratios of operating
expenses to average net
assets without giving
effect to the voluntary
expense agreement
described in Note 4 to
the Financial
Statements would have
been (%)............... 2.74 (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.
53
<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 Series perform during the past six months relative to its index
and relative to its peers?
A. For the six-month period ending June 30, 1999, the Capital Growth Series
posted a total return of 5.6%. The return lagged the Lipper Variable Products
Growth Fund Average/10/ return of 12.6% and the Standard & Poor's 500 Index/25/
return of 12.2%.
Q. Briefly discuss the investment and market environment during the past six
months?
A. Economic growth in the U.S. continued to be strong in the first half of
1999. Globally, we saw a pronounced comeback in Asia, led by South Korea and
Japan. For example, Korean business activity expanded by more than 10% in the
first quarter of 1999, and Japan's gross domestic product increased at an an-
nual rate of 7.5%. Economic growth in Europe was sluggish, but evidence toward
the end of the period indicated it might be on the upswing. This pervasive
global economic expansion started to create an environment that was more condu-
cive to inflation than the backdrop we witnessed in 1998, when foreign economic
weakness helped suppress prices in the U.S. domestic economy. In response, in-
terest rates have risen in the U.S., particularly among long-maturity bonds.
Q. Given this investment environment, what was your investment strategy? What
changes did you make since the start of the year?
A. During 1998, I invested the portfolio in anticipation of lower interest
rates and higher price-to-earnings (P/E) ratios for stocks. Because of the
global economic turnaround, the portfolio has been adjusted. I expect stronger
economic growth in 1999 will result in a continued gradual rise in interest
rates, including the possibility that the Federal Reserve Board will raise
short-term rates in order to slow growth and head off inflation.
Reflecting this changed outlook, I've looked for growth at a reasonable price.
In other words, I turned to companies with lower price-to-earnings ratios that
would benefit from the accelerating economy. As such, I invested more than 15%
of the portfolio in real estate investment trusts (REITs). Real estate tends to
benefit from a strong economy and valuations for REITs were low and their
yields relatively high. For example, I added Equity Office Properties to the
portfolio. The largest office REIT in the U.S., Equity Office Properties is a
diversified portfolio of office buildings in most major cities.
I also invested in two commodity cyclical companies, Alcoa and Dow Chemical.
These companies should benefit directly from increases in global raw material
prices. I also sought to take advantage of strong consumer spending--sparked by
the robust economy--by purchasing Circuit City and Best Buy, two retailers that
sell appliances and big-ticket consumer electronics items.
In addition, I've looked for opportunities offered abroad, where it appears
there are several years of growth in the offing. For example, I've invested in
Koninklijke Philips Electronics, an international conglomerate that earns most
of its revenues outside of the U.S. In addition, I maintained Volkswagen as an
investment, because 80% of the company's earnings come from Europe where the
company is gaining market share and is poised to benefit from increased busi-
ness activity. I also added a large position in AFLAC, a U.S. insurer that
gathers more than three-quarters of its earnings from Japan, an economy I be-
lieve will rise out of recession and show strong growth in coming years.
Q. What were the principal factors affecting your performance (on both an
absolute and relative basis) during the past six months? What investment
decisions were most effective and which ones were least effective?
A. One of the strongest performers was Texas Instruments, a manufacturer of
digital processing microchips widely used in Internet wireless communications
and Internet applications. The company enjoys a 45% market share that continues
to grow. Best Buy and Circuit City benefited from the strong consumer spending
I mentioned. And IBM continued to thrive through its balance sheet restructur-
ing and share-repurchase programs. More recently, the company's hardware busi-
ness has shown more strength than in the past.
54
<PAGE>
On the negative side, Volkswagen was hurt by management's cautionary comments
about the company's earnings outlook while the firm was engaged in labor nego-
tiations. Bank stocks, including the Series' investments in Chase Manhattan
and Bank America, also underperformed because of rising interest rates. Chase
has since been sold from the portfolio.
Q. What is your outlook for the market and your portfolio for for the next six
months? What changes, if any, will you make to the way you manage your
portfolio?
A: I believe there will be a tendency for overall P/E ratios in the market to
decline because of an upward drift in interest rates. To put it simply, higher
interest rates make investors less willing to pay the higher P/E ratios that
have characterized some of the market's leaders recently. My challenge will be
to find promising companies with lower valuations or with earnings growth
rapid enough to withstand an overall compression in P/E ratios. I'll also look
for companies that are economically sensitive, including opportunities outside
of the U.S. or in U.S. multinationals, because monetary authorities abroad are
looking to stimulate economic growth, not sustain or slow it as in the U.S.
A $10,000 Investment Compared to the S&P 500 Index over the past 10 years
[CHART APPEARS HERE]
Growth Series S&P 500
Jun-89 10,000 10,000
Jun-90 12,986 11,640
Jun-91 12,664 12,501
Jun-92 14,308 14,187
Jun-93 16,175 16,114
Jun-94 16,365 16,330
Jun-95 20,582 20,584
Jun-96 23,457 25,949
Jun-97 32,015 34,917
Jun-98 42,326 45,462
Jun-99 47,133 55,794
Average Annual Total Return
Capital Growth Lipper Variable Growth
Series S&P 500 Fund Average
6 months 5.6% 12.2% 12.6%
1 year 11.3 22.7 20.5
3 years 26.2 29.1 24.5
5 years 23.6 27.9 24.6
10 years 16.8 18.8 17.8
Since Inception 23.4 17.9 n/a
.. Fund Facts
Goal: Long-term growth of capital through investment primarily in equity
securities of companies whose earnings are expected to grow at a faster rate
than the United States economy.
Start date: August 26, 1983
Size: $1.9 billion as of June 30, 1999
Manager: G. Kenneth Heebner has managed the Capital Growth Series since its
inception in 1983. He has also been portfolio manager of New England Growth Fund
since 1976; CGM Capital Development Fund since 1976; CGM Mutual Fund since 1981;
CGM Realty Fund since May 1994; CGM Fixed Income Fund since June 1993; CGM Focus
Fund since September 1997.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts. If these charges were included, the returns shown would
be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
55
<PAGE>
New England Zenith Fund
(Capital Growth Series)
Investments as of June 30, 1999 (Unaudited)
Common Stocks--99.8% of Total Net Assets
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Aluminum--5.1%
1,630,000 Alcoa, Inc.......................................... $ 100,856,250
--------------
Auto & Related--4.4%
6,800,000 Volkswagen AG (ADR)................................. 85,850,000
--------------
Banks--Regional--5.1%
1,350,000 Bank of America Corp. .............................. 98,971,875
--------------
Beverage & Tobacco--5.1%
1,397,000 Anheuser-Busch Companies, Inc. ..................... 99,099,688
--------------
Chemicals--Major--1.8%
282,000 Dow Chemical Co. ................................... 35,778,750
--------------
Drugs--2.7%
851,000 United Healthcare Corp.............................. 53,293,875
--------------
Electronic Components--13.4%
1,054,044 Koninklijke Philips Electronics (ADR)............... 106,326,689
1,080,000 Texas Instruments, Inc. ............................ 156,600,000
--------------
262,926,689
--------------
Electronic & Computer
Equipment--2.2%
480,000 Nokia Corp. (ADR)................................... 43,950,000
--------------
Insurance--13.9%
2,050,000 Aflac, Inc.......................................... 98,143,750
675,000 American General Corp. ............................. 50,878,125
608,912 American International Group, Inc. ................. 71,280,760
260,000 Jefferson-Pilot Corp. .............................. 17,208,750
670,000 UNUM Corp. ......................................... 36,682,500
--------------
274,193,885
--------------
Leisure--3.2%
3,690,000 Mirage Resorts, Inc.(c)............................. 61,807,500
--------------
Light Capital Goods--6.1%
1,630,000 Applied Materials, Inc.(c).......................... 120,416,250
--------------
Miscellaneous--3.3%
1,220,000 Waste Management, Inc. ............................. 65,575,000
--------------
Office Equipment &
Supplies--5.6%
856,000 International Business Machines Corp. .............. 110,638,000
--------------
Oil--Service--2.1%
640,000 Schlumberger, Ltd. ................................. 40,760,000
--------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Real Estate Investment
Trust--14.7%
1,102,500 Apartment Investment and Management Co. ....... $ 47,131,875
1,405,000 Boston Properties, Inc......................... 50,404,375
4,007,500 Equity Office Properties Trust................. 102,692,188
575,000 Equity Residential Properties Trust............ 25,910,938
500,000 Spieker Properties, Inc. ...................... 19,437,500
1,245,000 Vornado Realty Trust........................... 43,964,062
--------------
289,540,938
--------------
Retail--11.1%
1,722,000 Best Buy Co., Inc.(c).......................... 116,235,000
1,100,000 Circuit City Stores, Inc....................... 102,300,000
--------------
218,535,000
--------------
Total Common Stocks
(Identified Cost $1,720,237,210).............. 1,962,193,700
--------------
Short-Term Investment--0.1%
<CAPTION>
Face
Amount
<C> <S> <C>
$2,280,000 Chevron Corp., 5.500%, 7/1/99.................. $ 2,280,000
--------------
Total Short-Term Investments
(Identified Cost $2,280,000).................... 2,280,000
--------------
Total Investments--99.9%
(Identified Cost $1,722,517,210)(b)............. 1,964,473,700
Other assets less liabilities 1,890,458
--------------
Total Net Assets--100% $1,966,364,158
==============
</TABLE>
(a) See Note 1A of Notes to Financial Statements.
(b) Federal Tax Information:
At June 30, 1999 the net unrealized appreciation on investments based on
cost of $1,722,517,210 for federal income tax purposes was as follows:
<TABLE>
<S> <C> <C>
Aggregate
gross
unrealized
appreciation
for all
investments
in which
there is an
excess of
value over
tax cost..... $293,064,073
Aggregate
gross
unrealized
depreciation
for all
investments
in which
there is an
excess of
tax cost
over value... (51,107,583)
------------
Net
unrealized
appreciation. $241,956,490
============
</TABLE>
(c) Non-Income producing security.
Key to abbreviations:
ADR/GDR--An American Depositary Receipt (ADR) or Global Depositary Receipt
(GDR) is a certificate issued by a Custodian Bank representing the
right to receive securities of the foreign issuer described. The
value of ADRs and GDRs are significantly influenced by trading on
exchanges not located in the United States or Canada.
See accompanying notes to financial statements.
56
<PAGE>
New England Zenith Fund
(Capital Growth Series)
Statement of Assets & Liabilities
June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets
Investments at value............................... $1,964,473,700
Cash............................................... 3,168
Receivable for:
Securities sold.................................... 29,370,114
Fund shares sold................................... 805,059
Dividends and interest............................. 3,039,604
Foreign taxes...................................... 315,736
--------------
Total Assets....................................... 1,998,007,381
Liabilities
Payable for:
Fund shares redeemed............................... $ 547,381
Securities purchased............................... 29,789,794
Accrued expenses:
Management fees.................................... 971,062
Deferred trustees fees............................. 101,335
Other expenses..................................... 233,651
-----------
Total Liabilities.................................. 31,643,223
--------------
Net Assets.......................................... $1,966,364,158
==============
Net assets consist of:
Capital paid in.................................... $1,421,286,218
Undistributed net investment income................ 10,238,279
Accumulated net realized gains (losses)............ 292,883,171
Unrealized appreciation (depreciation) on
investments....................................... 241,956,490
--------------
Net Assets.......................................... $1,966,364,158
==============
Computation of offering price:
Net asset value and redemption price per share
($1,966,364,158 divided by 3,980,375 shares of
beneficial interest)............................... $ 494.01
==============
Identified cost of investments...................... $1,722,517,210
==============
</TABLE>
Statement of Operations
Six Months Ended June 30, 1999
(Unaudited)
<TABLE>
<S> <C> <C>
Investment Income
Dividends......................................... $ 16,436,030(a)
Interest.......................................... 176,708
------------
16,612,738
Expenses
Management fees................................... $5,908,902
Trustees' fees and expenses....................... 38,218
Custodian......................................... 120,031
Audit and tax services............................ 8,543
Legal............................................. 53,490
Printing.......................................... 222,460
Insurance......................................... 15,922
Miscellaneous..................................... 10,771
----------
Total expenses.................................... 6,378,337
------------
Net Investment Income.............................. 10,234,401
Realized and Unrealized Gain (Loss)
Realized gain (loss) on:
Investments--net.................................. 293,683,286
Unrealized appreciation (depreciation) on:
Investments--net.................................. (199,674,196)
------------
Net gain (loss).................................... 94,009,090
------------
Net Increase (Decrease) in Net Assets From
Operations........................................ $104,243,491
============
</TABLE>
(a) Net of foreign taxes of $115,229.
See accompanying notes to financial statements.
57
<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,
1998 1999
-------------- --------------
<S> <C> <C>
From Operations
Net investment income......................... $ 19,464,166 $ 10,234,401
Net realized gain (loss)...................... 169,787,977 293,683,286
Unrealized appreciation (depreciation)........ 294,106,307 (199,674,196)
-------------- --------------
Increase (decrease) in net assets from
operations................................... 483,358,450 104,243,491
-------------- --------------
From Distributions to Shareholders
Net investment income......................... (19,530,694) 0
Net realized gain............................. (224,364,814) 0
In excess of net realized gain................ (800,115) 0
-------------- --------------
Total distributions........................... (244,695,623) 0
-------------- --------------
From Capital Share Transactions
Proceeds from sale of shares.................. 326,247,422 167,533,018
Reinvestment of distributions................. 244,695,623 0
Cost of shares redeemed....................... (339,576,488) (201,160,823)
-------------- --------------
Increase (decrease) in net assets from capital
share transactions........................... 231,366,557 (33,627,805)
-------------- --------------
Total increase (decrease) in net assets....... 470,029,384 70,615,686
Net Assets
Beginning of the period....................... 1,425,719,088 1,895,748,472
-------------- --------------
End of the period............................. $1,895,748,472 $1,966,364,158
============== ==============
Undistributed (Overdistributed) Net Investment
Income
End of the period............................. $ 3,878 $ 10,238,279
============== ==============
Number of Shares of the Fund:
Issued from the sale of shares................ 711,259 349,007
Issued in reinvestment of distributions....... 512,754 0
Redeemed...................................... (741,374) (419,124)
-------------- --------------
Net change.................................... 482,639 (70,117)
============== ==============
</TABLE>
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended
------------------------------------------------------ June 30,
1994 1995 1996 1997 1998 1999
-------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 351.63 $ 312.30 $ 374.62 $ 427.08 $ 399.60 $ 468.03
-------- -------- ---------- ---------- ---------- ----------
Income From Investment
Operations
Net Investment Income.. 5.28 3.47 3.08 2.52 5.29 2.57
Net Realized and
Unrealized Gain (Loss)
on Investments........ (30.54) 114.91 74.80 95.67 130.40 23.41
-------- -------- ---------- ---------- ---------- ----------
Total From Investment
operations............ (25.26) 118.38 77.88 98.19 135.69 25.98
-------- -------- ---------- ---------- ---------- ----------
Less Distributions
Distributions From Net
Investment Income..... (5.15) (3.48) (3.08) (2.52) (5.31) 0.00
Distributions From Net
Realized Capital
Gains................. (8.92) (52.58) (22.34) (123.15) (61.73) 0.00
Distributions in Excess
of Net Realized
Capital Gains......... 0.00 0.00 0.00 0.00 (0.22) 0.00
-------- -------- ---------- ---------- ---------- ----------
Total Distributions.... (14.07) (56.06) (25.42) (125.67) (67.26) 0.00
-------- -------- ---------- ---------- ---------- ----------
Net Asset Value, End of
Period................. $ 312.30 $ 374.62 $ 427.08 $ 399.60 $ 468.03 $ 494.01
======== ======== ========== ========== ========== ==========
Total Return (%)........ (7.1) 38.0 21.1 23.5 34.1 5.6(a)
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.67 0.71 0.69 0.67 0.66 0.67(b)
Ratio of Net Investment
Income to Average Net
Assets (%)............. 1.61 0.92 0.79 0.52 1.18 1.07(b)
Portfolio Turnover Rate
(%).................... 140 242 207 214 204 228(b)
Net Assets, End of
Period (000)........... $667,127 $921,444 $1,142,660 $1,425,719 $1,895,748 $1,966,364
</TABLE>
(a) Not computed on an annualized basis.
(b) Computed on an annualized basis.
See accompanying notes to financial statements.
58
<PAGE>
Davis Venture Value
Portfolio Managers: Christopher C. Davis and Kenneth C. Feinberg
Davis Selected Advisers, L.P.
[PHOTO OF CHRISTOPHER C. DAVIS APPEARS HERE]
[PHOTO OF KENNETH C.FEINBERG APPEARS HERE]
Q. How did the portfolio perform in the first half?
A. Over the first six months of 1999, the Davis Venture Value Series generated
a return of 15.4% compared to the 12.2% return of the S&P 500 Index/25/. The
S&P/Barra Value Index, an index composed of the value stocks of the broader S&P
500 Index, returned 13.9%. During the same period, the Lipper Variable Products
Growth Fund Average/10/ returned 12.6%.
Q. Briefly discuss the investment and market environment during the past six
months?
A. Over the past six months there has been a gradual change in market leader-
ship among large company stocks, as high quality names with stronger fundamen-
tals and lower valuations have reasserted themselves. At least momentarily, the
broad surge among stocks of the technology sector has abated, indicating that
the market may be returning to more of a "stock-picker's haven." Stocks that
have been closely associated with the strength of the market in recent years
and that led the market in the first quarter, such as America Online, Pfizer
and Gillette, were among the worst performing stocks in the S&P 500 in the sec-
ond quarter, posting returns of -22.0% or lower.
The S&P 500 Index finished a volatile six months with a total return of 12.2%,
and closed at a record high of 1372.66 on June 30th. The index was led by
strength among communication equipment firms, such as Lucent and Cisco Systems,
brokerage firms (primarily Charles Schwab) and retail stores (especially the
Limited), as well as by a rebound in oil services companies like Halliburton.
The tobacco industry was a noted underperformer, with a -25.0% return for the
six months, primarily due to litigation troubles.
The primary reason for the recent volatility in the market was concern that
Federal Reserve would tighten the supply of money. Although inflation has been
muted, years of strong economic growth have left a nagging sense among invest-
ors that the Fed may look to proactively control growth to a more moderate pace
of 3%. As if in answer to these fears, investors were suddenly greeted by an
unexpectedly strong Consumer Price Index report for the month of April. In the
ensuing weeks, both bonds and stocks suffered under the shadow of a potential
rate increase. The Federal Reserve Board chose to raise the target federal
funds rate 0.25% to 5.0% at the end of June, in a preemptive strike against in-
flation.
However, the Fed surprised the market by changing its bias back to "neutral"
following the announcement of the rate hike. Both stocks and bonds rallied on
the news to close the period with a strong finish. Ironically, the Fed's return
to a neutral bias was followed immediately by more news that economic growth is
accelerating. A strong National Purchasing Managers report, Chicago Purchasers
Index, and employment report indicate that the economy is sustaining growth
above 4.0%. This could ultimately lead the Fed to reconsider its bias if it be-
lieves inflationary forces are reemerging.
Q. How did you manage the portfolio during the first half of the year?
A. Our performance was a result of strong gains from both technology and finan-
cial stocks. Hewlett-Packard, one of the fund's top positions, surprised Wall
Street with a strong earnings report, and finished the six months with a return
of 47.7%. IBM gained 40.6%, as investors continue to reward this company for
its strong global technology consulting services operation. Other notable per-
formers were Texas Instruments (+68.5%), Tyco International (+25.7%), Citigroup
(+44.3%) and Morgan Stanley, Dean Witter (+45.3%). Philip Morris, which lan-
guished early in the year due to the troubles affecting the tobacco industry,
posted a -23.3% return for the period.
Q. What is your outlook for the months ahead?
A. There are positive forces affecting both the economy and the stock market.
Consumer spending continues to be strong, although it has decreased from its
record pace of the first quarter. Rising real income, lower unemployment, low
interest rates, and increased wealth from investments support strong consumer
demand and confidence. Corporate earnings continue to be robust, partly due to
rising real margins. Also, there is increasing demand for production of elec-
tronics, machinery, and heavy equipment, due to the rebound of foreign (notably
Asian) economies.
Finally, at the end of June, the White House issued a report predicting a 10-
year Federal budget surplus of more than $2.9 trillion. While Republicans have
clamored for a sizeable tax cut, the White House has suggested that the surplus
can be used to effectively bolster Social Security, Medicare, social programs,
and even pay down the national debt. Ultimately, any of
59
<PAGE>
these scenarios could have positive long-term impacts on the economy and stock
market.
On a more cautionary note, recent statistics have suggested that the U.S. per-
sonal savings rate has turned negative. This may be a result of a long-antici-
pated "wealth effect," in which consumers, flush with higher real wages and
robust stock market gains, begin to increasingly spend some of their new found
prosperity. Another indication of such a trend may be the fact that mutual
fund sales have contracted in recent months, even though the market continues
to rise. A wealth effect may ultimately cause a drain on the economic effi-
ciency of the U.S. economy.
The recent change in market leadership and aggregate rise in volatility sug-
gests that investors should carefully review the underlying fundamentals and
appropriate valuation of every company they consider for investment. As long-
term investors, we will continue to concentrate on selecting reasonably priced
companies with superior management teams and strong fundamentals, because we
believe that properly managing this risk-reward balance is the key to building
long-term wealth.
A $10,000 investment compared to the S&P 500
since the Series' Inception
[GRAPH APPEARS HERE]
Venture Value S&P 500
10/31/94 10,000 10,000
6/30/95 11,847 11,746
6/30/96 14,477 14,807
6/30/97 20,089 19,924
6/30/98 24,924 25,942
6/30/99 29,824 31,837
Average Annual Return
Venture Value Lipper Variable
Series S&P 500 Growth Fund Average
6 months 15.4% 12.2% 12.6%
1 year 19.7 22.7 20.5
3 years 27.2 29.1 24.5
Since Inception 26.4 28.2 n/a
.. Fund Facts
Goal: Growth of capital.
Start date: October 31, 1994
Size: $569 million as of June 30, 1999
Manager: Christopher C. Davis has been the manager of the Series
since February 1997. Previously, he co-managed the Series with Shelby M.C. Davis
from October 1995 to February 1997.
Kenneth C. Feinberg has co-managed the Series since April 1999. Mr. Feinberg has
co-managed other equity funds for Davis Selected since May 1998.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts. If these charges were included, the returns shown would
be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
60
<PAGE>
New England Zenith Fund
(Davis Venture Value Series)
Investments as of June 30, 1999 (Unaudited)
Common Stocks--96.2% of Total Net Assets
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Banks and Savings & Loan--15.9%
167,759 Bank of America Corp. .................................. $ 12,298,832
146,513 Bank One Corp........................................... 8,726,681
484,780 Citigroup, Inc. ........................................ 23,027,050
1,000 First Union Corp. ...................................... 47,000
28,900 Golden West Financial Corp. ............................ 2,832,200
29,300 State Street Corp....................................... 2,501,487
133,200 U.S. Bancorp............................................ 4,528,800
507,000 UBS AG (ADR)............................................ 7,858,500
665,400 Wells Fargo & Co. ...................................... 28,445,850
------------
90,266,400
------------
Building Materials--4.6%
142,700 Martin Marietta Materials, Inc.......................... 8,419,300
393,700 Masco Corp.............................................. 11,368,088
69,300 Tyco International, Ltd................................. 6,566,175
------------
26,353,563
------------
Chemicals Total--1.3%
200 Dow Chemical Co. ....................................... 25,375
41,500 Monsanto Co. ........................................... 1,636,656
117,200 Vulcan Materials Co..................................... 5,654,900
------------
7,316,931
------------
Consumer Products & Services--3.4%
2,700 Coca-Cola Co............................................ 168,750
20,000 Colgate-Palmolive Co. .................................. 1,975,000
900 Fortune Brands, Inc..................................... 37,238
900 Gallaher Group, Plc. (ADR).............................. 21,994
2,800 General Electric Co. ................................... 316,400
53,500 Gillette Co. ........................................... 2,193,500
800 Maytag Corp. ........................................... 55,750
359,600 Philip Morris Companies, Inc. .......................... 14,451,424
------------
19,220,056
------------
Diversified Financial Services--11.2%
248,900 American Express Co. ................................... 32,388,113
12,400 Boardwalk Equities, Inc. (CAD).......................... 125,474
77,200 Donaldson, Lufkin & Jenrette, Inc....................... 4,651,300
83,100 Federal Home Loan Mortgage Corp......................... 4,819,800
285,800 Household International, Inc............................ 13,539,775
4,700 Provident Companies, Inc................................ 188,000
76,000 Providian Financial Corp................................ 7,106,000
16,900 ReliaStar Financial Corp. .............................. 739,374
------------
63,557,836
------------
Drilling--1.1%
141,800 Dover Corp.............................................. 4,963,000
22,400 Smith International, Inc.(c)............................ 973,000
------------
5,936,000
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Electronics--6.0%
18,400 Koninklijke Philips Electronics N.V. (ADR).............. $ 1,856,094
87,187 Molex, Inc. ............................................ 3,225,919
202,100 Texas Instruments, Inc.................................. 29,304,500
------------
34,386,513
------------
Energy--1.6%
400 Amerada Hess Corp....................................... 23,800
1,000 Atlantic Richfield Co................................... 83,563
200 Burlington Resources, Inc............................... 8,650
1,700 Chevron Corp............................................ 161,819
77,700 Devon Energy Corp. ..................................... 2,777,775
5,600 Exxon Corp. ............................................ 431,900
50,800 Halliburton Co. ........................................ 2,298,700
600 Mobil Corp. ............................................ 59,400
52,900 Schlumberger, Ltd. ..................................... 3,369,069
100 Sempra Energy........................................... 2,263
500 Sonat, Inc. ............................................ 16,561
------------
9,233,500
------------
Hotels & Restaurants--4.7%
105,400 Marriott International, Inc. ........................... 3,939,325
556,500 McDonald's Corp. ....................................... 22,990,406
------------
26,929,731
------------
Industrial Parts & Equipment--0.2%
28,700 Cooper Cameron Corp.(c)................................. 1,063,694
------------
International Closed-End Investment Company--0.2%
125,534 Morgan Stanley Asia Pacific Fund, Inc. ................. 1,208,265
------------
Investment Firms--2.3%
800 J.P. Morgan & Co., Inc.................................. 112,400
124,155 Morgan Stanley Dean Witter & Co. ....................... 12,725,888
------------
12,838,288
------------
Manufacturing--1.8%
140,300 Applied Materials, Inc.(c).............................. 10,364,663
------------
Marketing--0.1%
33 ACNielson Corp.(c)...................................... 998
3,100 WPP Group, Plc. (ADR)................................... 265,825
------------
266,823
------------
Packaging--1.3%
112,000 Sealed Air Corp.(c)..................................... 7,266,000
------------
Paper Products--0.0%
894 International Paper Co. ................................ 45,147
------------
</TABLE>
See accompanying notes to financial statements.
61
<PAGE>
New England Zenith Fund
(Davis Venture Value Series)
Investments as of June 30, 1999 (Unaudited)
Common Stocks--(Continued)
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Pharmaceuticals & Health Care--4.1%
100,400 American Home Products Corp............................. $ 5,773,000
86,900 Bristol-Myers Squibb Co................................. 6,121,019
200 IMS Health, Inc......................................... 6,250
1,500 Johnson & Johnson....................................... 147,000
27,500 Merck & Co., Inc........................................ 2,035,000
11,400 Pfizer, Inc............................................. 1,251,150
121,200 Smithkline Beecham, Plc. (ADR).......................... 8,006,775
------------
23,340,194
------------
Property & Casualty Insurance--13.3%
115,362 Allstate Corp........................................... 4,138,612
104,031 American International Group, Inc....................... 12,178,129
318 Berkshire Hathaway, Inc. Class A(c)..................... 21,910,200
27 Berkshire Hathaway, Inc. Class B(c)..................... 60,480
105,300 Chubb Corp.............................................. 7,318,350
85,200 Progressive Corp. ...................................... 12,354,000
124,650 Transatlantic Holdings, Inc............................. 9,340,959
148,600 UNUMProvident Corp...................................... 8,135,850
16,300 W.R. Berkley Corp.(c)................................... 407,500
------------
75,844,080
------------
Publishing--1.6%
27,900 Dow Jones & Company, Inc................................ 1,480,444
100 Dun & Bradstreet Corp. ................................. 3,544
61,300 Gannett Company, Inc.................................... 4,375,288
33 Nielsen Media Research, Inc.(c)......................... 965
20 R.H. Donnelley Corp. ................................... 391
30,900 Tribune Co.............................................. 2,692,163
1,300 Washington Post Co. Class B............................. 699,074
------------
9,251,869
------------
Real Estate--3.1%
14,200 Centerpoint Properties Trust............................ 520,075
143,900 Crescent Real Estate Equities Co. ...................... 3,417,625
24,100 Equity Office Properties Trust.......................... 617,563
19,900 Equity Residential Properties Trust..................... 896,744
9,400 Gables Residential Trust................................ 226,775
87,100 General Growth Properties, Inc.......................... 3,092,050
29,500 Mack-Cali Realty Corp. ................................. 912,656
33,300 Public Storage, Inc..................................... 932,400
25,200 Reckson Associates Realty Corp. ........................ 592,200
159,000 Rouse Co................................................ 4,034,625
69,800 Vornado Realty Trust.................................... 2,464,812
------------
17,707,525
------------
Retail--1.0%
106,100 Harcourt General, Inc................................... 5,470,781
------------
Technology--14.0%
348,600 Hewlett-Packard Co. .................................... 35,034,300
110,200 Intel Corp.............................................. 6,556,900
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
207,500 International Business Machines Corp.................... $ 26,819,375
167,300 Oracle Corp.(c)......................................... 6,211,013
150,500 SAP AG (ADR)............................................ 5,211,063
3,000 Unisys Corp.(c)......................................... 116,813
------------
79,949,464
------------
Telecommunications--1.6%
98,104 Globalstar Telecommunications, Ltd.(c).................. 2,274,787
202,400 Loral Space & Communications, Ltd.(c)................... 3,643,200
35,400 Motorola, Inc. ......................................... 3,354,150
600 SBC Communications, Inc................................. 34,800
------------
9,306,937
------------
Utilities--0.0%
300 Carolina Power & Light Co. ............................. 12,841
300 Duke Energy Corp. ...................................... 16,313
200 Edison International.................................... 5,350
200 New England Electric System............................. 10,025
600 Southern Co............................................. 15,900
200 Wisconsin Energy Corp................................... 5,012
------------
65,441
------------
Waste Management--1.8%
194,690 Waste Management, Inc................................... 10,464,588
------------
Total Common Stocks
(Identified Cost $390,635,893)......................... 547,654,289
------------
Preferred Stocks--0.4%
7,600 Devon Financing Trust, $3.25............................ 454,100
75,300 General Growth Properties, 7.25%........................ 1,807,200
4,400 Rouse Co., Series B, $3.00.............................. 176,550
2,000 Vornado Realty Trust, 6.50%............................. 101,000
------------
Total Preferred Stocks (Identified Cost $2,733,077)..... 2,538,850
------------
</TABLE>
See accompanying notes to financial statements.
62
<PAGE>
New England Zenith Fund
(Davis Venture Value Series)
Investments as of June 30, 1999 (Unaudited)
Short Term Investment--3.3%
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
$18,512,000 Repurchase Agreement with State Street Corp. dated
6/30/1999 at 4.85% to be repurchased at
$18,514,494 on 7/1/1999, collateralized by
$19,035,000 Federal National Mortgage Association,
5.00% due 5/4/2000 with a value of $19,068,140 ... $ 18,512,000
------------
Total Short-Term Investments
(Identified Cost $18,512,000)..................... 18,512,000
------------
Total Investments--99.9%
(Identified Cost $411,880,970)(b)................. 568,705,139
Other assets less liabilities...................... 726,568
------------
Total Net Assets--100%............................. $569,431,707
============
</TABLE>
(a) See Note 1A of Notes to Financial Statements.
(b) Federal Tax Information:
At June 30, 1999 the net unrealized appreciation on investments based on
cost of $411,880,970 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............... $161,545,781
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value............... (4,721,612)
------------
Net unrealized appreciation.................................... $156,824,169
============
</TABLE>
(c) Non-Income producing security.
Key to Abbreviations:
ADR/GDR--An American Depositary Receipt (ADR) or Global Depositary Receipt
(GDR) is a certificate issued by a Custodian Bank representing the
right to receive securities of the foreign issuer described. The
value of ADRs and GDRs are significantly influenced by trading on
exchanges not located in the United States or Canada.
CAD-- Security is denominated in Canadian Dollars.
See accompanying notes to financial statements.
63
<PAGE>
New England Zenith Fund
(Davis Venture Value Series)
Statement of Assets & Liabilities
June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets
Investments at value.................................... $568,705,139
Cash.................................................... 2,039
Foreign cash at value
(Identified cost $1,164)............................... 1,117
Receivable for:
Securities sold......................................... 130,560
Fund shares sold........................................ 1,335,377
Dividends and interest.................................. 640,579
Foreign taxes........................................... 3,811
Unamortized organization expense........................ 669
------------
Total Assets............................................ 570,819,291
Liabilities
Payable for:
Fund shares redeemed.................................... $952,147
Withholding taxes....................................... 2,946
Accrued expenses:
Management fees......................................... 334,108
Deferred trustees fees.................................. 9,312
Other expenses.......................................... 89,071
--------
Total Liabilities....................................... 1,387,584
------------
Net Assets............................................... $569,431,707
============
Net assets consist of:
Capital paid in......................................... $399,338,713
Undistributed net investment income..................... 1,605,128
Accumulated net realized gains (losses)................. 11,663,732
Unrealized appreciation (depreciation) on investments
and foreign currency................................... 156,824,134
------------
Net Assets............................................... $569,431,707
============
Computation of offering price:
Net asset value and redemption price per share
($569,431,707 divided by 21,308,542 shares of beneficial
interest)............................................... $ 26.72
============
Identified cost of investments........................... $411,880,970
============
</TABLE>
Statement of Operations
Six Months Ended June 30, 1999
(Unaudited)
<TABLE>
<S> <C> <C>
Investment Income
Dividends........................................ $ 3,181,111(a)
Interest......................................... 404,525
-----------
3,585,636
Expenses
Management fees.................................. $ 1,824,345
Trustees' fees and expenses...................... 12,557
Custodian........................................ 45,445
Audit and tax services........................... 9,103
Legal............................................ 16,622
Printing......................................... 72,302
Amortization of organization expense............. 997
Insurance........................................ 4,193
Miscellaneous.................................... 7,136
-----------
Total expenses................................... 1,992,700
-----------
Net Investment Income............................. 1,592,936
Realized and Unrealized Gain (Loss)
Realized gain (loss) on:
Investments--net................................. 9,090,271
Unrealized appreciation (depreciation) on:
Investments--net................................. 61,862,417
Foreign currency transactions--net............... (113) 61,862,304
----------- -----------
Net gain (loss).................................. 70,952,575
-----------
Net Increase (Decrease) in Net Assets From
Operations....................................... $72,545,511
===========
</TABLE>
(a) Net of foreign taxes of $28,560.
See accompanying notes to financial statements.
64
<PAGE>
New England Zenith Fund
(Davis Venture Value Series)
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30,
1998 1999
------------ ------------
<S> <C> <C>
From Operations
Net Investment Income............................. $ 2,965,810 $ 1,592,936
Net realized gain (loss).......................... 11,066,435 9,090,271
Unrealized appreciation (depreciation)............ 35,305,436 61,862,304
------------ ------------
Increase (decrease) in net assets from operations. 49,337,681 72,545,511
------------ ------------
From Distributions to Shareholders
Net investment income............................. (2,955,699) 0
Net realized gain................................. (8,942,796) 0
------------ ------------
Total distributions............................... (11,898,495) 0
------------ ------------
From Capital Share Transactions
Proceeds from sale of shares...................... 198,875,194 116,184,489
Reinvestment of distributions..................... 11,898,495 0
Cost of shares redeemed........................... (88,310,045) (59,649,200)
------------ ------------
Increase (decrease) in net assets from capital
share transactions............................... 122,463,644 56,535,289
------------ ------------
Total increase (decrease) in net assets........... 159,902,830 129,080,800
Net Assets
Beginning of the period........................... 280,448,077 440,350,907
------------ ------------
End of the period................................. $440,350,907 $569,431,707
============ ============
Undistributed (overdistributed) Net Investment
Income
End of the period................................. $ 12,192 $ 1,605,128
============ ============
Number of shares of the Fund:
Issued from the sale of shares.................... 9,098,582 4,725,613
Issued in reinvestment of distributions........... 515,015 0
Redeemed.......................................... (4,074,457) (2,439,767)
------------ ------------
Net change........................................ 5,539,140 2,285,846
============ ============
</TABLE>
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
October 31, 1994 (a) Six Months
through Year Ended December 31, Ended
December 31, ------------------------------------- June 30,
1994 1995 1996 1997 1998 1999
-------------------- ------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $10.00 $ 9.62 $ 13.10 $ 16.09 $ 20.80 $ 23.15
------ ------- -------- -------- -------- --------
Income From Investment
Operations
Net Investment Income.. 0.03 0.10 0.13 0.18 0.16 0.08
Net Realized and
Unrealized Gain (Loss)
on Investments........ (0.38) 3.68 3.26 5.20 2.84 3.49
------ ------- -------- -------- -------- --------
Total From Investment
Operations............ (0.35) 3.78 3.39 5.38 3.00 3.57
------ ------- -------- -------- -------- --------
Less Distributions
Distributions From Net
Investment Income..... (0.03) (0.10) (0.13) (0.14) (0.16) 0.00
Distributions From Net
Realized Capital
Gains................. 0.00 (0.20) (0.27) (0.53) (0.49) 0.00
------ ------- -------- -------- -------- --------
Total Distributions.... (0.03) (0.30) (0.40) (0.67) (0.65) 0.00
------ ------- -------- -------- -------- --------
Net Asset Value, End of
Period................. $ 9.62 $ 13.10 $ 16.09 $ 20.80 $ 23.15 $ 26.72
====== ======= ======== ======== ======== ========
Total Return (%)........ (3.5)(b) 39.3 25.8 33.5 14.4 15.4 (b)
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.90 (c) 0.90 0.90 0.90 0.83 0.82 (c)
Ratio of Net Investment
Income to Average Net
Assets (%)............. 2.54 (c) 1.39 1.25 0.94 0.82 0.65 (c)
Portfolio Turnover Rate
(%).................... 1 (c) 20 18 17 25 20 (c)
Net Assets, End of
Period (000)........... $3,371 $35,045 $108,189 $280,448 $440,351 $569,432
The ratios of operating
expenses to average net
assets without giving
effect to the voluntary
expense agreement
described in Note 4 to
the Financial
Statements would have
been (%)............... 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.
65
<PAGE>
Goldman Sachs Midcap Value Series
Portfolio Managers: Paul D. Farrell (pictured); Eileen A. Aptman; Matthew B.
McLennon & Karma Wilson Goldman Sachs Asset Management
[PHOTO OF PAUL D. FARRELL APPEARS HERE]
Q. How did the portfolio perform in the first half?
A. Over the first six months of 1999, the Goldman Sachs Midcap Value Series
returned 15.7% compared to a 10.3% return of the Russell Midcap Index/22/ and
a 13.0% return of the Lipper Variable Products Midcap Fund Average/14/.
Q. Briefly discuss the investment and market environment during the past six
months?
A. Following a sustained period of extreme outperformance by a short list of
giant growth and technology favorites, we witnessed a sudden diffusion of mar-
ket leadership during the second quarter of 1999. Our value discipline per-
formed well during this period as signs of global economic strength inspired
investors to venture towards discounted segments of the market, such as value
oriented, smaller capitalized, and economically sensitive industrial stocks.
Prior to the market turnaround in April, value oriented, smaller capitalized
stocks had reached an unprecedented low in terms of both performance and valu-
ation relative to growth oriented, large capitalization stocks. Additionally,
the overall market closed the second quarter on a positive note in anticipa-
tion of strong second quarter earnings announcements and due to friendly Fed-
eral Reserve Board (the "Fed") positioning. The Fed raised its guideline in-
terest rate the expected quarter percentage point (0.25%), but indicated neu-
trality regarding a future rate increase, putting to rest fears of inflation
and sharp future interest rate increases.
Q. How did you manage the portfolio during the first half of the year?
A. We have consistently employed an investment strategy that considers three
investment themes: value, momentum, and risk. Believing that the extreme pres-
sure upon the mid cap, value stocks was unsustainable, we maintained our con-
viction in the unrecognized fundamental strength of our mid cap value hold-
ings, and in some cases, we used the opportunity to both increase and initiate
positions at attractive prices.
Q. What were the principal factors affecting your performance (on both an
absolute and relative basis) during the past six months? What investment
decisions were most effective and which ones were least effective?
A. The primary reasons for the Series' outperformance stem from its middle
market capitalization bias, its value-oriented methodology, and strong stock
selection. After a weak first quarter, the Series had an extremely strong sec-
ond quarter in which it returned over 20%. Rewards during this most recent
quarter came from substantial broad-based gains with several of its holdings
having double-digit returns. As investors recognized the attractive valuations
of smaller companies, we witnessed considerable merger and acquisition ("M&A")
activity, significant insider purchases, and the launch of aggressive stock
repurchase programs by companies in the lower market capitalization ranges.
The Series benefited from some of this M&A activity.
Q. What is your outlook for the months ahead?
A. Despite a strong second quarter, we believe that significant upside remains
in several of our holdings and the overall Series. The Series remains signifi-
cantly discounted relative to both its universe and to large cap stocks. Based
on 1999 earnings, the Russell Midcap Index still sells at over a 20% price-to-
earnings discount to the Standard and Poor's 500 Index. The Series is priced
at an even greater discount. We continue to be optimistic about the long-term
value offered by mid cap companies and consistently maintain a long-term ap-
proach towards investing.
66
<PAGE>
A $10,000 investment compared to the S&P 500 and Russell Midcap Index
Since the Series' inception
[CHART APPEARS HERE]
Mid-Cap Value series S&P 500 Russell Midcap
4/30/93 10,000 10,000 10,000
6/30/93 10,497 10,303 9,590
6/30/94 10,527 10,441 9,717
6/30/95 13,718 13,161 11,989
6/30/96 16,525 16,591 14,686
6/30/97 19,461 22,325 18,058
6/30/98 21,947 29,068 22,572
6/30/99 22,501 35,674 25,124
Average Annual Return
Lipper Variable
Midcap Fund
Midcap Value Russell Midcap S&P 500 Average
6 months 15.7% 10.3% 12.2% 13.0%
1 year 2.5 11.3 22.7 17.3
3 years 10.8 19.6 29.1 17.9
5 years 16.4 20.9 27.9 19.0
Since Inception 14.1 17.7 22.9 n/a
.. Fund Facts
Goal: Long-term capital appreciation.
Start date: April 30, 1993
Size: $121 million as of June 30, 1999
Managers: Eileen A. Aptman, Paul D. Farrell, Matthew B. McLennan and Karma
Wilson. Mr. Farrell is a Managing Director and Msses. Aptman and Wilson and Mr.
McLennan are Vice Presidents of Goldman Sachs and have managed the Goldman Sachs
Midcap Value Series since September 1998.
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.
67
<PAGE>
New England Zenith Fund
(Goldman Sachs Midcap Value Series)
Investments as of June 30, 1999 (Unaudited)
Common Stocks--93.5% of Total Net Assets
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Aerospace & Defense--3.0%
41,300 Northrop Grumman Corp. ................................. $ 2,738,706
16,900 TRW, Inc. .............................................. 927,388
------------
3,666,094
------------
Airfreight, Truck & Other--0.7%
23,200 CNF Transportation, Inc. ............................... 890,300
------------
Apparel & Textiles--2.6%
143,800 Fruit of the Loom, Ltd.(c).............................. 1,402,050
96,600 Reebok International, Ltd.(c)........................... 1,799,175
------------
3,201,225
------------
Auto Suppliers--5.0%
31,500 AutoZone, Inc.(c)....................................... 948,938
6,300 Dana Corp. ............................................. 290,193
56,500 Federal-Mogul Corp. .................................... 2,938,000
39,000 Lear Corp.(c)........................................... 1,940,250
------------
6,117,381
------------
Banks--6.2%
139,700 Pacific Century Financial Corp. ........................ 3,012,281
36,400 Republic New York Corp. ................................ 2,482,025
88,000 Sovereign Bancorp, Inc. ................................ 1,067,000
27,700 UnionBanCal Corp. ...................................... 1,000,663
------------
7,561,969
------------
Biotechnology--2.2%
95,300 Quest Diagnostics, Inc.(c).............................. 2,608,838
------------
Business Services--2.1%
26,900 Dun & Bradstreet Corp. ................................. 953,269
129,800 InaCom Corp.(c)......................................... 1,638,725
------------
2,591,994
------------
Commercial Products--1.1%
64,300 Herman Miller, Inc. .................................... 1,350,300
------------
Electric Utilities--2.9%
132,600 CMP Group, Inc. ........................................ 3,472,463
------------
Environmental Services--4.0%
104,700 Allied Waste Industries, Inc.(c)........................ 2,067,825
43,100 Browning-Ferris Industries, Inc. ....................... 1,853,300
37,000 Republic Services, Inc.(c).............................. 915,750
------------
4,836,875
------------
Financial Services--4.7%
5,900 FINOVA Group, Inc. ..................................... 310,488
45,100 Radian Group, Inc. ..................................... 2,201,444
117,834 Waddell & Reed Financial, Inc. ......................... 3,181,517
------------
5,693,449
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Food & Beverages--3.6%
97,400 Archer Daniels Midland Co. ........................... $ 1,503,613
154,000 Fleming Companies, Inc. .............................. 1,790,250
55,100 Nabisco Group Holdings Corp. ......................... 1,077,893
------------
4,371,756
------------
Forest Products--0.8%
39,500 Georgia-Pacific Corp. ................................ 997,375
------------
Healthcare Management--6.6%
106,600 Health Management Associates, Inc.(c)................. 1,199,250
110,600 HEALTHSOUTH Corp.(c).................................. 1,652,088
148,600 Tenet Healthcare Corp.(c)............................. 2,758,388
150,000 Total Renal Care Holdings, Inc.(c).................... 2,334,375
------------
7,944,101
------------
Industrial Parts & Machinery--2.3%
62,500 AGCO Corp. ........................................... 707,031
19,600 Stanley Works......................................... 630,875
90,500 UNOVA, Inc.(c)........................................ 1,436,688
------------
2,774,594
------------
Industrial Services--0.5%
25,100 Ryder System, Inc. ................................... 652,600
------------
Insurance Brokers & Other Insurance--4.2%
37,200 Loews Corp. .......................................... 2,943,450
70,000 Old Republic International Corp. ..................... 1,211,875
15,900 XL Capital, Ltd. ..................................... 898,350
------------
5,053,675
------------
Life Insurance--2.7%
19,100 Aetna, Inc. .......................................... 1,708,256
23,300 ReliaStar Financial Corp. ............................ 1,019,375
17,500 Torchmark Corp. ...................................... 597,188
------------
3,324,819
------------
Logistics/Rails--1.3%
66,800 Canadian Pacific, Ltd. ............................... 1,590,675
------------
Newspapers--1.9%
57,500 A.H. Belo Corp. ...................................... 1,132,031
32,100 New York Times Co. ................................... 1,181,682
------------
2,313,713
------------
Oil & Gas--1.4%
52,600 Occidental Petroleum Corp. ........................... 1,111,175
18,300 USX-Marathon Group ................................... 595,894
------------
1,707,069
------------
</TABLE>
See accompanying notes to financial statements.
68
<PAGE>
New England Zenith Fund
(Goldman Sachs Midcap Value Series)
Investments as of June 30, 1999 (Unaudited)
Common Stocks--(Continued)
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Personal Computers &
Peripherals--1.7%
5,700 NCR Corp.(c)............................................ $ 278,231
73,400 Quantum Corp.(c)........................................ 1,770,775
------------
2,049,006
------------
Pharmaceuticals--0.9%
137,100 Perrigo Co.(c).......................................... 1,045,388
------------
Property & Casualty Insurance--5.6%
9,700 Allmerica Financial Corp. .............................. 589,881
53,600 CNA Financial Corp.(c).................................. 2,160,750
57,100 Everest Reinsurance Holdings, Inc. ..................... 1,862,888
33,700 Horace Mann Educators Corp. ............................ 916,219
35,200 Mercury General Corp. .................................. 1,196,800
------------
6,726,538
------------
Publishing--0.4%
12,300 R.R. Donnelley & Sons Co. .............................. 455,869
------------
Refining & Marketing--1.6%
74,300 Tosco Corp. ............................................ 1,927,156
------------
Restaurants & Hotels--2.0%
23,700 Promus Hotel Corp.(c)................................... 734,700
55,500 Starwood Hotels + Resorts............................... 1,696,219
------------
2,430,919
------------
Retail--5.1%
41,100 Dillard's, Inc. ........................................ 1,443,638
42,200 Federated Department Stores, Inc.(c).................... 2,233,963
16,200 Ross Stores, Inc. ...................................... 816,075
81,700 Toys 'R' Us, Inc.(c).................................... 1,690,168
------------
6,183,844
------------
Semiconductors--4.4%
61,000 Avnet, Inc. ............................................ 2,836,500
120,656 Vishay Intertechnology, Inc.(c)......................... 2,533,781
------------
5,370,281
------------
Steel--3.7%
104,200 Ispat International N.V. ............................... 1,152,713
130,700 UCAR International, Inc.(c)............................. 3,300,175
------------
4,452,888
------------
Tobacco--4.3
20,300 Philip Morris Companies, Inc. .......................... 815,802
31,367 R.J. Reynolds Tobacco Holdings, Inc.(c)................. 988,050
116,000 UST, Inc................................................ 3,393,000
------------
5,196,852
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Unit Investment Trusts--4.0%
62,569 S&P 400 MidCap Depositary Receipts.................. $ 4,907,756
------------
Total Common Stocks (Identified Cost $110,390,024).. 113,467,762
------------
Short-Term Investment--7.1%
<CAPTION>
Face
Amount
<C> <S> <C>
$8,601,000 Repurchase Agreement with State Street Corp. dated
6/30/1999 at 4.7% to be repurchased at $8,602,123
on 7/1/1999, collateralized by $6,110,000 U.S.
Treasury Bonds, 13.875% due 5/15/11 with a value of
$8,775,488......................................... 8,601,000
------------
Total Short-Term Investments (Identified Cost
$8,601,000)........................................ 8,601,000
------------
Total Investments--100.6%
(Identified Cost $118,991,024)(b).................. 122,068,762
Other assets less liabilities....................... (780,420)
------------
Total Net Assets--100%.............................. $121,288,342
============
</TABLE>
Short Call Options as of June 30, 1999
<TABLE>
<CAPTION>
Common Expiration Strike Total
Units Stocks Date Price Value
- ----- ---------------- ------------------ ------ -------
<S> <C> <C> <C> <C>
(135) Quantum Corp./August 1999 25.0 $34,594
(114) Quantum Corp./August 1999 27.5 19,950
-------
(Total Premiums received $64,985) $54,544
=======
</TABLE>
(a) See Note 1A of Notes to Financial Statements.
(b) Federal Tax Information:
At June 30, 1999 the net unrealized appreciation on investments based on
cost of $118,991,024 for federal income tax purposes was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost.................. $12,575,718
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value.................. (9,497,980)
-----------
Net unrealized appreciation....................................... $ 3,077,738
===========
</TABLE>
(c) Non-income producing security.
See accompanying notes to financial statements.
69
<PAGE>
New England Zenith Fund
(Goldman Sachs Midcap Value Series)
Statement of Assets & Liabilities
June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets
Investments at value.................................. $122,068,762
Cash.................................................. 217
Receivable for:
Securities sold....................................... 542,468
Fund shares sold...................................... 284,986
Dividends and interest................................ 93,297
Foreign taxes......................................... 1,691
------------
Total assets......................................... 122,991,421
Liabilities
Payable for:
Fund shares redeemed.................................. $ 333,320
Securities purchased.................................. 1,186,285
Options written (Premiums received $64,985)........... 54,544
Withholding taxes..................................... 956
Accrued expenses:
Management fees....................................... 73,421
Deferred trustees' fees............................... 6,381
Other expenses........................................ 48,172
----------
Total liabilities.................................... 1,703,079
------------
Net Assets............................................. $121,288,342
============
Net assets consist of:
Capital paid in....................................... $117,426,720
Undistributed net investment
income............................................... 588,203
Accumulated net realized gains (losses)............... 185,240
Unrealized appreciation (depreciation) on investments
and options.......................................... 3,088,179
------------
Net Assets............................................. $121,288,342
============
Computation of offering price:
Net asset value and redemption price per share
($121,288,342 divided by 853,272 shares of beneficial
interest)............................................. $ 142.14
============
Identified cost of investments......................... $118,991,024
============
</TABLE>
Statement of Operations
Six Months Ended June 30, 1999
(Unaudited)
<TABLE>
<S> <C> <C>
Investment Income
Dividends........................................... $ 755,484(a)
Interest............................................ 329,722
-----------
1,085,206
Expenses
Management fees..................................... S 413,343
Trustees' fees and expenses......................... 7,274
Custodian........................................... 31,676
Audit and tax services.............................. 5,577
Legal............................................... 4,254
Printing............................................ 33,956
Insurance........................................... 729
Miscellaneous....................................... 1,627
-----------
Total expenses..................................... 498,436
Less expenses assumed by the investment adviser.... (2,425) 496,011
----------- -----------
Net Investment Income................................ 589,195
Realized and Unrealized Gain (Loss)
Realized gain (loss) on:
Investments--net.................................... 305,987
Options--net........................................ 57,860 363,847
-----------
Unrealized appreciation (depreciation) on:
Investments--net.................................... 15,410,676
Options--net........................................ 10,441 15,421,117
----------- -----------
Net gain (loss)...................................... 15,784,964
-----------
Net Increase (Decrease) in Net Assets From
Operations.......................................... $16,374,159
===========
</TABLE>
(a)Net of foreign taxes of: $5,681
See accompanying notes to financial statements.
70
<PAGE>
New England Zenith Fund
(Goldman Sachs Midcap Value Series)
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30,
1998 1999
------------ ------------
<S> <C> <C>
From Operations
Net investment income............................. $ 773,045 $ 589,195
Net realized gain (loss).......................... 24,005,683 363,847
Unrealized appreciation (depreciation)............ (31,637,944) 15,421,117
------------ ------------
Increase (decrease) in net assets from operations. (6,859,216) 16,374,159
------------ ------------
From Distributions to Shareholders
Net investment income............................. (774,037) 0
Net realized gain................................. (25,623,971) 0
In excess of net realized gain.................... (178,608) 0
------------ ------------
Total distributions............................... (26,576,616) 0
------------ ------------
From Capital Share Transactions
Proceeds from sale of shares...................... 39,367,155 19,400,049
Reinvestment of distributions..................... 26,576,616 0
Cost of shares redeemed........................... (34,127,490) (27,482,894)
------------ ------------
Increase (decrease) in net assets from capital
share transactions............................... 31,816,281 (8,082,845)
------------ ------------
Total increase (decrease) in net assets........... (1,619,551) 8,291,314
Net Assets
Beginning of the period........................... 114,616,579 112,997,028
============ ============
End of the period................................. $112,997,028 $121,288,342
============ ============
Undistributed (overdistributed) Net Investment
Income
End of the period................................. $ (992) $ 588,203
============ ============
Number of Shares of the Fund:
Issued from the sale of shares.................... 235,104 152,525
Issued in reinvestment of distributions........... 219,133 0
Redeemed.......................................... (206,302) (219,069)
------------ ------------
Net change........................................ 247,935 (66,544)
============ ============
</TABLE>
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended
--------------------------------------------- June 30,
1994 1995 1996 1997 1998 1999
------- ------- ------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period................ $113.67 $112.77 $142.44 $ 157.88 $ 170.59 $ 122.85
------- ------- ------- -------- -------- --------
Income From Investment
Operations
Net Investment Income.... 0.59 0.42 0.11 0.00 1.09 0.69
Net Realized and
Unrealized Gain (Loss)
on Investments.......... (0.89) 33.80 24.88 27.12 (11.41) 18.60
------- ------- ------- -------- -------- --------
Total From Investment
operations.............. (0.30) 34.22 24.99 27.12 (10.32) 19.29
------- ------- ------- -------- -------- --------
Less Distributions
Distributions From Net
Investment Income....... (0.60) (0.40) (0.13) 0.00 (1.09) 0.00
Distributions From Net
Realized Capital Gains.. 0.00 (4.15) (9.42) (14.41) (36.08) 0.00
Distributions in Excess
of Net Realized Capital
Gains................... 0.00 0.00 0.00 0.00 (0.25) 0.00
------- ------- ------- -------- -------- --------
Total Distributions...... (0.60) (4.55) (9.55) (14.41) (37.42) 0.00
------- ------- ------- -------- -------- --------
Net Asset Value, End of
Period................... $112.77 $142.44 $157.88 $ 170.59 $ 122.85 $ 142.14
======= ======= ======= ======== ======== ========
Total Return (%).......... (0.3) 30.4 17.6 17.4 (5.5) 15.7(a)
Ratio of Operating
Expenses to Average Net
Assets (%)............... 0.84 0.85 0.85 0.85 0.88 0.90(b)
Ratio of Net Investment
Income to Average Net
Assets (%)............... 0.67 0.37 0.08 (0.16) 0.66 1.07(b)
Portfolio Turnover Rate
(%)...................... 67 58 65 49 171 124(b)
Net Assets, End of Period
(000)......................$25,622 $48,832 $82,667 $114,617 $112,997 $121,288
The ratios of operating
expenses to average net
assets without giving
effect to the voluntary
expense agreement
described in Note 4 to
the Financial Statements
would have been (%)...... 0.84 1.06 0.92 0.86 0.90 0.90(b)
</TABLE>
(a) Not computed on an annualized basis.
(b) Computed on an annualized basis.
See accompanying notes to financial statements.
71
<PAGE>
Loomis Sayles Small Cap Series
Lead Portfolio Managers (pictured): Chris R. Ely and Jeffrey C. Petherick
Portfolio Managers: Mary C. Champagne, Philip C. Fine and David L. Smith
Loomis, Sayles & Company, L.P.
[PHOTO OF CHRIS ELY APPEARS HERE]
[PHOTO OF JEFF PETHERICK APPEARS HERE]
Q. How did the Series perform during the past six months relative to its index
and relative to its peers?
A. The Loomis Sayles Small Cap Series was up 3.8% for the first six months of
1999 versus a return of 9.3% for the Russell 2000/23/. The Lipper Variable
Products Small Company Fund Average/15/ was up 9.9% over the same time period.
Q. Briefly discuss the investment and market environment during the past six
months?
A. The small cap market went from one extreme to the other in the first half of
1999. In the first quarter of the year, the only stocks that seemed to be work-
ing were the most speculative, highest P/E or no-earnings stocks. The Internet
stocks went crazy, doubling their weight in the Russell 2000 in a flat environ-
ment for the rest of the index. Beginning in the second quarter, market partic-
ipants witnessed another spectacular move to the upside from the Internet
stocks, finishing off the incredible rise that occurred in the first quarter.
However on April 12th, the investment community decided that worldwide growth
was resuming, sending cyclical stocks and beaten up stocks soaring and Internet
stocks falling. In addition there was a broadening of the market toward small
and mid cap stocks leading to second quarter returns for the Russell 2000 and
the Russell Mid Cap Indices that far exceeded the large-cap dominated S&P 500
Index.
Q. Given this investment environment, what was your investment strategy? What
changes did you make since the start of the year?
A. The Series has historically been managed with a greater "value" orientation.
Beginning in May 1999, there was a rebalancing of the Series and the Loomis
Sayles growth team began to buy stocks reflective of their growth style of man-
agement.
On the value side, our style has always been one of finding good quality compa-
nies at attractive valuations. The companies we end up buying tend to have the
ability to produce manageable earnings growth in the 15% to 17% range. In many
cases, the companies we buy can produce growth well in excess of that range and
when they do, they tend to be picked up by the growth players. However, the re-
cent phenomenon of the Internet stocks has caused many of the growth players to
move away from quality companies. While the vast majority of the value stocks
in the portfolio have met or exceeded our fundamental expectations, the market
has often reacted in an indifferent manner. An exception to this has been in
the technology area, where we have had good exposure to many of the strong com-
panies in this sector, and where the fundamentals have been rewarded with
strong stock returns.
It has also not been a large part of our investment process to focus on beaten-
up, downtrodden issues. While we occasionally buy this type of stock, we would
much prefer to focus on companies with strong fundamentals. While many of the
stocks that moved up sharply in the second quarter were of the deep value kind,
we do not feel there is longevity to this move. We plan to adhere to our strat-
egy of buying quality companies with strong growth prospects at attractive val-
uations.
On the growth side, there was little change to portfolio strategy during the
first half of 1999. Upon the initial rebalancing of the Series in May, this
portion of the Series was fully invested in small cap growth stocks. The larg-
est sector exposure remained in technology issues, principally electronics,
telecommunications, and software. Indeed, the technology weighting actually in-
creased slightly due to the sector's strong relative performance. The
healthcare sector exposure also increased during the second quarter with the
addition of two companies providing laser vision correction services.
Q. What were the principal factors affecting your performance (on both an
absolute and relative basis) during the past six months? What investment
decisions were most effective and which ones were least effective?
A. Much of the shortfall in performance can be attributed to the lack of expo-
sure to Internet stocks, which accounted for four percentage points (4%) of the
Russell 2000's first-half total return. There has also been a bias in the mar-
ket in the first half of the year toward growth stocks, with the Russell 2000
Growth Index returning 12.8% in the first half versus a 5.1% return for the
Russell 2000 Value. The recent addition of the growth component to the Series,
managed by the Loomis Sayles growth team, should balance the Series out on a
style basis. With regard to particular sectors of the Series, the Series
weighting in Health Care and Financial Services, two poorly performing areas,
was a negative for performance which was
72
<PAGE>
partially offset by our healthy weight and strong stock picks in the technol-
ogy area.
Q: What is your outlook for the market and for your portfolio for the next six
months? What changes, if any, will you make to the way you manage your
portfolio?
A: After several years of underperforming large cap stocks, it appears that
small stocks are poised to gain some ground back. Small stocks are as cheap as
they have ever been historically and fundamentals continue to be strong. One
potential catalyst for earnings growth will be the elimination of Y2K
remediation costs beginning later this year. Y2K costs have hit smaller compa-
nies disproportionately hard. We will continue our strategy of focusing on
companies that have a strong fundamental outlook, whether they fall into the
"growth" or "value" styles. Historically Our focus on internally generated,
fundamental research has led to strong investment returns for both styles of
management.
A $10,000 investment compared to the Russell 2000 Index
since the Series' inception
[CHART APPEARS HERE]
Small Cap Series Russell 2000
5/2/94 10,000 10,000
6/30/94 9,628 9,554
6/30/95 10,749 11,471
6/30/96 14,450 14,212
6/30/97 18,305 16,532
6/30/98 20,902 19,261
6/30/99 20,754 19,550
Average Annual Return
Small Cap Russell Lipper Variable Small
Series 2000 Company Fund Average
6 months 3.8% 9.3% 9.9%
1 year (0.7) 1.5 4.6
3 years 12.8 11.2 12.0
5 years 16.6 15.4 17.5
Since Inception 15.2 13.9 n/a
.. Fund Facts
Goal: Long-term capital growth from investment in common stocks or their
equivalents.
Start date: May 2, 1994
Size: $240 million as of June 30, 1999
Managers: Chris Ely, Jeffrey Petherick, Mary Champagne, Philip Fine and David
Smith. Mr. Petherick has managed the Series since its inception in May 1994. Ms.
Champagne joined the management of the Fund in July 1995. Mr. Petherick has also
managed the Loomis Sayles portion of the New England Star Advisers Fund since
July 1, 1994. Ms. Champagne has co-managed the Loomis Sayles portion of the New
England Star Advisers Fund since July 1995. They also manage the Loomis Sayles
Small Cap Fund and the Maxim Series--Small Cap Fund. Mr. Petherick joined Loomis
Sayles in 1990. Ms. Champagne joined Loomis Sayles in 1993. Mr. Ely, Mr. Fine,
and Mr. Smith began co-managing The Series in April 1999. Mr. Ely has also
managed the Loomis Sayles portion of the New England Star Small Cap Fund since
December 1996. He also manages the Loomis Sayles Aggressive Fund and the Loomis
Sayles Small Cap Growth Fund, series of the Loomis Sayles Funds, and the Loomis
Sayles Small Company Growth Fund, a series of Loomis Sayles Investment Trust.
Mr. Ely joined Loomis Sayles in 1996.
Performance numbers are net of all Series expenses but do not include any in-
surance, sales or administrative charges of variable annuity or life insurance
contracts. If these charges were included, the returns shown would be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
73
<PAGE>
New England Zenith Fund
(Loomis Sayles Small Cap Series)
Investments as of June 30, 1999 (Unaudited)
Common Stocks--95.3% of Total Net Assets
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Aerospace & Defense--2.2%
47,300 AAR Corp. ............................................... $ 1,073,119
15,200 Alliant Techsystems, Inc.(c)............................. 1,314,800
22,800 GenCorp Inc.............................................. 575,700
31,800 Newport News Shipbuilding, Inc........................... 938,100
20,800 Nichols Research Corp.(c)................................ 455,000
38,700 Orbital Sciences Corp.(c)................................ 914,287
-----------
5,271,006
-----------
Apparel & Textiles--1.0%
90,400 Burlington Industries, Inc.(c)........................... 819,250
29,700 Liz Claiborne, Inc....................................... 1,084,050
13,900 Springs Industries, Inc.................................. 606,388
-----------
2,509,688
-----------
Automobile & Related--1.9%
65,300 Intermet Corp. .......................................... 987,663
34,700 Meritor Automotive, Inc.(c).............................. 884,850
102,900 Tower Automotive, Inc.(c)................................ 2,617,518
-----------
4,490,031
-----------
Banks & Thrifts--4.4%
29,000 Bank United Corp. ....................................... 1,165,438
19,400 Chittenden Corp.(c)...................................... 606,250
9,800 City National Corp. ..................................... 366,888
48,300 Colonial BancGroup, Inc.................................. 673,181
58,212 Commercial Federal Corp. ................................ 1,349,791
73,000 Community First Bankshares, Inc.......................... 1,742,875
66,200 Cullen/Frost Bankers, Inc................................ 1,824,638
31,100 Hudson United Bancorp.................................... 952,438
47,000 Local Financial Corp.(c)................................. 470,000
72,200 Staten Island Bancorp, Inc............................... 1,299,600
6,200 The Pacific Bank, National Association................... 118,186
-----------
10,569,285
-----------
Beverages--0.3%
41,900 Whitman Corp. ........................................... 754,200
-----------
Broadcast--T.V./Radio/Cable--1.4%
25,300 Citadel Communications Corp.(c).......................... 915,544
33,400 Cumulus Media, Inc.(c)................................... 730,625
22,000 Entercom Communications Corp.(c)......................... 940,500
30,700 Hearst-Argyle Television, Inc.(c)........................ 736,800
-----------
3,323,469
-----------
Building & Related--1.5%
51,300 Champion Enterprises, Inc.(c)............................ 955,463
17,500 Furniture Brands International, Inc.(c).................. 487,813
48,300 Giant Cement Holding, Inc.(c)............................ 1,104,863
21,400 Shaw Industries, Inc.(c)................................. 353,100
10,500 Southdown, Inc........................................... 674,624
-----------
3,575,863
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Chemicals--0.3%
33,900 Solutia, Inc. ........................................... $ 722,494
-----------
Chemicals--Specialty--1.7%
35,800 CUNO, Inc.(c)............................................ 684,675
26,700 Cytec Industries, Inc.(c)................................ 851,063
3,000 Ferro Corp. ............................................. 82,500
12,400 Great Lakes Chemical Corp. .............................. 571,175
28,500 OM Group, Inc. .......................................... 983,250
21,500 The Scotts Co.(c)........................................ 1,023,937
-----------
4,196,600
-----------
Communication Equipment--4.2%
9,800 Copper Mountain Networks, Inc.(c)........................ 757,050
43,200 DSP Communications, Inc.(c).............................. 1,247,400
46,400 Inter-Tel, Inc........................................... 846,800
18,700 Optical Coating Laboratory, Inc.......................... 1,563,788
116,800 PairGain Technologies, Inc.(c)........................... 1,343,200
27,700 Powerwave Technologies, Inc.(c).......................... 893,325
18,550 Proxim, Inc.(c).......................................... 1,075,900
25,300 Sawtek, Inc.(c).......................................... 1,160,638
24,500 SDL, Inc.(c)............................................. 1,251,030
-----------
10,139,131
-----------
Communication--Other
Services--0.8%
35,100 Dycom Industries, Inc.(c)................................ 1,965,600
-----------
Computers--Hardware--0.9%
54,100 Hutchinson Technology, Inc.(c)........................... 1,501,275
45,200 SMART Modular Technologies, Inc.(c)...................... 785,350
-----------
2,286,625
-----------
Computers--Software/Service--3.3%
14,700 Advent Software, Inc.(c)................................. 984,900
150 Ask Jeeves, Inc.(c)...................................... 2,100
18,100 Clarify, Inc.(c)......................................... 746,625
13,100 Concord Communications, Inc.(c).......................... 589,500
66,000 Genesys Telecommunications Laboratories, Inc.(c)......... 1,650,000
21,200 ISS Group, Inc.(c)....................................... 800,300
18,700 Macromedia, Inc.(c)...................................... 659,175
42,400 Mercury Interactive Corp.(c)............................. 1,499,900
29,400 Visio Corp.(c)........................................... 1,119,038
-----------
8,051,538
-----------
Consumer--Jewelry/Novelties/
Gifts--0.4%
51,100 Jostens, Inc............................................. 1,076,294
-----------
</TABLE>
See accompanying notes to financial statements.
74
<PAGE>
New England Zenith Fund
(Loomis Sayles Small Cap Series)
Investments as of June 30, 1999 (Unaudited)
Common Stocks--(Continued)
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Electric Companies--1.1%
22,600 Bec Energy............................................... $ 932,250
33,300 Rochester Gas & Electric Corp............................ 884,531
28,700 WPS Resources Corp....................................... 861,000
-----------
2,677,781
-----------
Electrical Equipment--1.6%
15,100 Alpha Industries, Inc.(c)................................ 719,138
34,000 Maxwell Technologies, Inc.(c)............................ 818,125
29,100 SCI Systems, Inc.(c)..................................... 1,382,250
46,650 Vishay Intertechnology, Inc.(c).......................... 979,650
-----------
3,899,163
-----------
Electronics--9.2%
52,500 Actel Corp.(c)........................................... 774,375
44,000 Advanced Energy Industries, Inc.(c)...................... 1,784,750
19,000 Applied Micro Circuits Corp.(c).......................... 1,562,750
31,400 Atmel Corp.(c)........................................... 822,288
22,700 AVX Corp................................................. 553,313
13,300 Credence Systems Corp.(c)................................ 493,763
19,500 Cree Research, Inc.(c)................................... 1,500,281
73,500 Cypress Semiconductor Corp.(c)........................... 1,212,750
12,900 Dallas Semiconductor Corp................................ 651,450
10,300 Emulex Corp.(c).......................................... 1,145,231
7,700 Flextronics International, Ltd.(c)....................... 427,350
16,300 hi/fn, inc.(c)........................................... 1,240,838
21,600 Litton Industries, Inc.(c)............................... 1,549,800
4,900 Novellus Systems, Inc.(c)................................ 334,425
17,800 Photronics, Inc.(c)...................................... 436,100
26,900 Power Integrations, Inc.(c).............................. 1,967,063
35,900 PRI Automation, Inc.(c).................................. 1,301,375
34,100 REMEC, Inc.(c)........................................... 549,863
39,800 Tektronix, Inc........................................... 1,201,460
42,800 TranSwitch Corp.(c)...................................... 2,027,650
13,500 Veeco Instruments Inc.(c)................................ 459,000
-----------
21,995,875
-----------
Entertainment--0.7%
39,700 CEC Entertainment, Inc.(c)............................... 1,677,325
-----------
Financial--Consumer/
Diversified--5.7%
89,000 Amresco, Inc.(c)......................................... 572,938
100,300 Anthracite Capital, Inc.................................. 658,219
66,900 Brandywine Realty Trust.................................. 1,325,456
105,700 Capital Automotive REIT(c)............................... 1,400,525
64,599 Healthcare Realty Trust, Inc............................. 1,356,579
117,000 Imperial Credit Industries, Inc.(c)...................... 829,969
12,000 Jones Lang Lasalle Inc.(c)............................... 357,750
77,700 Liberty Property Trust................................... 1,932,788
37,700 Metris Companies, Inc.................................... 1,536,275
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Financial--Consumer/Diversified--(Continued)
46,000 Pacific Gulf Properties, Inc. ........................... $ 1,040,750
49,400 Sun Communities, Inc. ................................... 1,753,700
160,500 UniCapital Corp.(c)...................................... 1,013,155
-----------
13,778,104
-----------
Foods--2.0%
24,500 Corn Products International, Inc.(c)..................... 745,719
78,300 International Multifoods Corp............................ 1,766,644
67,100 Michael Foods, Inc....................................... 1,576,850
24,000 The Earthgrains Co....................................... 619,500
-----------
4,708,713
-----------
Freight Transportation--0.6%
27,300 CNF Transportation, Inc.................................. 1,047,638
26,500 Wisconsin Central Transportation Corp.(c)................ 500,187
-----------
1,547,825
-----------
Health Care--Biotechnology--2.0%
27,700 Alkermes, Inc.(c)........................................ 640,563
26,100 ICOS Corp.(c)............................................ 1,065,206
13,900 IDEC Pharmaceuticals Corp.(c)............................ 1,071,169
31,100 Medicis Pharmaceutical Corp.(c).......................... 789,163
23,750 Pharmacyclics, Inc.(c)................................... 665,000
31,100 Visible Genetics, Inc.(c)................................ 501,487
-----------
4,732,588
-----------
Health Care--Drugs--1.1%
14,000 Biovail Corp International(c)............................ 714,875
17,200 ChiRex, Inc.(c).......................................... 552,550
33,900 Dura Pharmaceuticals, Inc.(c)............................ 404,681
22,300 Jones Pharma, Inc........................................ 878,063
-----------
2,550,169
-----------
Health Care--Medical Property/Supplies--3.9%
22,000 Biomatrix, Inc.(c)....................................... 475,750
60,700 CONMED Corp.(c).......................................... 1,858,938
29,800 DENTSPLY International, Inc. ............................ 834,400
34,000 DVI, Inc.(c)............................................. 582,250
101,600 Endosonics Corp.(c)...................................... 711,200
47,300 Invacare Corp............................................ 1,265,275
14,000 MiniMed, Inc.(c)......................................... 1,077,125
23,700 Osteotech, Inc.(c)....................................... 681,375
32,300 Respironics, Inc.(c)..................................... 488,536
29,400 Xomed Surgical Products, Inc.(c)......................... 1,431,414
-----------
9,406,263
-----------
Health Care--Services--3.6%
25,600 Alterra Healthcare Corp.(c).............................. 352,000
54,800 Beverly Enterprises, Inc.(c)............................. 441,825
</TABLE>
See accompanying notes to financial statements.
75
<PAGE>
New England Zenith Fund
(Loomis Sayles Small Cap Series)
Investments as of June 30, 1999 (Unaudited)
Common Stocks--(Continued)
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Health Care--Services--(Continued)
60,000 Capital Senior Living Corp.(c)........................... $ 600,000
21,300 First Health Group Corp.(c).............................. 459,281
33,100 Foundation Health Systems, Inc.(c)....................... 496,500
23,900 Laser Vision Centers, Inc.(c)............................ 1,505,700
131,400 Medaphis Corp.(c)........................................ 755,550
44,000 MedQuist, Inc.(c)........................................ 1,925,000
41,600 TLC The Laser Center, Inc.(c)............................ 1,996,800
-----------
8,532,656
-----------
Insurance--5.2%
32,400 AmerUs Life Holdings, Inc................................ 874,800
46,400 Annuity And Life Re Holdings, Ltd.(c).................... 1,041,100
17,900 Arthur J. Gallagher & Co. ............................... 886,050
23,300 Capital Re Corp.......................................... 374,256
74,000 CNA Surety Corp.......................................... 1,133,125
42,400 HCC Insurance Holdings, Inc.............................. 961,950
16,800 Liberty Financial Companies, Inc. ....................... 489,300
22,350 Medical Assurance, Inc.(c)............................... 631,388
30,300 Protective Life Corp..................................... 999,900
15,400 Radian Group, Inc. ...................................... 751,713
19,900 Reinsurance Group of America, Inc........................ 701,475
56,700 StanCorp Financial Group, Inc.(c)........................ 1,701,000
56,600 Trigon Healthcare, Inc.(c)............................... 2,058,824
-----------
12,604,881
-----------
Investment Management--0.7%
90,400 Federated Investors, Inc................................. 1,621,550
-----------
Leisure Time--Products--0.4%
22,100 Harman International Industries, Inc. ................... 972,400
-----------
Lodging/Hotels--0.5%
51,885 MeriStar Hospitality Corp.(c)............................ 1,164,170
-----------
Machinery--0.4%
52,300 Milacron, Inc............................................ 967,550
-----------
Manufacturing--Diversified--4.0%
32,050 A.O. Smith Corp. ........................................ 897,400
20,000 Carlisle Companies, Inc.................................. 962,500
23,700 Cordant Technologies, Inc.(c)............................ 1,070,944
22,000 Crane Co................................................. 691,625
24,800 National Service Industries, Inc. ....................... 892,800
30,600 Pentair, Inc............................................. 1,399,950
54,300 Premark International, Inc............................... 2,036,250
18,600 SPX Corp.(c)............................................. 1,553,100
-----------
9,504,569
-----------
Manufacturing--Special--1.2%
55,900 Federal Signal Corp. .................................... 1,184,381
66,500 Hussmann International, Inc. ............................ 1,101,406
28,500 Regal-Beloit Corp........................................ 673,313
-----------
2,959,100
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Metals & Mining--1.0%
60,800 Bethlehem Steel Corp.(c)................................. $ 467,400
17,000 Carpenter Technology Corp. .............................. 485,561
11,400 Harsco Corp.............................................. 364,800
67,300 Worthington Industries, Inc.............................. 1,106,245
-----------
2,424,006
-----------
Natural Gas--1.7%
81,900 MCN Energy Group, Inc. .................................. 1,699,425
14,100 New Jersey Resources Corp. .............................. 527,869
37,300 Public Service Company of North Carolina, Inc............ 1,091,025
26,700 Washington Gas Light Co. ................................ 694,200
-----------
4,012,519
-----------
Office Equipment & Supply--0.9%
9,500 Bell & Howell Co.(c)..................................... 359,219
26,600 Hon Industries, Inc...................................... 776,387
29,000 National Computer Systems, Inc........................... 978,750
-----------
2,114,356
-----------
Oil & Gas--Drilling Equipment--2.7%
36,700 Atwood Oceanics, Inc.(c)................................. 1,146,875
11,500 Cooper Cameron Corp.(c).................................. 426,219
71,700 Global Industries, Ltd.(c)............................... 918,656
88,100 Marine Drilling Companies, Inc.(c)....................... 1,205,869
41,500 Maverick Tube Corp.(c)................................... 578,406
66,100 Patterson Energy, Inc.(c)................................ 652,738
28,800 Santa Fe International Corp. ............................ 662,400
31,300 Tidewater, Inc. ......................................... 954,650
-----------
6,545,813
-----------
Oil & Gas--Exploration Products--0.9%
43,900 Newfield Exploration Co.(c).............................. 1,248,406
47,200 Plains Resources, Inc.(c)................................ 896,800
-----------
2,145,206
-----------
Paper & Forest Products--0.8%
27,100 Chesapeake Corp.......................................... 1,014,556
29,900 Consolidated Papers, Inc. ............................... 799,825
-----------
1,814,381
-----------
Restaurants--0.7%
10,900 Foodmaker, Inc.(c)....................................... 309,288
23,400 Ruby Tuesday, Inc........................................ 444,600
35,500 Wendy's International, Inc. ............................. 1,005,093
-----------
1,758,981
-----------
Retail--Food Chains--1.1%
32,500 Hannaford Bros. Co. ..................................... 1,738,750
27,000 The Great Atlantic & Pacific
Tea Company, Inc........................................ 912,938
-----------
2,651,688
-----------
</TABLE>
See accompanying notes to financial statements.
76
<PAGE>
New England Zenith Fund
(Loomis Sayles Small Cap Series)
Investments as of June 30, 1999 (Unaudited)
Common Stocks--(Continued)
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Retail--General Merchandise--1.1%
30,600 99 Cents Only Stores(c)................................ $ 1,528,088
19,700 BJ's Wholesale Club, Inc.(c)........................... 592,231
16,300 Saks, Inc.(c).......................................... 470,662
-----------
2,590,981
-----------
Retail--Specialty--4.0%
29,400 Ann Taylor Stores Corp.(c)............................. 1,323,000
91,900 Burlington Coat Factory Warehouse Corp. ............... 1,774,819
36,700 Cost Plus, Inc.(c)..................................... 1,669,850
31,400 Linens N Things, Inc.(c)............................... 1,373,750
25,900 Michaels Stores, Inc.(c)............................... 793,188
63,550 Pacific Sunwear Of California, Inc.(c)................. 1,549,031
7,700 Talbots, Inc........................................... 293,563
16,600 The Buckle, Inc.(c).................................... 477,250
10,200 Wet Seal, Inc.(c)...................................... 291,974
-----------
9,546,425
-----------
Services--7.8%
13,100 Abacus Direct Corp.(c)................................. 1,198,650
61,100 ACNielson Corp.(c)..................................... 1,848,275
35,700 ADVO, Inc.(c).......................................... 740,775
43,400 Borg-Warner Security Corp.(c).......................... 881,563
17,100 Concentric Network Corp.(c)............................ 679,725
77,200 Daisytek International Corp.(c)........................ 1,259,325
75,900 Information Resources, Inc.(c)......................... 664,125
44,000 Labor Ready, Inc.(c)................................... 1,430,000
11,100 National Data Corp..................................... 474,525
29,900 Nielsen Media Research, Inc............................ 874,575
10,800 QRS Corp.(c)........................................... 842,400
92,400 R.H. Donnelley Corp.................................... 1,807,575
17,100 Softnet Systems, Inc.(c)............................... 476,663
37,500 The Profit Recovery Group International, Inc.(c)....... 1,774,217
34,000 United Stationers, Inc.(c)............................. 748,000
28,000 USWeb Corp.(c)......................................... 621,250
77,000 Viad Corp. ............................................ 2,382,188
-----------
18,703,831
-----------
Services--Data Processing--0.2%
8,500 Security First Technologies Corp.(c)................... 383,563
-----------
Services--Facility Environment--1.1%
26,200 American States Water Co............................... 743,425
38,000 Metzler Group, Inc.(c)................................. 1,049,750
44,375 Tetra Tech, Inc.(c).................................... 732,188
-----------
2,525,363
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Specialty Printing--1.2%
43,400 Deluxe Corp. ....................................... $ 1,689,888
41,700 Harte-Hanks, Inc. .................................. 1,131,112
------------
2,821,000
------------
Telecommunication--Long Distance--1.5%
29,300 Boston Communications Group, Inc.(c)................ 393,714
29,400 CapRock Communications Corp.(c)..................... 1,190,700
41,800 Transaction Network Services, Inc.(c)............... 1,222,650
14,800 Viatel, Inc.(c)..................................... 830,650
------------
3,637,714
------------
Telephone--0.4%
33,900 ITC DeltaCom, Inc.(c)............................... 949,200
------------
Total Common Stocks
(Identified Cost $205,942,696)..................... 228,857,533
------------
Short-Term Investments--6.3%
<CAPTION>
Face
Amount
<C> <S> <C>
$11,428,404 Associates First Capital Corp.,
5.250%, 7/1/99..................................... 11,428,404
3,800,000 Chevron Corp., 5.500%, 7/1/99....................... 3,800,000
------------
Total Short-Term Investment
(Identified Cost $15,228,404)...................... 15,228,404
------------
Total Investments--101.6%
(Identified Cost $221,171,100)(b).................. 244,085,937
Other assets less liabilities....................... (3,950,114)
------------
Total Net Assets--100%.............................. $240,135,823
============
</TABLE>
(a) See Note 1A of Notes to Financial Statements.
(b) Federal Tax Information: At June 30, 1999 the net unrealized appreciation
on investments based on cost of $221,171,100 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............... $ 31,842,595
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value............... (8,927,758)
------------
Net unrealized appreciation.................................... $ 22,914,837
============
</TABLE>
For federal income tax purposes, the Series has a capital loss carryforward at
June 30, 1999 of approximately $6,763,123 which will expire in 2006.
Accordingly, no capital gain distributions are expected to be paid to
shareholders until net gains have been realized in excess of such amount.
(c) Non-income producing security.
See accompanying notes to financial statements.
77
<PAGE>
New England Zenith Fund
(Loomis Sayles Small Cap Series)
Statement of Assets & Liabilities
June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets
Investments at value................................. $244,085,937
Receivable for:
Securities sold...................................... 1,554,103
Fund shares sold..................................... 1,080,098
Dividends and interest............................... 202,856
------------
Total Assets....................................... 246,922,994
Liabilities
Payable for:
Fund shares redeemed................................. $ 421,661
Securities purchased................................. 6,130,123
Accrued expenses:
Management fees...................................... 142,332
Deferred trustees fees............................... 5,973
Other expenses....................................... 87,082
----------
Total Liabilities.................................. 6,787,171
------------
Net Assets............................................ $240,135,823
============
Net assets consist of:
Capital paid in...................................... $221,663,345
Undistributed net investment income.................. 713,640
Accumulated net realized gains (losses).............. (5,155,999)
Unrealized appreciation (depreciation) on
investments......................................... 22,914,837
------------
Net Assets............................................ $240,135,823
============
Computation of offering price:
Net asset value and redemption price per share
($240,135,823 divided by 1,507,093 shares of
beneficial interest)................................. $ 159.34
============
Identified cost of investments........................ $221,171,100
============
</TABLE>
Statement of Operations
Six Months Ended June 30, 1999
(Unaudited)
<TABLE>
<S> <C> <C>
Investment Income
Dividends.............................................. $1,402,081
Interest............................................... 372,099
----------
1,774,180
Expenses
Management fees........................................ $1,091,684
Trustees' fees and expenses............................ 8,981
Custodian.............................................. 60,960
Audit and tax services................................. 6,291
Legal.................................................. 7,241
Printing............................................... 54,416
Insurance.............................................. 1,630
Miscellaneous.......................................... 2,841
----------
Total expenses........................................ 1,234,044
Less expenses assumed by the investment adviser....... (142,360) 1,091,684
---------- ----------
Net Investment Income................................... 682,496
Realized and Unrealized Gain (Loss)
Realized gain (loss) on:
Investments--net....................................... 1,737,436
Unrealized appreciation (depreciation) on:
Investments--net....................................... 5,827,210
----------
Net gain (loss)......................................... 7,564,646
----------
Net Increase (Decrease) in Net Assets From Operations... $8,247,142
==========
</TABLE>
See accompanying notes to financial statements.
78
<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,
1998 1999
------------ ------------
<S> <C> <C>
From Operations
Net investment income............................. $ 1,909,702 $ 682,496
Net realized gain (loss).......................... (6,792,530) 1,737,436
Unrealized appreciation (depreciation)............ 899,887 5,827,210
------------ ------------
Increase (decrease) in net assets from operations. (3,982,941) 8,247,142
------------ ------------
From Distributions to Shareholders
Net investment income............................. (1,908,277) 0
Net realized gain................................. (1,896,046) 0
In excess of net realized gain.................... (106,613) 0
------------ ------------
Total distributions............................... (3,910,936) 0
------------ ------------
From Capital Share Transactions
Proceeds from sale of shares...................... 108,988,919 45,681,799
Reinvestment of distributions..................... 3,910,936 0
Cost of shares redeemed........................... (66,521,977) (52,382,573)
------------ ------------
Increase (decrease) in net assets from capital
share transactions............................... 46,377,878 (6,700,774)
------------ ------------
Total increase (decrease) in net assets........... 38,484,001 1,546,368
Net Assets
Beginning of the period........................... 200,105,454 238,589,455
------------ ------------
End of the period................................. $238,589,455 $240,135,823
============ ============
Undistributed (overdistributed) Net Investment
Income
End of the period................................. $ 31,144 $ 713,640
============ ============
Number of shares of the Fund:
Issued from the sale of shares.................... 707,174 316,835
Issued in reinvestment of distributions........... 25,977 0
Redeemed.......................................... (438,200) (363,823)
------------ ------------
Net change........................................ 294,951 (46,988)
============ ============
</TABLE>
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
May 2, 1994(a) Six Months
through Year Ended December 31, Ended
December 31, ------------------------------------ June 30,
1994 1995 1996 1997 1998 1999
-------------- ------- ------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $100.00 $ 96.61 $118.80 $ 144.29 $ 158.92 $ 153.52
------- ------- ------- -------- -------- --------
Income From Investment
Operations
Net Investment Income.. 0.14 0.85 1.05 1.22 1.24 0.45
Net Realized and
Unrealized Gain (Loss)
on Investments........ (3.38) 26.93 35.03 34.11 (4.01) 5.37
------- ------- ------- -------- -------- --------
Total From Investment
Operations............ (3.24) 27.78 36.08 35.33 (2.77) 5.82
------- ------- ------- -------- -------- --------
Less Distributions
Distributions From Net
Investment Income..... (0.15) (0.78) (1.03) (1.21) (1.24) 0.00
Distributions From Net
Realized Capital
Gains................. 0.00 (4.81) (9.56) (19.49) (1.32) 0.00
Distributions in Excess
of Net Realized
Capital Gains......... 0.00 0.00 0.00 0.00 (0.07) 0.00
------- ------- ------- -------- -------- --------
Total Distributions.... (0.15) (5.59) (10.59) (20.70) (2.63) 0.00
------- ------- ------- -------- -------- --------
Net Asset Value, End of
Period................. $ 96.61 $118.80 $144.29 $ 158.92 $ 153.52 $ 159.34
======= ======= ======= ======== ======== ========
Total Return (%)........ (3.2)(b) 28.9 30.7 24.9 (1.7) 3.8(b)
Ratio of Operating
Expenses to Average Net
Assets (%)............. 1.00 (c) 1.00 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 0.88 0.63(c)
Portfolio Turnover Rate
(%).................... 80 (c) 98 62 87 111 153(c)
Net Assets, End of
Period (000)........... $ 3,105 $27,741 $89,194 $200,105 $238,589 $240,136
The ratios of operating
expenses to average net
assets without giving
effect to the voluntary
expense agreement
described in Note 4 to
the Financial
Statements would have
been (%)............... 2.31 (c) 1.91 1.29 1.14 1.10 1.13(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.
79
<PAGE>
MFS Investors Series
Portfolio Managers: John D. Laupheimer and Mitchell D. Dynan
[PHOTO OF JOHN LAUPHEIMER APPEARS HERE]
[PHOTO OF MITCH DYNAN APPEARS HERE]
Q. As the Series was just established at the end of April, how did the Series
perform during the past two months?
A. For the two months ended June 30, 1999, the Series provided a total return
of 2.3%. This compares to a 3.0% return for the S&P 500/25/, for the same pe-
riod.
Q. Briefly discuss the investment and market environment during the past
several months. Given this investment environment, what was your investment
strategy? What changes did you make?
A. Even though many technology stocks have performed well for over a year, we
feel the price volatility of this sector relative to its long-term potential
is too great for this Series. Meanwhile, stocks of cyclical companies such as
chemicals performed quite well this spring, but they have since stalled out.
That did not surprise us because we feel very few cyclical stocks have the po-
tential to grow their earnings at the rate we're looking for. We prefer compa-
nies whose price-to-earnings ratios have been more favorable than that of the
market as a whole. Therefore, the Series has large weightings in companies
such as United Technologies, an aerospace, defense, and building-equipment
company; Xerox, an office equipment company; AlliedSignal, an aerospace, auto-
motive, and environmental- controls company; and Bell Atlantic, a telecommuni-
cations company.
Recent additions to the Series included Newell Rubbermaid. Newell bought
Rubbermaid in the first quarter of this year, and we believe the combined
company could have a near monopoly on a range of consumer staples, including
Rolodexes. It also sells home products such as drapery, hardware, and kitchen
accessories. Rubbermaid had a broad product line that was very popular, but
its reputation for customer satisfaction was poor, while Newell brings a
strong customer orientation to the table. Wells Fargo & Co., a California-
based bank, is now among the Series' top 10 holdings. It acquired Norwest
Corp., a Minnesota-based bank, last fall, bringing together two financial
services companies with good cost controls and, in our opinion, growth
potential. The financial services industry has been a favorite for a long
time, but we are slowly lowering our stake in this area. Most banks prefer to
see interest rates go up so they can reprice loans and fee-based services
quickly when they do. So far, however, there has been little indication that
interest rates are going to go up enough to let the banks take these steps.
Also, as the number of mergers continues to increase, there has been
competition for market share but little real growth in the sector.
Q. What were the principal factors affecting your performance (on both an
absolute and relative basis)? What investment decisions were most effective
and which ones were least effective?
A. The Series seeks to provide growth of capital with less risk, or price vol-
atility, than the overall market as represented by the S&P 500. We believe we
can provide favorable long-term returns by taking this risk-adjusted approach
rather than by overweighting sectors that may be showing strong performance in
the short term. This strategy has resulted in an underweighting, relative to
the S&P 500, in technology and in cyclicals, that is, companies whose busi-
nesses tend to improve during strong economic cycles, and is the primary rea-
son for the Series' underperformance.
One of the Series' best-performing sectors has been telecommunications. The
biggest positions in this sector include Bell Atlantic, MCI WorldCom, Alltel
Corp., SBC Communications, and Sprint's long-distance telephone group. Sales
growth for these companies and for telecommunications companies in general has
been very strong. The Internet has driven demand for telecommunications serv-
ices, and both telecommunications equipment and service companies have per-
formed well as a result.
Q. What is your outlook for the market and your Series for the next six
months? What changes, if any, will you make to the way you manage your Series?
A. Going forward, we will continue to avoid stocks that we feel are the most
expensive in relation to their earnings potential, and we will not pursue what
we feel are short-term market trends. We believe this risk-adjusted approach
should provide favorable long-term results.
.. Fund Facts
Goal: Reasonable current income
and long-term growth of capital
and income.
Start date: April 30, 1999
Size: $5 million as of June 30,
1999
Managers: John Laupheimer and
Mitchell Dynan. Mr. Laupheimer and
Mr. Dynan have managed the Series
since its inception.
80
<PAGE>
New England Zenith Fund
(MFS Investors Series)
Investments as of June 30, 1999 (Unaudited)
Common Stocks--98.0% of Total Net Assets
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Aerospace & Defense--2.7%
1,000 AlliedSignal, Inc. ........................................ $ 63,000
400 General Dynamics Corp...................................... 27,400
200 Lockheed Martin Corp. ..................................... 7,450
400 Raytheon Co. .............................................. 27,550
200 TRW, Inc................................................... 10,975
----------
136,375
----------
Automotive--0.8%
500 Federal-Mogul Corp......................................... 26,000
300 Ford Motor Co. ............................................ 16,931
----------
42,931
----------
Banks--6.1%
700 Bank of America Corp. ..................................... 51,319
100 Bayerische HypoVereinsbank (EUR)........................... 6,494
1,350 Citigroup, Inc............................................. 64,125
200 Comerica, Inc.............................................. 11,888
100 Fleet Financial Group, Inc................................. 4,437
200 National City Corp. ....................................... 13,100
300 Northern Trust Corp........................................ 29,100
100 PNC Bank Corp. ............................................ 5,763
1,200 U.S. Bancorp............................................... 40,800
2,000 Wells Fargo & Co........................................... 85,500
----------
312,526
----------
Banks & Thrifts--0.7%
400 State Street Corp.......................................... 34,150
----------
Beverages--1.5%
1,100 Anheuser-Busch Companies, Inc. ............................ 78,031
----------
Broadcasting--0.6%
400 MediaOne Group, Inc.(c).................................... 29,750
----------
Business Services--0.7%
400 Computer Sciences Corp.(c)................................. 27,675
2,000 Rentokil Initial, Plc. (GBP)............................... 7,755
----------
35,430
----------
Chemicals--0.3%
100 E.I. du Pont de Nemours & Co............................... 6,831
100 PPG Industries, Inc........................................ 5,906
100 Rohm & Haas Co. ........................................... 4,288
----------
17,025
----------
Chemicals-Specialty--0.3%
400 AstraZeneca PLC (GBP)...................................... 15,466
----------
Computer Hardware--0.5%
400 Sun Microsystems, Inc.(c).................................. 27,550
----------
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Computer Software & Services--5.5%
400 BMC Software, Inc.(c)...................................... $ 21,600
1,000 Computer Associates International, Inc..................... 55,000
400 DST Systems, Inc.(c)....................................... 25,150
1,600 Microsoft Corp.(c)......................................... 144,300
1,000 Oracle Corp.(c)............................................ 37,125
----------
283,175
----------
Computers & Business Equipment--4.3%
600 Cisco Systems, Inc.(c)..................................... 38,663
500 Hewlett-Packard Co. ....................................... 50,250
200 International Business Machines Corp....................... 25,850
1,800 Xerox Corp. ............................................... 106,312
----------
221,075
----------
Drugs--7.1%
1,000 American Home Products Corp................................ 57,500
1,100 Bristol-Myers Squibb Co. .................................. 77,481
500 Merck & Co., Inc. ......................................... 37,000
600 Pfizer, Inc. .............................................. 65,850
900 Pharmacia & Upjohn, Inc. .................................. 51,131
600 Schering-Plough Corp. ..................................... 31,800
600 Warner-Lambert Co.......................................... 41,624
----------
362,386
----------
Electric Utilities--3.9%
500 CMS Energy Corp............................................ 20,938
500 Duke Energy Corp........................................... 27,188
500 FirstEnergy Corp........................................... 15,500
400 GPU, Inc................................................... 16,875
200 New Century Energies, Inc. ................................ 7,763
600 NiSource, Inc.............................................. 15,488
500 PECO Energy Co. ........................................... 20,938
500 Pinnacle West Capital Corp. ............................... 20,125
900 Texas Utilities Co. ....................................... 37,125
400 Unicom Corp. .............................................. 15,423
----------
197,363
----------
Electronics--1.0%
600 Emerson Electric Co........................................ 37,725
100 Honeywell, Inc. ........................................... 11,588
----------
49,313
----------
Energy Reserves--4.6%
800 BP Amoco, Plc. (ADR)....................................... 86,800
200 Chevron Corp............................................... 19,038
200 Coastal Corp. ............................................. 8,000
900 Exxon Corp. ............................................... 69,412
500 Mobil Corp. ............................................... 49,500
----------
232,750
----------
</TABLE>
See accompanying notes to financial statements.
81
<PAGE>
New England Zenith Fund
(MFS Investors Series)
Investments as of June 30, 1999 (Unaudited)
Common Stocks--(Continued)
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Financial Institutions--5.0%
200 American Express Co........................................ $ 26,025
1,000 Associates First Capital Corp.............................. 44,313
300 Equitable Companies, Inc. ................................. 20,100
800 Federal Home Loan Mortgage Corp. .......................... 46,400
700 First Data Corp............................................ 34,256
700 General Electric Co........................................ 79,100
50 Goldman Sachs Group, Inc................................... 3,612
----------
253,806
----------
Food & Beverages--1.8%
400 Bestfoods.................................................. 19,800
300 Coca-Cola Co............................................... 18,750
100 Hershey Foods Corp. ....................................... 5,938
300 Interstate Bakeries Corp. ................................. 6,731
200 Nabisco Holdings Corp. .................................... 8,650
200 PepsiCo, Inc............................................... 7,737
400 Quaker Oats Co............................................. 26,550
----------
94,156
----------
Gas & Pipeline Utilities--0.7%
600 Columbia Energy Group...................................... 37,613
----------
Health Care--Products--5.2%
600 Becton, Dickinson & Co. ................................... 18,000
900 Guidant Corp.(c)........................................... 46,294
600 Johnson & Johnson.......................................... 58,800
600 Medtronic, Inc. ........................................... 46,725
1,000 Tyco International, Ltd. .................................. 94,750
----------
264,569
----------
Health Care--Services--0.9%
700 HEALTHSOUTH Corp.(c)....................................... 10,456
600 United Healthcare Corp. ................................... 37,575
----------
48,031
----------
Hotels & Restaurants--1.4%
1,700 McDonald's Corp. .......................................... 70,231
----------
Household Products--5.1%
200 Clorox Co. ................................................ 21,363
400 Colgate-Palmolive Co....................................... 39,500
1,100 Gillette Co. .............................................. 45,100
1,100 Newell Rubbermaid, Inc. ................................... 51,150
600 Procter & Gamble Co. ...................................... 53,550
1,700 Ralston Purina Co. ........................................ 51,743
----------
262,406
----------
Industrial Parts & Machinery--3.8%
300 Danaher Corp............................................... 17,438
300 Illinois Tool Works, Inc................................... 24,600
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Industrial Parts & Machinery--(Continued)
300 Mannesmann AG (EUR)........................................ $ 44,749
1,500 United Technologies Corp................................... 107,531
----------
194,318
----------
Leisure--0.2%
200 Carnival Corp. ............................................ 9,700
----------
Life Insurance--3.0%
200 Aflac, Inc................................................. 9,575
20 Axa (EUR).................................................. 2,423
900 CIGNA Corp. ............................................... 80,100
800 Lincoln National Corp., Inc. .............................. 41,850
500 Torchmark Corp. ........................................... 17,062
----------
151,010
----------
Media & Entertainment--3.0%
200 Reuters Group, Plc. (ADR).................................. 16,212
1,000 The Walt Disney Co......................................... 30,813
1,000 Time Warner, Inc........................................... 73,500
400 Tribune Co. ............................................... 34,850
----------
155,375
----------
Multimedia--0.4%
1,700 Reuters Group, Plc. (GBP).................................. 22,361
----------
Oil--Refining & Distribution--0.1%
200 USX-Marathon Group......................................... 6,513
----------
Paper & Forest Products--0.2%
200 International Paper Co. ................................... 10,100
----------
Property & Casualty Insurance--5.1%
1,100 Allstate Corp. ............................................ 39,462
400 American International Group, Inc. ........................ 46,825
200 Chubb Corp................................................. 13,900
1,400 Hartford Financial Services Group.......................... 81,638
300 MBIA, Inc. ................................................ 19,425
400 Progressive Corp. ......................................... 58,000
----------
259,250
----------
Publishing--1.0%
300 Gannett Company, Inc....................................... 21,412
600 New York Times Co.......................................... 22,088
200 Wolters Kluwer N.V. (EUR).................................. 8,010
----------
51,510
----------
</TABLE>
See accompanying notes to financial statements.
82
<PAGE>
New England Zenith Fund
(MFS Investors Series)
Investments as of June 30, 1999 (Unaudited)
Common Stocks--(Continued)
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Retail--Clothing--1.2%
500 Nordstrom, Inc. ........................................... $ 16,750
1,300 TJX Companies, Inc. ....................................... 43,306
----------
60,056
----------
Retail--Department Store--2.2%
500 Dayton Hudson Corp......................................... 32,500
1,600 Wal-Mart Stores, Inc. ..................................... 77,200
----------
109,700
----------
Retail--Food & Drug--3.4%
867 Albertson's, Inc........................................... 44,705
2,200 Kroger Co.(c).............................................. 61,462
1,400 Safeway, Inc.(c)........................................... 69,300
----------
175,467
----------
Retail--Specialty--2.4%
1,100 CVS Corp. ................................................. 55,825
500 Home Depot, Inc. .......................................... 32,219
800 Office Depot, Inc. ........................................ 17,650
600 Rite Aid Corp.............................................. 14,775
----------
120,469
----------
Semi-Conductors--1.5%
500 Intel Corp. ............................................... 29,750
500 Motorola, Inc. ............................................ 47,379
----------
77,129
----------
Transportation--0.7%
500 Canadian National Railway Co. ............................. 33,500
----------
Telecommunication--8.6%
900 ALLTEL Corp................................................ 64,350
400 Ameritech Corp. ........................................... 29,400
1,500 Bell Atlantic Corp. ....................................... 98,063
300 BellSouth Corp. ........................................... 14,060
600 LM Ericsson Telephone Co. (ADR)............................ 19,763
1,000 MCI Worldcom, Inc.(c)...................................... 86,060
200 Nortel Networks Corp. ..................................... 17,363
1,100 SBC Communications, Inc. .................................. 63,800
700 Sprint Corp. .............................................. 36,969
200 Sprint Corp.(c)............................................ 11,425
----------
441,253
----------
Tobacco--0.5%
600 Philip Morris Companies, Inc............................... 24,113
----------
Total Common Stocks
(Identified Cost $4,882,522).............................. 5,007,932
----------
</TABLE>
<TABLE>
<CAPTION>
Preferred Stock--0.2%
Shares Value (a)
<C> <S> <C>
Electric Utilities--0.2%
100 Houston Industries, Inc. .................................. $ 11,925
----------
Total Preferred Stock
(Identified Cost $11,616)................................. 11,925
----------
Bonds & Notes--0.1%
<CAPTION>
Face
Amount
<C> <S> <C>
Convertible Bond--0.1%
$6,000 Bell Atlantic Financial Services, Inc.
4.250%, 9/15/05........................................... $ 6,135
----------
Total Bonds & Notes
(Identified Cost $6,667).................................. 6,135
----------
Total Investments--98.3%
(Identified Cost $4,900,805)(b)........................... 5,025,992
Other assets less liabilities.............................. 86,767
----------
Total Net Assets--100%..................................... $5,112,759
==========
</TABLE>
(a) See Note 1A of Notes to Financial Statements.
(b) Federal Tax Information:
At June 30, 1999 the net unrealized appreciation on investments based on
cost of $4,900,805 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................. $230,836
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value................. (105,649)
--------
Net unrealized appreciation...................................... $125,187
========
</TABLE>
(c) Non-income producing security.
Key to Abbreviations:
ADR/GDR--An American Depositary Receipt (ADR) or Global Depositary Receipt
(GDR) is a certificate issued by a Custodian Bank representing the
right to receive securities of the foreign issuer described. The value
of ADRs and GDRs are significantly influenced by trading on exchanges
not located in the United States or Canada.
EUR--Euro Currency
GBP--Pound Sterling
See accompanying notes to financial statements.
83
<PAGE>
New England Zenith Fund
(MFS Investors Series)
Statement of Assets & Liabilities
June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets
Investments at value...................................... $5,025,992
Cash...................................................... 96,661
Foreign cash at value
(Identified cost $8,097).................................. 8,072
Receivable for:
Securities sold........................................... 39,835
Fund shares sold.......................................... 615
Dividends and interest.................................... 4,026
Foreign taxes............................................. 46
Due from Investment Adviser............................... 6,647
----------
Total Assets.............................................. 5,181,894
Liabilities
Payable for:
Fund shares redeemed...................................... $ 615
Securities purchased...................................... 54,397
Accrued expenses.......................................... 14,123
-------
Total Liabilities......................................... 69,135
----------
Net Assets................................................. $5,112,759
==========
Net assets consist of:
Capital paid in........................................... $5,000,000
Undistributed net investment income....................... 5,790
Accumulated net realized gains (losses)................... (18,130)
Unrealized appreciation (depreciation) on investments and
foreign currency......................................... 125,099
----------
Net Assets................................................. $5,112,759
==========
Computation of offering price :
Net asset value and redemption price per share ($5,112,759
divided by 500,000 shares of beneficial interest)......... $ 10.23
==========
Identified cost of investments............................. $4,900,805
==========
</TABLE>
<TABLE>
Statement of Operations
For the Period April 30, 1999(a)
through June 30, 1999 (Unaudited)
<S> <C> <C>
Investment Income
Dividends.................................................. $ 10,225
Interest................................................... 3,041
--------
13,266
Expenses
Management fees............................................ 6,230
Custodian.................................................. 5,803
Audit and tax services..................................... 2,500
Legal...................................................... 5,220
Printing................................................... 500
Miscellaneous.............................................. 100
-------
Total expenses............................................. 20,353
Less expenses assumed by the investment
adviser................................................... (12,877) 7,476
------- --------
Net Investment Income....................................... 5,790
Realized and Unrealized Gain (Loss)
Realized gain (loss) on:
Investments--net........................................... (17,960)
Foreign currency transactions--net......................... (170) (18,130)
-------
Unrealized appreciation (depreciation) on:
Investments--net........................................... 125,187
Foreign currency--net...................................... (88) 125,099
------- --------
Net gain (loss)............................................. 106,969
--------
Net Increase (Decrease) in Net Assets From Operations....... $112,759
========
</TABLE>
(a) Commencement of operations.
(b) Net of foreign taxes of: $97
See accompanying notes to financial statements.
84
<PAGE>
New England Zenith Fund
(MFS Investors Series)
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
April 30, 1999(a)
through
June 30,
1999
-----------------
<S> <C>
From Operations
Net investment income....................................... $ 5,790
Net realized gain (loss).................................... (18,130)
Unrealized appreciation (depreciation)...................... 125,099
----------
Increase (decrease) in net assets from operations........... 112,759
----------
From Capital Share Transactions
Proceeds from sale of shares................................ 5,106,009
Cost of shares redeemed..................................... (106,009)
----------
Increase (decrease) in net assets from capital share
transactions............................................... 5,000,000
----------
Total increase (decrease) in net assets..................... 5,112,759
Net Assets
Beginning of the period..................................... 0
----------
End of the period........................................... $5,112,759
==========
Undistributed (overdistributed) Net Investment Income
End of the period........................................... $ 5,790
==========
Number of shares of the Fund:
Issued from the sale of shares.............................. 510,681
Issued in reinvestment of distributions..................... 0
Redeemed.................................................... (10,681)
----------
Net Change.................................................. 500,000
==========
</TABLE>
(a) Commencement of operations.
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
April 30, 1999(a)
through
June 30,
1999
-----------------
<S> <C>
Net Asset Value, Beginning
of Period................ $10.00
------
Income From Investment
Operations
Net Investment Income.... 0.01
Net Realized and
Unrealized Gain (Loss)
on Investments.......... 0.22
------
Total From Investment
operations.............. 0.23
------
Net Asset Value, End of
Period................... $10.23
======
Total Return (%).......... 2.3(b)
Ratio of Operating
Expenses to Average Net
Assets (%)............... 0.90(c)
Ratio of Net Investment
Income to Average Net
Assets (%)............... 0.70(c)
Portfolio Turnover Rate
(%)...................... 47(c)
Net Assets, End of Period
(000)...................... $5,113
The Ratios of operating
expenses to average net
assets without giving
effect to the voluntary
expense agreement
described in Note 4 to
the Financial Statements
would have been (%)...... 2.45(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.
85
<PAGE>
MFS Research Managers Series
Portfolio Managers: Managed by a Committee of MFS equity research analysts
overseen by Alec Murray, Associate Director of Equity Research (pictured)
(PHOTO OF ALEC MURRAY APPEARS HERE)
Q. As the Series was just established at the end of April, how did the Series
perform during the past two months?
A. For the two months ended June 30, 1999, the Series provided a total return
of 5.4%. This compares to a 3.0% return for the S&P 500/25/, for the same pe-
riod.
Q. Briefly discuss the investment and market environment during the past
several months. Given this investment environment, what was your investment
strategy? What changes did you make?
A. The Series relies on MFS(R) Original ResearchSM to incorporate the best
ideas of our more than 30 equity analysts, who cover small-, mid-, and large-
cap companies. Therefore, the Series is broadly diversified. However, the eq-
uity market has, until recently, been very narrow, with 25 to 50 large-growth
stocks outperforming the rest of the stocks in the S&P 500. This Series is not
designed to outperform in a market favoring a small group of stocks. As the
market continues to broaden, we expect the Series to benefit.
The Series currently has a light position, relative to the S&P 500, in large-
cap growth stocks and heavy positions in small- and mid-cap stocks, whose
long-term opportunities we think are more attractive. Small- and mid-cap
stocks are selling at much cheaper prices relative to earnings than large-cap
growth stocks. Stocks with lower prices relative to earnings are less
vulnerable to negative events such as earnings disappointments or a broad
market downturn. We think the companies in the Series will see higher growth
rates than many of the large-cap stocks. At the same time, we are avoiding
Internet stocks or other companies trading at what we see as unsustainably
high prices relative to their earnings.
Q. What were the principal factors affecting your performance (on both an
absolute and relative basis)? What investment decisions were most effective
and which ones were least effective?
A. Three industry sectors have helped performance: financial services, lei-
sure, and technology. The Series' gains in financial services largely came
from brokerage and investment banking stocks. Specifically, the Series had
large holdings in Morgan Stanley Dean Witter and Merrill Lynch, both of which
are well managed and experienced in the markets they serve. Companies around
the world are using firms like Morgan Stanley and Merrill Lynch to help ar-
range mergers.
Most of the Series' leisure stocks are in the restaurant industry. For the
past dozen years restaurants, particularly the national chains, generally have
been poor investments because the number of new ones has exceeded demand.
However, in the past year or so restaurants such as McDonald's and Wendy's
have stopped adding domestic capacity. Now, the U.S. economy is strong, and
people are eating out more often. The result is greater demand at existing
restaurants and higher profits.
The leading contributors to technology performance were semiconductor
companies such as LSI Logic and Analog Devices. The semiconductor industry was
hurt in 1998 by the Asian economic slowdown as well as by the fact that it had
built up its manufacturing capability to a point at which there was too much
supply in some market segments, so prices came down. Now, demand is beginning
to catch up with supply and Asia seems to be recovering, both of which helped
semiconductor companies.
The continuing strength of the U.S. economy has supported companies whose
businesses can benefit from strengthening economic cycles. For example, the
Series has benefited from its paper holdings such as Abitibi-Consolidated and
Bowater that are, respectively, the number-one and number-two newsprint
producers worldwide. Bowater recently acquired a competitor, Avenor, which
should give Bowater greater market share as well as the cost-savings benefits
that can come from consolidation. Both Bowater and Abitibi are global in scope
and are benefiting from a favorable supply/demand environment, which should
result in price increases.
86
<PAGE>
A few of the Series' retailing holdings have underperformed. Although the
retailing environment has been very good and Dayton Hudson, the department
store chain, has performed well, the Series was hurt by two stocks, Rite Aid
and CompUSA. We have had a significant position in Rite Aid because we believe
that as the population ages, people will use more prescription medicines.
However, Rite Aid opened too many stores in a short period of time and
underestimated the costs of closing old stores. The company also had inventory
and accounting problems. Over the long term, however, we believe Rite Aid will
continue to benefit from increasing prescription sales. CompUSA, meanwhile, is
losing computer and software sales to companies that sell over the telephone or
on the Internet. Also, some business customers, who tend to buy more expensive
equipment, are cutting orders to prepare for any Year 2000 (Y2K) computer
problems. By the end of this year, we think the Y2K issue will largely be
resolved, and the company should perform better.
Q. What is your outlook for the market and your Series for the next six months?
What changes, if any, will you make to the way you manage your Series?
A. Looking ahead, we see a continuation of a low-inflation, low-interest-rate
environment, which would mean steady economic growth and a strong consumer sec-
tor. However, we expect the U.S. economy to slow from its rapid pace of the
past few quarters and the S&P 500's average growth rate to fall to single di-
gits this year. Given that earnings growth is falling while stock prices are
rising, we do not believe prices of many companies, particularly the big ones,
are attractive. Therefore, the Series is avoiding companies with declining
earnings and, instead, is focusing on companies with at least flat to acceler-
ating growth. For example, Gillette had troubles in Asia and missed its earn-
ings estimates for a couple of quarters. Now, with Asia turning around, we
think the company should grow at 11% this year and 15% next year, and may pro-
vide a good opportunity for the Series.
.. Fund Facts
Goal: Long-term growth of capital.
Start date: April 30, 1999
Size: $5 million as of June 30,
1999
Manager: A committee of MFS equity
research analysts overseen by Alec
Murray. Mr. Murray is the
Associate Director of MFS Equity
Research. The committee has
managed the Series since its
inception.
87
<PAGE>
New England Zenith Fund
(MFS Research Managers Series)
Investments as of June 30, 1999 (Unaudited)
Common Stocks--98.8% of Total Net Assets
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Aerospace--1.0%
800 Gulfstream Aerospace Corp.(c)........................ $ 54,050
----------
Aerospace & Defense--0.7%
500 Raytheon Co., Class B................................ 35,188
----------
Automotive--1.0%
900 Federal-Mogul Corp................................... 46,800
100 SPX Corp............................................. 8,350
----------
55,150
----------
Banks--7.0%
400 Bank of America Corp. ............................... 29,325
1,100 Bank of New York Co., Inc............................ 40,356
400 Chase Manhattan Corp................................. 34,650
1,500 Citigroup, Inc....................................... 71,250
900 PNC Bank Corp. ...................................... 51,863
700 U.S. Bancorp......................................... 23,800
175 UBS AG (CHF)......................................... 52,215
1,500 Wells Fargo & Co..................................... 64,125
----------
367,584
----------
Broadcasting--1.5%
500 Comcast Corp.(c)..................................... 19,219
1,300 Infinity Broadcasting Corp........................... 38,675
300 MediaOne Group, Inc.(c).............................. 22,312
----------
80,206
----------
Business Services--0.3%
100 Modis Professional Services, Inc.(c)................. 1,375
150 VeriSign, Inc.(c).................................... 12,938
----------
14,313
----------
Chemicals-Specialty--1.0%
1,000 AstraZeneca PLC (GBP)................................ 38,665
500 Cambrex Corp. ....................................... 13,125
----------
51,790
----------
Computer Hardware--1.6%
1,200 Sun Microsystems, Inc.(c)............................ 82,650
----------
Computer Software & Services--9.5%
1,500 BMC Software, Inc.(c)................................ 81,000
200 Citrix Systems, Inc.(c).............................. 11,300
500 Computer Associates International, Inc............... 27,500
1,300 Compuware Corp.(c)................................... 41,356
2,200 Microsoft Corp.(c)................................... 198,413
3,300 Oracle Corp.(c)...................................... 122,512
400 Synopsys, Inc.(c).................................... 22,075
----------
504,156
----------
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Computers & Business Equipment--4.3%
1,800 Cisco Systems, Inc.(c)............................... $ 115,988
600 EMC Corp.(c)......................................... 33,000
300 Hewlett-Packard Co. ................................. 30,150
800 Xerox Corp. ......................................... 47,250
----------
226,388
----------
Consumer Goods & Services--0.1%
100 McKesson HBOC, Inc................................... 3,213
----------
Drugs--5.8%
1,700 American Home Products Corp.......................... 97,750
1,200 Bristol-Myers Squibb Co. ............................ 84,525
800 Cardinal Health, Inc................................. 51,300
1,300 Pharmacia & Upjohn, Inc. ............................ 73,856
----------
307,431
----------
Electric Utilities--1.0%
600 CMS Energy Corp...................................... 25,125
800 MidAmerican Energy Holdings Co.(c)................... 27,700
----------
52,825
----------
Electronics--5.0%
2,400 Analog Devices, Inc.(c).............................. 120,450
400 Honeywell, Inc. ..................................... 46,350
1,000 Motorola, Inc. ...................................... 94,750
----------
261,550
----------
Energy Reserves--4.2%
100 Atlantic Richfield Co................................ 8,356
700 BP Amoco, Plc. (ADR)................................. 75,950
900 Conoco, Inc.......................................... 25,088
800 Mobil Corp. ......................................... 79,200
1,300 Repsol, S.A. (EUR)................................... 26,735
100 Total Fina S.A. (ADR)................................ 6,444
----------
221,773
----------
Financial Services--4.2%
1,400 Associates First Capital Corp........................ 62,037
100 Charles Schwab Corp. ................................ 10,987
700 CIT Group, Inc. ..................................... 20,213
845 Equitable Companies, Inc. ........................... 56,615
600 First Data Corp. .................................... 29,363
50 Goldman Sachs Group, Inc. ........................... 3,613
300 Morgan Stanley Dean Witter & Co. .................... 30,750
100 Providian Financial Corp............................. 9,350
----------
222,928
----------
Food & Beverages--1.7%
600 Anheuser-Busch Companies, Inc. ...................... 42,563
200 Bestfoods............................................ 9,900
</TABLE>
See accompanying notes to financial statements.
88
<PAGE>
New England Zenith Fund
(MFS Research Managers Series)
Investments as of June 30, 1999 (Unaudited)
Common Stocks--(Continued)
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Food & Beverages--(Continued)
400 Coca-Cola Co. ....................................... $ 25,000
300 Nabisco Holdings Corp. .............................. 12,975
----------
90,438
----------
Gas & Pipeline Utilities--0.3%
300 Columbia Energy Group................................ 18,806
----------
Health Care-Products--5.4%
1,300 Guidant Corp.(c)..................................... 66,869
700 Medtronic, Inc. ..................................... 54,513
1,700 Tyco International, Ltd. ............................ 161,075
20 VISX, Inc.(c)........................................ 1,583
----------
284,040
----------
Health Care-Services--2.2%
2,700 HEALTHSOUTH Corp.(c )................................ 40,331
1,200 United Healthcare Corp. ............................. 75,150
----------
115,481
----------
Hotels & Restaurants--1.5%
1,900 McDonald's Corp. .................................... 78,494
----------
Household Products--6.5%
500 Clorox Co. .......................................... 53,406
300 Colgate-Palmolive Co................................. 29,625
1,200 Dial Corp. .......................................... 44,625
1,100 Gillette Co.......................................... 45,100
900 Newell Rubbermaid, Inc. ............................. 41,850
800 Procter & Gamble Co.................................. 71,400
1,800 Ralston Purina Co. .................................. 54,788
----------
340,794
----------
Industrial Parts & Machinery--4.0%
600 Danaher Corp. ....................................... 34,875
300 Mannesmann AG (EUR).................................. 44,749
1,800 United Technologies Corp............................. 129,038
----------
208,662
----------
Internet Software--0.1%
50 BackWeb Technologies, Ltd.(c)........................ 1,369
50 Phone.com, Inc.(c)................................... 2,800
50 Software.com, Inc.(c)................................ 1,159
----------
5,328
----------
Leisure--0.6%
600 Carnival Corp. ...................................... 29,100
----------
Life Insurance--4.2%
855 CIGNA Corp. ......................................... 76,095
700 Conseco, Inc. ....................................... 21,306
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Life Insurance--(Continued)
1,350 Lincoln National Corp., Inc. ...................... $ 70,622
400 Nationwide Financial Services, Inc. ............... 18,100
800 ReliaStar Financial Corp........................... 35,000
----------
221,123
----------
Manufacturing--0.1%
200 Newport News Shipbuilding, Inc. ................... 5,900
----------
Media & Entertainment--3.4%
700 CBS Corp.(c)....................................... 30,406
2,200 The Walt Disney Co. ............................... 67,788
1,100 Time Warner, Inc. ................................. 80,850
----------
179,044
----------
Packaging--0.6%
900 Owens-Illinois, Inc.(c)............................ 29,419
----------
Paper & Forest Products--0.9%
500 Abitibi-Consolidated, Inc.......................... 5,688
500 Bowater, Inc....................................... 23,625
900 Smurfit-Stone Container Corp.(c)................... 18,506
----------
47,819
----------
Property & Casualty Insurance--1.6%
325 American International Group, Inc. ................ 38,045
800 Hartford Financial Services Group.................. 46,650
----------
84,695
----------
Publishing--0.5%
400 Gannett Company, Inc. ............................. 28,550
----------
Retail-Clothing--0.5%
800 TJX Companies, Inc. ............................... 26,650
----------
Retail-Department Store--1.3%
500 Dayton Hudson Corp................................. 32,500
700 Wal-Mart Stores, Inc. ............................. 33,775
----------
66,275
----------
Retail-Food & Drug--2.2%
2,200 Kroger Co.(c)...................................... 61,460
1,100 Safeway, Inc.(c)................................... 54,450
----------
115,910
----------
Retail-Specialty--2.7%
1,000 CompUSA, Inc.(c)................................... 7,438
1,300 CVS Corp. ......................................... 65,975
1,300 Office Depot, Inc.(c).............................. 28,680
1,700 Rite Aid Corp...................................... 41,863
----------
143,956
----------
</TABLE>
See accompanying notes to financial statements.
89
<PAGE>
New England Zenith Fund
(MFS Research Managers Series)
Investments as of June 30, 1999 (Unaudited)
Common Stocks--(Continued)
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Semi-Conductors--1.7%
2,000 LSI Logic Corp.(c).................................. $ 92,250
----------
Telecommunication--8.6%
1,500 Bell Atlantic Corp.................................. 98,063
200 LM Ericsson Telephone Co. (ADR)..................... 6,588
2,000 LM Ericsson Telephone Co. (SEK)..................... 64,200
1,600 MCI Worldcom, Inc.(c)............................... 137,700
800 Sprint Corp. ....................................... 42,250
1,800 Sprint Corp.(c)..................................... 102,825
----------
451,626
----------
Total Common Stocks
(Identified Cost $4,909,531)....................... 5,205,555
----------
Total Investments--98.8%
(Identified Cost $4,909,531)(b).................... 5,205,555
Other assets less liabilities....................... 64,392
----------
Total Net Assets--100%.............................. $5,269,947
==========
(a) See Note 1A of Notes to Financial Statements.
(b) Federal Tax Information:
At June 30, 1999 the net unrealized appreciation on investments based on cost
of $4,909,531 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................ $ 390,521
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value................ (94,497)
----------
Net unrealized appreciation..................................... $ 296,024
==========
</TABLE>
(c) Non-income producing security.
Key to Abbreviations:
ADR/GDR--An American Depositary Receipt (ADR) or Global Depositary Receipt
(GDR) is a certificate issued by a Custodian Bank representing the
right to receive securities of the foreign issuer described. The value
of ADRs and GDRs are significantly influenced by trading on exchanges
not located in the United States or Canada.
CHF--Swiss Franc
EUR--Euro Currency
GBP--Pound Sterling
SEK--Swedish Krona
See accompanying notes to financial statements.
90
<PAGE>
New England Zenith Fund
(MFS Research Managers Series)
Statement of Assets & Liabilities
June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets
Investments at value...................................... $5,205,555
Cash...................................................... 101,864
Receivable for:
Securities sold........................................... 47,144
Fund shares sold.......................................... 615
Dividends and interest.................................... 1,716
Foreign taxes............................................. 31
Due from Investment Adviser............................... 6,964
----------
Total Assets............................................. 5,363,889
Liabilities
Payable for:
Fund shares redeemed...................................... $ 619
Securities purchased...................................... 78,815
Accrued expenses.......................................... 14,508
-------
Total Liabilities........................................ 93,942
----------
Net Assets................................................. $5,269,947
==========
Net assets consist of:
Capital paid in........................................... $5,000,000
Undistributed net investment income....................... 1,065
Accumulated net realized gains
(losses)................................................. (27,136)
Unrealized appreciation (depreciation) on investments and
foreign currency......................................... 296,018
----------
Net Assets................................................. $5,269,947
==========
Computation of offering price:
Net asset value and redemption price per share ($5,269,947
divided by 500,000 shares of beneficial interest)......... $ 10.54
==========
Identified cost of investments............................. $4,909,531
==========
</TABLE>
<TABLE>
Statement of Operations
For the Period April 30, 1999(a)
through June 30, 1999 (Unaudited)
<S> <C> <C>
Investment Income
Dividends............................................... $ 5,489(b)
Interest................................................ 3,120
--------
8,609
Expenses
Management fees......................................... $ 6,287
Custodian............................................... 6,188
Audit and tax services.................................. 2,500
Legal................................................... 5,220
Printing................................................ 500
Miscellaneous........................................... 100
--------
Total expenses.......................................... 20,795
Less expenses assumed by the investment adviser......... (13,251) 7,544
-------- --------
Net Investment Income.................................... 1,065
Realized and Unrealized Gain (Loss)
Realized gain (loss) on:
Investments--net........................................ (26,898)
Foreign currency transactions--net...................... (238) (27,136)
--------
Unrealized appreciation (depreciation) on: Investments--
net.................................................... 296,024
Foreign currency trans--net............................. (6) 296,018
-------- --------
Net gain (loss).......................................... 268,882
--------
Net Increase (Decrease) in Net Assets From Operations.... $269,947
========
</TABLE>
(a) Commencement of operations.
(b) Net of foreign taxes of: $71
See accompanying notes to financial statements.
91
<PAGE>
New England Zenith Fund
(MFS Research Managers Series)
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
April 30, 1999(a)
through
June 30,
1999
-----------------
<S> <C>
From Operations
Net investment income....................................... $ 1,065
Net realized gain (loss).................................... (27,136)
Unrealized appreciation (depreciation)...................... 296,018
----------
Increase (decrease) in net assets from operations........... 269,947
----------
From Capital Share Transactions
Proceeds from sale of shares................................ 5,094,437
Cost of shares redeemed..................................... (94,437)
----------
Increase (decrease) in net assets from capital share
transactions............................................... 5,000,000
----------
Total increase (decrease) in net assets..................... 5,269,947
Net Assets
Beginning of the period..................................... 0
----------
End of the period........................................... $5,269,947
==========
Undistributed (over distributed) Net Investment Income
End of the period........................................... $ 1,065
==========
Number of Shares of the Fund:
Issued from the sale of shares.............................. 509,410
Redeemed.................................................... (9,410)
----------
Net change.................................................. 500,000
==========
</TABLE>
(a) Commencement of operations.
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
April 30, 1999(a)
through
June 30,
1999
-----------------
<S> <C>
Net Asset Value, Beginning
of Year.................. $10.00
------
Income From Investment
Operations
Net Investment Income.... 0.00
Net Realized and
Unrealized Gain (Loss)
on Investments.......... 0.54
------
Total From Investment
operations.............. 0.54
------
Net Asset Value, End of
Year..................... $10.54
======
Total Return (%).......... 5.4(b)
Ratio of Operating
Expenses to Average Net
Assets (%)............... 0.90(c)
Ratio of Net Investment
Income to Average Net
Assets (%)............... 0.13(c)
Portfolio Turnover Rate
(%)...................... 97(c)
Net Assets, End of Year
(000)...................... $5,270
The ratios of operating
expenses to average net
assets without giving
effect to the voluntary
expense agreement
described in Note 4 to
the Financial Statements
would have been (%)...... 2.48(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.
92
<PAGE>
Westpeak Growth and Income
Portfolio Manager: Gerald H. Scriver and Philip J. Cooper
Westpeak Investment Advisors, L.P.
[PHOTO OF GERALD H. SCRIVER APPEARS HERE]
[PHOTO OF PHILIP J. COOPER APPEARS HERE]
Q. How did the Series perform during the past six months relative to its index
and relative to its peers?
A. The Westpeak Growth and Income Series returned 10.4% for the first six
months of 1999 versus a return of 12.2% for the Standard & Poor's 500
Index/25/. The Lipper Variable Products Growth and Income Fund Average/11/
returned 11.7% over the same time period.
Q. Briefly discuss the investment and market environment during the past six
months?
A. During the second quarter of 1999, the market began to broaden as smaller
capitalization stocks began to participate in the market move. The Russell 2000
Index/23/ outperformed the Russell 1000 Index by 8.51% during the second
quarter. This was a reversal from the first quarter when large stocks
outperformed small stocks by an equally large margin. Economically sensitive
sectors have also begun to participate in the market move, and we expect this
environment to persist over the near term.
Q. Given this investment environment, what was your investment strategy? What
changes did you make since the start of the year?
A. We continue to favor attractively priced stocks. We have a strong emphasis
on stocks with below-average price earnings ratios, above-average book value,
above-average growth, and the potential for positive earnings surprises. At the
same time, we continue to avoid highly volatile stocks. No significant changes
have occurred in the portfolio structure since the beginning of the year.
Q. What were the principal factors affecting your performance (on both an
absolute and relative basis) during the past six months? What investment
decisions were most effective and which ones were least effective?
A. During the quarter, value was added through superior stock selection, our
emphasis on earnings and price momentum and stocks selling at attractive book
values compared to price. The strategy was penalized because of our emphasis on
stocks with low volatility and below-average P/E ratios. The most effective
investment decisions during the six-month period were our underweightings in:
IBM, Cisco Systems, The Limited, Honeywell and Ingersoll Rand. The biggest
penalties to performance for the six-month period were our underweightings of:
McKesson, Unilever, LG&E Energy, Compuware and Federal National Mortgage.
Q. What is your outlook for the market and your portfolio for the next six
months? What changes, if any, will you make to the way you manage your
portfolio?
A. The Federal Reserve Bank's surprise move of eliminating its tightening bias
should continue to support the U.S. economic boom, and the global economic
recovery should gain steam. This will be positive for the equity market over
the near term. It appears that the Fed would like to see the global economy
pick up before it attempts to slow the U.S. economy. It will probably be
several quarters before the next rate increase occurs. Consumers continue to be
very upbeat, and we wouldn't expect this to reverse without a significant
correction in the equity market. When a correction occurs, it will be caused by
higher inflation rates, which will force the Fed to raise interest rates. We do
not anticipate significant changes in the management of the portfolio over the
next several quarters.
93
<PAGE>
A $10,000 investment compared to the S&P 500 Index
since the Series' inception
[CHART APPEARS HERE]
Growth and Income S&P 500
4/30/93 10,000 10.000
6/30/93 10,437 10,303
6/30/94 10,777 10,441
6/30/95 13,628 13,161
6/30/96 16,160 16,591
6/30/97 21,755 22,325
6/30/98 28,891 29,068
6/30/99 33,428 35,674
Average Annual Return
Growth
& Income Lipper Variable Products Growth
Series S&P 500 and Income Average
6 months 10.4% 12.2% 11.7%
1 year 15.7 22.7 15.7
3 years 27.4 29.1 22.3
5 years 25.4 27.9 22.2
Since Inception 21.6 22.9 n/a
.. Fund Facts
Goal: Long-term total return through investment in equity securities.
Start date: April 30, 1993
Size: $378 million as of June 30, 1999
Managers: Gerald Scriver and Philip Cooper. Mr. Scriver and Mr. Cooper have
managed the Series from its inception in 1993; they also have managed Westpeak
Stock Index Series since August 1993, New England Growth and Income Fund since
May 1995 and New England Capital Growth Fund since February 1998. Mr. Scriver
joined Westpeak in July 1991 and Mr. Cooper joined Westpeak in December 1991.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts. If these charges were included, the returns shown would
be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
94
<PAGE>
New England Zenith Fund
(Westpeak Growth and Income Series)
Investments as of June 30, 1999 (Unaudited)
Common Stocks--94.5% of Total Net Assets
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Airlines--2.4%
67,200 Delta Air Lines, Inc.................................... $ 3,872,400
79,500 UAL Corp.(c)............................................ 5,167,500
------------
9,039,900
------------
Automotive--3.5%
169,600 Ford Motor Co........................................... 9,571,800
57,200 General Motors Corp. ................................... 3,775,200
------------
13,347,000
------------
Banks--9.2%
87,900 BB&T Corp............................................... 3,224,831
47,300 Chase Manhattan Corp.................................... 4,097,363
45,000 Citigroup, Inc. ........................................ 2,137,500
58,900 Comerica, Inc........................................... 3,500,869
185,800 Fleet Financial Group, Inc. ............................ 8,244,875
28,500 J.P. Morgan & Company, Inc. ............................ 4,004,250
56,300 SunTrust Banks, Inc..................................... 3,909,331
156,400 UnionBanCal Corp........................................ 5,649,950
------------
34,768,969
------------
Banks & Thrifts--0.0%
700 Bank One Corp........................................... 41,694
------------
Business Services--2.3%
64,400 Computer Sciences Corp.(c).............................. 4,455,675
17,700 Omnicom Group........................................... 1,416,000
86,100 Viad Corp. ............................................. 2,663,719
------------
8,535,394
------------
Chemicals--0.8%
25,200 Dow Chemical Co. ....................................... 3,197,250
------------
Computer Software & Services--1.3%
56,500 Microsoft Corp.(c)...................................... 5,095,594
------------
Computers & Business Equipment--5.6%
31,200 Apple Computer, Inc.(c)................................. 1,444,950
13,600 Hewlett-Packard Co. .................................... 1,366,800
112,400 International Business Machines Corp.................... 14,527,700
58,400 Lexmark International Group, Inc.(c).................... 3,858,050
------------
21,197,500
------------
Construction--0.9%
95,600 Lafarge Corp. .......................................... 3,387,825
------------
Defense & Aerospace--8.0%
52,000 B.F. Goodrich Co. ...................................... 2,210,000
104,700 General Dynamics Corp. ................................. 7,171,950
103,800 Litton Industries, Inc.(c).............................. 7,447,650
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Defense & Aerospace--(Continued)
83,300 Northrop Grumman Corp. ................................. $ 5,523,831
109,800 Raytheon Co., Class B................................... 7,727,175
------------
30,080,606
------------
Drugs--3.9%
98,400 Amgen, Inc.(c).......................................... 5,990,100
103,200 Bristol-Myers Squibb Co. ............................... 7,269,150
55,000 Mylan Laboratories, Inc................................. 1,457,500
------------
14,716,750
------------
Electric Utilities--2.7%
115,800 DTE Energy Co. ......................................... 4,632,000
73,800 Energy East Corp........................................ 1,918,800
22,900 Florida Progress Corp................................... 946,056
82,200 PG&E Corp. ............................................. 2,671,500
------------
10,168,356
------------
Electronics--1.1%
10,800 Comverse Technology, Inc.(c)............................ 815,400
69,800 Parker Hannifin Corp. .................................. 3,193,350
------------
4,008,750
------------
Energy Reserves--3.0%
98,900 Exxon Corp. ............................................ 7,627,663
61,400 Texaco, Inc............................................. 3,837,500
------------
11,465,163
------------
Financial Services--4.4%
125,600 Ambac Financial Group, Inc.............................. 7,174,900
43,400 Countrywide Credit Industries, Inc. .................... 1,855,350
67,300 Federal National Mortgage Association................... 4,601,638
41,200 Marsh & McLennan Companies, Inc......................... 3,110,600
------------
16,742,488
------------
Food & Beverages--3.7%
224,500 Nabisco Group Holdings Corp. ........................... 4,391,781
33,900 Quaker Oats Co. ........................................ 2,250,113
233,700 Supervalu, Inc. ........................................ 6,003,168
18,921 Unilever N. V. (ADR).................................... 1,319,740
------------
13,964,802
------------
Gas & Pipeline Utilities--0.4%
48,300 El Paso Energy Corp..................................... 1,699,556
------------
Health Care-Products--3.4%
72,400 Abbott Laboratories..................................... 3,294,200
18,000 Johnson & Johnson....................................... 1,764,000
82,400 Tyco International, Ltd................................. 7,807,400
------------
12,865,600
------------
</TABLE>
See accompanying notes to financial statements.
95
<PAGE>
New England Zenith Fund
(Westpeak Growth and Income Series)
Investments as of June 30, 1999 (Unaudited)
Common Stocks--(Continued)
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Health Care-Services--1.5%
78,300 Pacificare Health Systems, Inc.(c)...................... $ 5,632,706
------------
Hotels & Restaurants--0.3%
43,300 Darden Restaurants, Inc................................. 944,481
------------
Household Products--0.3%
21,700 Kimberly-Clark Corp..................................... 1,236,900
------------
Industrial Parts & Machinery--2.6%
49,000 Caterpillar, Inc........................................ 2,940,000
107,400 Ingersoll-Rand Co....................................... 6,940,725
------------
9,880,725
------------
Life Insurance--1.8%
25,500 Aetna, Inc.............................................. 2,280,656
28,900 Jefferson-Pilot Corp.................................... 1,912,819
46,400 Lincoln National Corp., Inc............................. 2,427,300
------------
6,620,775
------------
Liquor--0.2%
12,200 Anheuser-Busch Companies, Inc........................... 865,438
------------
Media & Entertainment--1.2%
101,200 CBS Corp.(c)............................................ 4,395,875
------------
Metals & Mining--1.4%
76,800 Alcoa, Inc.............................................. 4,752,000
25,400 USX-U.S. Steel Group.................................... 685,800
------------
5,437,800
------------
Oil Refining & Distribution--0.4%
33,400 Coastal Corp............................................ 1,336,000
------------
Paper & Forest Products--0.5%
35,600 Georgia-Pacific Corp.................................... 1,686,550
------------
Property & Casualty Insurance--2.7%
122,500 Allmerica Financial Corp................................ 7,449,531
71,600 Allstate Corp........................................... 2,568,650
------------
10,018,181
------------
Publishing--2.8%
87,800 Deluxe Corp............................................. 3,418,712
132,900 Knight Ridder, Inc...................................... 7,301,194
------------
10,719,906
------------
Railroads & Equipment--0.9%
60,700 Union Pacific Corp...................................... 3,539,569
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Retail-Clothing--1.4%
91,836 Limited, Inc............................................ $ 4,167,059
34,600 TJX Companies, Inc...................................... 1,152,612
------------
5,319,671
------------
Retail-Department Store--3.7%
21,500 Dayton Hudson Corp...................................... 1,397,500
135,900 Dillard's, Inc.......................................... 4,773,488
161,800 Wal-Mart Stores, Inc.................................... 7,806,850
------------
13,977,838
------------
Securities & Asset Management--4.5%
115,400 A. G. Edwards, Inc...................................... 3,721,650
162,535 Bear Stearns Companies, Inc............................. 7,598,511
75,900 Lehman Brothers Holdings, Inc........................... 4,724,775
23,500 PaineWebber Group, Inc.................................. 1,098,625
------------
17,143,561
------------
Semiconductors--2.0%
125,800 Intel Corp.............................................. 7,485,100
------------
Telecommunication--7.4%
22,900 Ameritech Corp.......................................... 1,683,150
157,500 AT&T Corp............................................... 8,790,469
13,400 Bell Atlantic Corp...................................... 876,024
129,500 BellSouth Corp.......................................... 6,070,312
115,400 SBC Communications, Inc................................. 6,693,200
36,000 Sprint Corp............................................. 1,901,250
35,800 United States Cellular Corp.(c)......................... 1,915,300
------------
27,929,705
------------
Thrift--1.7%
65,000 Golden West Financial Corp.............................. 6,370,000
------------
Tobacco--0.6%
74,833 R. J. Reynolds Tobacco Holdings, Inc.(c)................ 2,357,250
------------
Total Common Stocks
(Identified Cost $312,194,214)......................... 357,221,228
------------
</TABLE>
See accompanying notes to financial statements.
96
<PAGE>
New England Zenith Fund
(Westpeak Growth and Income Series)
Investments as of June 30, 1999 (Unaudited)
Short-Term Investment--3.5%
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
$13,243,000 Repurchase Agreement with State Street Corp. dated
6/30/1999 at 4.0% to be repurchased at $13,244,471
on 7/1/1999, collateralized by $11,030,000 U.S.
Treasury Bonds, 8.125% due 8/15/2019 with a value
of $13,511,618 due 8/15/2019 $ 13,243,000
------------
Total Short-Term Investments
(Identified Cost $13,243,000)..................... 13,243,000
------------
Total Investments--98.0%
(Identified Cost $325,437,214)(b)................. 370,464,228
Other assets less liabilities...................... 7,378,799
------------
Total Net Assets--100%............................. $377,843,027
============
</TABLE>
(a) See Note 1A of Notes to Financial Statements.
(b) Federal Tax Information:
At June 30, 1999 the net unrealized appreciation on investments based on cost
of $325,437,214 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............... $50,060,357
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value............... (5,033,343)
-----------
Net unrealized appreciation.................................... $45,027,014
===========
</TABLE>
(c) Non-income producing security.
Key to appreviations:
ADR/GDR--An American Depositary Receipt (ADR) or Global Depositary Receipt
(GDR) is a certificate issued by a Custodian Bank representing the
right to receive securities of the foreign issuer described. The value
of ADRs and GDRs are significantly influenced by trading on exchanges
not located in the United States or Canada.
See accompanying notes to financial statements.
97
<PAGE>
New England Zenith Fund
(Westpeak Growth and Income Series)
Statement of Assets & Liabilities
June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets
Investments at value.................................... $370,464,228
Cash.................................................... 886
Receivable for:
Securities sold......................................... 6,756,750
Fund shares sold........................................ 988,538
Dividends and interest.................................. 432,123
------------
Total assets........................................... 378,642,525
Liabilities
Payable for:
Fund shares redeemed.................................... $529,772
Withholding taxes....................................... 789
Accrued expenses:
Management fees......................................... 202,525
Deferred trustees fees.................................. 8,715
Other expenses.......................................... 57,697
--------
Total liabilities...................................... 799,498
------------
Net Assets............................................... $377,843,027
============
Net assets consist of:
Capital paid in......................................... $289,781,378
Undistributed net investment income..................... 1,880,416
Accumulated net realized gains (losses)................. 41,154,219
Unrealized appreciation (depreciation) on investments... 45,027,014
------------
Net Assets............................................... $377,843,027
============
Computation of offering price:
Net asset value and redemption price per share
($377,843,027 divided by 1,642,667 shares of beneficial
interest)............................................... $ 230.02
============
Identified cost of investments........................... $325,437,214
============
</TABLE>
<TABLE>
Statement of Operations
Six Months Ended June 30, 1999
(Unaudited)
<S> <C> <C>
Investment Income
Dividends.......................................... $ 2,872,730(a)
Interest........................................... 204,849
-----------
3,077,579
Expenses
Management fees.................................... $1,091,087
Trustees' fees and expenses........................ 10,003
Custodian.......................................... 37,949
Audit and tax services............................. 6,291
Legal.............................................. 13,053
Printing........................................... 44,449
Insurance.......................................... 2,568
Miscellaneous...................................... 2,815
----------
Total expenses..................................... 1,208,215
-----------
Net Investment Income............................... 1,869,364
Realized and Unrealized Gain (Loss)
Realized gain (loss) on:
Investments--net................................... 33,572,940
Unrealized appreciation (depreciation) on:
Investments--net................................... (2,072,232)
-----------
Net gain (loss)..................................... 31,500,708
-----------
Net Increase (Decrease) in Net Assets From
Operations......................................... $33,370,072
===========
</TABLE>
(a) Net of foreign taxes of $92,927.
See accompanying notes to financial statements.
98
<PAGE>
New England Zenith Fund
(Westpeak Growth and Income Series)
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30,
1998 1999
------------ ------------
<S> <C> <C>
From Operations
Net investment income............................. $ 1,668,044 $ 1,869,364
Net realized gain (loss).......................... 19,998,285 33,572,940
Unrealized appreciation (depreciation)............ 24,191,543 (2,072,232)
------------ ------------
Increase (decrease) in net assets from operations. 45,857,872 33,370,072
------------ ------------
From Distributions to Shareholders
Net investment income............................. (1,671,571) 0
Net realized gain................................. (17,136,182) 0
------------ ------------
Total distributions............................... (18,807,753) 0
------------ ------------
From Capital Share Transactions
Proceeds from sale of shares...................... 131,989,323 98,806,032
Reinvestment of distributions..................... 18,807,753 0
Cost of shares redeemed........................... (49,028,374) (35,890,276)
------------ ------------
Increase (decrease) in net assets from capital
share transactions............................... 101,768,702 62,915,756
------------ ------------
Total increase (decrease) in net assets........... 128,818,821 96,285,828
Net Assets
Beginning of the period........................... 152,738,378 281,557,199
------------ ------------
End of the period................................. $281,557,199 $377,843,027
============ ============
Undistributed (overdistributed) Net Investment
Income
End of the period................................. $ 11,052 $ 1,880,416
============ ============
Number of shares of the Fund:
Issued from the sale of shares.................... 660,083 457,269
Issued in reinvestment of distributions........... 90,448 0
Redeemed.......................................... (247,768) (166,009)
------------ ------------
Net change........................................ 502,763 291,260
============ ============
</TABLE>
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended
--------------------------------------------- June 30,
1994 1995 1996 1997 1998 1999
------- ------- ------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $112.32 $109.03 $141.31 $ 151.77 $ 179.98 $ 208.34
------- ------- ------- -------- -------- --------
Income From Investment
Operations
Net Investment Income.. 1.90 1.77 1.78 1.37 1.30 1.14
Net Realized and
Unrealized Gain (Loss)
on Investments........ (3.25) 37.91 23.69 48.76 42.44 20.54
------- ------- ------- -------- -------- --------
Total From Investment
operations............ (1.35) 39.68 25.47 50.13 43.74 21.68
------- ------- ------- -------- -------- --------
Less Distributions
Distributions From Net
Investment Income..... (1.92) (1.71) (1.82) (1.35) (1.31) 0.00
Distributions From Net
Realized Capital
Gains................. 0.00 (5.69) (13.19) (20.57) (14.07) 0.00
Distributions From
Paid-in Capital....... (0.02) 0.00 0.00 0.00 0.00 0.00
------- ------- ------- -------- -------- --------
Total Distributions.... (1.94) (7.40) (15.01) (21.92) (15.38) 0.00
------- ------- ------- -------- -------- --------
Net Asset Value, End of
Period................. $109.03 $141.31 $151.77 $ 179.98 $ 208.34 $ 230.02
======= ======= ======= ======== ======== ========
Total Return (%)........ (1.2) 36.5 18.1 33.5 24.4 10.4(a)
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.85 0.85 0.85 0.82 0.78 0.75(b)
Ratio of Net Investment
Income to Average Net
Assets (%)............. 2.30 1.63 1.40 0.91 0.80 1.17(b)
Portfolio Turnover Rate
(%).................... 133 92 104 93 100 123(b)
Net Assets, End of
Period (000)........... $22,934 $48,129 $82,330 $152,738 $281,557 $377,843
The ratios of operating
expenses to average net
assets without giving
effect to the voluntary
expense agreement
described in Note 4 to
the Financial
Statements would have
been (%)............... 0.86 1.06 0.91 -- -- --
</TABLE>
(a) Not computed on an annualized basis.
(b) Computed on an annualized basis.
See accompanying notes to financial statements.
99
<PAGE>
Westpeak Stock Index Series
Portfolio Managers: Gerald H. Scriver and Philip J. Cooper
Westpeak Investment Advisors, L.P.
[PHOTO APPEARS HERE]
[PHOTO APPEARS HERE]
Q. How did the Series perform during the past six months relative to its index
and relative to its peers?
A. The Westpeak Stock Index Series returned 12.0% (based on net asset value)
for the first six months of 1999 versus a return of 12.2% for the Standard &
Poor's 500 Index/25/. The Lipper Variable Products S&P 500 Index Fund Aver-
age/16/ returned 12.1% over the same time period. The Series remained fully
invested in the stocks that make up the S&P 500 Index. It is our strategy to
weight the allocation of the Series virtually in the same proportion as the
S&P 500 Index so as to better duplicate the performance of the Index.
Q. Briefly discuss the investment and market environment during the past six
months?
A. During the second quarter of 1999, the market began to broaden as smaller
capitalization stocks began to participate in the market move. The Russell
2000 Index outperformed the Russell 1000 Index by 8.51% during the second
quarter. This was a reversal from the first quarter when large stocks
outperformed small stocks by an equally large margin. Economically sensitive
sectors have also begun to participate in the market move, and we expect this
environment to persist over the near term.
Q. What is your outlook for the market and your portfolio for the next six
months?
A. The Federal Reserve Bank's surprise move of eliminating its tightening bias
should continue to support the U.S. economic boom, and the global economic re-
covery should gain steam. This will be positive for the equity market over the
near term. It appears that the Fed would like to see the global economy pick
up before it attempts to slow the U.S. economy. It will probably be several
quarters before the next rate increase occurs. Consumers continue to be very
upbeat, and we wouldn't expect this to reverse without a significant correc-
tion in the equity market. When a correction occurs, it will be caused by
higher inflation rates, which will force the Fed to raise interest rates.
A $10,000 Investment Compared to the S&P 500 Index over the past 10 years.
[GRAPH APPEARS HERE]
Stock Index Series S&P 500
Jun-89 10,000 10,000
Jun-90 11,524 11,640
Jun-91 12,347 12,501
Jun-92 13,982 14,187
Jun-93 15,836 16,114
Jun-94 15,956 16,330
Jun-95 20,085 20,584
Jun-96 25,164 25,949
Jun-97 33,699 34,917
Jun-98 43,586 45,462
Jun-99 53,246 55,794
Average Annual Total Return
Stock Index Lipper Variable Products
Series S&P 500 S&P 500 Fund Index Average
6 months 12.0% 12.2% 12.1%
1 year 22.2 22.7 22.5
3 years 28.4 29.1 28.7
5 years 27.3 27.9 27.4
10 years 18.2 18.8 18.3
Since inception 16.3 11.3 n/a
.. Fund Facts
Goal: Investment results that correspond to the composite price and yield
performance of United States publicly traded common stocks.
Start date: March 30, 1987
Size: $234 million as of June 30,1999
Managers: Gerald H. Scriver and Philip J. Cooper. Mr. Scriver and Mr. Cooper
have managed the Series since 1993; they have also managed Westpeak Growth and
Income Series since August 1993, New England Growth and Income Fund since May
1995 and New England Capital Growth Fund since February 1998. Mr. Scriver joined
Westpeak in July 1991 and Mr. Cooper joined Westpeak in December 1991.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts. If these charges were included, the returns shown would
be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
100
<PAGE>
New England Zenith Fund
(Westpeak Stock Index Series)
Investments as of June 30, 1999 (Unaudited)
Common Stocks--98.2% of Total Net Assets
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Airlines--0.3%
3,700 AMR Corp.(c)............................................. $ 252,525
2,900 Delta Air Lines, Inc. ................................... 167,113
6,800 Southwest Airlines Co.................................... 211,650
1,800 US Airways Group, Inc.(c)................................ 78,412
------------
709,700
------------
Apparel & Textiles--0.2%
1,300 Fruit of the Loom, Ltd.(c)............................... 12,675
1,200 Liz Claiborne, Inc. ..................................... 43,800
5,800 NIKE, Inc. Class B....................................... 367,213
1,100 Reebok International, Ltd.(c)............................ 20,488
600 Russell Corp............................................. 11,700
300 Springs Industries, Inc.................................. 13,088
2,500 VF Corp. ................................................ 106,874
------------
575,838
------------
Automotive--1.4%
1,600 Cooper Tire & Rubber Co.................................. 37,800
3,422 Dana Corp. .............................................. 157,626
11,625 Delphi Automotive Systems Corp.(c)....................... 215,789
24,800 Ford Motor Co. .......................................... 1,399,650
13,400 General Motors Corp...................................... 884,400
3,200 Goodyear Tire & Rubber Co. .............................. 188,200
2,200 ITT Industries, Inc...................................... 83,875
1,320 Navistar International Corp., Inc.(c )................... 66,000
1,590 PACCAR, Inc. ............................................ 84,866
3,500 Tenneco, Inc............................................. 83,563
------------
3,201,769
------------
Banks--6.4%
3,450 AmSouth Bancorporation................................... 79,997
35,424 Bank of America Corp. ................................... 2,597,022
6,100 BankBoston Corp.......................................... 311,863
6,400 BB&T Corp................................................ 234,800
17,340 Chase Manhattan Corp. ................................... 1,502,078
69,379 Citigroup, Inc........................................... 3,295,503
3,200 Comerica, Inc............................................ 190,200
5,500 Fifth Third Bancorp...................................... 366,094
20,270 First Union Corp. ....................................... 952,690
11,624 Fleet Financial Group, Inc............................... 515,815
4,340 Huntington Bancshares, Inc. ............................. 151,900
3,600 J.P. Morgan & Co., Inc................................... 505,800
9,200 KeyCorp.................................................. 295,550
3,200 Mercantile Bancorporation, Inc........................... 182,800
6,700 National City Corp. ..................................... 438,850
6,200 PNC Bank Corp. .......................................... 357,275
4,400 Regions Financial Corp................................... 169,125
2,200 Republic New York Corp. ................................. 150,013
3,400 SouthTrust Corp.......................................... 130,475
3,600 Summit Bancorp........................................... 150,525
6,600 SunTrust Banks, Inc. .................................... 458,288
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Banks--(Continued)
5,250 Synovus Financial Corp. ................................. $ 104,344
2,800 Union Planters Corp...................................... 125,125
4,200 Wachovia Corp. .......................................... 359,363
33,730 Wells Fargo & Co......................................... 1,441,954
------------
15,067,449
------------
Banks & Thrifts--1.6%
15,600 Bank of New York Co., Inc................................ 572,325
24,092 Bank One Corp. .......................................... 1,434,980
14,100 Firstar Corp. ........................................... 394,800
10,600 Mellon Bank Corp......................................... 385,575
2,300 Northern Trust Corp...................................... 223,100
3,300 State Street Corp........................................ 281,738
14,908 U.S. Bancorp............................................. 506,871
------------
3,799,389
------------
Broadcasting--0.6%
15,200 Comcast Corp.(c)......................................... 584,250
12,400 MediaOne Group, Inc.(c).................................. 922,250
------------
1,506,500
------------
Business Services--1.0%
12,600 Automatic Data Processing, Inc........................... 554,400
2,800 Ceridian Corp.(c)........................................ 91,525
3,300 Computer Sciences Corp.(c)............................... 228,319
10,100 Electronic Data Systems Corp............................. 571,281
6,440 IMS Health, Inc.......................................... 201,250
1,500 Network Appliance, Inc.(c)............................... 83,813
3,500 Omnicom Group............................................ 280,000
5,000 Paychex, Inc............................................. 159,375
500 Shared Medical Systems Corp. ............................ 32,625
2,800 The Interpublic Group of Companies, Inc. ................ 242,550
------------
2,445,138
------------
Chemicals--2.3%
4,700 Air Products & Chemicals, Inc. .......................... 189,175
1,400 Ashland, Inc............................................. 56,175
2,400 Avery Dennison Corp...................................... 144,900
4,550 Dow Chemical Co.......................................... 577,281
23,100 E.I. du Pont de Nemours & Co............................. 1,578,019
1,600 Eastman Chemical Co. .................................... 82,800
2,600 Ecolab, Inc. ............................................ 113,425
2,925 Engelhard Corp. ......................................... 66,178
1,200 Great Lakes Chemical Corp................................ 55,275
2,100 Hercules, Inc. .......................................... 82,556
8,200 Minnesota Mining & Manufacturing Co. .................... 712,888
12,700 Monsanto Co.............................................. 500,856
1,200 Nalco Chemical Co........................................ 62,250
7,000 Occidental Petroleum Corp. .............................. 147,875
3,600 PPG Industries, Inc...................................... 212,625
</TABLE>
See accompanying notes to financial statements.
101
<PAGE>
New England Zenith Fund
(Westpeak Stock Index Series)
Investments as of June 30, 1999 (Unaudited)
Common Stocks--(Continued)
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Chemicals--(Continued)
3,200 Praxair, Inc. .......................................... $ 156,600
4,185 Rohm & Haas Co. ........................................ 179,435
1,696 Sealed Air Corp.(c)..................................... 110,028
3,400 Sherwin-Williams Co. ................................... 94,350
2,700 Union Carbide Corp. .................................... 131,625
2,100 Vulcan Materials Co. ................................... 101,325
1,400 W.R. Grace & Co.(c)..................................... 25,725
2,075 Westvaco Corp. ......................................... 60,175
------------
5,441,541
------------
Computer Hardware--0.5%
15,800 Sun Microsystems, Inc.(c)............................... 1,088,225
------------
Computer Software & Services--6.6%
1,300 Adobe Systems, Inc. .................................... 106,803
21,100 America Online, Inc.(c)................................. 2,331,550
1,100 Autodesk, Inc. ......................................... 32,519
4,800 BMC Software, Inc.(c)................................... 259,200
16,848 Cendant Corp.(c)........................................ 345,384
11,000 Computer Associates International, Inc. ................ 605,000
7,400 Compuware Corp.(c)...................................... 235,413
9,100 First Data Corp. ....................................... 445,331
103,400 Microsoft Corp.(c)...................................... 9,325,388
6,700 Novell, Inc.(c)......................................... 177,550
29,505 Oracle Corp.(c)......................................... 1,095,373
5,200 Parametric Technology Corp.(c).......................... 72,150
4,800 PeopleSoft, Inc.(c)..................................... 82,800
5,300 Unisys Corp.(c)......................................... 206,368
------------
15,320,829
------------
Computers & Business Equipment--7.3%
7,400 3Com Corp.(c)........................................... 197,488
3,200 Apple Computer, Inc.(c)................................. 148,200
3,500 Cabletron Systems, Inc.(c).............................. 45,500
64,650 Cisco Systems, Inc.(c).................................. 4,165,884
34,547 Compaq Computer Corp. .................................. 818,332
900 Data General Corp.(c)................................... 13,106
52,100 Dell Computer Corp.(c).................................. 1,927,700
20,600 EMC Corp.(c)............................................ 1,133,000
3,200 Gateway, Inc.(c)........................................ 188,800
20,800 Hewlett-Packard Co. .................................... 2,090,400
2,800 Ikon Office Solutions, Inc. ............................ 42,000
37,800 International Business Machines Corp. .................. 4,885,650
5,600 Pitney Bowes, Inc. ..................................... 359,800
4,900 Seagate Technology, Inc.(c)............................. 125,563
3,500 Silicon Graphics, Inc.(c)............................... 57,313
13,400 Xerox Corp. ............................................ 791,437
------------
16,990,173
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Construction--0.2%
800 Armstrong World Industries, Inc. ........................ $ 46,250
1,100 Centex Corp. ............................................ 41,319
700 Fleetwood Enterprises, Inc. ............................. 18,506
1,500 Fluor Corp. ............................................. 60,750
900 Kaufman & Broad Home Corp. .............................. 22,388
6,900 Masco Corp. ............................................. 199,238
1,000 Owens Corning............................................ 34,374
800 Pulte Corp. ............................................. 18,450
------------
441,275
------------
Consumer Goods & Services--0.2%
1,800 Black & Decker Corp. .................................... 113,625
1,800 Maytag Corp. ............................................ 125,438
5,623 McKesson HBOC, Inc. ..................................... 180,638
1,600 Whirlpool Corp. ......................................... 118,400
------------
538,101
------------
Defense & Aerospace--1.3%
11,400 AlliedSignal, Inc. ...................................... 718,200
1,400 B.F. Goodrich Co. ....................................... 59,500
19,254 Boeing Co. .............................................. 850,786
2,600 General Dynamics Corp. .................................. 178,100
8,030 Lockheed Martin Corp. ................................... 299,118
1,400 Northrop Grumman Corp. .................................. 92,838
6,900 Raytheon Co., Class B.................................... 485,588
3,200 Textron, Inc. ........................................... 263,400
2,500 TRW, Inc. ............................................... 137,186
------------
3,084,716
------------
Drugs--7.4%
1,400 Allergan, Inc. .......................................... 155,400
1,900 ALZA Corp.(c)............................................ 96,663
27,000 American Home Products Corp. ............................ 1,552,500
10,400 Amgen, Inc.(c)........................................... 633,100
40,760 Bristol-Myers Squibb Co. ................................ 2,871,033
5,600 Cardinal Health, Inc. ................................... 359,100
22,500 Eli Lilly & Co. ......................................... 1,611,563
48,800 Merck & Co., Inc. ....................................... 3,611,200
26,600 Pfizer, Inc. ............................................ 2,919,350
10,380 Pharmacia & Upjohn, Inc. ................................ 589,714
30,100 Schering-Plough Corp. ................................... 1,595,300
2,000 Sigma-Aldrich Corp. ..................................... 68,875
16,800 Warner-Lambert Co. ...................................... 1,165,500
1,900 Watson Pharmaceuticals, Inc.(c).......................... 66,617
------------
17,295,915
------------
Electric Utilities--2.0%
3,900 AES Corp.(c)............................................. 226,688
2,700 Ameren Corp.............................................. 103,613
</TABLE>
See accompanying notes to financial statements.
102
<PAGE>
New England Zenith Fund
(Westpeak Stock Index Series)
Investments as of June 30, 1999 (Unaudited)
Common Stocks--(Continued)
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Electric Utilities--(Continued)
3,900 American Electric Power, Inc. ........................... $ 146,494
3,000 Carolina Power & Light Co. .............................. 128,438
4,400 Central & South West Corp................................ 102,850
3,111 Cinergy Corp............................................. 99,552
2,400 CMS Energy Corp.......................................... 100,500
4,700 Consolidated Edison, Inc................................. 212,675
3,100 Constellation Energy Group............................... 91,838
4,050 Dominion Resources, Inc.................................. 175,416
2,900 DTE Energy Co............................................ 116,000
7,427 Duke Energy Corp......................................... 403,843
7,200 Edison International..................................... 192,600
5,000 Entergy Corp. ........................................... 156,250
4,800 FirstEnergy Corp......................................... 148,800
2,000 Florida Progress Corp.................................... 82,625
3,700 FPL Group, Inc. ......................................... 202,113
2,500 GPU, Inc................................................. 105,469
2,300 New Century Energies, Inc. .............................. 89,269
3,500 Niagara Mohawk Holdings, Inc.(c)......................... 56,219
3,100 Northern States Power Co................................. 74,981
6,000 Pacificorp............................................... 110,250
4,600 PECO Energy Co........................................... 192,625
7,700 PG&E Corp. .............................................. 250,250
3,100 PP&L Resources, Inc...................................... 95,325
4,500 Public Service Enterprise Group, Inc..................... 183,938
5,748 Reliant Energy, Inc...................................... 158,789
14,300 Southern Co.............................................. 378,950
5,725 Texas Utilities Co....................................... 236,154
4,400 Unicom Corp. ............................................ 169,673
------------
4,792,187
------------
Electronics--3.2%
1,530 Andrew Corp.(c).......................................... 28,974
2,200 Cooper Industries, Inc................................... 114,400
5,000 Corning, Inc............................................. 350,625
1,500 Eaton Corp............................................... 138,000
800 EG&G, Inc................................................ 28,500
9,000 Emerson Electric Co...................................... 565,875
800 Foster Wheeler Corp. .................................... 11,300
3,300 General Instrument Corp.(c).............................. 140,250
1,500 Harris Corp. ............................................ 58,781
2,600 Honeywell, Inc. ......................................... 301,275
1,700 Johnson Controls, Inc.................................... 117,831
61,384 Lucent Technologies, Inc. ............................... 4,139,584
800 Millipore Corp. ......................................... 32,450
1,000 PE Corp.................................................. 114,750
1,500 Raychem Corp............................................. 55,500
3,900 Rockwell International Corp.............................. 236,925
1,400 Scientific-Atlanta, Inc. ................................ 50,400
5,200 Solectron Corp.(c)....................................... 346,775
950 Tektronix, Inc. ......................................... 28,678
8,000 Tellabs, Inc.(c)......................................... 540,500
3,100 Thermo Electron Corp.(c)................................. 62,194
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Electronics--(Continued)
1,200 Thomas & Betts Corp. .................................... $ 56,700
1,900 W.W. Grainger, Inc. ..................................... 102,244
------------
7,622,511
------------
Energy Reserves--5.0%
1,900 Amerada Hess Corp........................................ 113,050
2,600 Anadarko Petroleum Corp.................................. 95,713
2,200 Apache Corp.............................................. 85,800
6,700 Atlantic Richfield Co.................................... 559,869
3,662 Burlington Resources, Inc................................ 158,382
13,400 Chevron Corp............................................. 1,275,513
4,300 Coastal Corp. ........................................... 172,000
49,800 Exxon Corp. ............................................. 3,840,825
16,000 Mobil Corp. ............................................. 1,584,000
5,200 Phillips Petroleum Co. .................................. 261,625
43,900 Royal Dutch Petroleum Co. (ADR).......................... 2,644,975
11,000 Texaco, Inc. ............................................ 687,500
5,164 Union Pacific Resources Group, Inc....................... 84,238
4,900 Unocal Corp. ............................................ 194,161
------------
11,757,651
------------
Environmental Services--0.3%
3,100 Browning-Ferris Industries, Inc.......................... 133,300
12,300 Waste Management, Inc.................................... 661,125
------------
794,425
------------
Financial Services--6.2%
9,300 American Express Co...................................... 1,210,163
5,100 Aon Corp. ............................................... 210,375
14,902 Associates First Capital Corp............................ 660,345
4,000 Capital One Financial Corp............................... 222,750
2,300 Countrywide Credit Industries, Inc....................... 98,325
3,320 Dun & Bradstreet Corp.................................... 117,653
2,900 Equifax, Inc. ........................................... 103,494
13,900 Federal Home Loan Mortgage Corp.......................... 806,200
21,200 Federal National Mortgage Association.................... 1,449,550
67,100 General Electric Co...................................... 7,582,300
2,000 H & R Block, Inc......................................... 100,000
9,753 Household International, Inc............................. 462,048
5,300 Marsh & McLennan Companies, Inc.......................... 400,150
16,470 MBNA Corp................................................ 504,394
2,700 Provident Companies, Inc. ............................... 108,000
2,950 Providian Financial Corp................................. 275,825
3,300 SLM Holding Corp......................................... 151,180
------------
14,462,752
------------
Food & Beverages--3.9%
12,158 Archer-Daniels-Midland Co. ............................. 187,689
5,900 Bestfoods................................................ 292,050
9,000 Campbell Soup Co......................................... 417,375
</TABLE>
See accompanying notes to financial statements.
103
<PAGE>
New England Zenith Fund
(Westpeak Stock Index Series)
Investments as of June 30, 1999 (Unaudited)
Common Stocks--(Continued)
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Food & Beverages--(Continued)
50,500 Coca-Cola Co. ........................................... $ 3,156,250
8,600 Coca-Cola Enterprises, Inc. ............................. 255,850
10,000 ConAgra, Inc. ........................................... 266,250
3,100 General Mills, Inc. ..................................... 249,163
7,400 H.J. Heinz Co. .......................................... 370,925
2,900 Hershey Foods Corp. ..................................... 172,188
8,300 Kellogg Co. ............................................. 273,900
6,700 Nabisco Group Holdings Corp. ............................ 131,069
30,100 PepsiCo, Inc. ........................................... 1,164,494
4,900 Pioneer Hi-Bred International, Inc. ..................... 190,794
2,800 Quaker Oats Co. ......................................... 185,850
18,700 Sara Lee Corp. .......................................... 424,256
2,500 Supervalu, Inc. ......................................... 64,219
6,700 Sysco Corp. ............................................. 199,744
11,728 Unilever N.V. (ADR) ..................................... 818,026
2,400 William Wrigley Jr. Co. ................................. 216,000
------------
9,036,092
------------
Freight Transportation--0.2%
6,060 FDX Corp.(c)............................................. 328,755
6,300 Laidlaw, Inc. ........................................... 46,463
------------
375,218
------------
Gas & Pipeline Utilities--0.2%
1,700 Columbia Energy Group.................................... 106,569
2,000 Consolidated Natural Gas Co. ............................ 121,500
900 Nicor, Inc. ............................................. 34,256
600 ONEOK, Inc. ............................................. 19,050
600 Peoples Energy Corp. .................................... 22,613
4,855 Sempra Energy............................................ 109,844
------------
413,832
------------
Health Care-Products--3.5%
31,100 Abbott Laboratories...................................... 1,415,050
1,100 Bausch & Lomb, Inc. ..................................... 84,150
5,900 Baxter International, Inc. .............................. 357,688
5,000 Becton, Dickinson & Co. ................................. 150,000
2,200 Biomet, Inc. ............................................ 87,450
8,100 Boston Scientific Corp.(c)............................... 355,894
1,000 C.R. Bard, Inc. ......................................... 47,813
6,200 Guidant Corp.(c)......................................... 318,913
27,600 Johnson & Johnson........................................ 2,704,800
1,500 Mallinckrodt, Inc. ...................................... 54,560
12,000 Medtronic, Inc. ......................................... 934,500
1,600 St. Jude Medical, Inc.(c)................................ 57,000
16,682 Tyco International, Ltd. ................................ 1,580,620
------------
8,148,438
------------
Health Care-Services--0.5%
13,086 Columbia/HCA Healthcare Corp. ........................... 298,524
2,200 HCR Manor Care, Inc.(c).................................. 53,213
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Health Care-Services--Continued
8,700 HEALTHSOUTH Corp.(c)..................................... $ 129,956
3,100 Humana, Inc.(c).......................................... 40,106
5,500 Service Corporation International........................ 105,875
6,200 Tenet Healthcare Corp.(c)................................ 115,088
3,800 United Healthcare Corp. ................................. 237,975
1,400 WellPoint Health Networks, Inc.(c)....................... 118,825
------------
1,099,562
------------
Hotels & Restaurants--0.8%
2,600 Darden Restaurants, Inc. ................................ 56,713
2,350 Harrah's Entertainment, Inc.(c).......................... 51,700
5,000 Hilton Hotels Corp. ..................................... 70,938
5,000 Marriott International, Inc. ............................ 186,875
27,700 McDonald's Corp. ........................................ 1,144,356
4,000 Mirage Resorts, Inc.(c).................................. 67,000
3,120 Tricon Global Restaurants, Inc.(c)....................... 168,870
2,600 Wendy's International, Inc. ............................. 73,612
------------
1,820,064
------------
Household Products--2.6%
1,200 Alberto-Culver Co., Class B.............................. 31,950
1,300 American Greetings Corp. ................................ 39,163
5,400 Avon Products, Inc. ..................................... 299,700
1,400 Brown-Forman Corp., Class B.............................. 91,263
2,400 Clorox Co. .............................................. 256,350
6,000 Colgate-Palmolive Co. ................................... 592,500
3,400 Fortune Brands, Inc. .................................... 140,675
22,700 Gillette Co. ............................................ 930,700
2,200 International Flavours & Fragrances, Inc. ............... 97,625
600 Jostens, Inc. ........................................... 12,638
11,112 Kimberly-Clark Corp. .................................... 633,384
5,707 Newell Rubbermaid, Inc. ................................. 265,376
27,220 Procter & Gamble Co. .................................... 2,429,385
6,600 Ralston Purina Co. ...................................... 200,886
1,100 Tupperware Corp. ........................................ 28,050
------------
6,049,645
------------
Industrial Parts & Machinery--1.3%
500 Briggs & Stratton Corp. ................................. 28,875
1,500 Case Corp. .............................................. 72,188
7,300 Caterpillar, Inc. ....................................... 438,000
1,400 Crane Co. ............................................... 44,013
900 Cummins Engine, Inc. .................................... 51,413
2,700 Danaher Corp. ........................................... 156,938
4,900 Deere & Co. ............................................. 194,163
4,500 Dover Corp. ............................................. 157,500
3,700 Genuine Parts Co. ....................................... 129,500
5,100 Illinois Tool Works, Inc. ............................... 418,200
3,400 Ingersoll-Rand Co. ...................................... 219,725
1,100 McDermott International, Inc. ........................... 31,075
</TABLE>
See accompanying notes to financial statements.
104
<PAGE>
New England Zenith Fund
(Westpeak Stock Index Series)
Investments as of June 30, 1999 (Unaudited)
Common Stocks--(Continued)
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Industrial Parts & Machinery--(Continued)
700 Milacron, Inc. .......................................... $ 12,950
200 Nacco Industries, Inc. .................................. 14,700
800 National Service Industries, Inc......................... 28,800
2,300 Pall Corp................................................ 51,031
2,250 Parker Hannifin Corp..................................... 102,938
1,350 Snap-On, Inc. ........................................... 48,853
1,800 Stanley Works............................................ 57,938
1,100 Timken Co................................................ 21,450
9,900 United Technologies Corp................................. 709,703
------------
2,989,953
------------
Industrial Services--0.0%
1,400 Ryder System, Inc. ...................................... 36,400
------------
Leisure--0.6%
12,600 Carnival Corp............................................ 611,100
6,650 Eastman Kodak Co. ....................................... 450,538
3,875 Hasbro, Inc. ............................................ 108,258
8,450 Mattel, Inc.............................................. 223,397
800 Polaroid Corp............................................ 22,100
1,800 Brunswick Corp........................................... 50,174
------------
1,465,567
------------
Life Insurance--0.9%
5,400 Aflac, Inc............................................... 258,525
2,883 Aetna, Inc. ............................................. 257,848
5,198 American General Corp. .................................. 391,799
4,200 CIGNA Corp. ............................................. 373,800
6,507 Conseco, Inc. ........................................... 198,057
2,137 Jefferson-Pilot Corp..................................... 141,443
4,200 Lincoln National Corp., Inc. ............................ 219,713
2,800 Torchmark Corp. ......................................... 95,550
2,500 Transamerica Corp. ...................................... 187,500
2,800 UNUM Corp. .............................................. 153,300
------------
2,277,535
------------
Liquor--0.5%
800 Adolph Coors Co., Class B................................ 39,600
9,800 Anheuser-Busch Companies, Inc. .......................... 695,188
8,200 Seagram Company, Ltd..................................... 413,075
------------
1,147,863
------------
Media & Entertainment--2.2%
14,500 CBS Corp.(c)............................................. 629,844
6,600 Clear Channel Communications(c).......................... 454,988
1,500 King World Productions, Inc.(c).......................... 52,219
42,094 The Walt Disney Co....................................... 1,297,021
25,100 Time Warner, Inc......................................... 1,844,850
2,400 Tribune Co............................................... 209,100
14,214 Viacom, Inc., Class B(c)................................. 625,415
------------
5,113,437
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Metals & Mining--0.5%
4,600 Alcan Aluminium, Ltd..................................... $ 146,913
7,500 Alcoa, Inc. ............................................. 464,063
3,932 Allegheny Teledyne, Inc. ................................ 88,962
800 ASARCO, Inc.............................................. 15,050
600 Ball Corp................................................ 25,350
2,400 Bethlehem Steel Corp.(c)................................. 18,450
2,500 Crown Cork & Seal Company, Inc. ......................... 71,250
1,850 Cyprus Amax Minerals Co. ................................ 28,097
3,700 Inco, Ltd. .............................................. 66,600
1,800 Nucor Corp............................................... 85,388
1,200 Phelps Dodge Corp. ...................................... 74,325
1,300 Reynolds Metals Co....................................... 76,700
1,820 USX-U.S. Steel Group..................................... 49,140
1,700 Worthington Industries, Inc. ............................ 27,942
------------
1,238,230
------------
Natural Gas--0.0%
400 Eastern Enterprises...................................... 15,900
------------
Oil Services--0.6%
6,700 Baker Hughes, Inc........................................ 224,450
700 FMC Corp.(c)............................................. 47,819
8,900 Halliburton Co. ......................................... 402,725
900 Helmerich & Payne, Inc. ................................. 21,431
1,600 Rowan Companies, Inc.(c)................................. 29,500
11,200 Schlumberger, Ltd. ...................................... 713,300
------------
1,439,225
------------
Oil-Foreign--0.1%
2,438 Kerr-McGee Corp. ........................................ 122,357
------------
Oil-Refining & Distribution--0.6%
7,200 Enron Corp. ............................................. 588,600
2,300 Sonat, Inc. ............................................. 76,188
1,900 Sunoco, Inc. ............................................ 57,356
6,200 USX-Marathon Group....................................... 201,887
8,800 Williams Companies, Inc. ................................ 374,550
------------
1,298,581
------------
Packaging--0.0%
3,100 Owens-Illinois, Inc.(c).................................. 101,331
------------
Paper & Forest Products--0.7%
1,000 Bemis Co................................................. 39,750
1,033 Boise Cascade Corp. ..................................... 44,290
2,000 Champion International Corp.............................. 95,750
4,500 Fort James Corp. ........................................ 170,438
3,600 Georgia-Pacific Corp. ................................... 170,550
8,389 International Paper Co. ................................. 423,645
2,000 Louisiana-Pacific Corp. ................................. 47,500
2,100 Mead Corp. .............................................. 87,675
</TABLE>
See accompanying notes to financial statements.
105
<PAGE>
New England Zenith Fund
(Westpeak Stock Index Series)
Investments as of June 30, 1999 (Unaudited)
Common Stocks--(Continued)
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Paper & Forest Products--(Continued)
500 Potlatch Corp............................................ $ 21,969
1,100 Temple-Inland, Inc. ..................................... 75,075
4,100 Weyerhaeuser Co.......................................... 281,875
2,200 Willamette Industries, Inc............................... 101,336
------------
1,559,853
------------
Precious Metal--0.2%
7,500 Barrick Gold Corp........................................ 145,313
4,300 Battle Mountain Gold Co.(c).............................. 10,481
3,300 Freeport McMoran Copper & Gold, Class B(c)............... 59,194
5,300 Homestake Mining Co...................................... 43,394
3,341 Newmont Mining Corp...................................... 66,402
6,700 Placer Dome, Inc......................................... 79,143
------------
403,927
------------
Property & Casualty Insurance--2.2%
16,772 Allstate Corp............................................ 601,696
25,126 American International Group, Inc........................ 2,941,312
3,300 Chubb Corp............................................... 229,350
3,300 Cincinnati Financial Corp................................ 123,956
4,800 Hartford Financial Services Group........................ 279,900
2,300 Loews Corp............................................... 181,988
2,000 MBIA, Inc................................................ 129,500
2,100 MGIC Investment Corp..................................... 102,113
1,500 Progressive Corp......................................... 217,500
2,800 Safeco Corp.............................................. 123,550
4,770 St. Paul Companies, Inc.................................. 151,745
------------
5,082,610
------------
Publishing--0.6%
1,500 Deluxe Corp. ............................................ 58,406
1,900 Dow Jones & Company, Inc................................. 100,819
5,800 Gannett Company, Inc..................................... 413,975
1,500 Harcourt General, Inc.................................... 77,344
1,600 Knight-Ridder, Inc....................................... 87,900
4,000 McGraw Hill Companies, Inc............................... 215,750
1,000 Meredith Corp. .......................................... 34,625
3,700 New York Times Co........................................ 136,206
2,700 R.R. Donnelley & Sons Co................................. 100,069
1,600 Times Mirror Co. ........................................ 94,800
------------
1,319,894
------------
Railroads & Equipment--0.5%
9,466 Burlington Northern Santa Fe............................. 293,446
4,300 CSX Corp. ............................................... 194,844
2,200 Kansas City Southern Industries, Inc..................... 140,388
7,700 Norfolk Southern Corp.................................... 231,963
5,100 Union Pacific Corp. ..................................... 297,393
------------
1,158,034
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Retail-Clothing--0.6%
17,513 Gap, Inc................................................. $ 882,192
2,658 Limited, Inc............................................. 120,607
2,800 Nordstrom, Inc. ......................................... 93,800
6,500 TJX Companies, Inc. ..................................... 216,531
------------
1,313,130
------------
Retail-Department Store--3.0%
4,439 Costco Companies, Inc.(c)................................ 355,397
9,000 Dayton Hudson Corp....................................... 585,000
2,100 Dillard's, Inc........................................... 73,763
4,300 Federated Department Stores, Inc.(c)..................... 227,631
5,400 J.C. Penney Co., Inc..................................... 262,238
9,900 Kmart Corp. ............................................. 162,731
3,200 Kohls Corp.(c)........................................... 247,000
7,200 May Department Stores Co. ............................... 294,300
7,800 Sears, Roebuck & Co...................................... 347,588
91,100 Wal-Mart Stores, Inc. ................................... 4,395,574
------------
6,951,222
------------
Retail-Food & Drug--0.7%
8,528 Albertson's, Inc......................................... 439,725
700 Great Atlantic & Pacific Tea Co. ........................ 23,669
16,400 Kroger Co.(c)............................................ 458,175
10,000 Safeway, Inc.(c)......................................... 495,000
3,000 Winn-Dixie Stores, Inc. ................................. 110,812
------------
1,527,381
------------
Retail-Specialty--2.2%
3,000 Autozone, Inc.(c)........................................ 90,375
4,200 Best Buy Co., Inc.(c).................................... 283,500
2,100 Circuit City Stores, Inc. ............................... 195,300
2,200 Consolidated Stores Corp.(c)............................. 59,400
8,000 CVS Corp. ............................................... 406,000
4,512 Dollar General Corp. .................................... 130,848
30,246 Home Depot, Inc.......................................... 1,948,977
700 Longs Drug Stores Corp. ................................. 24,194
7,600 Lowe's Companies, Inc.................................... 430,825
7,600 Office Depot, Inc.(c).................................... 167,675
1,200 Pep Boys-Manny, Moe & Jack............................... 25,950
5,300 Rite Aid Corp............................................ 130,513
9,350 Staples, Inc.(c)......................................... 289,266
4,000 Tandy Corp. ............................................. 195,500
5,075 Toys 'R' Us, Inc.(c)..................................... 104,989
20,500 Walgreen Co.............................................. 602,186
------------
5,085,498
------------
Securities & Asset Management--1.4%
2,205 Bear Stearns Companies, Inc. ............................ 103,084
8,225 Charles Schwab Corp. .................................... 903,722
5,100 Franklin Resources, Inc. ................................ 207,188
</TABLE>
See accompanying notes to financial statements.
106
<PAGE>
New England Zenith Fund
(Westpeak Stock Index Series)
Investments as of June 30, 1999 (Unaudited)
Common Stocks--(Continued)
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Securities & Asset Management--(Continued)
2,300 Lehman Brothers Holdings, Inc. .......................... $ 143,175
7,300 Merrill Lynch & Co., Inc................................. 583,544
11,799 Morgan Stanley Dean Witter & Co.......................... 1,209,398
2,900 Paine Webber Group, Inc.................................. 135,573
------------
3,285,684
------------
Semi-Conductors--3.2%
3,000 Advanced Micro Devices, Inc.(c).......................... 54,188
7,600 Applied Materials, Inc.(c)............................... 561,450
68,300 Intel Corp............................................... 4,063,850
1,800 KLA-Tencor Corp.(c)...................................... 116,775
2,800 LSI Logic Corp.(c)....................................... 129,150
5,000 Micron Technology, Inc.(c)............................... 201,563
12,300 Motorola, Inc. .......................................... 1,165,425
3,400 National Semiconductor Corp.(c).......................... 86,062
8,000 Texas Instruments, Inc................................... 1,160,000
------------
7,538,463
------------
Telecommunication--8.8%
5,600 ALLTEL Corp.............................................. 400,400
22,500 Ameritech Corp........................................... 1,653,750
64,453 AT&T Corp................................................ 3,597,283
31,852 Bell Atlantic Corp....................................... 2,082,325
40,000 Bellsouth Corp........................................... 1,875,000
2,700 Centurytel, Inc.......................................... 107,325
3,500 Frontier Corp. .......................................... 206,500
19,800 GTE Corp. ............................................... 1,499,850
37,570 MCI Worldcom, Inc.(c).................................... 3,233,368
5,800 Nextel Communications, Inc.(c)........................... 291,088
13,600 Nortel Networks Corp..................................... 1,180,650
40,116 SBC Communications, Inc. ................................ 2,326,728
18,300 Sprint Corp.............................................. 966,469
9,000 Sprint Corp.(c).......................................... 514,125
10,292 U S WEST, Inc. .......................................... 604,654
------------
20,539,515
------------
Thrift--0.2%
1,200 Golden West Financial Corp............................... 117,600
12,113 Washington Mutual, Inc................................... 428,497
------------
546,097
------------
Tobacco--0.9%
49,900 Philip Morris Companies, Inc............................. 2,005,353
2,233 R.J. Reynolds Tobacco Holdings, Inc.(c).................. 70,350
3,800 UST, Inc................................................. 111,150
------------
2,186,853
------------
Total Common Stocks
(Identified Cost $120,004,624).......................... 229,623,475
------------
</TABLE>
Short-Term Investment--1.4%
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
$3,324,000 Repurchase Agreement with State Street Corp. dated
6/30/1999 at 4.0% to be repurchased at $3,324,264
on 7/1/1999, collateralized by $3,015,000 U.S.
Treasury Bonds, 7.500% due 11/15/2016 with a value
of $3,391,875...................................... $ 3,324,000
------------
Total Short-Term Investments
(Identified Cost $3,324,000)....................... 3,324,000
------------
Total Investments--99.6%
(Identified Cost $123,328,624)(b).................. 232,947,475
Other assets less liabilities....................... 996,587
------------
Total Net Assets--100%.............................. $233,944,062
============
</TABLE>
(a) See Note 1A of Notes to Financial Statements.
(b) Federal Tax Information:
At June 30, 1999 the net unrealized appreciation on investments based on cost
of $123,328,624 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.............. $111,721,530
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value.............. (2,102,679)
------------
Net unrealized appreciation................................... $109,618,851
============
</TABLE>
(c) Non-income producing security
Key to Abbreviations:
ADR/GDR--An American Depositary Receipt (ADR) or Global Depositary Receipt
(GDR) is a certificate issued by a Custodian Bank representing the
right to receive securities of the foreign issuer described. The value
of ADRs and GDRs are significantly influenced by trading on exchanges
not located in the United States or Canada.
See accompanying notes to financial statements.
107
<PAGE>
New England Zenith Fund
(Westpeak Stock Index Series)
Statement of Assets & Liabilities
June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets
Investments at value.................................... $232,947,475
Cash.................................................... 909
Receivable for:
Securities sold......................................... 1,299,838
Fund shares sold........................................ 563,127
Dividends and interest.................................. 202,242
Foreign taxes........................................... 290
------------
Total Assets........................................... 235,013,881
Liabilities
Payable for:
Fund shares redeemed.................................... $283,430
Securities purchased.................................... 606,353
Withholding taxes....................................... 164
Accrued expenses:
Management fees......................................... 45,889
Deferred trustees fees.................................. 78,282
Other expenses.......................................... 55,701
--------
Total Liabilities...................................... 1,069,819
------------
Net Assets............................................... $233,944,062
============
Net assets consist of:
Capital paid in......................................... $121,180,272
Undistributed net investment income..................... 1,056,663
Accumulated net realized gains
(losses)............................................... 2,088,276
Unrealized appreciation (depreciation) on investments... 109,618,851
------------
Net Assets............................................... $233,944,062
============
Computation of offering price:
Net asset value and redemption price per share
($233,944,062 divided by 1,064,115 shares of beneficial
interest)............................................... $ 219.85
============
Identified cost of investments........................... $123,328,624
============
</TABLE>
Statement of Operations
Six Months Ended June 30, 1999
(Unaudited)
<TABLE>
<S> <C> <C>
Investment Income
Dividends................................................ $ 1,367,545
Interest................................................. 74,373
-----------
1,441,918
Expenses
Management fees.......................................... $257,495
Trustees' fees and expenses.............................. 8,509
Custodian................................................ 57,512
Audit and tax services................................... 6,291
Legal.................................................... 8,368
Printing................................................. 34,966
Insurance................................................ 1,577
Miscellaneous............................................ 9,203
--------
Total expenses........................................... 383,921
-----------
Net Investment Income..................................... 1,057,997
Realized and Unrealized Gain (Loss)
Realized gain (loss) on:
Investments--net......................................... 1,349,119
Unrealized appreciation (depreciation) on:
Investments--net......................................... 21,296,304
-----------
Net gain (loss)........................................... 22,645,423
-----------
Net Increase (Decrease) in Net Assets From Operations..... $23,703,420
===========
</TABLE>
(a)Net of foreign taxes of $21,756.
See accompanying notes to financial statements.
108
<PAGE>
New England Zenith Fund
(Westpeak Stock Index Series)
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30,
1998 1999
------------ ------------
<S> <C> <C>
From Operations
Net investment income............................. $ 1,772,323 $ 1,057,997
Net realized gain (loss).......................... 1,822,491 1,349,119
Unrealized appreciation (depreciation)............ 34,683,663 21,296,304
------------ ------------
Increase (decrease) in net assets from operations. 38,278,477 23,703,420
------------ ------------
From Distributions to Shareholders
Net investment income............................. (1,781,029) 0
Net realized gain................................. (965,891) 0
------------ ------------
Total distributions............................... (2,746,920) 0
------------ ------------
From Capital Share Transactions
Proceeds from sale of shares...................... 63,090,085 51,295,030
Reinvestment of distributions..................... 2,746,920 0
Cost of shares redeemed........................... (41,673,859) (27,332,619)
------------ ------------
Increase (decrease) in net assets from capital
share transactions............................... 24,163,146 23,962,411
------------ ------------
Total increase (decrease) in net assets........... 59,694,703 47,665,831
Net Assets
Beginning of the period........................... 126,583,528 186,278,231
------------ ------------
End of the period................................. $186,278,231 $233,944,062
============ ============
Undistributed (overdistributed) Net Investment
Income
End of the period................................. ($1,334) $ 1,056,663
============ ============
Number of shares of the Fund:
Issued from the sale of shares.................... 362,065 247,384
Issued in reinvestment of distributions........... 13,886 0
Redeemed.......................................... (239,835) (132,074)
------------ ------------
Net change........................................ 136,116 115,310
============ ============
</TABLE>
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended
--------------------------------------------- June 30,
1994 1995 1996 1997 1998 1999
------- ------- ------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period................ $ 76.48 $ 75.35 $100.09 $ 119.62 $ 155.76 $ 196.33
------- ------- ------- -------- -------- --------
Income From Investment
Operations
Net Investment Income.... 1.80 1.88 1.91 1.86 1.92 0.99
Net Realized and
Unrealized Gain (Loss)
on Investments.......... (0.92) 25.89 20.58 36.95 41.60 22.53
------- ------- ------- -------- -------- --------
Total From Investment
operations.............. 0.88 27.77 22.49 38.81 43.52 23.52
------- ------- ------- -------- -------- --------
Less Distributions
Distributions From Net
Investment Income....... (1.82) (1.85) (1.93) (1.86) (1.91) 0.00
Distributions From Net
Realized Capital Gains.. (0.16) (1.18) (1.03) (0.67) (1.04) 0.00
Distributions in Excess
of Net Realized Capital
Gains................... 0.00 0.00 0.00 (0.14) 0.00 0.00
Distributions From paid-
in Capital.............. (0.03) 0.00 0.00 0.00 0.00 0.00
------- ------- ------- -------- -------- --------
Total Distributions...... (2.01) (3.03) (2.96) (2.67) (2.95) 0.00
------- ------- ------- -------- -------- --------
Net Asset Value, End of
Period................... $ 75.35 $100.09 $119.62 $ 155.76 $ 196.33 $ 219.85
======= ======= ======= ======== ======== ========
Total Return (%).......... 1.1 36.9 22.5 32.5 27.9 12.0(a)
Ratio of Operating
Expenses to Average Net
Assets (%)............... 0.33 0.40 0.40 0.40 0.37 0.37(b)
Ratio of Net Investment
Income to Average Net
Assets (%)............... 2.59 2.20 1.84 1.41 1.16 1.03(b)
Portfolio Turnover Rate
(%)...................... 2 5 4 3 3 2(b)
Net Assets, End of Period
(000)......................$37,164 $58,671 $80,764 $126,584 $186,278 $233,944
The ratios of operating
expenses to average net
assets without giving
effect to the voluntary
expense agreement
described in Note 4 to
the Financial Statements
would have been (%)...... -- 0.54 0.50 0.43 -- --
</TABLE>
(a) Not computed on an annualized basis.
(b) Computed on an annualized basis.
See accompanying notes to financial statements.
109
<PAGE>
Morgan Stanley International Magnum Equity Series
Portfolio Manager: Francine J. Bovich
Morgan Stanley Asset Management
[PHOTO OF FRANCINE J. BOVICH APPEARS HERE]
Q. How did the Series perform during the past six months relative to its index
and relative to its peers?
A. For the six-month period ended June 30, 1999 the Morgan Stanley Interna-
tional Magnum Equity Series returned 5.7% compared to the Morgan Stanley Capi-
tal International Europe, Australia/Asia, Far East Index (EAFE)/18/ of 4.0% and
the Lipper Variable Products International Fund Average/12/ of 8.1%.
Q. Briefly discuss the investment and market conditions during the past six
months:
A. Global economic healing and numerous interest rate cuts helped to boost most
international developed markets. The first half of 1999 stood in stark contrast
to 1998: once powerful Europe languished, while Japan and Asia both posted sub-
stantial gains after lackluster performance in the previous year. The MSCI EAFE
Index ended the first half gaining 4.0% in U.S. dollar terms, although perfor-
mance of individual markets was mixed.
Regionally, Europe saw the most variance in performance and the weakest returns
as the MSCI Europe Index returned 8.1% in local currency terms (-2.4% in U.S.
dollar terms). The less-than-dramatic European recovery coupled with unexpected
Euro weakness contributed to European market difficulties. Despite larger than
expected interest rate easing by the ECB in April, EMU markets were not able to
attain the kinds of results seen in other developed markets, since the EMU
markets were plagued by lower earnings expectations, continued high
unemployment and the crisis in Kosovo. During the first half of 1999,
specifically in the second quarter, European value-oriented stocks were able to
regain some of the ground lost to growth stocks during 1998 as European
cyclical and defensive industries outperformed their growth counterparts.
After a difficult 1998, the Japanese market gained surprising momentum, with
MSCI Japan finishing the first half up 29.5% in local currency terms (+20.7% in
U.S. dollar terms). The Japanese market was buoyed by optimism about the
restructuring successes seen thus far. The market was pushed higher as
investors gained more confidence in the restructuring efforts being implemented
by authorities and business leaders. With over 143 restructuring announcements
made in the first five months of the year, the restructuring story is really
starting to take shape. Corporations are reducing capacity, unwinding cross-
shareholding positions, consolidating business units and paying down debt.
Although these efforts are just the beginning of what will be needed to revive
the economy, they are clear signs to investors that government and corporate
Japan is willing to take the bitter but necessary medicine.
Outside of Japan, Asian markets saw spectacular returns as interest rates fell
and liquidity became more plentiful. These markets were also helped by strong
performance in Japan, a major trading partner, as well as a surge in commodity
and oil prices toward the end of the second quarter. The MSCI Pacific ex-Japan
Index appreciated 22.1% in local currency terms (+26.0% in U.S. dollar terms)
during the first half of 1999.
Q. Given this investment environment, what was your investment strategy? What
changes did you make since the start of the year?
A. The Series began the year underweight versus the index in all regions (Eu-
rope 71% vs. 73%, Japan 19% vs. 21%, Asia 4% vs. 6%). During the first quarter
of 1999 we increased our allocation to Japan from underweight to neutral, and
again in the second quarter from neutral to overweight, while decreasing expo-
sure to Europe. During the second quarter we also increased exposure to the
Asia ex-Japan region.
Beginning in the first quarter and progressing into the start of the second, we
made some adjustments to the European portion of the Series' portfolio. We
decreased our allocation to smaller cap companies in Europe and re-deployed to
larger cap holdings. This strategy has served the portfolio well, as the
remaining small cap holdings have outperformed their small cap peers within the
MSCI EAFE Index during the second quarter.
Q. What were the principal factors affecting your performance (on both an
absolute and relative basis) during the past six months? What investment
decisions were most effective and which ones were least effective?
A. Portfolio outperformance is attributable to both regional allocation and
strong stock selection within Europe and Japan. During the six month period
ended June 30, 1999 the Series decreased exposure to Europe, a relative
underperformer, while increasing the allocation to Japan, a relative
outperformer. Stock selection within Europe proved to be a
110
<PAGE>
strong contributor to overall results, especially during the second quarter as
value stocks regained favor and outperformed the growth counterparts. Specifi-
cally, the portfolio was overweight in outperforming industries such as Indus-
trial Cyclicals and Machinery & Engineering, while underweighting
underperforming industries such as Banking and Pharmaceuticals. Additionally,
the European portfolio's underweighting to Mega-cap stocks was a positive as
Mid and Small-cap stocks outperformed in Europe. Japanese stock selection was
also very strong, especially among the Machinery & Engineering and Recreation &
Other Consumer Goods industries. Both of these industries are comprised of blue
chip, global franchise exporters that benefited from the Yen's weakness.
Detracting from overall performance was the Series' underweight to European
Telecommunications (relative outperformer), an overweight to European Food &
Household Products (relative underperformer), and an underweight to Japanese
Banks (relative outperformer).
Q. What is your outlook for the market and your portfolio for the next six
months? What changes, if any, will you make to the way you manage your
portfolio?
A. At the end of the second quarter markets were holding their breath in antic-
ipation of the expected rate hike by the U.S. Fed. As of this writing, the Fed
raised rates by 0.25% and assumed a "neutral bias". Although this modest rate
hike is supportive of growth abroad and has not derailed the global economic
healing seen so far this year, an indication of inflationary pressures in the
U.S. could compel the Fed to raise rates again during the second half of 1999,
which may have a negative impact on international growth.
We expect Japan to outperform other developed markets in the medium-to-long
term as authorities and business leaders remain committed to reforms. The Fed's
neutral bias coupled with the Bank of Japan's current policy of "0%" short-term
interest rates, will allow Japan to accelerate restructuring and provide a
platform for economic recovery. It will likely become very important for Japan
to show concrete economic growth over the next year, particularly if U.S.
growth slows. While we are increasingly bullish on the prospects for Japan, we
intend to keep our highly selective stock and sector weightings. In particular,
Sony, Fujitsu, Mitsumi and TDK have reached all time highs and NTT, the largest
capitalized company in Japan, has broken out from a 10-year trading range.
The nascent economic recovery in Europe is proceeding at a frustratingly slow
pace, although the prospects for the second half of 1999 seem to be improving.
As the Euro continues its weakening trend, European exporters should benefit
both from this weakness as well as from a pick-up in demand from strengthening
Asian economies. Domestic demand remains strong due to the lagged effects of
monetary easing and a more relaxed stance of fiscal policy. This coupled with
the recent stronger-than-expected factory orders in Italy and Germany could
signal further recovery in the Euro economy. German recovery should be further
aided by fiscal initiatives such as German Finance Minister Hans Eichel's plans
to reduce corporate tax rates to a flat 25%. Moreover, the German tax reform is
likely to trigger further competitive tax cuts in Europe. The Dutch government
is already considering slashing the corporate tax rate from 35% to 30% in 2001.
Encouragingly, Europe's predominantly center-left governments appear to realize
the need to tackle structural problems, as evidenced by the statement released
following the Cologne summit of 15 EU heads of state. "Achieving higher employ-
ment depends on well-functioning labor markets and on efficient, competitive
markets for goods, services and capital. We consider structural reform of la-
bor, product and capital markets to be essential." These current reform propos-
als will be key to improving long-term growth and investment prospects, and
should make Europe a more attractive place to invest.
Asian markets have been driven by low interest rates and high liquidity, as
well as rising commodity prices. In the region as a whole, improving consumer
and business confidence is evident, and if these markets continue to employ re-
structuring policies, maintain stabilizing current account deficits and improve
balance sheets their recoveries should continue. We will monitor Asia carefully
in the coming months for signs of continued progress in restructuring the re-
gion's banking and corporate sectors. The concern remains, however, that gov-
ernments and business may not be as willing to inflict the kinds of stringent
policies necessary for reform in light of recent econmic and market strength.
Should the U.S. continue to tighten monetary policy over the course of the
year, this would most likely be negative, especially for Hong Kong growth pros-
pects, as the Hong Kong dollar and interest rates are pegged to those of the
United States. Since the recent market run-ups have caused valuations to become
extended, any growth-hindering policies could have significant adverse effects
on Asia. Such circumstances could lead us to reduce the portfolio's exposure to
the region.
111
<PAGE>
A $10,000 investment compared to the EAFE Index
since the Series' inception
International Equity Series EAFE
10/31/94 10,000 10,000
6/30/95 10,330 9,828
6/30/96 11,599 11,134
6/30/97 12,543 12,563
6/30/98 13,537 13,329
6/30/99 13,012 14,344
Average Annual Return
International Magnum EAFE Lipper Variable International
Equity Series Funds Average
6 months 5.7% 4.0% 8.1%
1 year (3.9) 7.6 5.4
3 years 3.9 8.8 10.0
Since Inception 5.8 8.0 n/a
.. Fund Facts
Goal: long-term capital appreciation through investment primarily in
international equity securities.
Start date: October 31, 1994
Size: $75 million as of June 30, 1999
Manager: Francine Bovich has managed the Morgan Stanley International Magnum
Equity Series since May 1997. Ms. Bovich is also a Managing Director of Morgan
Stanley Dean Witter Investment Management Inc.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts. If these charges were included, the returns shown would
be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
112
<PAGE>
New England Zenith Fund
(Morgan Stanley International Magnum Equity Series)
Investments as of June 30, 1999 (Unaudited)
Common Stocks--95.5% of Total Net Assets
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Australia--2.5%
5,100 Amp Limited.............................................. $ 55,681
3,100 Brambles Industries, Ltd. ............................... 81,560
10,900 Broken Hill Proprietary. Ltd. ........................... 126,095
24,700 Cable and Wireless Optus, Ltd.(c)........................ 56,168
15,700 Colonial, Ltd. .......................................... 55,525
39,900 Fosters Brewing Group, Ltd. ............................. 112,309
8,491 Lend Lease Corp. ........................................ 116,430
14,950 National Australia Bank, Ltd. ........................... 247,067
23,250 News Corporation, Ltd. .................................. 198,112
43,900 Normandy Mining, Ltd. ................................... 29,194
37,000 Oil Search, Ltd.(c)...................................... 54,812
22,400 Qantas Airways........................................... 73,890
11,000 Rio Tinto, Ltd. ......................................... 180,131
46,150 Telstra Corp. ........................................... 264,103
28,050 Westpac Banking Corp. ................................... 181,716
10,450 WMC, Ltd. ............................................... 44,833
-----------
1,877,626
-----------
Belgium--0.4%
4,100 Fortis B................................................. 128,697
4,404 G.I.B. Group S.A......................................... 164,116
-----------
292,813
-----------
Denmark--1.3%
5,560 Novo Nordisk A/S, 'B' shares............................. 599,002
5,700 Unidanmark A/S........................................... 379,357
-----------
978,359
-----------
Finland--2.0%
7,210 KCI Konecranes International, Plc........................ 247,574
2,150 Kone OYJ, 'B' shares..................................... 268,176
105,980 Merita, Ltd.............................................. 601,965
13,510 Sampo Insurance Co., Ltd. ............................... 391,342
-----------
1,509,057
-----------
France--9.3%
2,810 Alcatel.................................................. 395,398
2,390 Axa...................................................... 291,460
1,720 Banque Nationale de Paris................................ 143,745
27,500 CNP Assurances........................................... 750,949
3,431 Compagnie de Saint Gobain................................ 546,443
3,260 Elf Aquitaine............................................ 478,209
1,740 Groupe Danone............................................ 448,420
15,780 Michelin CGDE, 'B' shares................................ 645,305
9,290 Pernod Ricard............................................ 622,479
12,960 Rhone-Poulenc S.A........................................ 591,974
12,340 Schneider Electric S.A................................... 692,642
1,380 Suez Lyonnaise Des Eaux.................................. 248,806
8,350 Total Fina S.A. 'B' shares............................... 1,076,811
-----------
6,932,641
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Germany--7.1%
3,300 Adidas-Salomon AG......................................... $ 327,424
13,320 BASF AG................................................... 588,370
10,720 Bayerische Hypo Und Vereinsbank........................... 696,195
13,800 Bewag AG.................................................. 212,675
4,977 Fresenius AG, Preferred................................... 879,888
5,260 Henkel KGaA, Preferred.................................... 358,954
12,809 Hoechst AG................................................ 579,663
1,090 Mannesmann AG............................................. 162,589
235 Plettac AG................................................ 12,100
4,760 Schering AG............................................... 504,424
2,000 Siemens AG................................................ 154,215
585 Suedzucker AG, Preferred.................................. 225,540
9,580 Volkswagen AG............................................. 613,271
-----------
5,315,308
-----------
Hong Kong--2.6%
36,500 Cathay Pacific Airways, Ltd............................... 55,983
44,800 Cheung Kong Holdings, Ltd................................. 398,422
65,700 China Telecom............................................. 182,486
13,000 Dao Heng Bank Group, Ltd.................................. 58,309
68,300 Hong Kong Telecommunications.............................. 177,383
5,000 HSBC Holdings, Plc........................................ 182,378
33,200 Hutchison Whampoa, Ltd. .................................. 300,608
36,800 Li and Fung, Ltd. ........................................ 88,222
14,000 New World Development Co., Ltd. .......................... 41,953
20,800 Smartone Telecommunications Holding....................... 73,993
25,200 Sun Hung Kai Properties, Ltd.............................. 229,797
19,400 Swire Pacific, Ltd. ...................................... 96,017
8,000 Television Broadcasts, Ltd. .............................. 37,534
-----------
1,923,085
-----------
Ireland--0.3%
80,700 Greencore Group, Plc...................................... 249,569
-----------
Italy--3.3%
28,205 Banca Popolare di Bergamo Credito Varesino Scrl........... 619,300
43,750 Marzotto & Figli Spa...................................... 340,052
67,550 Mediaset Spa.............................................. 600,245
87,900 Telecom Italia Spa........................................ 913,366
-----------
2,472,963
-----------
Japan--26.1%
7,600 Aiwa Co., Ltd............................................. 251,302
29,000 Amada, Ltd. .............................................. 204,968
2,000 Autobacs Seven Co......................................... 97,214
21,000 Canon, Inc. .............................................. 604,117
30,000 Casio Computer Co......................................... 228,156
19,000 Dai Nippon Printing....................................... 303,918
67,000 Daicel Chemical Industries, Ltd........................... 246,466
35,000 Daifuku Co., Ltd. ........................................ 244,482
</TABLE>
See accompanying notes to financial statements.
113
<PAGE>
New England Zenith Fund
(Morgan Stanley International Magnum Equity Series)
Investments as of June 30, 1999 (Unaudited)
Common Stocks--(Continued)
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Japan--(Continued)
29,000 Daikin Industries, Ltd................................... $ 336,819
3,700 FamilyMart Co., Ltd. .................................... 169,753
15,000 Fuji Machine Manufacturing, Ltd.......................... 462,511
14,000 Fuji Photo Film Co., Ltd................................. 530,049
22,000 Fujitec Co., Ltd. ....................................... 208,597
38,000 Fujitsu, Ltd. ........................................... 764,900
55,000 Furukawa Electric Co., Ltd. ............................. 252,335
18,000 Hitachi Credit Corp. .................................... 356,369
74,000 Hitachi, Ltd. ........................................... 694,304
15,000 Inabata & Co., Ltd. ..................................... 62,371
44,000 Kaneka Corp. ............................................ 414,648
14,000 Kurita Water Industries, Ltd. ........................... 251,137
7,300 Kyocera Corp. ........................................... 428,453
17,000 Kyudenko Corp. .......................................... 97,247
10,000 Lintec Corp. ............................................ 100,686
28,000 Matsushita Electric Industrial Co., Ltd. ................ 543,937
25,000 Minebea Co., Ltd. ....................................... 278,995
66,000 Mitsubishi Chemical Corp. ............................... 228,602
25,000 Mitsubishi Estate Co., Ltd. ............................. 244,069
74,000 Mitsubishi Heavy Industries, Ltd. ....................... 300,355
20,000 Mitsumi Electric Co., Ltd. .............................. 558,816
49,000 NEC Corp. ............................................... 609,614
21,000 Nifco, Inc. ............................................. 201,893
5,900 Nintendo Co., Ltd. ...................................... 829,619
114,000 Nissan Motor Co., Ltd. .................................. 544,697
15,000 Nissha Printing Co., Ltd. ............................... 109,118
65 NTT Corp. ............................................... 757,626
11,000 Ono Pharmaceutical Co., Ltd. ............................ 381,913
51,000 Ricoh Co., Ltd. ......................................... 702,372
7,600 Rinnai Corp. ............................................ 174,655
2,000 Rohm Co., Ltd. .......................................... 313,301
10,000 Ryosan Co., Ltd. ........................................ 198,396
6,000 Sangetsu Co., Ltd. ...................................... 127,718
24,000 Sankyo Co., Ltd. ........................................ 605,109
34,000 Sanwa Shutter Corp., Ltd. ............................... 184,376
26,000 Sekisui Chemical Co., Ltd. .............................. 150,880
27,000 Sekisui House, Ltd. ..................................... 291,494
29,000 Shin-Etsu Polymer Co., Ltd. ............................. 162,776
6,700 Sony Corp. .............................................. 722,783
20,000 Suzuki Motor Corp. ...................................... 318,261
6,000 TDK Corp. ............................................... 549,062
89,000 Toshiba Corp. ........................................... 634,926
14,000 Toyota Motor Corp. ...................................... 443,250
44,000 Tsubakimoto Chain Co. ................................... 156,766
26,000 Yamaha Corp. ............................................ 312,722
15,000 Yamanouchi Pharmaceutical Co., Ltd. ..................... 574,109
-----------
19,523,012
-----------
Netherlands--3.9%
6,550 ABN Amro Holdings NV..................................... 141,793
18,940 Akzo Nobel NV............................................ 796,592
4,950 Benckiser NV, 'B' Shares................................. 264,065
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
Netherlands--(Continued)
<C> <S> <C>
17,668 Ing Groep NV............................................. $ 956,186
5,704 Koninklijke Philips Electronics NV....................... 562,419
7,550 Laurus NV................................................ 175,116
-----------
2,896,171
-----------
New Zealand--0.1%
18,500 Telecom Corp. Of New Zealand, Ltd........................ 79,338
-----------
Portugal--1.1%
11,050 Banco Commercial Portugues S.A. ......................... 286,253
28,400 Electricidade de Portugal S.A............................ 511,162
-----------
797,415
-----------
Singapore--1.9%
18,000 City Developments, Ltd. ................................. 115,276
22,000 Development Bank of Singapore, Ltd. ..................... 268,860
37,000 Natsteel Electronics, Ltd................................ 161,957
14,000 Overseas Chinese Bank, Ltd. ............................. 116,804
11,000 Overseas Union Bank, Ltd. ............................... 52,996
18,000 Sembcorp Logistics, Ltd.................................. 70,858
11,000 Singapore Airlines, Ltd. ................................ 104,700
12,000 Singapore Press Holdings, Ltd............................ 204,465
64,000 Singapore Telecommunications, Ltd. ...................... 109,800
17,000 United Overseas Bank, Ltd. .............................. 118,861
16,000 Venture Manufacturing, Ltd............................... 123,149
-----------
1,447,726
-----------
Spain--2.8%
3,960 Banco Popular Espanol S.A. .............................. 284,731
25,600 Banco Santander Central Hispano.......................... 266,537
21,600 Endesa S.A. ............................................. 460,468
32,000 Iberdrola S.A. .......................................... 486,891
12,825 Telefonica S.A.(c)....................................... 619,124
-----------
2,117,751
-----------
Sweden--3.7%
17,950 Autoliv, Inc............................................. 547,656
5,650 Ericsson Telefonab. LM, Series B......................... 181,367
9,600 ForeningsSparbanken AB................................... 135,705
98,100 Nordbanken Holding AB.................................... 574,340
32,050 Svedala Industries AB.................................... 577,648
61,620 Svenska Handelsbanken.................................... 740,397
-----------
2,757,113
-----------
Switzerland--8.0%
780 CIE Financiere Richemont AG.............................. 1,499,711
165 Forbo Holdings AG........................................ 65,571
624 Holderbank Financiere Glarus AG.......................... 736,313
760 Nestle S.A............................................... 1,368,889
445 Novartis AG.............................................. 649,572
</TABLE>
See accompanying notes to financial statements.
114
<PAGE>
New England Zenith Fund
(Morgan Stanley International Magnum Equity Series)
Investments as of June 30, 1999 (Unaudited)
Common Stocks--(Continued)
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Switzerland--(Continued)
43 Roche Holding AG......................................... $ 441,862
165 Schindler Holding AG..................................... 254,646
1,160 Swisscom AG.............................................. 436,371
1,829 UBS AG................................................... 545,725
-----------
5,998,660
-----------
United Kingdom--19.1%
169,750 Aegis Group, Plc......................................... 374,596
84,250 Allied Domecq, Plc. ..................................... 810,074
57,400 Allied Zurich, Plc....................................... 721,552
38,571 Bank Of Ireland.......................................... 650,822
38,329 Bank Of Scotland......................................... 512,631
94,008 BG, Plc. ................................................ 573,457
31,030 BOC Group, Plc. ......................................... 607,471
56,900 British Telecom, plc. ................................... 952,493
25,435 Burmah Castrol, Plc. .................................... 482,306
45,550 Capital Radio............................................ 602,746
166,640 Centrica, Plc............................................ 391,373
800 Devro, Plc. ............................................. 1,778
41,964 Diageo, Plc. ............................................ 440,862
8,600 Glaxo Wellcome, Plc. .................................... 238,988
63,280 Great Universal Stores, Plc.............................. 705,697
271,200 Halma, Plc............................................... 453,128
66,800 Imperial Tobacco Group................................... 732,316
37,800 J. Sainsbury, Plc. ...................................... 238,329
29,700 Lloyds TSB Group, Plc. .................................. 403,308
92,800 Morgan Crucible Co. ..................................... 395,677
41,600 Prudential Corp., Plc. .................................. 613,098
89,488 Reckitt and Colman, Plc. ................................ 934,496
46,531 Royal & Sun Alliance Insurance Group, Plc. .............. 416,963
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
United Kingdom--(continued)
<C> <S> <C>
63,400 Scottish & Southern Energy, Plc. .................... $ 647,574
23,000 Seton Healthcare Group, Plc.(c)...................... 263,565
41,600 Shell Transport & Trading Co......................... 312,123
34,500 Smith & Nephew, Plc.................................. 104,411
80,400 Tesco, Plc. ......................................... 208,472
2,500 United News & Media, Plc. ........................... 24,038
62,500 WPP Group, Plc. ..................................... 529,128
-----------
14,343,472
-----------
Total Common Stocks (Identified Cost $65,144,116).... 71,512,079
-----------
Short-Term Investment--4.4%
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
$3,326,000 Repurchase Agreement with State Street Corp. dated
6/30/1999 at 4.0% to be repurchased at $3,326,370 on
7/1/1999, collateralized by $3,020,000 U.S. Treasury
Bonds, 7.50% due 11/15/2016 with a value of
$3,397,500.......................................... 3,326,000
-----------
Total Short-Term Investment
(Identified Cost $3,326,000)........................ 3,326,000
-----------
Total Investments--99.9%
(Identified Cost $68,470,116)(b).................... 74,838,079
Other assets less liabilities........................ 25,933
-----------
Total Net Assets--100%............................... $74,864,012
===========
</TABLE>
See accompanying notes to financial statements.
115
<PAGE>
New England Zenith Fund
(Morgan Stanley International Magnum Equity Series)
Investments as of June 30, 1999 (Unaudited)
Forward Contracts Outstanding at June 30, 1999
<TABLE>
<CAPTION>
Local Unrealized
Currency Delivery Currency Aggregate Total Appreciation/
Contract Date Amount Face Value Value (Depreciation)
<S> <C> <C> <C> <C> <C>
Japanese Yen (sold).. 7/19/1999 193,108,000 $1,613,374 $1,600,648 $12,726
-------
Net Unrealized appreciation of
forward currency contracts..... $12,726
=======
</TABLE>
Ten Largest Industry Holdings at June 30, 1999 (Unaudited)
<TABLE>
<S> <C>
1 Banking 11.5%
2 Health & Personal Care 9.0%
3 Electronics 7.0%
4 Telecommunications 6.7%
5 Machinery & Engineering 5.9%
6 Food & Household Products 4.9%
7 Chemicals 4.7%
8 Insurance 4.7%
9 Utilities, Electrical & Gas 4.6%
10 Multi-Industry 4.2%
</TABLE>
(a) See Note 1A of Notes to Financial Statements.
(b) Federal Tax Information:
At June 30, 1999 the net unrealized appreciation on investments based on cost
of $68,470,116 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......... $9,253,923
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value......... (2,885,960)
----------
Net unrealized appreciation................................. $6,367,963
==========
</TABLE>
(c) Non-income producing security.
See accompanying notes to financial statements.
116
<PAGE>
New England Zenith Fund
(Morgan Stanley International Magnum Equity Series)
Statement of Assets & Liabilities
June 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets
Investments at value................................... $74,838,079
Cash................................................... 844
Foreign cash at value (Identified cost $931,184)....... 925,452
Receivable for:
Securities sold........................................ 291,243
Fund shares sold....................................... 258,601
Open forward currencey contracts--net.................. 12,726
Dividends and interest................................. 126,340
Foreign taxes.......................................... 78,608
Unamortized organization expense....................... 669
-----------
Total assets.......................................... 76,532,562
Liabilities
Payable for:
Fund shares redeemed................................... $ 228,382
Securities purchased................................... 1,303,059
Withholding taxes...................................... 10,599
Accrued expenses :
Management fees........................................ 54,836
Deferred trustees' fees................................ 6,254
Other expenses......................................... 65,420
----------
Total liabilities..................................... 1,668,550
-----------
Net Assets.............................................. $74,864,012
===========
Net assets consist of :
Capital paid in........................................ $69,796,562
Undistributed net investment income.................... 405,408
Accumulated net realized
gains (losses)........................................ (1,709,006)
Unrealized appreciation (depreciation) on investments
and foreign currency.................................. 6,371,048
-----------
Net Assets.............................................. $74,864,012
===========
Computation of offering price :
Net asset value and redemption price per share
($74,864,012 divided by 6,214,102 shares of beneficial
interest).............................................. $ 12.05
===========
Identified cost of investments.......................... $68,470,116
===========
</TABLE>
Statement of Operations
Six Months Ended June 30, 1999
(Unaudited)
<TABLE>
<S> <C> <C>
Investment Income
Dividends........................................... $ 916,830(a)
Interest............................................ 117,604
----------
1,034,434
Expenses
Management fees..................................... $ 311,478
Trustees' fees and expenses......................... 6,604
Custodian........................................... 113,488
Audit and tax services.............................. 9,348
Legal............................................... 2,201
Printing............................................ 15,293
Amortization of organization expense................ 997
Insurance........................................... 429
Miscellaneous....................................... 1,469
---------
Total expenses..................................... 461,307
Less expenses assumed by the investment adviser.... (11,395) 449,912
--------- ----------
Net Investment Income................................ 584,522
Realized and Unrealized Gain (Loss)
Realized gain (loss) on:
Investments--net.................................... (973,203)
Foreign currency transactions--net.................. (280,631) (1,253,834)
---------
Unrealized appreciation (depreciation) on:
Investments--net.................................... 4,429,766
Foreign currency transactions--net.................. 214,126 4,643,892
--------- ----------
Net gain (loss)...................................... 3,390,058
----------
Net Increase (Decrease) in Net Assets From
Operations.......................................... $3,974,580
==========
</TABLE>
(a) Net of foreign taxes of $123,767.
See accompanying notes to financial statements.
117
<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,
1998 1999
------------ -----------
<S> <C> <C>
From Operations
Net investment income............................... $ 674,909 $ 584,522
Net realized gain (loss)............................ 698,188 (1,253,834)
Unrealized appreciation (depreciation).............. 1,803,620 4,643,892
----------- -----------
Increase (decrease) in net assets from operations... 3,176,717 3,974,580
----------- -----------
From Distributions to Shareholders
Net investment income............................... (674,909) 0
Net realized gain................................... (658,590) 0
In excess of net realized gain...................... (146,749) 0
----------- -----------
Total distributions................................. (1,480,248) 0
----------- -----------
From Capital Share Transactions
Proceeds from sale of shares........................ 31,156,503 14,411,733
Reinvestment of distributions....................... 1,480,248 0
Cost of shares redeemed............................. (19,199,129) (11,690,945)
----------- -----------
Increase (decrease) in net assets from capital share
transactions....................................... 13,437,622 2,720,788
----------- -----------
Total increase (decrease) in net assets............. 15,134,091 6,695,368
Net Assets
Beginning of the period............................. 53,034,553 68,168,644
----------- -----------
End of the period................................... $68,168,644 $74,864,012
=========== ===========
Undistributed (overdistributed) Net Investment Income
End of the period................................... ($179,114) $ 405,408
=========== ===========
Number of shares of the Fund:
Issued from the sale of shares...................... 2,622,460 1,254,558
Issued in reinvestment of distributions............. 125,847 0
Redeemed............................................ (1,655,274) (1,018,613)
----------- -----------
Net change.......................................... 1,093,033 235,945
=========== ===========
</TABLE>
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
October 31, 1994 (a) Six Months
through Year Ended December 31, Ended
December 31, ---------------------------------- June 30,
1994 1995 1996 1997 1998 1999
-------------------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $10.00 $ 10.23 $ 10.73 $ 11.29 $ 10.86 $ 11.40
------ ------- ------- ------- ------- -------
Income From Investment
Operations
Net Investment Income.. 0.03 0.09 0.06 0.08 0.14 0.10
Net Realized and
Unrealized Gain (Loss)
on Investments........ 0.23 0.53 0.68 (0.23) 0.66 0.55
------ ------- ------- ------- ------- -------
Total From Investment
operations............ 0.26 0.62 0.74 (0.15) 0.80 0.65
------ ------- ------- ------- ------- -------
Less Distributions
Distributions From Net
Investment Income..... (0.02) (0.09) (0.02) (0.09) (0.12) 0.00
Distributions in Excess
of Net Investment
Income................ 0.00 (0.03) 0.00 0.00 (0.03) 0.00
Distributions From Net
Realized Capital
Gains................. 0.00 0.00 (0.16) (0.08) (0.11) 0.00
Distributions in Excess
of Net Realized
Capital Gains......... 0.00 0.00 0.00 (0.11) 0.00 0.00
Distributions From
Paid-in Capital....... (0.01) 0.00 0.00 0.00 0.00 0.00
------ ------- ------- ------- ------- -------
Total Distributions.... (0.03) (0.12) (0.18) (0.28) (0.26) 0.00
------ ------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $10.23 $ 10.73 $ 11.29 $ 10.86 $ 11.40 $ 12.05
====== ======= ======= ======= ======= =======
Total Return (%)........ 2.6(b) 6.0 6.9 (1.3) 7.3 5.7(b)
Ratio of Operating
Expenses to Average Net
Assets (%)............. 1.30(c) 1.30 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 1.07 1.69(c)
Portfolio Turnover Rate
(%).................... 4(c) 89 64 115 40 74(c)
Net Assets, End of
Period (000)........... $2,989 $16,268 $39,392 $53,035 $68,169 $74,864
The ratios of operating
expenses to average net
assets without giving
effect to the voluntary
expense agreement
described in Note 4 to
the Financial
Statements would have
been (%)............... 5.38(c) 3.12 1.66 1.59 1.40 1.33(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.
118
<PAGE>
New England Zenith Fund
Notes to Financial Statements--June 30, 1999 (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 as amended. The
Fund succeeded to the operations of The New England Zenith Fund, Inc. on
February 27, 1987. The Fund is registered under the Investment Company Act of
1940, as amended ("the 1940 Act"), as a diversified, open-end management
investment company.
Shares in the Fund are not offered directly to the general public and are
currently available only to separate accounts established by Metropolitan Life
Insurance Company ("MetLife") and New England Life Insurance Company
("NELICO"), an indirect subsidiary of MetLife, as an investment vehicle for
variable life insurance or variable annuity products, although not all Series
are available to all such separate accounts.
The Fund's Agreement and Declaration of Trust permits the issuance of an
unlimited number of shares of beneficial interest, no par value, in separate
series (each a "Series"), with shares of each Series representing interests in
a separate portfolio of assets.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of the Financial Statements of each Series. The
policies are in conformity with generally accepted accounting principles for
investment companies. The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
A.Security valuation
As permitted under Rule 2a-7 of the 1940 Act, and certain conditions
therein, the Back Bay Advisors Money Market Series employs the amortized
cost method of security valuation which, the Fund's Board of Trustees (the
"Board") has determined, approximates the fair market net asset value per
share of the Series. The Board monitors the deviations between the Series'
net asset value per share, as determined by using available market
quotations, and its amortized cost price per share. If the deviation
exceeds 1/2 of 1%, the Board will consider what action, if any, should be
initiated.
Debt securities (other than short term obligations with a remaining
maturity of sixty days or less) are valued on the basis of valuations
furnished by independent pricing services authorized by the Board. Short
term obligations with a remaining maturity of sixty days or less are stated
at amortized cost value which approximates fair market value. Equity
securities are valued using the last reported sale price for securities
listed on that security's principal trading exchange or on the NASDAQ
National Market System (if that is the security's principal trading
market), or, if no sale was reported and in the case of over-the-counter
securities not so listed, the last reported bid price by a broker making a
market in such security. 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.
Securities traded primarily on an exchange outside of the United States
which closes before the close of the New York Stock Exchange generally will
be valued at the last sales price on that non-U.S. exchange, except when an
occurrence after closing of that exchange is likely to have materially
changed such security's value as determined by a Series' subadviser under
the direction of the adviser. The adviser or subadviser may value the
security in good faith, acting under the supervision of the Fund's 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. 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.
119
<PAGE>
New England Zenith Fund
Notes to Financial Statements--June 30, 1999 (Unaudited)--(Continued)
Net realized foreign exchange gains or losses arise from sales of foreign
currency, currency gains or losses realized between the trade and settlement
dates on securities transactions, and the difference between the amounts of
dividends, interest, and foreign withholding taxes recorded by each Series
and the U.S. dollar equivalent of the amounts actually received or paid by
each Series. Net unrealized foreign exchange gains and losses arise from
changes in the value of assets and liabilities, other than investment
securities, resulting from changes in the exchange rate.
Forward Foreign Currency Contracts--Certain Series may use foreign currency
contracts to facilitate transactions in foreign securities and to manage the
Series' currency exposure. Contracts to buy generally are used to acquire
exposure to foreign currencies, while contracts to sell are used to hedge the
Series' investments against currency fluctuations. Also, a contract to buy or
sell can offset a previous contract. These contracts involve market risk in
excess of the unrealized gain or loss reflected in the Series' Statements of
Assets and Liabilities. The U.S. dollar value of the currencies the Series
has committed to buy or sell is shown in the Schedules of Investments under
the caption "Forward Contracts Outstanding." This amount represents the
aggregate exposure to each currency the Series has acquired or hedged through
currency contracts at period end. Losses may arise from changes in the value
of the foreign currency or if the counterparties do not perform under the
contract's terms. The U.S. dollar value of forward foreign currency contracts
is determined using forward currency exchange rates supplied by a quotation
service.
All contracts are "marked-to-market" daily at the applicable translation
rates, and any gains or losses are recorded for financial statement purposes
as unrealized until settlement date. Risks may arise upon entering into these
contracts from the potential inability of counterparties to meet the terms of
their contracts and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
C. Security transactions and related investment income--Security transactions
are accounted for on the trade date (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. Options--Certain Series may use options to hedge against changes in values
of securities the Series owns or expects to purchase. Writing puts and
buying calls tends to increase the Series' exposure to the underlying
instrument and writing calls or buying puts tends to decrease the Series'
exposure to the underlying instrument, or hedge other Series investments.
For options purchased to hedge the Series' investments, the potential risk to
the Series is that the change in value of options contracts may not
correspond to the change in value of the hedged instruments. In addition,
losses may arise from changes in the value of the underlying instruments, if
there is an illiquid secondary market, or if the counterparty is unable to
perform. The maximum loss for purchased options is limited to the premium
initially paid for the option. For options written by the Series, the maximum
loss is not limited to the premium initially received for the option.
Exchange traded options are valued at the last sale price, or if no sales are
reported, the last bid price for purchased options and the last ask price for
written options. Options traded over the counter are valued using prices
supplied by dealers.
E. Repurchase agreements--Each Series, through the custodian or subcustodian,
receives delivery of the underlying securities collateralizing repurchase
agreements. It is the Fund's policy that the market value of the collateral
be at least equal to 100% of the repurchase price in the case of a
repurchase agreement of one day duration and 102% on all other repurchase
agreements. Each Series' adviser or subadviser is responsible for
determining that the value of the collateral is at all times at least equal
to the repurchase price. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters an insolvency proceeding, realization of the
collateral by the Series may be delayed or limited.
F. 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
120
<PAGE>
New England Zenith Fund
Notes to Financial Statements--June 30, 1999 (Unaudited)--(Continued)
determined by and under the direction of the Board. At the time a Series
enters into a reverse repurchase agreement, it will establish and maintain
a segregated account at the custodian or a subcustodian, the value of which
at least equals the principal amount of the reverse repurchase transactions
including accrued interest. At June 30, 1999, there were no open reverse
repurchase agreements for the Salomon Brothers Strategic Bond Opportunities
Series or Salomon Brothers U.S. Government Series.
G. Federal taxes--Each Series, which is a separate taxable entity, intends to
meet the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute to its shareholders all of its
taxable income and any net realized capital gains at least annually.
Accordingly, no provision for federal income tax has been made.
H. Dividends and distributions to shareholders--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.
2. At June 30, 1999, MetLife held 27,306,805 shares of the Fund in separate
accounts funding annuity contracts issued by MetLife. NELICO held the
remaining 63,059,530 shares of the Fund then outstanding in separate accounts
funding variable life insurance and variable annuity contracts issued by
NELICO.
As long as MetLife owns (directly or through NELICO) more than 25% of the
Fund's outstanding shares, it will be presumed to be in control (as that term
is defined in the 1940 Act) of the Fund.
3. For the six months ended June 30, 1999, purchases and sales of securities
(excluding short-term investments) for each of the Series were as follows:
<TABLE>
<CAPTION>
Purchases Sales
------------------------------ ------------------------------
Series U.S. Government Other U.S. Government Other
------ --------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Back Bay Advisors Bond
Income Series.......... $ 42,450,220 $ 124,624,370 $ 42,518,721 $ 91,612,112
Salomon Brothers
Strategic Bond
Opportunities Series... 9,725,978 107,862,961 11,294,434 111,716,631
Salomon Brothers U.S.
Government Series...... 133,987,519 -- 129,231,731 --
Back Bay Advisors
Managed Series......... 6,375,250 67,078,724 4,053,891 64,584,052
Loomis Sayles Balanced
Series................. 6,641,778 63,523,083 10,790,201 42,136,539
Alger Equity Growth
Series................. -- 458,414,236 -- 301,834,199
Capital Growth Series... -- 2,175,729,183 -- 2,201,129,882
Davis Venture Value
Series................. -- 114,915,379 -- 47,085,247
Goldman Sachs Midcap
Value Series........... -- 60,980,847 -- 62,089,353
Loomis Sayles Small Cap
Series................. -- 158,875,652 -- 159,466,377
MFS Investors Series
(April 30, 1999 through
June 30, 1999)......... -- 5,306,510 -- 387,745
MFS Research Managers
Series (April 30, 1999
through June 30, 1999). -- 5,739,687 -- 803,257
Westpeak Growth and
Income Series.......... -- 243,405,888 -- 193,334,446
Westpeak Stock Index
Series................. -- 24,278,904 -- 2,314,891
Morgan Stanley
International Magnum
Equity Series.......... -- 28,895,993 -- 24,608,380
</TABLE>
Purchases and sales of short-term obligations for the Back Bay Advisors Money
Market Series aggregated $641,772,832 and $623,762,607, respectively.
121
<PAGE>
New England Zenith Fund
Notes to Financial Statements--June 30, 1999 (Unaudited)--(Continued)
4. New England Investment Management, Inc. ("NEIM") (formerly TNE Advisers,
Inc.) acts as adviser to all of the Series except the Capital Growth Series,
for which Capital Growth Management Limited Partnership ("CGM") serves as
adviser. Separate advisory agreements for each Series provide for management
fees payable by the Series as set forth below:
<TABLE>
<CAPTION>
Management
Fees Earned Annual
by NEIM for Percentage Based on
the Six Months Ended Rates Paid to Series Average Daily Net Asset
Series June 30, 1999 Adviser Value Levels
------ -------------------- ------------- ------------------------------------
<S> <C> <C> <C>
Back Bay Advisors Money
Market Series.......... $ 363,891 0.35% of the first $500 million
0.30% of the next $500 million
0.25% of amounts in excess of $1 billion
Back Bay Advisors Bond
Income Series.......... 550,557 0.40% of the first $400 million
0.35% of the next $300 million
0.30% of the next $300 million
0.25% of amounts in excess of $1 billion
Salomon Brothers
Strategic Bond
Opportunities Series... 308,005 0.65% of all assets
Salomon Brothers U.S.
Government Series...... 131,836 0.55% of all assets
Back Bay Advisors
Managed Series......... 539,904 0.50% of all assets
Loomis Sayles Balanced
Series................. 682,357 0.70% of all assets
Alger Equity Growth
Series................. 1,869,159 0.75% of all assets
Davis Venture Value
Series................. 1,824,345 0.75% of all assets
Goldman Sachs Midcap
Value Series........... 413,343 0.75% of all assets
Loomis Sayles Small Cap
Series................. 1,091,684 1.00% of all assets
MFS Investors Series
(April 30, 1999 through
June 30, 1999)......... 6,230 0.75% of all assets
MFS Research Managers
Series (April 30, 1999
through June 30, 1999). 6,287 0.75% of all assets
Westpeak Growth and
Income Series.......... 1,091,087 0.70% of the first $200 million
0.65% of the next $300 million
0.60% of amounts in excess of $500 million
Westpeak Stock Index
Series................. 257,495 0.25% of all assets
Morgan Stanley
International Magnum
Equity Series.......... 311,478 0.90% of all assets
</TABLE>
The Capital Growth Series pays its adviser, CGM, an advisory fee at an annual
rate of 0.70% of the first $200 million of average daily net assets, 0.65% of
the next $300 million of such assets, 0.60% of the next $1.5 billion of such
assets and 0.55% of such assets in excess of $2 billion. For advisory services
rendered during the six months ended June 30, 1999, CGM was paid at an average
annual rate of 0.62% of the Capital Growth Series' average net assets,
totaling $5,908,902.
Sub-Advisory Fees. NEIM has sub-contracted day-to-day portfolio management
responsibilities for the Series to each of the following sub-advisers: Back
Bay Advisors, L.P. ("Back Bay Advisors") for the Back Bay Advisors Managed,
Back Bay Advisors Bond Income and Back Bay Advisors Money Market Series;
Salomon Brothers Asset Management Inc for the Salomon Brothers Strategic Bond
Opportunities and Salomon Brothers U.S. Government Series; Loomis, Sayles &
Company, L.P. ("Loomis Sayles") for the Loomis Sayles Small Cap and Loomis
Sayles Balanced Series; Fred Alger Management, Inc. ("Alger") for the Alger
Equity Growth Series; Davis Selected Advisers, L.P. ("Davis") for the Davis
Venture Value Series; Goldman Sachs Asset Management ("GSAM") for the Goldman
Sachs Midcap Value Series; Massachusetts Financial Services Company for MFS
Investors Series and MFS Research Managers Series; Westpeak Investment
Advisors, L.P. ("Westpeak") for the Westpeak Growth and Income and Westpeak
Stock Index Series; and Morgan Stanley Asset Management ("MSAM") for the
Morgan Stanley International Magnum Equity Series. NEIM, which acts as adviser
to each Series except the Capital Growth Series, is an indirect wholly owned
subsidiary of NELICO, a direct wholly owned subsidiary of MetLife, a mutual
life insurance company. Loomis Sayles, Westpeak and Back Bay Advisors are each
independently operated subsidiaries, and CGM is an independently operated
affiliate, of Nvest, L.P. and Nvest Companies, L.P. ("Nvest Companies"). Nvest
Companies owns
122
<PAGE>
New England Zenith Fund
Notes to Financial Statements--June 30, 1999 (Unaudited)--(Continued)
the entire limited partnership interest in each of Loomis Sayles, Westpeak and
Back Bay Advisors. The general partners of each of Loomis Sayles, Westpeak and
Back Bay Advisors are special purpose corporations which are indirect wholly-
owned subsidiaries of Nvest Companies. Nvest Companies' managing general
partner and Nvest, L.P.'s general partner, Nvest Corporation, is an indirect
wholly-owned subsidiary of MetLife New England Holdings, Inc. which in turn is
a wholly owned subsidiary of MetLife. MetLife owns directly 46% (and in the
aggregate, directly and indirectly, 47%) of the limited partnership interests
in Nvest Companies. Nvest Companies' advising general partner, Nvest, L.P., is
a publicly traded company listed on the New York Stock Exchange. Nvest
Companies is the owner of a majority limited partnership interest in the
Capital Growth Series' investment adviser, CGM. Consequently, the subadvisers
(Loomis Sayles, Westpeak and Back Bay Advisors) of seven Series of the Fund
are currently wholly-owned subsidiaries of Nvest Companies and an additional
Series is advised by a majority-owned subsidiary (CGM) of Nvest Companies. The
sub-advisers of the remaining six Series are not affiliated with MetLife,
Nvest, L.P. or Nvest Companies. NEIM paid each sub-adviser as shown below for
providing sub-advisory services to the Series:
<TABLE>
<CAPTION>
Fees Earned
by Sub-advisers for
the Six Months Ended
Series June 30, 1999
- ------ --------------------
<S> <C>
Back Bay Advisors Money Market Series..................... $ 128,763
Back Bay Advisors Bond Income Series...................... 280,843
Salomon Brothers Strategic Bond Opportunities Series...... 154,554
Salomon Brothers U.S. Government Series................... 53,932
Back Bay Advisors Managed Series.......................... 228,360
Loomis Sayles Balanced Series............................. 354,426
Alger Equity Growth Series................................ 1,015,510
Davis Venture Value Series................................ 994,576
Goldman Sachs Midcap Value Series......................... 245,244
Loomis Sayles Small Cap Series............................ 517,256
MFS Investors Series (April 30, 1999 through June 30,
1999).................................................... 3,323
MFS Research Managers Series (April 30, 1999 through June
30, 1999)................................................ 3,353
Westpeak Growth and Income Series......................... 567,471
Westpeak Stock Index Series............................... 102,998
Morgan Stanley International Magnum Equity Series......... 229,320
</TABLE>
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 Back Bay Advisors Money Market Series, Back Bay Advisors
Bond Income Series, Back Bay Advisors Managed Series, Loomis Sayles Small Cap
Series, Westpeak Growth and Income Series, and Westpeak Stock Index 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
NEIM 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, NEIM 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 with respect to the Morgan Stanley
International Magnum Equity Series, Alger Equity Growth Series, Davis Venture
Value Series, Loomis Sayles Balanced Series, Salomon Brothers Strategic Bond
Opportunities Series and Salomon Brothers U.S. Government Series, since May 1,
1998 for the Goldman Sachs Midcap Value Series and since April 30, 1999 for
the MFS Investors Series and the MFS Research Managers Series. Under this
Agreement, NEIM has agreed to pay expenses of each Series' operations
(exclusive of any brokerage costs, interest, taxes or extraordinary expenses)
in excess of the annual percentages of each Series'
123
<PAGE>
New England Zenith Fund
Notes to Financial Statements--June 30, 1999 (Unaudited)--(Continued)
net assets set forth below, subject to the obligation of each Series to repay
NEIM such expenses in future years, if any, when the Series' expenses fall
below that percentage; however, no Series is obligated to repay any expenses
paid by NEIM more than two years after the end of the fiscal year in which
such expenses were incurred (three years for the MFS Investors Series and MFS
Research Managers Series). The percentage applicable to each Series is shown
below:
NEIM may terminate these expense arrangements at any time. If these expense
arrangements were terminated, some of the Series would have higher expense
ratios. For the six months ended June 30, 1999, (i) the maximum expense ratio
for each Series after giving effect to the foregoing arrangements; (ii) the
amounts of expenses assumed by NEIM for each Series to which the Voluntary
Expense Limitation applies; and (iii) the amounts of expenses deferred for
each Series to which the Expense Deferral Agreement applies, are as follows:
<TABLE>
<CAPTION>
Expenses
Assumed by Expenses Expenses Expenses
Maximum Expense NEIM as a Deferred Deferred Deferred
Ratio Under result of the in 1997 in 1998 in 1999
Current Series (subject to (subject to (subject to
Voluntary Expense exceeding repayment repayment repayment
Limitation or the until until until
Expense Deferral Voluntary December 31, December 31, December 31,
Series Agreement Expense Limit 1999) 2000) 2001)
------ ----------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Back Bay Advisors Money
Market Series.......... 0.50% -- not applicable not applicable not applicable
Back Bay Advisors Bond
Income Series.......... 0.55% -- not applicable not applicable not applicable
Back Bay Advisors
Managed Series......... 0.65% -- not applicable not applicable not applicable
Loomis Sayles Small Cap
Series................. 1.00% $142,360 not applicable not applicable not applicable
Westpeak Growth and
Income Series.......... 0.83% -- not applicable not applicable not applicable
Westpeak Stock Index
Series................. 0.40% -- not applicable not applicable not applicable
Goldman Sachs Midcap
Value Series........... 0.90% not applicable not applicable $ 4,535 $ 2,425
Alger Equity Growth
Series................. 0.90% not applicable -- -- --
Davis Venture Value
Series................. 0.90% not applicable -- -- --
Loomis Sayles Balanced
Series................. 0.85% not applicable -- -- --
Morgan Stanley
International Magnum
Equity Series.......... 1.30% not applicable $135,743 62,316 11,395
MFS Investors Series.... 0.90% not applicable -- -- 12,877
MFS Research Managers
Series................. 0.90% not applicable -- -- 13,251
Salomon Brothers
Strategic Bond
Opportunities Series... 0.85% not applicable 12,296 -- --
Salomon Brothers U.S.
Government Series...... 0.70% not applicable 46,636 21,784 7,340
</TABLE>
For the six months ended June 30, 1999 the amount of deferred expense
recovered by NEIM from each Series subject to the Expense Deferral Agreement
is set forth below:
<TABLE>
<CAPTION>
Deferred Expenses Deferred Expenses
Recovered by Recovered by
NEIM NEIM
Series from 1997 from 1998
------ ----------------- -----------------
<S> <C> <C>
Goldman Sachs Midcap Value Series.... None None
MFS Investors Series................. None None
MFS Research Managers Series......... None None
Morgan Stanley International Magnum
Equity Series....................... None None
Salomon Brothers Strategic Bond Op-
portunities Series.................. $12,296 None
Salomon Brothers U.S. Government Se-
ries................................ None None
</TABLE>
5. The Fund does not pay any compensation to its officers or to any trustees
who are directors, officers or employees of MetLife, NELICO, NEIM or their
affiliates, other than affiliated registered investment companies. Each other
trustee receives a retainer fee at the annual rate of $20,000 and meeting fees
of $2,500 for each meeting of the Board of Trustees attended. The chairmen of
the Contract Review Committee and the Audit Committee receive an additional
annual retainer fee of $6,000 and $4,000, respectively. These fees are
allocated to the various Series and the New England Variable Annuity Fund I
based upon a formula that takes into account among other factors, the relative
net assets of each Series. Each trustee is also a manager of New England
Variable Annuity Fund I. A deferred compensation plan is available to the
trustees on a voluntary
124
<PAGE>
basis. Each participating trustee will receive deferred compensation in an
amount equal to the value that such compensation would have had if it had been
invested in the Series on the normal payment date. Deferred amounts remain in
the Series until distributed in accordance with the plan.
Footnotes to Portfolio Manager Commentary
(1) Lipper Variable Products Money Market Fund Average is an average of the
total return performance (calculated on the basis of net asset value) of
funds with similar investment objectives as calculated by Lipper
Analytical Services, an independent mutual fund ranking service.
(2) Lehman Brothers Aggregate Bond Index includes most obligations of the U.S.
Treasury, agencies and quasi-federal corporations, most publicly issued
investment grade corporate bonds, and most bonds backed by mortgage pools
of GNMA, FNMA and FHLMC. The index has not been adjusted for ongoing
management, distribution and operating expenses and sales charges
applicable to mutual fund investments.
(3) Lehman Brothers Government/Corporate Bond Index is an unmanaged index of
the market value of approximately 5,300 bonds with a face value currently
in excess of $1.3 trillion. To be included in the Lehman Brothers
Government/Corporate Bond Index, an issue must have amounts outstanding
in excess of $25 million, have at least one year to maturity and be rated
"Baa" or higher ("investment grade") by a nationally recognized rating
agency. The index has not been adjusted for ongoing management,
distribution and operating expenses and sales charges applicable to
mutual fund investments.
(4) Lehman Brothers Intermediate Government Bond Index includes most
obligations of the U.S. Treasury, agencies and quasi-federal corporations
having maturities of 1 to 10 years. The index has not been adjusted for
ongoing management, distribution and operating expenses and sales charges
applicable to mutual fund investments.
(5) Lehman Brothers Intermediate Government/Corporate Bond Index is an
unmanaged index of investment grade bonds issued by the U.S. Government
and U.S. corporations having maturities between one and ten years. The
index has not been adjusted for ongoing management, distributions and
operating expenses and sales charges applicable to mutual fund
investments.
(6) Lipper Variable Products A-Rated Corporate Bond Fund Average is an
average of the total return performance (calculated on the basis of net
asset value) of funds with similar investment objectives as calculated by
Lipper Analytical Services, on independent mutual fund ranking service.
(7) Lipper Variable Products Balanced Fund Average is an average of the total
return performance (calculated on the basis of net asset level) of funds
with similar investment objectives as calculated by Lipper Analytical
Services, an independent mutual fund ranking service.
(8) Lipper Variable Products Flexible Portfolio Fund Average is an average of
the total return performance (calculated on the basis of net asset value)
of funds with similar investment objectives as calculated by Lipper
Analytical Services, an independent mutual fund ranking service.
(9) Lipper Variable Products General Bond Fund Average is an average of the
total return performance (calculated on the basis of net asset value) of
funds with similar investment objectives as calculated by Lipper
Analytical Services, an independent mutual fund ranking service.
(10) Lipper Variable Products Growth Fund Average is an average of the total
return performance (calculated on the basis of net asset value) of funds
with similar investment objectives as calculated by Lipper Analytical
Services, an independent mutual fund ranking service.
(11) Lipper Variable Products Growth and Income Fund Average is an average of
the total return performance (calculated on the basis of net asset value)
of funds with similar investment objectives as calculated by Lipper
Analytical Services, an independent mutual fund ranking service.
(12) Lipper Variable Products International Fund Average is an average of the
total return performance (calculated on the basis of net asset value) of
funds with similar investment objectives as calculated by Lipper
Analytical Services, an independent mutual fund ranking service.
(13) Lipper Variable Products Intermediate Investment Grade Debt Average is an
average of the total return performance (calculated on the basis of net
asset value) of funds with similar investment objectives as calculated by
Lipper Analytical Services, an independent mutual fund ranking service.
125
<PAGE>
(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.
(15) Lipper Variable Products Small Company Fund Average is an average of the
total return performance (calculated on the basis of net asset value) of
funds with similar investment objectives as calculated by Lipper
Analytical Services, an independent mutual fund ranking service.
(16) Lipper Variable Products S&P 500 Index Fund Average is an average of the
total return performance (calculated on the basis of net asset value) of
funds with similar investment objectives as calculated by Lipper
Analytical Services, an independent mutual fund ranking service.
(17) Lipper Variable Products U.S. Mortgage and GNMA Fund Average is an
average of the total return performance (calculated on the basis of net
asset value) of funds with similar investment objectives as calculated by
Lipper Analytical Services, an independent mutual fund ranking service.
(18) Morgan Stanley Capital International Europe, Australasia, Far East (EAFE)
index is an arithmetical average (weighted by market value) of the
performance (in U.S. dollars) of companies representing the stock markets
of Europe, Australia and the Far East. The index has not been adjusted
for ongoing management, distribution and operating expenses and sales
charges applicable to mutual funds.
(19) Morgan Stanley Capital International Europe Index is an arithmetical
average (weighted by market value) of the performance (in U.S. dollars)
of companies representing the stock markets of Austria, Belgium, Czech
Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland,
Italy, Netherlands, Norway, Poland, Portugal, Russia, Spain, Sweden,
Switzerland, Turkey and United Kingdom. The Index performance has not
been adjusted for ongoing management, distribution and operating expenses
and sales charges applicable to mutual funds.
(20) Morgan Stanley Capital International Japan Index is an arithmetical
average (weighted by market value) of the performance (in U.S. Dollars)
of companies representing the stock markets of Japan. The Index
performance has not been adjusted for ongoing management, distribution
and operating expenses and sales charges applicable to mutual funds.
(21) Morgan Stanley Capital International Pacific Free ex-Japan Index is an
arithmetical average (weighted by market value) of their performance (in
U.S. dollars) of companies representing the stock markets of Australia,
China Free, Hong Kong, Indonesia, Korea, Malaysia, New Zealand,
Philippines, Singapore, Taiwan and Thailand. The Index performance has
not been adjusted for ongoing management, distribution and operating
expenses and sales charges applicable to mutual funds.
(22) Russell Midcap Index consists of 800 mid-capitalization stocks having an
average market capitalization of $3.7 billion as of December 31, 1998.
The index has not been adjusted for ongoing management, distribution and
operating expenses and sales charges applicable to mutual fund
investments.
(23) Russell 2000 Index consists of 2000 small market capitalization stocks
having an average market capitalization of $592 million as of December
31, 1998. The index performance has not been adjusted for ongoing
management, distribution and operating expenses and sales charges
applicable to mutual fund investments.
(24) Salomon Brothers High Yield Market Index measurers the performance of
cash pay and deferred interest bonds.
(25) Standard & Poor's 500 Index(R) (S&P 500(R)) is an unmanaged index
representing the performance of 500 major companies, most of which are
listed on the New York Stock Exchange. The S&P 500 performance has not
been adjusted for ongoing management, distribution and operating expenses
and sales charges applicable to mutual fund investments.
126
<PAGE>
Bulk Rate
[LOGO OF NEW ENGLAND FINANCIAL APPEARS HERE] 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) 1999 New England Life Insurance Company
- --------------------------------------------------------------------------------
This booklet has been prepared for
certain variable contract owners of
New England Life Insurance Company,
Boston, MA and of Metropolitan Life
Insurance Company, New York, NY.
VA-173-99 VAVIP
VARIABLE INSURANCE PRODUCTS
FUND: EQUITY-INCOME PORTFOLIO
SEMIANNUAL REPORT
JUNE 30, 1999
(2_FIDELITY_LOGOS)
CONTENTS
MARKET ENVIRONMENT 3 A review of what happened in
world markets during the
past six months.
PERFORMANCE AND INVESTMENT 4 How the fund has done over
SUMMARY time, and an overview of the
fund's investments at the
end of the period.
FUND TALK 5 The manager's review of fund
performance, strategy and
outlook.
INVESTMENTS 6 A complete list of the fund's
investments with their
market values.
FINANCIAL STATEMENTS 14 Statements of assets and
liabilities, operations, and
changes in net assets, as
well as financial highlights.
NOTES 17 Notes to the financial
statements.
Standard & Poor's, S&P and S&P 500 are registered service marks of The
McGraw-Hill Companies, Inc. and have been licensed for use by Fidelity
Distributors Corporation.
Other third party marks appearing herein are the property of their
respective owners.
All other marks appearing herein are registered or unregistered
trademarks or service marks of FMR Corp. or an affiliated company.
(RECYCLE LOGO) This report is printed on recycled paper using
soy-based inks.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE
SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE FUND.
THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE FUND'S
PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS
STATED ON THE COVER AND DO NOT NECESSARILY REPRESENT THE VIEWS OF
FIDELITY OR ANY OTHER PERSON IN THE FIDELITY ORGANIZATION. ANY SUCH
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED UPON MARKET OR OTHER
CONDITIONS AND FIDELITY DISCLAIMS ANY RESPONSIBILITY TO UPDATE SUCH
VIEWS. THESE VIEWS MAY NOT BE RELIED ON AS INVESTMENT ADVICE AND,
BECAUSE INVESTMENT DECISIONS FOR A FIDELITY FUND ARE BASED ON NUMEROUS
FACTORS, MAY NOT BE RELIED ON AS AN INDICATION OF TRADING INTENT ON
BEHALF OF ANY FIDELITY FUND.
MARKET ENVIRONMENT
An investor-friendly equity environment characterized the first half
of the year, as the majority of domestic and international stock
markets turned in positive performances for the six-month period
ending June 30, 1999. The bulk of debt sectors received a colder
shoulder, however, as wary bond investors shied away from the
combination of higher inflation expectations and the U.S. Federal
Reserve Board's tighter monetary policy. Notably, the period's last
day was an eventful one: On June 30, for the first time in two years,
the Fed increased key short-term interest rates with a quarter-point
hike to 5.00%. At the same time, it also announced a shift to a
"neutral" position - meaning the Fed's next move is as likely to be a
rate decrease as it is another hike - sparking a rally in the bond
market and sending several equity indexes into record-high territory.
U.S. STOCK MARKETS
The Standard & Poor's 500 Index - a broad measure of U.S. stock market
performance - rose 12.38% for the six months that ended June 30, 1999.
At this pace, the S&P 500(registered trademark) is well on its way to
tacking on another year to its record of four consecutive annual
double-digit percentage gains. Meanwhile, the Dow Jones Industrial
Average - an index of 30 blue-chip stocks - posted a lofty 20.39%
increase for the first half of the year. After several years on the
sidelines, small-cap stocks finally rebounded, particularly in the
second quarter of 1999, as the Russell 2000(registered trademark)
Index - a popular measure of small-cap stock performance - returned
9.29% for the first half of the year. But it was the technology-laden
NASDAQ Composite Index that posted the highest return of these popular
equity performance measures, with a 22.70% increase for the six months
ending June 30, 1999.
At the period's outset, the economic climate and investment
environment were similar to the previous several years: high levels of
employment, low inflation and strong consumer confidence, with a
handful of large-cap growth stocks - particularly in the technology
sector - continuing to set the pace for bullish equity market
performance. By the beginning of the second quarter, however, market
conditions began to change. The global economy began to improve, due
in large part to the willingness of central banks worldwide to lower
interest rates, resulting in a broadening of corporate earnings. This
environment proved favorable for small- and mid-cap value stocks and
the economically sensitive cyclical stocks. The relatively low
valuations of these issues proved quite alluring compared to their
expensive, large-cap growth counterparts. Consequently, a dramatic
rotation into value and cyclical names dominated the second quarter of
1999.
FOREIGN STOCK MARKETS
Over 165 interest-rate cuts in more than 75 countries since the
worldwide economic crisis last October helped foreign stock markets
post generally positive performances in the first half of 1999. The
Morgan Stanley Capital International (MSCI) EAFE(registered trademark)
Index - which measures stock performance in Europe, Australia and the
Far East - returned 4.08% for the six months ending June 30, 1999.
Europe's performance was disappointing, as prospects for economic
growth and corporate profits declined, and its new common currency -
the euro - struggled since its inception in January. For the period,
the MSCI Europe Index fell 2.30%. Conversely, the previously faltering
Japanese stock market roared ahead. New corporate restructuring
reforms and government economic intervention helped the Tokyo Stock
Exchange Index (TOPIX) - a measure of the Japanese market - notch a
first-half return of 21.93%. Emerging markets also rebounded. Despite
Brazil's currency devaluation in January, and fears of a similar move
by Argentina and Colombia late in the period, Latin America was a
strong performer as the Morgan Stanley Capital International Emerging
Markets Free-Latin America Index returned 31.03%. Southeast Asia, too,
bounced back, but the period's most remarkable recovery was in Russia,
which was the first half's best-performing emerging market, with a
return of approximately 133.70%.
U.S. BOND MARKETS
Despite good news at the close of the period, signs of continued
strength and emerging inflationary pressures in the U.S. economy,
along with improving conditions abroad, hampered the taxable-bond
market during the six-month period. The Lehman Brothers Aggregate Bond
Index - a widely followed measure of taxable bond performance - fell
1.37% during that time. A sharp rise in consumer prices sparked the
worst Treasury bond sell-off in three years, pushing their prices down
and bringing yields up to the pre-crisis levels of last summer. The
resulting negative market sentiment was further fueled by the Fed's
shift in bias toward raising interest rates in mid-May. The Lehman
Brothers Treasury Index returned -2.50% for the six-month period
ending June 30, 1999. As investors fled Treasuries for more attractive
alternatives, spread sector securities - such as corporate and
mortgage securities - rallied in response. However, the emergence of
rising rates and inflation fears soon slowed the rise in spread
products. For the six-month period, the Lehman Brothers Corporate Bond
Index and the Lehman Brothers Mortgage-Backed Securities Index had
returns of -2.26% and 0.53%, respectively. Based on performance,
high-yield bonds were among the most attractive domestic debt
offerings, as the Merrill Lynch High Yield Master II Index returned
2.49% during the first half of 1999.
FOREIGN BOND MARKETS
Like its U.S. Treasury counterparts, world government bond performance
was hindered by the U.S. Federal Reserve Board's adoption of a
tightening bias - an inclination to raise interest rates - during the
first half of the year. For the six months ending June 30, 1999, the
Salomon Brothers World Government Bond Index - a measure of government
bond market performance in developed nations - fell 7.17%. Despite
rising U.S. interest rates, emerging-market debt enjoyed positive
performance in the first half of 1999, as the J.P. Morgan Emerging
Markets Bond Index Plus - which tracks total returns for traded
external debt instruments in the emerging markets - returned 10.57%
during the period. A significantly important development in the strong
emerging-market performance was the dramatic increase in the price of
oil, which benefited Venezuela, the second-best performing country
year-to-date, as well as Russia and Mexico.
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 JUNE 30, 1999 PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
VIP: EQUITY-INCOME - "INITIAL 13.86% 21.38% 15.34%
CLASS"
Russell 3000 Value 14.39% 23.66% 16.72%
S&P 500 22.76% 27.87% 18.78%
AVERAGE ANNUAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate
each year.
You can compare the fund's returns to the performance of the Russell
3000 Value Index - a market capitalization-weighted index of
value-oriented stocks of U.S. domiciled corporations and the
performance of the Standard & Poor's 500 Index - a market
capitalization-weighted index of common stocks. These benchmarks
reflect the reinvestment of dividends and capital gains, if any.
Figures for more than one year assume a steady compounded rate of
return and are not the fund's year-by-year results, which fluctuated
over the periods shown.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S
SEPARATE ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF
THESE ADDITIONAL CHARGES, THE TOTAL RETURNS WOULD HAVE BEEN LOWER.
Past performance is no guarantee of future results. Principal and
investment return will vary and you may have a gain or loss when you
withdraw your money.
(CHECKMARK)UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how
it will do tomorrow. The stock market, for
example, has a history of long-term growth and
short-term volatility. In turn, the share price and
return of a fund that invests in stocks will vary.
That means if you sell your shares during a
market downturn, you might lose money. But if
you can ride out the market's ups and downs,
you may have a gain.
$10,000 OVER 10 YEARS
VIP Equity-Income Russell 3000 Value
00150 RS008
1989/06/30 10000.00 10000.00
1989/07/31 10583.00 10647.37
1989/08/31 10753.04 10907.00
1989/09/30 10632.15 10806.29
1989/10/31 10018.76 10398.84
1989/11/30 10076.01 10512.57
1989/12/31 10160.09 10726.06
1990/01/31 9473.93 10051.51
1990/02/28 9530.07 10304.44
1990/03/31 9545.79 10425.07
1990/04/30 9214.82 10021.06
1990/05/31 9824.50 10830.99
1990/06/30 9726.68 10600.26
1990/07/31 9488.80 10487.68
1990/08/31 8731.10 9545.64
1990/09/30 8053.81 9066.19
1990/10/31 7848.45 8917.99
1990/11/30 8410.97 9532.62
1990/12/31 8606.67 9777.32
1991/01/31 9068.23 10236.66
1991/02/28 9692.69 10938.98
1991/03/31 9893.76 11131.60
1991/04/30 9939.99 11214.12
1991/05/31 10485.53 11638.23
1991/06/30 10056.79 11145.19
1991/07/31 10626.93 11600.13
1991/08/31 10851.24 11820.32
1991/09/30 10776.77 11740.10
1991/10/31 10956.22 11930.42
1991/11/30 10483.97 11326.52
1991/12/31 11312.48 12261.67
1992/01/31 11465.22 12346.30
1992/02/29 11837.53 12668.73
1992/03/31 11692.48 12488.37
1992/04/30 12058.77 12975.28
1992/05/31 12155.17 13059.53
1992/06/30 12048.75 12954.41
1992/07/31 12417.98 13453.77
1992/08/31 12145.91 13053.78
1992/09/30 12272.00 13239.70
1992/10/31 12418.91 13275.13
1992/11/30 12869.44 13741.55
1992/12/31 13222.84 14088.69
1993/01/31 13617.55 14525.82
1993/02/28 13923.45 14999.14
1993/03/31 14338.38 15451.39
1993/04/30 14278.76 15239.24
1993/05/31 14537.11 15559.58
1993/06/30 14708.10 15886.42
1993/07/31 14908.21 16072.53
1993/08/31 15478.52 16657.09
1993/09/30 15419.35 16717.41
1993/10/31 15560.35 16742.11
1993/11/30 15288.42 16389.03
1993/12/31 15641.81 16716.45
1994/01/31 16330.70 17345.43
1994/02/28 15910.15 16803.76
1994/03/31 15244.55 16166.35
1994/04/30 15769.86 16461.41
1994/05/31 15919.95 16630.29
1994/06/30 15821.59 16228.77
1994/07/31 16350.06 16712.05
1994/08/31 17191.29 17210.64
1994/09/30 16909.65 16679.88
1994/10/31 17256.73 16854.88
1994/11/30 16692.72 16174.01
1994/12/31 16747.01 16391.33
1995/01/31 17008.86 16834.20
1995/02/28 17657.41 17495.55
1995/03/31 18267.11 17849.20
1995/04/30 18775.18 18409.83
1995/05/31 19340.97 19147.18
1995/06/30 19618.85 19445.11
1995/07/31 20373.87 20125.22
1995/08/31 20629.41 20440.96
1995/09/30 21314.29 21136.19
1995/10/31 21069.03 20863.16
1995/11/30 21980.00 21897.68
1995/12/31 22623.95 22460.41
1996/01/31 23281.42 23107.21
1996/02/29 23359.62 23299.44
1996/03/31 23605.51 23704.02
1996/04/30 23912.87 23847.05
1996/05/31 24171.05 24174.47
1996/06/30 23949.75 24164.90
1996/07/31 22781.77 23212.13
1996/08/31 23248.96 23911.96
1996/09/30 24244.82 24830.64
1996/10/31 24638.25 25720.03
1996/11/30 26285.71 27535.57
1996/12/31 25855.41 27310.59
1997/01/31 26863.56 28540.03
1997/02/28 27161.15 28944.22
1997/03/31 26151.65 27930.13
1997/04/30 27079.30 29026.27
1997/05/31 28757.26 30716.06
1997/06/30 30094.18 32057.67
1997/07/31 32290.53 34363.85
1997/08/31 30776.27 33309.23
1997/09/30 32467.88 35342.52
1997/10/31 31281.03 34357.39
1997/11/30 32426.95 35761.96
1997/12/31 33122.69 36822.47
1998/01/31 33040.84 36287.11
1998/02/28 35170.33 38705.64
1998/03/31 36799.39 40995.58
1998/04/30 36799.39 41262.97
1998/05/31 36203.04 40569.99
1998/06/30 36610.30 41019.33
1998/07/31 35708.50 40073.33
1998/08/31 30254.05 34083.42
1998/09/30 32028.56 36036.90
1998/10/31 34399.43 38684.63
1998/11/30 35853.95 40426.19
1998/12/31 36973.93 41793.71
1999/01/31 36857.57 42026.48
1999/02/28 36408.91 41259.45
1999/03/31 37739.26 42026.45
1999/04/30 41088.09 45945.47
1999/05/31 39971.81 45574.45
1999/06/30 41684.46 46921.32
IMATRL PRASUN SHR__CHT 19990630 19990723 102659 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Variable Insurance Products Fund: Equity-Income Portfolio
on June 30, 1989. As the chart shows, by June 30, 1999, the value of
the investment would have grown to $41,684 - a 316.84% increase on the
initial investment. For comparison, look at how the Russell 3000 Value
Index did over the same period. With dividends and capital gains, if
any, reinvested, the same $10,000 investment would have grown to
$46,921 - a 369.21% increase. Beginning with this report, the fund
will compare its performance to that of the Russell 3000 Value Index,
rather than the Standard & Poor's 500 Index. The Russell 3000 Value
Index more closely reflects the fund's investment strategy.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE
30, 1999
% OF FUND'S INVESTMENTS
General Electric Co. 3.7
Citigroup, Inc. 2.9
BP Amoco PLC sponsored ADR 2.4
Fannie Mae 2.0
Bank One Corp. 1.9
TOP FIVE MARKET SECTORS AS OF
JUNE 30, 1999
% OF FUND'S INVESTMENTS
FINANCE 24.4
ENERGY 12.4
UTILITIES 12.0
INDUSTRIAL MACHINERY & 8.9
EQUIPMENT
BASIC INDUSTRIES 6.7
ASSET ALLOCATION AS OF JUNE
30, 1999*
% OF FUND'S INVESTMENTS
Stocks 96.9%
Bonds 1.5%
Short-term Investments 1.6%
Row: 1, Col: 1, Value: 96.90000000000001
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 0.0
Row: 1, Col: 4, Value: 1.5
Row: 1, Col: 5, Value: 0.0
Row: 1, Col: 6, Value: 0.0
Row: 1, Col: 7, Value: 0.0
Row: 1, Col: 8, Value: 1.6
* FOREIGN INVESTMENTS 9.1%
VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
(PHOTOGRAPH OF STEVE PETERSEN)
An interview with
Steve Petersen,
Portfolio Manager of
Equity-Income Portfolio
Q. HOW DID THE FUND PERFORM, STEVE?
A. For the six-month period that ended June 30, 1999, the fund
outperformed both the Russell 3000 Value Index, which returned 12.27%,
and the Standard & Poor's 500 Index, which returned 12.38%. For the
12-month period that ended June 30, 1999, the fund slightly
underperformed the Russell 3000 Value Index, which returned 14.39%,
and underperformed the S&P 500 Index, which returned 22.76%.
Q. WHY DOES THE FUND NOW COMPARE ITS PERFORMANCE TO THE RUSSELL 3000
VALUE INDEX?
A. The fund focuses on stocks with "value" characteristics, and
invests primarily in stocks that pay higher dividends on average than
those in the Standard & Poor's 500 Index. The Russell 3000 Value
Index, which focuses on large-, mid- and small-cap companies with
value characteristics - rather than growth stocks - more closely
reflects the fund's investment strategy than the S&P 500 index, which
measures the performance of both growth and value stocks.
Q. HOW DID THE INVESTING ENVIRONMENT AFFECT THE FUND'S PERFORMANCE?
A. Beginning in the early part of 1999, there was a marked change in
investor perception about the prospects for future corporate earnings
growth. Value stocks regained favor in the face of growing evidence
that the earnings outlook in many cyclical industries showed signs of
improving. Many value stocks, which were beaten down over the last
couple of years as economic growth slowed throughout the world,
performed well as it became apparent that Asian economies were no
longer declining and were beginning to recover. It also became
apparent that concerns about economic problems in Russia and Eastern
Europe affecting the performance of U.S. companies were overblown, and
problems in Brazil were not as severe as originally anticipated. Given
their previous relative underperformance, many dividend-paying
companies had very attractive valuations, and performed well during
the period.
Q. ENERGY STOCKS DID VERY WELL. WHAT ACCOUNTED FOR THEIR STRONG
SHOWING?
A. Energy was the most important sector of the marketplace in terms of
its contribution to overall fund performance. Oil companies, given the
low prices they received over the past year or so for oil, cut back on
the development of new properties as well as their reinvestment in
existing wells. When world demand for oil began to rebound,
particularly in Asia, oil prices jumped. There was also a fair amount
of consolidation in the industry, with British Petroleum buying Amoco,
Exxon buying Mobil, and Total Fina attempting to buy Elf Aquitaine,
which could benefit stock prices. Toward the end of the period, OPEC's
move to limit oil production also helped push oil prices up. Fund
holdings BP Amoco, Total Fina and energy services company Halliburton
all performed well.
Q. FINANCIAL STOCKS ALSO PERFORMED WELL . . .
A. Yes, they made a pretty dramatic recovery from last fall, when many
financial services firms suffered with the decline in U.S. and global
financial markets. During the period, financial stocks benefited from
lower reserves and write-offs that banks were required to take,
because default rates and bankruptcies were lower. And, with low
interest rates, financial services companies that had investment
banking operations found a favorable environment in which to issue
corporate debt and undertake merger and acquisition activity. Although
there were some market jitters due to the anticipation of an increase
in interest rates, when the Fed finally acted at the end of June - and
shifted its stance to neutral - investors were relieved. Fund holdings
Chase Manhattan, American Express, Bank One and Bank of America all
performed well in this environment. Citigroup also performed well, its
merger with Travelers helping to broaden and diversify its operations.
Q. WERE THERE DISAPPOINTMENTS?
A. Sure. Philip Morris was a poor performer. Ongoing lawsuits and
recent declines in international tobacco volumes hurt the company's
performance. However, Philip Morris has very attractive valuations,
and I'm still holding the stock. Fannie Mae suffered from investors'
perception that higher interest rates are not good for mortgage
origination volumes. In addition, 1998 was a record year for mortgage
refinancing, and investors also feared that those volumes would slow
during 1999. The fund is still holding the stock, and I believe Fannie
Mae is a solid company. Another disappointment, Bank of New York,
increased its non-lending activities to over 60% of its business.
Unlike many other banks, its performance was sluggish, perhaps due to
the perception that the growth rate of its custodial and trustee
business may have slowed somewhat during 1999.
Q. STEVE, WHAT'S YOUR OUTLOOK?
A. I'm optimistic. The underlying business fundamentals for basic
industries look pretty good in that we're seeing better results coming
from many more companies than in recent years. Overall business trends
also look much better today than they did 12 months ago. My strategy
will be to continue to look for companies with excellent underlying
financials and interesting business fundamentals, which I believe can
perform well over time.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET OR OTHER CONDITIONS. FOR MORE INFORMATION, SEE PAGE 2.
(CHECKMARK) FUND FACTS
GOAL: seeks reasonable income while maintaining
a yield that exceeds the composite dividend yield
of the S&P 500; also considers the potential
for achieving capital appreciation
START DATE: October 9, 1986
SIZE: as of June 30, 1999, more than $12.5
billion
MANAGER: Stephen Petersen, since 1997; joined
Fidelity in 1980
VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO
INVESTMENTS JUNE 30, 1999 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 93.5%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 4.6%
AEROSPACE & DEFENSE - 3.0%
AlliedSignal, Inc. 1,571,300 $ 98,991,900
Boeing Co. 789,100 34,868,356
Harsco Corp. 583,300 18,665,600
Northrop Grumman Corp. 194,300 12,884,519
Rockwell International Corp. 76,400 4,641,300
Textron, Inc. 1,122,400 92,387,550
United Technologies Corp. 1,639,500 117,531,656
379,970,881
DEFENSE ELECTRONICS - 1.3%
Litton Industries, Inc. (a) 642,500 46,099,375
Raytheon Co.:
Class A 19,131 1,317,648
Class B 1,601,800 112,726,675
160,143,698
SHIP BUILDING & REPAIR - 0.3%
General Dynamics Corp. 505,700 34,640,450
TOTAL AEROSPACE & DEFENSE 574,755,029
BASIC INDUSTRIES - 6.6%
CHEMICALS & PLASTICS - 3.0%
Arch Chemicals, Inc. 292,600 7,113,837
Dexter Corp. 501,400 20,463,388
Dow Chemical Co. 116,500 14,780,938
E.I. du Pont de Nemours and 818,300 55,900,119
Co.
Eastman Chemical Co. 218,600 11,312,550
Engelhard Corp. 287,500 6,504,688
Great Lakes Chemical Corp. 896,200 41,281,213
Hanna (M.A.) Co. 979,200 16,095,600
Hercules, Inc. 856,100 33,655,431
Hoechst AG 491,100 22,327,408
IMC Global, Inc. 1,626,800 28,672,350
Lyondell Chemical Co. 611,700 12,616,313
Millennium Chemicals, Inc. 749,200 17,653,025
Monsanto Co. 445,600 17,573,350
Praxair, Inc. 292,500 14,314,219
Solutia, Inc. 1,144,100 24,383,631
Union Carbide Corp. 497,000 24,228,750
Witco Corp. 682,700 13,654,000
382,530,810
IRON & STEEL - 0.5%
AK Steel Holding Corp. 148,400 3,339,000
Allegheny Teledyne, Inc. 511,800 11,579,475
Dofasco, Inc. 749,800 12,225,836
Nucor Corp. 521,200 24,724,425
USX-U.S. Steel Group 340,900 9,204,300
61,073,036
METALS & MINING - 1.5%
Alcan Aluminium Ltd. 858,000 27,422,917
Alcoa, Inc. 1,849,858 114,459,964
SHARES VALUE (NOTE 1)
Kaiser Aluminum Corp. (a) 250,000 $ 2,218,750
Olin Corp. 585,200 7,717,325
Phelps Dodge Corp. 339,200 21,009,200
Ryerson Tull, Inc. 753,323 16,996,850
189,825,006
PACKAGING & CONTAINERS - 0.3%
Ball Corp. 150,000 6,337,500
Crown Cork & Seal Co., Inc. 183,700 5,235,450
Owens-Illinois, Inc. (a) 413,400 13,513,013
Tupperware Corp. 576,500 14,700,750
39,786,713
PAPER & FOREST PRODUCTS - 1.3%
Bowater, Inc. 271,800 12,842,550
Champion International Corp. 776,700 37,184,513
Domtar, Inc. 1,072,400 10,190,989
Fort James Corp. 99,400 3,764,775
Georgia-Pacific Corp. 913,400 43,272,325
Kimberly-Clark Corp. 643,900 36,702,300
Weyerhaeuser Co. 240,100 16,506,875
160,464,327
TOTAL BASIC INDUSTRIES 833,679,892
CONSTRUCTION & REAL ESTATE -
1.8%
BUILDING MATERIALS - 0.5%
American Standard Companies, 49,500 2,376,000
Inc. (a)
Caradon PLC 1,228,100 2,895,938
Fortune Brands, Inc. 91,200 3,773,400
Masco Corp. 2,090,800 60,371,850
69,417,188
ENGINEERING - 0.2%
EG & G, Inc. 587,500 20,929,688
REAL ESTATE INVESTMENT TRUSTS
- - 1.1%
Alexandria Real Estate 109,600 3,425,000
Equities, Inc.
Crescent Real Estate Equities 853,600 20,273,000
Co.
Duke Realty Investments, Inc. 175,700 3,964,231
Equity Office Properties Trust 416,800 10,680,500
Equity Residential Properties 548,700 24,725,794
Trust (SBI)
Public Storage, Inc. 415,400 11,631,200
Reckson Associates Realty 62,800 1,475,800
Corp.
Spieker Properties, Inc. 277,000 10,768,375
Starwood Hotels & Resorts 1,465,981 44,804,044
Worldwide, Inc.
Weeks Corp. 231,900 7,072,950
138,820,894
TOTAL CONSTRUCTION & REAL 229,167,770
ESTATE
DURABLES - 2.6%
AUTOS, TIRES, & ACCESSORIES -
1.6%
DaimlerChrysler AG (Reg.) 178,837 15,894,135
Delphi Automotive Systems 293,900 5,455,519
Corp.
Eaton Corp. 426,500 39,238,000
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
DURABLES - CONTINUED
AUTOS, TIRES, & ACCESSORIES -
CONTINUED
Federal-Mogul Corp. 67,500 $ 3,510,000
Ford Motor Co. 906,100 51,138,019
Meritor Automotive, Inc. 629,900 16,062,450
Navistar International Corp. 76,500 3,825,000
(a)
Pep Boys-Manny, Moe & Jack 581,100 12,566,288
TRW, Inc. 852,300 46,769,963
194,459,374
CONSUMER DURABLES - 0.6%
Minnesota Mining & 350,200 30,445,513
Manufacturing Co.
Snap-On, Inc. 1,102,000 39,878,625
70,324,138
HOME FURNISHINGS - 0.2%
Newell Rubbermaid, Inc. 553,100 25,719,150
TEXTILES & APPAREL - 0.2%
Liz Claiborne, Inc. 161,700 5,902,050
NIKE, Inc. Class B 374,700 23,723,194
29,625,244
TOTAL DURABLES 320,127,906
ENERGY - 12.3%
ENERGY SERVICES - 1.4%
Baker Hughes, Inc. 337,200 11,296,200
Halliburton Co. 2,407,900 108,957,475
Schlumberger Ltd. 906,200 57,713,613
177,967,288
OIL & GAS - 10.9%
Amerada Hess Corp. 709,400 42,209,300
Anadarko Petroleum Corp. 587,900 21,642,069
Apache Corp. 263,000 10,257,000
Atlantic Richfield Co. 183,600 15,342,075
BP Amoco PLC sponsored ADR 2,834,819 307,577,862
Burlington Resources, Inc. 922,100 39,880,825
Chevron Corp. 1,409,471 134,164,021
Conoco, Inc. Class A 721,200 20,103,450
Elf Aquitaine SA sponsored ADR 943,100 69,376,794
Exxon Corp. 1,940,100 149,630,213
Mobil Corp. 446,100 44,163,900
Occidental Petroleum Corp. 1,854,000 39,165,750
Phillips Petroleum Co. 575,300 28,944,781
Royal Dutch Petroleum Co. (NY 2,218,600 133,670,650
Registry Gilder 1.25)
Santa Fe Snyder Corp. (a) 248,353 1,893,692
Texaco, Inc. 660,000 41,250,000
Tosco Corp. 449,800 11,666,688
Total Fina SA:
Class B 831,600 107,172,440
sponsored ADR 865,100 55,744,881
Ultramar Diamond Shamrock 490,300 10,694,669
Corp.
Union Pacific Resources 734,700 11,984,794
Group, Inc.
SHARES VALUE (NOTE 1)
Unocal Corp. 463,983 $ 18,385,326
USX-Marathon Group 1,621,100 52,787,069
1,367,708,249
TOTAL ENERGY 1,545,675,537
FINANCE - 23.3%
BANKS - 9.4%
Bank of America Corp. 3,173,890 232,685,811
Bank of New York Co., Inc. 4,631,400 169,914,488
Bank of Nova Scotia 178,900 3,913,858
Bank One Corp. 4,054,238 241,480,551
Chase Manhattan Corp. 1,377,300 119,308,613
Comerica, Inc. 1,278,300 75,978,956
Credit Suisse Group (Reg.) 141,100 24,484,518
Mellon Bank Corp. 390,700 14,211,713
National Bank of Canada 2,211,200 29,176,290
U.S. Bancorp 2,928,094 99,555,196
Wells Fargo & Co. 3,967,200 169,597,800
1,180,307,794
CREDIT & OTHER FINANCE - 7.5%
American Express Co. 1,853,072 241,130,994
Associates First Capital 3,421,056 151,595,549
Corp. Class A
Citigroup, Inc. 7,733,699 367,350,679
Fleet Financial Group, Inc. 1,373,600 60,953,500
Household International, Inc. 2,527,647 119,747,277
940,777,999
FEDERAL SPONSORED CREDIT - 2.3%
Fannie Mae 3,727,300 254,854,138
Freddie Mac 217,400 12,609,200
SLM Holding Corp. 412,700 18,906,819
286,370,157
INSURANCE - 2.4%
Allstate Corp. 787,198 28,240,728
Berkshire Hathaway, Inc. 109 7,510,100
Class A (a)
Chubb Corp. (The) 52,700 3,662,650
Financial Security Assurance 417,871 21,729,292
Holdings Ltd.
Fremont General Corp. 1,398,448 26,395,706
Hartford Financial Services 1,508,600 87,970,238
Group, Inc.
Highlands Insurance Group, 371,100 3,896,550
Inc. (a)
PMI Group, Inc. 469,800 29,509,313
Reliastar Financial Corp. 1,042,895 45,626,656
Torchmark Corp. 743,700 25,378,763
Travelers Property Casualty 620,000 24,257,500
Corp. Class A
304,177,496
SAVINGS & LOANS - 0.8%
Washington Mutual, Inc. 2,898,482 102,533,801
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
FINANCE - CONTINUED
SECURITIES INDUSTRY - 0.9%
Cendant Corp. (a) 946,100 $ 19,395,050
First Marathon, Inc. Class A 526,700 9,002,188
(non-vtg.)
Franklin Resources, Inc. 496,600 20,174,375
Lehman Brothers Holdings, 449,800 28,000,050
Inc.
Nomura Securities Co. Ltd. 1,561,000 18,246,543
Waddell & Reed Financial, Inc.:
Class A 394,416 10,821,789
Class B 182,132 4,917,564
110,557,559
TOTAL FINANCE 2,924,724,806
HEALTH - 5.3%
DRUGS & PHARMACEUTICALS - 3.7%
American Home Products Corp. 300,900 17,301,750
Bristol-Myers Squibb Co. 1,792,400 126,252,175
Lilly (Eli) & Co. 953,600 68,301,600
Merck & Co., Inc. 1,665,900 123,276,600
Schering-Plough Corp. 2,540,830 134,663,990
469,796,115
MEDICAL EQUIPMENT & SUPPLIES
- - 1.0%
Baxter International, Inc. 375,800 22,782,875
Becton, Dickinson & Co. 828,800 24,864,000
Johnson & Johnson 662,700 64,944,600
Pall Corp. 417,600 9,265,500
121,856,975
MEDICAL FACILITIES MANAGEMENT
- - 0.6%
Beverly Enterprises, Inc. (a) 1,722,000 13,883,625
Columbia/HCA Healthcare Corp. 2,259,150 51,536,859
Tenet Healthcare Corp. (a) 459,100 8,522,044
73,942,528
TOTAL HEALTH 665,595,618
INDUSTRIAL MACHINERY &
EQUIPMENT - 8.6%
ELECTRICAL EQUIPMENT - 4.8%
Emerson Electric Co. 781,000 49,105,375
General Electric Co. 4,147,000 468,610,970
Honeywell, Inc. 244,600 28,343,025
Loral Space & Communications 298,700 5,376,600
Ltd. (a)
Siemens AG 671,400 52,082,784
603,518,754
INDUSTRIAL MACHINERY &
EQUIPMENT - 2.6%
Case Corp. 421,000 20,260,625
Caterpillar, Inc. 134,800 8,088,000
Coltec Industries, Inc. (a) 1,371,600 29,746,575
Deere & Co. 871,300 34,525,263
Ingersoll-Rand Co. 498,000 32,183,250
SHARES VALUE (NOTE 1)
Kennametal, Inc. 393,700 $ 12,204,700
Parker-Hannifin Corp. 525,000 24,018,750
Tyco International Ltd. 1,705,923 161,636,204
322,663,367
POLLUTION CONTROL - 1.2%
Allied Waste Industries, Inc. 592,200 11,695,950
(a)
Browning-Ferris Industries, 988,598 42,509,714
Inc.
Ogden Corp. 508,300 13,692,331
Republic Services, Inc. Class 588,200 14,557,950
A
Waste Management, Inc. 1,197,447 64,362,776
146,818,721
TOTAL INDUSTRIAL MACHINERY & 1,073,000,842
EQUIPMENT
MEDIA & LEISURE - 4.1%
BROADCASTING - 1.8%
CBS Corp. (a) 1,626,900 70,668,469
Infinity Broadcasting Corp. 466,300 13,872,425
Class A
Time Warner, Inc. 1,948,599 143,222,027
227,762,921
ENTERTAINMENT - 1.3%
Disney (Walt) Co. 1,088,300 33,533,244
King World Productions, Inc. 457,000 15,909,313
(a)
Mandalay Resort Group (a) 464,400 9,810,450
Viacom, Inc. Class B 2,261,400 99,501,600
(non-vtg.) (a)
158,754,607
LEISURE DURABLES & TOYS - 0.1%
Brunswick Corp. 569,800 15,883,175
LODGING & GAMING - 0.0%
Mirage Resorts, Inc. (a) 309,100 5,177,425
PUBLISHING - 0.5%
Harcourt General, Inc. 657,900 33,922,969
Reader's Digest Association, 548,700 21,810,825
Inc. Class A (non-vtg.)
55,733,794
RESTAURANTS - 0.4%
McDonald's Corp. 1,310,800 54,152,425
TOTAL MEDIA & LEISURE 517,464,347
NONDURABLES - 4.0%
AGRICULTURE - 0.3%
Edperbrascan Corp. Class A 2,699,800 41,437,417
(ltd. vtg.)
BEVERAGES - 0.4%
Anheuser-Busch Companies, 144,000 10,215,000
Inc.
PepsiCo, Inc. 300,500 11,625,594
Seagram Co. Ltd. 395,600 19,838,149
Whitman Corp. 428,400 7,711,200
49,389,943
FOODS - 0.7%
Corn Products International, 401,625 12,224,461
Inc.
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
NONDURABLES - CONTINUED
FOODS - CONTINUED
Goodman Fielder Ltd. 4,642,110 $ 4,172,262
Heinz (H.J.) Co. 498,200 24,972,275
Nabisco Group Holdings Corp. 449,000 8,783,563
Nabisco Holdings Corp. Class A 779,200 33,700,400
83,852,961
HOUSEHOLD PRODUCTS - 1.1%
Procter & Gamble Co. 307,200 27,417,600
Unilever NV 11,071 748,414
Unilever NV (NY shares) 714,285 49,821,379
Unilever PLC 6,090,714 56,719,999
134,707,392
TOBACCO - 1.5%
Philip Morris Companies, Inc. 4,833,300 194,238,244
TOTAL NONDURABLES 503,625,957
PRECIOUS METALS - 0.1%
Newmont Mining Corp. 605,600 12,036,300
RETAIL & WHOLESALE - 3.2%
APPAREL STORES - 0.9%
Charming Shoppes, Inc. (a) 612,800 3,734,250
Footstar, Inc. (a) 551,800 20,520,063
Limited, Inc. (The) 1,317,700 59,790,638
Payless ShoeSource, Inc. (a) 385,000 20,597,500
TJX Companies, Inc. 350,200 11,666,038
116,308,489
GENERAL MERCHANDISE STORES -
2.2%
Consolidated Stores Corp. (a) 2,020,156 54,544,219
Dayton Hudson Corp. 920,700 59,845,500
Federated Department Stores, 1,104,400 58,464,175
Inc. (a)
Hudson's Bay Co. 185,000 2,086,894
Hudson's Bay Co. (d) 302,500 3,412,354
Wal-Mart Stores, Inc. 2,073,200 100,031,900
278,385,042
GROCERY STORES - 0.1%
Albertson's, Inc. 152,700 7,873,594
TOTAL RETAIL & WHOLESALE 402,567,125
SERVICES - 0.8%
LEASING & RENTAL - 0.2%
Ryder Systems, Inc. 766,600 19,931,600
PRINTING - 0.2%
Donnelley (R.R.) & Sons Co. 568,400 21,066,325
Wallace Computer Services, 347,900 8,697,500
Inc.
29,763,825
SERVICES - 0.4%
ACNielsen Corp. (a) 636,000 19,239,000
Dun & Bradstreet Corp. 313,800 11,120,288
SHARES VALUE (NOTE 1)
Manpower, Inc. 364,500 $ 8,246,813
Modis Professional Services, 477,700 6,568,375
Inc. (a)
45,174,476
TOTAL SERVICES 94,869,901
TECHNOLOGY - 3.8%
COMPUTER SERVICES & SOFTWARE
- - 2.2%
Ask Jeeves, Inc. 2,200 30,800
Clarent Corp. 8,200 123,000
Electronic Data Systems Corp. 706,800 39,978,375
International Business 860,200 111,180,850
Machines Corp.
NCR Corp. (a) 168,300 8,215,144
Unisys Corp. (a) 3,018,317 117,525,718
277,053,887
COMPUTERS & OFFICE EQUIPMENT
- - 1.0%
Compaq Computer Corp. 351,400 8,323,788
Pitney Bowes, Inc. 1,582,000 101,643,500
Xerox Corp. 122,000 7,205,625
117,172,913
ELECTRONIC INSTRUMENTS - 0.1%
Thermo Electron Corp. (a) 614,900 12,336,431
ELECTRONICS - 0.5%
Motorola, Inc. 561,300 53,183,175
Texas Instruments, Inc. 83,200 12,064,000
65,247,175
TOTAL TECHNOLOGY 471,810,406
TRANSPORTATION - 1.3%
AIR TRANSPORTATION - 0.2%
AMR Corp. (a) 336,700 22,979,775
Viad Corp. 275,800 8,532,563
31,512,338
RAILROADS - 1.1%
Burlington Northern Santa Fe 2,153,400 66,755,400
Corp.
CSX Corp. 1,024,600 46,427,188
Union Pacific Corp. 409,400 23,873,138
137,055,726
TOTAL TRANSPORTATION 168,568,064
UTILITIES - 11.1%
CELLULAR - 0.3%
ALLTEL Corp. 508,900 36,386,350
ELECTRIC UTILITY - 2.9%
Allegheny Energy, Inc. 1,148,700 36,830,194
American Electric Power Co., 997,100 37,453,569
Inc.
Avista Corp. 707,500 11,496,875
Central & South West Corp. 444,000 10,378,500
CILCORP, Inc. 128,200 8,012,500
Cinergy Corp. 415,000 13,280,000
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
UTILITIES - CONTINUED
ELECTRIC UTILITY - CONTINUED
CMS Energy Corp. 379,200 $ 15,879,000
Consolidated Edison, Inc. 473,450 21,423,613
DPL, Inc. 1,059,850 19,474,744
Duke Energy Corp. 424,600 23,087,625
Entergy Corp. 2,579,800 80,618,750
Niagara Mohawk Holdings, Inc. 1,434,200 23,036,838
(a)
PG&E Corp. 1,551,878 50,436,035
Pinnacle West Capital Corp. 237,000 9,539,250
360,947,493
GAS - 0.3%
Questar Corp. 955,200 18,268,200
Sempra Energy 1,152,084 26,065,901
44,334,101
TELEPHONE SERVICES - 7.6%
Ameritech Corp. 1,792,700 131,763,450
AT&T Corp. 4,262,300 237,889,619
Bell Atlantic Corp. 2,749,540 179,751,178
BellSouth Corp. 1,227,600 57,543,750
GTE Corp. 1,251,500 94,801,125
MCI WorldCom, Inc. (a) 1,289,777 111,001,433
Pathnet, Inc. warrants 520 5,200
4/15/08 (a)(d)
SBC Communications, Inc. 2,018,400 117,067,200
Sprint Corp. (FON Group) 513,400 27,113,938
956,936,893
TOTAL UTILITIES 1,398,604,837
TOTAL COMMON STOCKS 11,736,274,337
(Cost $7,994,773,121)
PREFERRED STOCKS - 3.4%
CONVERTIBLE PREFERRED STOCKS
- - 3.4%
BASIC INDUSTRIES - 0.1%
CHEMICALS & PLASTICS - 0.1%
Monsanto Co. $1.625 ACES 460,000 18,457,500
DURABLES - 0.0%
AUTOS, TIRES, & ACCESSORIES -
0.0%
Automatic Common Exchangeable 219,200 3,945,600
Securities Trust II
(Republic Industries) $1.55
ACES
ENERGY - 0.1%
OIL & GAS - 0.1%
Apache Corp. $2.015 ACES 183,100 6,683,150
FINANCE - 1.1%
CREDIT & OTHER FINANCE - 0.6%
Federal-Mogul Financing Trust 490,300 28,927,700
$3.50
SHARES VALUE (NOTE 1)
Union Pacific Capital Trust $:
3.125 403,200 $ 20,714,400
3.125 TIDES (d) 384,500 19,753,688
69,395,788
INSURANCE - 0.5%
Aetna, Inc. Class C, $4.7578 760,000 56,430,000
PRIDES
Conseco, Inc. $3.50 PRIDES 296,800 11,927,650
68,357,650
SECURITIES INDUSTRY - 0.0%
Merrill Lynch & Co., Inc. 77,600 1,585,950
(IMC Global) $2.39 STRYPES
TOTAL FINANCE 139,339,388
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.3%
ELECTRICAL EQUIPMENT - 0.2%
Loral Space & Communications
Ltd. Series C:
$3.00 (d) 183,200 9,251,600
$3.00 141,700 7,155,850
16,407,450
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.1%
Ingersoll Rand Co./Ingersoll 530,100 14,809,669
Rand Finance $0.195 Growth
PRIDES
TOTAL INDUSTRIAL MACHINERY & 31,217,119
EQUIPMENT
MEDIA & LEISURE - 1.0%
BROADCASTING - 0.7%
Evergreen Media Corp. $3.00 128,300 14,145,075
(d)
MediaOne Group, Inc. 249,900 22,615,950
(Vodafone AirTouch PLC)
$3.63 PIES
MediaOne Group, Inc. Class D 374,200 55,334,825
$2.25
92,095,850
ENTERTAINMENT - 0.1%
Premier Parks, Inc. $4.05 PIES 273,300 18,584,400
PUBLISHING - 0.2%
Readers Digest Automatic 464,700 16,874,419
Common Exchange Trust $1.93
TRACES
Tribune Co. (The Learning 102,300 2,877,188
Co., Inc.) $1.75 DECS
19,751,607
TOTAL MEDIA & LEISURE 130,431,857
NONDURABLES - 0.2%
BEVERAGES - 0.2%
Seagram Co. Ltd. $3.76 473,400 23,699,588
RETAIL & WHOLESALE - 0.0%
GENERAL MERCHANDISE STORES -
0.0%
K mart Financing I $3.875 100,000 5,850,000
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
CONVERTIBLE PREFERRED STOCKS
- - CONTINUED
UTILITIES - 0.6%
ELECTRIC UTILITY - 0.6%
Houston Industries, Inc. 285,500 $ 34,045,875
(Time Warner) $3.216 ACES
NiSource, Inc. $3.875 PIES 299,300 14,777,938
Texas Utilities Co. $1.6575 465,200 20,643,250
growth PRIDES
69,467,063
TOTAL CONVERTIBLE PREFERRED 429,091,265
STOCKS
NONCONVERTIBLE PREFERRED
STOCKS - 0.0%
CONSTRUCTION & REAL ESTATE -
0.0%
REAL ESTATE INVESTMENT TRUSTS
- - 0.0%
California Federal Preferred 31,590 821,340
Capital Corp. $2.2812
MEDIA & LEISURE - 0.0%
BROADCASTING - 0.0%
CSC Holdings, Inc. 11.125% 21,167 2,317,787
pay-in-kind
PUBLISHING - 0.0%
PRIMEDIA, Inc. 8.625% 5,975 543,725
TOTAL MEDIA & LEISURE 2,861,512
TOTAL NONCONVERTIBLE 3,682,852
PREFERRED STOCKS
TOTAL PREFERRED STOCKS 432,774,117
(Cost $342,734,797)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS - 1.5%
MOODY'S RATINGS (UNAUDITED) (E) PRINCIPAL AMOUNT (F)
CONVERTIBLE BONDS - 1.1%
CONSTRUCTION & REAL ESTATE -
0.3%
REAL ESTATE INVESTMENT TRUSTS
- - 0.3%
Liberty Property LP 8.3% Ba2 $ 27,985,000 34,841,325
7/1/01
DURABLES - 0.1%
CONSUMER ELECTRONICS - 0.1%
Matsushita Electric Aa2 JPY 209,000,000 2,586,100
Industrial Co. Ltd. 1.4%
3/31/04
Sunbeam Corp. 0% 3/25/18 (d) Caa2 60,290,000 10,098,575
12,684,675
MOODY'S RATINGS (UNAUDITED) (E) PRINCIPAL AMOUNT (F) VALUE (NOTE 1)
FINANCE - 0.0%
INSURANCE - 0.0%
Loews Corp. 3.125% 9/15/07 A2 $ 4,320,000 $ 3,493,800
MEDIA & LEISURE - 0.3%
BROADCASTING - 0.0%
Jacor Communications, Inc. 0% Ba3 3,370,000 1,891,413
2/9/18 liquid yield option
notes
PUBLISHING - 0.3%
News America Holdings, Inc. Baa3 48,470,000 35,261,925
liquid yield option notes 0%
3/11/13
TOTAL MEDIA & LEISURE 37,153,338
NONDURABLES - 0.0%
FOODS - 0.0%
Chiquita Brands B3 820,000 774,900
International, Inc. 7%
3/28/01
RETAIL & WHOLESALE - 0.0%
DRUG STORES - 0.0%
Rite Aid Corp. 5.25% 9/15/02 Baa2 250,000 247,969
(d)
TECHNOLOGY - 0.3%
COMPUTER SERVICES & SOFTWARE
- - 0.0%
Softkey International, Inc. - 1,340,000 1,309,850
5.5% 11/1/00 (d)
COMPUTERS & OFFICE EQUIPMENT
- - 0.1%
Quantum Corp. 7% 8/1/04 B2 7,730,000 7,266,200
ELECTRONICS - 0.2%
Micron Technology, Inc. 7% B2 17,163,000 17,634,983
7/1/04
Solectron Corp. 0% 1/27/19 Baa3 15,490,000 9,081,013
(d)
26,715,996
TOTAL TECHNOLOGY 35,292,046
UTILITIES - 0.1%
TELEPHONE SERVICES - 0.1%
Telefonos de Mexico SA de CV BB 9,430,000 9,736,475
4.25% 6/15/04
TOTAL CONVERTIBLE BONDS 134,224,528
NONCONVERTIBLE BONDS - 0.4%
BASIC INDUSTRIES - 0.0%
CHEMICALS & PLASTICS - 0.0%
Lyondell Chemical Co. 9.875% Ba3 1,340,000 1,363,450
5/1/07 (d)
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (E) PRINCIPAL AMOUNT (F) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
ENERGY - 0.0%
ENERGY SERVICES - 0.0%
RBF Finance Co. 11.375% Ba3 $ 1,520,000 $ 1,573,200
3/15/09 (d)
FINANCE - 0.0%
CREDIT & OTHER FINANCE - 0.0%
Macsaver Financial Services, Ba1 1,000,000 852,500
Inc. 7.875% 8/1/03
HEALTH - 0.0%
MEDICAL FACILITIES MANAGEMENT
- - 0.0%
Tenet Healthcare Corp. 8.125% Ba3 2,220,000 2,097,900
12/1/08
MEDIA & LEISURE - 0.2%
BROADCASTING - 0.2%
Adelphia Communications Corp.:
7.75% 1/15/09 B1 3,340,000 3,097,850
9.875% 3/1/07 B1 1,970,000 2,056,188
Century Communications Corp., Ba3 960,000 422,400
Series B, 0% 1/15/08
Charter Communications B2 1,670,000 1,596,938
Holdings LLC/Charter
Communications Holdings
Capital Corp. 8.625% 4/1/09
(d)
CSC Holdings, Inc. 7.875% Ba2 600,000 571,116
2/15/18
Falcon Holding Group B2 1,840,000 1,285,700
LP/Falcon Funding Corp. 0%
4/15/10 (c)
NTL Communications Corp. B3 6,470,000 7,084,650
11.5% 10/1/08
Telewest PLC 0% 10/1/07 (c) B1 1,780,000 1,593,100
17,707,942
ENTERTAINMENT - 0.0%
Regal Cinemas, Inc. 8.875% B3 2,170,000 1,974,700
12/15/10
LODGING & GAMING - 0.0%
HMH Properties, Inc. 7.875% Ba2 1,070,000 984,400
8/1/08
RESTAURANTS - 0.0%
Domino's, Inc. 10.375% 1/15/09 B3 1,120,000 1,131,200
TOTAL MEDIA & LEISURE 21,798,242
MOODY'S RATINGS (UNAUDITED) (E) PRINCIPAL AMOUNT (F) VALUE (NOTE 1)
NONDURABLES - 0.0%
HOUSEHOLD PRODUCTS - 0.0%
Revlon Consumer Products B2 $ 1,960,000 $ 1,940,400
Corp. 9% 11/1/06
UTILITIES - 0.2%
CELLULAR - 0.1%
Nextel Communications, Inc.:
0% 10/31/07 (c) B2 4,635,000 3,256,088
12% 11/1/08 B2 2,090,000 2,351,250
5,607,338
TELEPHONE SERVICES - 0.1%
GST Network Funding, Inc. 0% - 1,620,000 923,400
5/1/08 (c)(d)
ICG Services, Inc. 0% 5/1/08 - 1,395,000 753,300
(c)
Intermedia Communications, B2 770,000 716,100
Inc. 8.6% 6/1/08
Level 3 Communications, Inc. B3 2,490,000 1,550,025
0% 12/1/08 (c)
McLeodUSA, Inc. 9.5% 11/1/08 B2 990,000 992,475
NEXTLINK Communications, Inc. B3 2,780,000 2,696,600
9.625% 10/1/07
Pathnet, Inc. 12.25% 4/15/08 - 520,000 286,000
Rhythms NetConnections, Inc. B3 1,670,000 1,561,450
12.75% 4/15/09 (d)
Teligent, Inc. 0% 3/1/08 (c) Caa1 3,160,000 1,864,400
WinStar Communications, Inc.:
0% 10/15/05 (c) Caa1 660,000 577,500
15% 3/1/07 CCC 840,000 966,000
12,887,250
TOTAL UTILITIES 18,494,588
TOTAL NONCONVERTIBLE BONDS 48,120,280
TOTAL CORPORATE BONDS 182,344,808
(Cost $175,647,333)
CASH EQUIVALENTS - 1.6%
SHARES
Taxable Central Cash Fund (b) 197,022,830 197,022,830
(Cost $197,022,830)
TOTAL INVESTMENT IN $ 12,548,416,092
SECURITIES - 100%
(Cost $8,710,178,081)
</TABLE>
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 on the Taxable Central Cash
Fund was 4.84%. The yield refers to the income earned by investing in
the fund over the seven-day period, expressed as an annual percentage.
(c) Debt obligation initially issued in zero coupon form which
converts to coupon form at a specified rate and date. The rate shown
is the rate at period end.
(d) Security exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional buyers. At the period end, the value of these securities
amounted to $74,323,762 or 0.6% of net assets.
(e) Standard & Poor's credit ratings are used in absence of a rating
by Moody's Investors Service, Inc.
(f) Principal amount is stated in United States dollars unless
otherwise noted.
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $1,387,987,794 and $1,717,759,112, 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 $216,327 for the
period.
INCOME TAX INFORMATION
At June 30, 1999, the aggregate cost of investment securities for
income tax purposes was $8,717,979,460. Net unrealized appreciation
aggregated $3,830,436,632, of which $4,111,599,498 related to
appreciated investment securities and $281,162,866 related to
depreciated investment securities.
VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
ASSETS
Investment in securities, at $ 12,548,416,092
value (cost $8,710,178,081)
- - See accompanying schedule
Cash 10,114
Receivable for investments 52,384,900
sold
Receivable for fund shares 3,080,442
sold
Dividends receivable 19,484,709
Interest receivable 3,564,442
Other receivables 1,007,578
TOTAL ASSETS 12,627,948,277
LIABILITIES
Payable for investments $ 44,331,406
purchased
Payable for fund shares 9,675,629
redeemed
Accrued management fee 4,933,561
Distribution fees payable 28,132
Other payables and accrued 901,233
expenses
TOTAL LIABILITIES 59,869,961
NET ASSETS $ 12,568,078,316
Net Assets consist of:
Paid in capital $ 8,276,118,743
Undistributed net investment 97,274,883
income
Accumulated undistributed 356,506,786
net realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation 3,838,177,904
(depreciation) on
investments and assets and
liabilities in foreign
currencies
NET ASSETS $ 12,568,078,316
INITIAL CLASS: NET ASSET $27.26
VALUE, offering price and
redemption price per share
($12,210,029,445 (divided
by) 447,974,992 shares)
SERVICE CLASS: NET ASSET $27.21
VALUE, offering price and
redemption price per share
($358,048,871 (divided by)
13,157,148 shares)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30,
1999 (UNAUDITED)
INVESTMENT INCOME $ 123,274,610
Dividends
Interest 9,575,975
132,850,585
Less foreign taxes withheld (3,262,753)
TOTAL INCOME 129,587,832
EXPENSES
Management fee $ 28,572,858
Transfer agent fees 3,905,974
Distribution fees - Service 139,714
Class
Accounting fees and expenses 497,956
Non-interested trustees' 27,083
compensation
Custodian fees and expenses 177,582
Registration fees 28,755
Audit 42,149
Miscellaneous 114,076
Total expenses before 33,506,147
reductions
Expense reductions (441,990) 33,064,157
NET INVESTMENT INCOME 96,523,675
REALIZED AND UNREALIZED GAIN
(LOSS)
Net realized gain (loss) on:
Investment securities 366,346,440
Foreign currency transactions (10,866) 366,335,574
Change in net unrealized
appreciation (depreciation)
on:
Investment securities 958,811,984
Assets and liabilities in (163,094) 958,648,890
foreign currencies
NET GAIN (LOSS) 1,324,984,464
NET INCREASE (DECREASE) IN $ 1,421,508,139
NET ASSETS RESULTING FROM
OPERATIONS
OTHER INFORMATION $ 441,990
Expense reductions Directed
brokerage arrangements
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
INCREASE (DECREASE) IN NET SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
ASSETS 1999 (UNAUDITED)
Operations Net investment $ 96,523,675 $ 175,118,232
income
Net realized gain (loss) 366,335,574 377,421,064
Change in net unrealized 958,648,890 617,114,451
appreciation (depreciation)
NET INCREASE (DECREASE) IN 1,421,508,139 1,169,653,747
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (170,985,891) (143,408,236)
From net investment income
From net realized gain (377,968,810) (510,364,604)
TOTAL DISTRIBUTIONS (548,954,701) (653,772,840)
Share transactions - net 60,468,325 1,007,105,749
increase (decrease)
TOTAL INCREASE (DECREASE) 933,021,763 1,522,986,656
IN NET ASSETS
NET ASSETS
Beginning of period 11,635,056,553 10,112,069,897
End of period (including $ 12,568,078,316 $ 11,635,056,553
undistributed net investment
income of $97,274,883 and
$172,284,861, respectively)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
OTHER INFORMATION:
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
1999 (UNAUDITED)
SHARES DOLLARS SHARES DOLLARS
Share transactions Initial 22,827,373 $ 590,692,684 64,328,671 $ 1,568,020,907
Class Sold
Reinvested 22,601,688 537,468,129 27,884,679 652,780,343
Redeemed (46,332,859) (1,177,217,609) (59,592,607) (1,424,580,460)
Net increase (decrease) (903,798) $ (49,056,796) 32,620,743 $ 796,220,790
Service Class Sold 3,919,814 100,917,363 8,703,524 212,310,778
Reinvested 483,645 11,486,571 42,396 992,496
Redeemed (112,907) (2,878,813) (98,817) (2,418,315)
Net increase (decrease) 4,290,552 $ 109,525,121 8,647,103 $ 210,884,959
Distributions From net $ 167,408,106 $ 143,190,527
investment income Initial
Class
Service Class 3,577,785 217,709
Total $ 170,985,891 $ 143,408,236
From net realized gain $ 370,060,023 $ 509,589,817
Initial Class
Service Class 7,908,787 774,787
Total $ 377,968,810 $ 510,364,604
$ 548,954,701 $ 653,772,840
</TABLE>
FINANCIAL HIGHLIGHTS - INITIAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 1997 1996 1995
Net asset value,
beginning of $ 25.42 $ 24.28 $ 21.03 $ 19.27 $ 15.35
period
Income from Investment
Operations
Net investment income .21 D .38 D .36 D .35 .41
Net realized and
unrealized 2.85 2.31 5.06 2.30 4.69
gain (loss)
Total from investment 3.06 2.69 5.42 2.65 5.10
operations
Less Distributions
From net investment income (.38) (.34) (.36) (.03) (.40)
From net realized gain (.84) (1.21) (1.81) (.86) (.78)
Total distributions (1.22) (1.55) (2.17) (.89) (1.18)
Net asset value, end of
period $ 27.26 $ 25.42 $ 24.28 $ 21.03 $ 19.27
TOTAL RETURN B, C 12.74% 11.63% 28.11% 14.28% 35.09%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 12,210,029 $ 11,409,912 $ 10,106,742 $ 6,961,090 $ 4,879,435
(000 omitted)
Ratio of expenses to
average .57% A .58% .58% .58% .61%
net assets
Ratio of expenses to
average .57% A .57% F .57% F .56% F .61%
net assets after expense
reductions
Ratio of net investment 1.66% A 1.58% 1.65% 1.97% 2.56%
income to average net assets
Portfolio turnover 24% A 28% 44% 186% 87%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
SELECTED PER-SHARE DATA 1994
Net asset value, beginning of $ 15.44
period
Income from Investment
Operations
Net investment income .41
Net realized and unrealized .64
gain (loss)
Total from investment 1.05
operations
Less Distributions
From net investment income (.37)
From net realized gain (.77)
Total distributions (1.14)
Net asset value, end of period $ 15.35
TOTAL RETURN B, C 7.07%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 2,284,412
(000 omitted)
Ratio of expenses to average .60%
net assets
Ratio of expenses to average .58% F
net assets after expense
reductions
Ratio of net investment 2.83%
income to average net assets
Portfolio turnover 134%
</TABLE>
FINANCIAL HIGHLIGHTS - SERVICE CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 1997 E
Net asset value, beginning of $ 25.39 $ 24.27 $ 23.44
period
Income from Investment
Operations
Net investment income D .19 .36 .05
Net realized and unrealized 2.85 2.31 .78
gain (loss)
Total from investment 3.04 2.67 .83
operations
Less Distributions
From net investment income (.38) (.34) -
From net realized gain (.84) (1.21) -
Total distributions (1.22) (1.55) -
Net asset value, end of period $ 27.21 $ 25.39 $ 24.27
TOTAL RETURNB, C 12.67% 11.54% 3.54%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 358,049 $ 225,145 $ 5,328
(000 omitted)
Ratio of expenses to average .68% A .68% .68% A
net assets
Ratio of expenses to average .67% A, F .67% F .65% A, F
net assets after expense
reductions
Ratio of net investment 1.56% A 1.51% 1.63% A
income to average net assets
Portfolio turnover 24% A 28% 44%
A ANNUALIZED
B THE TOTAL RETURNS WOULD
HAVE BEEN LOWER HAD CERTAIN
EXPENSES NOT BEEN REDUCED
DURING THE PERIODS SHOWN.
C 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.
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.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
For the period ended June 30, 1999 (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 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 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
and settlement date on purchases and sales of securities. The effects
of changes in foreign currency exchange rates on investments in
securities are included with the net realized and unrealized gain or
loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
income taxes to the extent that it distributes substantially all of
its taxable income for its fiscal year. The schedule of investments
includes information regarding income taxes under the caption "Income
Tax Information."
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend
date, except certain dividends from foreign securities where the
ex-dividend date may have passed, are recorded as soon as the fund is
informed of the ex-dividend date. Non-cash dividends included in
dividend income, if any, are recorded at the fair market value of the
securities received. Interest income, which includes accretion of
original issue discount, is accrued as earned. Investment income is
recorded net of foreign taxes withheld where recovery of such taxes is
uncertain.
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among the funds in the trust.
DEFERRED TRUSTEE COMPENSATION. Under a Deferred Compensation Plan (the
Plan) non-interested Trustees must defer receipt of a portion of, and
may elect to defer receipt of an additional portion of, their annual
compensation. Deferred amounts are treated as though equivalent dollar
amounts had been invested in a cross-section of other Fidelity funds.
Deferred amounts remain in the fund until distributed in accordance
with the Plan.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are recorded on the
ex-dividend date. Income dividends and capital gain distributions are
declared separately for each class.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for passive foreign investment companies (PFIC), litigation
proceeds, foreign currency transactions, non-taxable dividends 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 that will reverse
in a subsequent period. Any taxable income or gain remaining at fiscal
year end is distributed in the following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
2. OPERATING POLICIES.
FOREIGN CURRENCY CONTRACTS. The fund generally uses foreign currency
contracts to facilitate transactions in foreign-denominated
securities. Losses may arise from changes in the value of the foreign
currency or if the counterparties do not perform under the contracts'
terms. The U.S. dollar value of foreign currency contracts is
determined using contractual currency exchange rates established at
the time of each trade.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission (the SEC), the fund, along with
other affiliated entities of Fidelity Management & Research Company
(FMR), may transfer uninvested cash balances into one or more joint
trading accounts. These balances are invested in one or more
repurchase agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
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., 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 .49% of average net
assets.
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the
1940 Act, the Board of Trustees has 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 $139,714, all of which was
reallowed to insurance companies, for the distribution of shares and
providing shareholder support services.
TRANSFER AGENT FEES. Fidelity Investments Institutional Operations
Company, Inc. (FIIOC), an affiliate of FMR, is the fund's transfer,
dividend disbursing and shareholder servicing agent. FIIOC receives
account fees and asset-based fees that vary according to account size
and type of account. FIIOC pays a portion of the expenses related to
the typesetting, printing and mailing of all shareholder reports,
except proxy statements. For the period, the transfer agent fees of
the fund were equivalent to an 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 reductions under this arrangement 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 14% of the outstanding shares of the fund. In
addition, one unaffiliated insurance company was record owner of 29%
of the total outstanding shares of the fund.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, PRESIDENT
Robert C. Pozen, SENIOR VICE PRESIDENT
Richard A. Spillane, Jr., VICE PRESIDENT
Stephen R. Petersen, VICE PRESIDENT
Eric D. Roiter, SECRETARY
Richard A. Silver, TREASURER
Matthew N. Karstetter, DEPUTY TREASURER
John H. Costello, ASSISTANT TREASURER
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 *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
* 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
VIPEI-SANN-0899 81781
1.705693.101
VARIABLE INSURANCE PRODUCTS
FUND: OVERSEAS PORTFOLIO
SEMIANNUAL REPORT
JUNE 30, 1999
(2_FIDELITY_LOGOS)
CONTENTS
MARKET ENVIRONMENT 3 A review of what happened in
world markets during the
past six months.
PERFORMANCE AND INVESTMENT 4 How the fund has done over
SUMMARY time, and an overview of the
fund's investments at the
end of the period.
FUND TALK 5 The manager's review of fund
performance, strategy and
outlook.
INVESTMENTS 6 A complete list of the fund's
investments with their
market values.
FINANCIAL STATEMENTS 12 Statements of assets and
liabilities, operations, and
changes in net assets, as
well as financial highlights.
NOTES 15 Notes to the financial
statements.
Standard & Poor's, S&P and S&P 500 are registered service marks of The
McGraw-Hill Companies, Inc. and have been licensed for use by Fidelity
Distributors Corporation.
Third party marks appearing herein are the property of their
respective owners.
All other marks appearing herein are registered or unregistered
trademarks or service marks of FMR Corp. or an affiliated company.
(RECYCLE LOGO) This report is printed on recycled paper using
soy-based inks.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE FUND'S
PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS
STATED ON THE COVER AND DO NOT NECESSARILY REPRESENT THE VIEWS OF
FIDELITY OR ANY OTHER PERSON IN THE FIDELITY ORGANIZATION. ANY SUCH
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED UPON MARKET OR OTHER
CONDITIONS AND FIDELITY DISCLAIMS ANY RESPONSIBILITY TO UPDATE SUCH
VIEWS. THESE VIEWS MAY NOT BE RELIED ON AS INVESTMENT ADVICE AND,
BECAUSE INVESTMENT DECISIONS FOR A FIDELITY FUND ARE BASED ON NUMEROUS
FACTORS, MAY NOT BE RELIED ON AS AN INDICATION OF TRADING INTENT ON
BEHALF OF ANY FIDELITY FUND.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE
SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE FUND.
THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
MARKET ENVIRONMENT
An investor-friendly equity environment characterized the first half
of the year, as the majority of domestic and international stock
markets turned in positive performances for the six-month period
ending June 30, 1999. The bulk of debt sectors received a colder
shoulder, however, as wary bond investors shied away from the
combination of higher inflation expectations and the U.S. Federal
Reserve Board's tighter monetary policy. Notably, the period's last
day was an eventful one: On June 30, for the first time in two years,
the Fed increased key short-term interest rates with a quarter-point
hike to 5.00%. At the same time, it also announced a shift to a
"neutral" position - meaning the Fed's next move is as likely to be a
rate decrease as it is another hike - sparking a rally in the bond
market and sending several equity indexes into record-high territory.
U.S. STOCK MARKETS
The Standard & Poor's 500 Index - a broad measure of U.S. stock market
performance - rose 12.38% for the six months that ended June 30, 1999.
At this pace, the S&P 500(registered trademark) is well on its way to
tacking on another year to its record of four consecutive annual
double-digit percentage gains. Meanwhile, the Dow Jones Industrial
Average - an index of 30 blue-chip stocks - posted a lofty 20.39%
increase for the first half of the year. After several years on the
sidelines, small-cap stocks finally rebounded, particularly in the
second quarter of 1999, as the Russell 2000(registered trademark)
Index - a popular measure of small-cap stock performance - returned
9.29% for the first half of the year. But it was the technology-laden
NASDAQ Composite Index that posted the highest return of these popular
equity performance measures, with a 22.70% increase for the six months
ending June 30, 1999.
At the period's outset, the economic climate and investment
environment were similar to the previous several years: high levels of
employment, low inflation and strong consumer confidence, with a
handful of large-cap growth stocks - particularly in the technology
sector - continuing to set the pace for bullish equity market
performance. By the beginning of the second quarter, however, market
conditions began to change. The global economy began to improve, due
in large part to the willingness of central banks worldwide to lower
interest rates, resulting in a broadening of corporate earnings. This
environment proved favorable for small- and mid-cap value stocks and
the economically sensitive cyclical stocks. The relatively low
valuations of these issues proved quite alluring compared to their
expensive, large-cap growth counterparts. Consequently, a dramatic
rotation into value and cyclical names dominated the second quarter of
1999.
FOREIGN STOCK MARKETS
Over 165 interest-rate cuts in more than 75 countries since the
worldwide economic crisis last October helped foreign stock markets
post generally positive performances in the first half of 1999. The
Morgan Stanley Capital International (MSCI) EAFE(registered trademark)
Index - which measures stock performance in Europe, Australia and the
Far East - returned 4.08% for the six months ending June 30, 1999.
Europe's performance was disappointing, as prospects for economic
growth and corporate profits declined, and its new common currency -
the euro - struggled since its inception in January. For the period,
the MSCI Europe Index fell 2.30%. Conversely, the previously faltering
Japanese stock market roared ahead. New corporate restructuring
reforms and government economic intervention helped the Tokyo Stock
Exchange Index (TOPIX) - a measure of the Japanese market - notch a
first-half return of 21.93%. Emerging markets also rebounded. Despite
Brazil's currency devaluation in January, and fears of a similar move
by Argentina and Colombia late in the period, Latin America was a
strong performer as the Morgan Stanley Capital International Emerging
Markets Free-Latin America Index returned 31.03%. Southeast Asia, too,
bounced back, but the period's most remarkable recovery was in Russia,
which was the first half's best-performing emerging market, with a
return of approximately 133.70%.
U.S. BOND MARKETS
Despite good news at the close of the period, signs of continued
strength and emerging inflationary pressures in the U.S. economy,
along with improving conditions abroad, hampered the taxable-bond
market during the six-month period. The Lehman Brothers Aggregate Bond
Index - a widely followed measure of taxable bond performance - fell
1.37% during that time. A sharp rise in consumer prices sparked the
worst Treasury bond sell-off in three years, pushing their prices down
and bringing yields up to the pre-crisis levels of last summer. The
resulting negative market sentiment was further fueled by the Fed's
shift in bias toward raising interest rates in mid-May. The Lehman
Brothers Treasury Index returned -2.50% for the six-month period
ending June 30, 1999. As investors fled Treasuries for more attractive
alternatives, spread sector securities - such as corporate and
mortgage securities - rallied in response. However, the emergence of
rising rates and inflation fears soon slowed the rise in spread
products. For the six-month period, the Lehman Brothers Corporate Bond
Index and the Lehman Brothers Mortgage-Backed Securities Index had
returns of -2.26% and 0.53%, respectively. Based on performance,
high-yield bonds were among the most attractive domestic debt
offerings, as the Merrill Lynch High Yield Master II Index returned
2.49% during the first half of 1999.
FOREIGN BOND MARKETS
Like its U.S. Treasury counterparts, world government bond performance
was hindered by the U.S. Federal Reserve Board's adoption of a
tightening bias - an inclination to raise interest rates - during the
first half of the year. For the six months ending June 30, 1999, the
Salomon Brothers World Government Bond Index - a measure of government
bond market performance in developed nations - fell 7.17%. Despite
rising U.S. interest rates, emerging-market debt enjoyed positive
performance in the first half of 1999, as the J.P. Morgan Emerging
Markets Bond Index Plus - which tracks total returns for traded
external debt instruments in the emerging markets - returned 10.57%
during the period. A significantly important development in the strong
emerging-market performance was the dramatic increase in the price of
oil, which benefited Venezuela, the second-best performing country
year-to-date, as well as Russia and Mexico.
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). If Fidelity had not reimbursed certain fund
expenses, the fund's past 10 year total return would have been lower.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1999 PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
VIP: OVERSEAS - "INITIAL CLASS" 5.12% 10.76% 10.58%
MSCI EAFE 7.86% 8.33% 6.66%
AVERAGE ANNUAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate
each year.
You can compare the fund's returns to the performance of the Morgan
Stanley Capital International Europe, Australasia, Far East (EAFE)
Index - a market capitalization-weighted index that is designed to
represent the performance of developed stock markets outside the
United States and Canada. As of June 30, 1999, the index included over
1,000 equity securities of companies domiciled in 21 countries.
Figures for more than one year assume a steady compounded rate of
return and are not the fund's year-by-year results, which fluctuated
over the periods shown.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S
SEPARATE ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF
THESE ADDITIONAL CHARGES, THE TOTAL RETURNS WOULD HAVE BEEN LOWER.
Past performance is no guarantee of future results. Principal and
investment return will vary and you may have a gain or loss when you
withdraw your money. Foreign investments involve greater risks and
potential rewards than U.S. investments. These risks include political
and economic uncertainties of foreign countries, as well as the risk
of currency fluctuations.
(CHECKMARK) UNDERSTANDING PERFORMANCE
Many markets around the globe offer the
potential for significant growth over time;
however, investing in foreign markets means
assuming greater risks than investing in the
United States. Factors like changes in a country's
financial markets, its local political and
economic climate, and the fluctuating value of
its currency create these risks. For these reasons
an international fund's performance may be
more volatile than a fund that invests exclusively
in the United States.
$10,000 OVER 10 YEARS
VIP Overseas MS EAFE (Net MA tax)
00154 MS001
1989/06/30 10000.00 10000.00
1989/07/31 10935.39 11255.73
1989/08/31 10858.24 10749.52
1989/09/30 11533.27 11239.18
1989/10/31 10906.46 10787.62
1989/11/30 11494.70 11329.90
1989/12/31 12217.94 11747.95
1990/01/31 12054.00 11310.82
1990/02/28 11772.65 10521.39
1990/03/31 12217.63 9425.31
1990/04/30 12285.35 9350.51
1990/05/31 13088.25 10417.42
1990/06/30 13378.45 10325.66
1990/07/31 14055.60 10471.11
1990/08/31 12623.92 9454.28
1990/09/30 11424.41 8136.68
1990/10/31 12488.49 9404.53
1990/11/30 12101.55 8849.78
1990/12/31 12014.49 8993.14
1991/01/31 12130.57 9284.03
1991/02/28 12539.25 10279.26
1991/03/31 12172.49 9662.17
1991/04/30 12440.12 9757.06
1991/05/31 12469.86 9858.87
1991/06/30 11785.90 9134.43
1991/07/31 12370.74 9583.22
1991/08/31 12410.39 9388.60
1991/09/30 12915.92 9917.74
1991/10/31 13005.13 10058.33
1991/11/30 12539.25 9588.76
1991/12/31 12975.40 10083.95
1992/01/31 13134.00 9868.56
1992/02/29 12860.30 9515.35
1992/03/31 12599.07 8887.18
1992/04/30 13382.75 8929.42
1992/05/31 13965.48 9527.12
1992/06/30 13704.26 9075.23
1992/07/31 12830.16 8842.96
1992/08/31 12719.64 9397.60
1992/09/30 12207.24 9212.02
1992/10/31 11373.33 8728.81
1992/11/30 11313.04 8810.95
1992/12/31 11584.32 8856.52
1993/01/31 11915.87 8855.44
1993/02/28 12149.27 9122.93
1993/03/31 12992.11 9918.14
1993/04/30 13855.51 10859.39
1993/05/31 14153.59 11088.74
1993/06/30 13804.12 10915.74
1993/07/31 14348.88 11297.84
1993/08/31 15119.78 11907.73
1993/09/30 15037.55 11639.70
1993/10/31 15582.31 11998.40
1993/11/30 14924.48 10949.62
1993/12/31 15911.23 11740.26
1994/01/31 16949.36 12732.84
1994/02/28 16650.42 12697.58
1994/03/31 16237.26 12150.67
1994/04/30 16774.37 12666.22
1994/05/31 16567.79 12593.49
1994/06/30 16392.20 12771.47
1994/07/31 16826.02 12894.29
1994/08/31 17022.27 13199.56
1994/09/30 16578.12 12783.84
1994/10/31 16918.98 13209.54
1994/11/30 16278.58 12574.68
1994/12/31 16185.62 12653.42
1995/01/31 15514.23 12167.34
1995/02/28 15555.05 12132.42
1995/03/31 16033.99 12889.13
1995/04/30 16492.10 13373.87
1995/05/31 16721.16 13214.45
1995/06/30 16877.33 12982.71
1995/07/31 17626.97 13790.96
1995/08/31 17137.63 13264.89
1995/09/30 17387.51 13523.95
1995/10/31 17043.92 13160.43
1995/11/30 17241.74 13526.60
1995/12/31 17762.33 14071.59
1996/01/31 18095.50 14129.36
1996/02/29 18135.35 14177.13
1996/03/31 18412.72 14478.19
1996/04/30 18924.77 14899.12
1996/05/31 18935.44 14624.95
1996/06/30 19074.12 14707.26
1996/07/31 18508.73 14277.40
1996/08/31 18647.41 14308.69
1996/09/30 19191.47 14688.81
1996/10/31 18999.45 14538.50
1996/11/30 19991.56 15116.96
1996/12/31 20098.24 14922.50
1997/01/31 20098.24 14403.20
1997/02/28 20563.89 14642.29
1997/03/31 20750.73 14697.93
1997/04/30 20925.89 14778.77
1997/05/31 22233.75 15743.38
1997/06/30 23401.49 16613.99
1997/07/31 24195.56 16885.13
1997/08/31 22373.88 15626.35
1997/09/30 24020.40 16504.08
1997/10/31 22338.85 15239.70
1997/11/30 22233.75 15087.31
1997/12/31 22420.59 15221.74
1998/01/31 23156.27 15920.71
1998/02/28 24459.73 16945.21
1998/03/31 25569.25 17470.17
1998/04/30 26287.91 17611.34
1998/05/31 26250.08 17529.09
1998/06/30 25997.92 17664.94
1998/07/31 26199.65 17847.24
1998/08/31 21433.79 15639.36
1998/09/30 21408.57 15163.30
1998/10/31 23362.83 16747.41
1998/11/30 24737.11 17608.72
1998/12/31 25291.87 18306.73
1999/01/31 25644.89 18256.02
1999/02/28 24964.97 17824.27
1999/03/31 25976.71 18571.82
1999/04/30 27132.99 19327.32
1999/05/31 25884.74 18335.26
1999/06/30 27330.08 19053.27
IMATRL PRASUN SHR__CHT 19990630 19990714 113134 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Variable Insurance Products Fund: Overseas Portfolio on
June 30, 1989. As the chart shows, by June 30, 1999, the value of the
investment would have grown to $27,330 - a 173.30% increase on the
initial investment. For comparison, look at how the Morgan Stanley
Capital International EAFE Index did over the same period. With
dividends and capital gains, if any, reinvested, the same $10,000
investment would have grown to $19,053 - a 90.53% increase.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE 30, 1999
% OF FUND'S INVESTMENTS
Elf Aquitaine (France) 1.8
Nokia AB (Finland) 1.7
BP Amoco PLC (United Kingdom) 1.6
Shell Transport & Trading Co. 1.5
PLC (Reg.) (United Kingdom)
SmithKline Beecham PLC 1.4
(United Kingdom)
TOP FIVE MARKET SECTORS AS OF JUNE 30, 1999
% OF FUND'S INVESTMENTS
FINANCE 21.2
UTILITIES 17.4
HEALTH 8.0
ENERGY 7.1
TECHNOLOGY 7.0
TOP FIVE COUNTRIES AS OF JUNE 30, 1999
(EXCLUDING CASH EQUIVALENTS) % OF FUND'S INVESTMENTS
Japan 22.7
United Kingdom 19.3
France 12.1
Germany 8.3
Netherlands 6.7
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
(PHOTOGRAPH OF RICHARD MACE)
An interview with
Richard Mace,
Portfolio Manager
of Overseas Portfolio
Q. HOW DID THE FUND PERFORM COMPARED TO ITS BENCHMARK, RICK?
A. The fund fared well. For the six months that ended June 30, 1999,
the fund's return topped the 4.08% 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, 1999, the fund's return lagged the 7.86% return of the
EAFE index.
Q. WHAT FACTORS CONTRIBUTED POSITIVELY TO THE FUND'S PERFORMANCE
DURING THE PERIOD?
A. Good stock selection in several industries - including
telecommunications - helped performance. The telecommunications
industry has undergone a major transformation, sparked primarily by
worldwide privatization, deregulation and technological advances. This
spawned a rash of mergers, acquisitions and alliances among industry
participants seeking to expand their global market shares and defend
their positions at home. The fund's stakes in companies such as
Japan's NTT Mobile Communications and DDI Corp., and the United
Kingdom's British Telecommunications and Vodafone AirTouch, performed
very well. The fund's energy-related investments - including France's
Elf Aquitaine, and the U.K.'s BP Amoco and Shell Transport & Trading -
also performed well as the price of oil rebounded sharply.
Q. WHICH OTHER INVESTMENTS STOOD OUT AMONG THE FUND'S TOP
CONTRIBUTORS?
A. The fund's longstanding position in Finnish telecom company Nokia
generated good results. When I looked at the stock a year and a half
ago, it was trading at a price-to-earnings (P/E) ratio of 20 and the
company was growing its earnings at a 30% to 40% clip. On that basis,
when I compared Nokia to its counterpart growth stocks in the U.S.,
the stock should have been trading at a higher P/E multiple. Thus, I
felt the valuation was attractive.
Q. WHAT FACTORS HINDERED THE FUND'S PERFORMANCE?
A. A major underweighting - relative to the EAFE index - in Japanese
banks detracted from performance. Bank shares in general soared
following the Japanese government's unveiling of a plan to inject
capital into the country's troubled banking system. I could find no
great benefit to the shareholders of these banks, so I decided to
avoid them. In addition, the fund's food and household products
positions declined during the period, namely Swiss-based Nestle and
the U.K.-based Unilever. These companies were hit particularly hard,
as investors became concerned that economic weakness would erode sales
growth.
Q. THE FUND'S COMBINED INVESTMENTS IN JAPAN, THE U.K. AND FRANCE
TOTALED AROUND 54% AT THE CLOSE OF THE PERIOD. HOW DID YOU POSITION
THE FUND WITHIN THESE MARKETS AND HOW DID EACH PERFORM?
A. The fund was underweighted - at approximately 23% and 19%,
respectively - in both Japan and the U.K. relative to the EAFE index
during the period. At 12%, the fund was overweighted in France. The
underweighting in Japan hurt somewhat, as the Japanese market turned
the corner and beat the EAFE's return over the past six months. The
fund's U.K. positions, while moderately underweighted relative to the
index, outperformed it. The fund's investments in France performed
well for the most part, but the weak performance of the euro muted
much of that performance. It's important to note that the fund's
country weightings are accumulated strictly as a result of my stock
selection process. If our research team uncovers more stocks that meet
my investing criteria in a particular country, the fund may be
overweighted in that market.
Q. WHAT'S YOUR OUTLOOK?
A. I'm optimistic that Europe's economies can continue to improve.
Since the beginning of 1999, the European Central Bank has cut
interest rates and the euro has depreciated 12% against the dollar.
This could bode well for European exporters. Consumer spending is also
expected to be fairly strong, and stronger domestic growth could allow
more small-company stocks to perform well. My outlook on Japan is a
bit more tentative. We've begun to see signs of gradual improvement,
but nothing to write home about yet. I'd like to see more concrete
evidence of a turnaround in Japan before I commit to that market.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET OR OTHER CONDITIONS. FOR MORE INFORMATION, SEE PAGE 2.
(CHECKMARK) FUND FACTS
GOAL: seeks long-term growth of capital primarily
by investments in foreign securities
START DATE: January 28, 1987
SIZE: as of June 30, 1999, more than $2.2
billion
MANAGER: Richard Mace, since 1996; joined
Fidelity in 1987
VARIABLE INSURANCE PRODUCTS FUND: OVERSEAS PORTFOLIO
INVESTMENTS JUNE 30, 1999 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 91.7%
SHARES VALUE (NOTE 1)
AUSTRALIA - 2.6%
AMP Ltd. 222,400 $ 2,450,915
Australia & New Zealand 910,042 6,745,668
Banking Group Ltd.
Brambles Industries Ltd. 50,600 1,343,761
Broken Hill Proprietary Co. 497,654 5,811,044
Ltd. (The)
Cable & Wireless Optus Ltd. 1,277,200 2,931,608
(a)
Coles Myer Ltd. 420,326 2,465,266
Commonwealth Bank of Australia 116,600 1,871,122
CSR Ltd. 248,800 717,171
Fosters Brewing Group Ltd. 541,900 1,539,619
Goodman Fielder Ltd. 1,101,900 990,372
National Australia Bank Ltd. 418,100 6,974,431
News Corp. Ltd. 652,382 5,611,041
News Corp. Ltd. sponsored ADR 44,200 1,395,063
(ltd. vtg.)
Rio Tinto Ltd. 235,600 3,894,260
WMC Ltd. 2,027,296 8,779,109
Woolworths Ltd. 571,300 1,915,530
55,435,980
BELGIUM - 0.4%
Electrabel SA 12,900 4,176,799
Fortis B 128,700 4,053,922
8,230,721
BERMUDA - 0.0%
Pacific Century Insurance 194,000 157,026
Holdings Ltd.
CANADA - 1.0%
BCE, Inc. 295,600 14,500,103
Celestica, Inc. (sub-vtg.) 50,500 2,199,255
Cinar Films, Inc. Class B 136,500 3,344,250
(sub. vtg.) (a)
Newbridge Networks Corp. (a) 33,000 947,563
Noranda, Inc. 108,400 1,437,725
22,428,896
DENMARK - 0.6%
Carlsberg AS Class B 58,800 2,444,229
Den Danske Bank Group AS 30,400 3,285,576
Ratin AS Class B 15,100 1,767,978
Tele Danmark AS Class B 39,000 1,912,983
Unidanmark AS Class A 43,200 2,873,216
12,283,982
FINLAND - 2.5%
Asko OY Class A 32,100 524,984
Helsinki Telephone Corp. 53,400 2,541,023
Class E
Nokia AB 404,600 37,046,179
Sampo Insurance Co. Ltd. 97,800 2,842,855
Sonera Group PLC (e) 74,500 1,633,810
UPM-Kymmene Corp. 269,100 8,351,115
Valmet OY 45,800 521,156
53,461,122
SHARES VALUE (NOTE 1)
FRANCE - 11.9%
Alcatel Alsthom Compagnie 45,550 $ 6,462,407
Generale d'Electricite SA
(RFD)
AXA SA de CV (a) 136,726 16,731,904
Banque Nationale de Paris 205,800 17,201,497
Canal Plus SA 9,000 2,533,265
Cap Gemini SA 34,800 5,486,226
Castorama Dubois 22,900 5,448,448
Investissements SA
Club Mediterranee SA (a) 22,000 2,341,788
Coflexip SA sponsored ADR 83,400 3,627,900
Compagnie de St. Gobain 27,600 4,411,102
Compagnie Financiere de 51,200 5,757,169
Paribas Class A (Reg.) (a)
Elf Aquitaine 268,637 39,523,204
France Telecom SA 206,000 15,609,333
Groupe Danone 36,700 9,491,079
L'Oreal SA 5,000 3,390,410
Lafarge SA 29,821 2,844,216
Lagardere S.C.A. (Reg.) 67,400 2,516,962
Michelin SA (Compagnie 66,519 2,729,716
Generale des Etablissements)
Class B
Pechiney SA Class A 15,996 689,682
Pinault Printemps SA 17,000 2,926,252
Rhone-Poulenc SA Class A 148,172 6,834,432
Sanofi-Synthelabo SA (a) 264,968 11,279,056
Scor SA 96,500 4,801,555
Seita 29,700 1,720,497
Societe Generale, France 53,000 9,369,738
Class A (a)
Suez Lyonnaise des Eaux 72,000 13,026,622
Television Francaise 1 SA 34,900 8,159,121
(T.F.1)
Total Fina SA Class B 158,954 20,485,195
Union Assurances Federales SA 48,499 5,769,526
Valeo SA 28,700 2,375,097
Vivendi SA 308,800 25,091,867
258,635,266
GERMANY - 7.6%
Allianz AG (Reg.) 42,800 11,965,173
BASF AG 315,100 14,081,264
Bayer AG 206,600 8,644,868
Bayerische Hypo-und 53,500 3,485,507
Vereinsbank AG
Continental Gummi-Werke AG 36,600 871,179
DaimlerChrysler AG (Reg.) 153,011 13,598,849
Deutsche Bank AG 156,900 9,579,253
Deutsche Lufthansa AG (Reg.) 107,600 1,966,792
Deutsche Telekom AG 571,200 23,930,553
FAG Kugelfischer Georg 131,900 1,352,160
Schaefer AG
Fresenius Medical Care AG 31,100 1,857,898
Hoechst AG 39,000 1,773,099
Holzmann (Phillip) AG (a) 2,100 360,609
Mannesmann AG 190,600 28,727,111
Metro AG 46,100 2,913,746
Munich Reinsurance
AG: (Reg.) 29,946 5,563,584
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
GERMANY - CONTINUED
Munich Reinsurance AG: -
continued
(RFD) 15,646 $ 2,879,312
RWE AG 101,200 4,699,370
Schering AG (a) 18,300 1,935,637
Siemens AG 123,600 9,588,073
Veba AG 164,200 9,715,803
Viag AG 11,800 5,622,319
165,112,159
HONG KONG - 0.5%
Cheung Kong Holdings Ltd. 276,000 2,454,535
Dah Sing Financial Holdings 774,000 2,947,878
Ltd.
Dao Heng Bank Group Ltd. 630,000 2,825,731
Wing Hang Bank Ltd. 578,000 1,858,701
10,086,845
HUNGARY - 0.1%
Matav RT sponsored ADR 38,400 1,056,000
IRELAND - 0.8%
Bank of Ireland, Inc. (Great 575,719 9,720,832
Britain)
CRH PLC 164,195 2,921,446
Elan Corp. PLC sponsored ADR 172,800 4,795,200
(a)
17,437,478
ITALY - 3.5%
Assicurazioni Generali Spa 350,200 12,186,574
Banca Commerciale Italiana Spa 761,800 5,584,080
Banca di Roma 1,486,150 2,150,750
Eni Spa sponsored ADR 1,837,900 10,874,954
Italgas Spa 342,300 1,439,031
Olivetti & Co. Spa 1,883,500 4,545,586
San Paolo-IMI Spa 479,100 6,554,872
Telecom Italia Mobile Spa 1,313,900 7,874,995
Telecom Italia Spa 1,932,324 20,325,539
Unicredito Italiano Spa 1,065,800 4,702,234
76,238,615
JAPAN - 20.9%
Aiful Corp. 27,200 3,325,255
Aiful Corp. (e) 65,200 7,970,832
Aiwa Co. Ltd. 42,300 1,395,752
Alps Electric Co. Ltd. 46,000 1,075,768
Aoyama Trading Co. Ltd. 50,900 1,603,943
Asahi Chemical Industry Co. 328,000 1,815,533
Ltd.
Bank of Tokyo-Mitsubishi Ltd. 103,000 1,463,964
Banyu Pharmaceutical Co. Ltd. 315,000 5,196,948
Canon, Inc. 180,000 5,242,500
Dai Nippon Printing Co. Ltd. 140,000 2,234,688
Dai-Ichi Kangyo Bank Ltd. 476,000 3,062,735
Dainippon Screen 224,000 1,154,877
Manufacturing Co. Ltd.
Daiwa Securities Co. Ltd. 989,000 6,526,707
DDI Corp. 3,828 23,777,968
SHARES VALUE (NOTE 1)
Fancl Corp. 13,000 $ 2,359,249
Fuji Bank Ltd. 902,000 6,279,959
Fuji Machine Manufacturing 36,000 1,107,692
Co. Ltd.
Fuji Photo Film Co. Ltd. 137,000 5,175,995
Furukawa Electric Co. Ltd. 1,590,000 7,279,439
Hirose Electric Co. Ltd. 11,500 1,191,503
Hitachi Ltd. 1,352,000 12,767,951
Honda Motor Co. Ltd. 393,000 17,046,376
Hoya Corp. 29,000 1,633,904
Ito-Yokado Co. Ltd. 320,000 21,381,729
Kao Corp. 242,000 6,787,379
Kirin Brewery Co. Ltd. 1,715,000 20,513,509
Koa Denko Co. Ltd. 64,000 697,942
Kobe Steel Ltd. Ord. 571,000 508,707
Kokusai Denshin Denwa 99,800 7,154,152
Kyocera Corp. 150,000 8,785,317
Matsushita Electric 869,000 17,233,357
Industrial Co. Ltd.
Matsushita Electric Works Co. 105,000 1,011,673
Ltd.
Matsushita-Kotobuk 73,000 2,059,476
Electronics Industries Ltd.
Minolta Co. Ltd. 871,000 4,454,692
Mitsubishi Electric Corp. 2,602,000 9,980,863
Mitsubishi Estate Co. Ltd. 646,000 6,293,471
Mitsubishi Trust & Banking 427,000 4,142,314
Corp.
Mitsui Fudosan Co. Ltd. 288,000 2,328,233
NEC Corp. 291,000 3,612,745
Nichicon Corp. 167,000 2,431,471
Nikko Securities Co. Ltd. 1,688,000 10,875,051
Nintendo Co. Ltd. 44,900 6,300,260
Nippon Computer Systems Corp. 132,000 2,139,658
Nippon Telegraph & Telephone 1,368 15,911,570
Corp.
Nippon Zeon Co. Ltd. 153,000 1,111,924
Nomura Securities Co. Ltd. 916,000 10,707,132
NTT Mobile Communication 756 10,102,867
Network, Inc.
Omron Corp. 1,524,000 26,400,496
Orix Corp. 60,900 5,425,614
Ricoh Co. Ltd. 465,000 6,390,514
Rohm Co. Ltd. 13,000 2,032,172
Ryohin Keikaku Co. Ltd. 12,200 3,064,467
Sankyo Co. Ltd. 108,000 2,717,261
Secom Ltd. 58,000 6,028,460
Sekisui Chemical Co. Ltd. 5,000 28,954
Sharp Corp. 759,000 8,953,352
Shin-Etsu Chemical Co. Ltd. 141,000 4,710,662
Shohkoh Fund & Co. Ltd. 6,600 4,725,758
Softbank Corp. 55,700 11,261,762
Sony Corp. 60,000 6,622,500
Sumitomo Realty & 474,000 1,775,178
Development Co. Ltd.
Takeda Chemical Industries 582,000 26,933,555
Ltd.
Takefuji Corp. 73,100 7,543,667
Takefuji Corp. (e) 36,400 3,756,354
Terumo Corp. 202,000 4,490,741
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
JAPAN - CONTINUED
THK Co. Ltd. 348,400 $ 8,047,185
Toyota Motor Corp. 125,000 3,949,268
Yahoo Japan Corp. 6 2,242,112
Yamaha Motor Co. Ltd. 242,000 2,243,828
Yamanouchi Pharmaceutical Co. 141,000 5,385,276
Ltd.
451,944,166
LUXEMBOURG - 0.1%
Stolt Comex Seaway SA 103,100 1,121,213
MALAYSIA - 0.1%
Oriental Holdings BHD 1,116,000 3,054,316
MEXICO - 0.8%
Banacci SA de CV Class O (a) 1,236,000 3,152,657
Empresas ICA Sociedad 255,400 1,723,950
Controladora SA de CV
sponsored ADR
Grupo Elektra SA de CV:
ADR 96,400 566,350
Unit 584,000 342,796
Grupo Financiero Bancomer SA 22,638,000 8,262,749
de CV Series A
Tubos de Acero de Mexico SA 326,700 3,552,863
sponsored ADR
17,601,365
NETHERLANDS - 6.6%
ABN AMRO Holding NV 323,000 7,016,674
Aegon NV 69,500 5,057,762
Ahrend (KON) NV 50,890 887,037
Akzo Nobel NV 202,600 8,550,846
CSM NV 38,400 1,924,574
Equant NV (Reg.) 45,200 4,254,450
Exact Holding NV (a)(e) 100 2,591
Fortis Amev NV 336,800 10,434,663
Heineken NV 94,600 4,858,698
ING Groep NV 372,086 20,207,479
Koninklijke (Royal) Philips 197,996 19,590,742
Electronics NV
Koninklijke Ahold NV 225,477 7,790,372
Koninklijke KPN NV 196,500 9,248,759
Nutreco Holding NV 69,433 2,470,779
Royal Dutch Petroleum Co. 80,980 4,879,044
(Hague Registry)
Samas Groep NV 78,200 1,160,829
STMicroelectronics NV 77,000 5,341,875
TNT Post Group NV 81,500 1,951,723
Unilever NV 169,817 11,479,851
Vedior NV 192,700 3,289,085
Vendex NV CVA 172,400 4,618,985
Vnu NV 138,000 5,531,721
Wolters Kluwer NV 59,500 2,375,821
142,924,360
NEW ZEALAND - 0.1%
Lion Nathan Ltd. 495,600 1,194,988
SHARES VALUE (NOTE 1)
PORTUGAL - 0.1%
Electricidade de Portugal SA 149,600 $ 2,702,000
SINGAPORE - 0.5%
Development Bank of Singapore 362,000 4,427,874
Ltd. (For. Reg.)
Oversea-Chinese Banking Corp. 220,000 1,837,107
(For. Reg.)
Overseas Union Bank Ltd. 387,300 1,867,604
United Overseas Bank Ltd. 312,000 2,183,358
(For. Reg.)
10,315,943
SPAIN - 2.9%
Argentaria Caja Postal y 118,600 2,710,129
Banco Hipotecario de Espana
SA
Banco Bilbao Vizcaya SA (Reg.) 255,100 3,697,074
Banco Santander Central 1,158,168 12,100,476
Hispano SA
Endesa SA 314,700 6,732,196
Iberdrola SA 336,700 5,144,381
Tabacalera SA Series A 96,900 1,964,669
Telefonica SA (a) 624,600 30,180,147
Union Electrica Fenosa SA 71,400 936,541
63,465,613
SWEDEN - 2.0%
ABB Ltd. 37,263 3,508,196
Electrolux AB 236,400 4,983,178
Ericsson (L.M.) Telefon AB 401,300 13,217,819
Class B
Nordbanken Holding AB 532,200 3,132,349
Skandia Foersaekrings AB 176,100 3,315,854
Skandinaviska Enskilda Banken 178,400 2,091,553
Class A
Svenska Handelsbanken 236,800 2,860,361
Swedish Match Co. 1,572,900 5,643,943
Volvo AB Class B 137,600 4,041,999
42,795,252
SWITZERLAND - 5.8%
ABB Ltd. (Reg.) 50,251 4,748,917
Credit Suisse Group (Reg.) 71,454 12,399,127
Gretag Imaging Holding AG 23,500 2,277,690
(Reg.)
Holderbank Financiere Glarus 1,040 1,231,067
AG (Bearer)
Julius Baer Holding AG 1,392 3,977,913
Nestle SA (Reg.) 14,400 26,018,836
Novartis AG (Reg.) 19,100 27,968,649
Roche Holding AG 1,290 13,297,768
participation certificates
Swatch Group AG (The) (Reg.) 18,000 2,577,732
Swiss Reinsurance Co. (Reg.) 3,000 5,728,293
Swisscom AG 24,700 9,321,055
UBS AG 55,834 16,712,022
126,259,069
TAIWAN - 0.5%
Taiwan Semiconductor 3,093,450 11,827,897
Manufacturing Co. Ltd.
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
UNITED KINGDOM - 19.3%
Abbey National PLC 260,900 $ 4,901,174
Allied Domecq PLC 323,200 3,119,874
Allied Zurich PLC 1,063,500 13,377,732
Amvescap PLC 466,400 4,152,760
Asda Group PLC 857,300 2,937,696
Ashtead Group PLC 790,900 2,183,102
AstraZeneca Group PLC 137,700 5,396,125
BG PLC 618,100 3,777,850
Boots Co. PLC 230,700 2,741,859
BP Amoco PLC 1,955,393 35,359,902
British Aerospace PLC 308,234 2,007,913
British American Tobacco PLC 537,100 5,053,356
British Energy PLC 357,000 3,040,719
British Telecommunications PLC 1,356,300 23,226,721
BTP PLC 144,800 992,368
BTR Siebe PLC 870,700 4,123,499
Cadbury Schweppes PLC 669,600 4,266,887
Caradon PLC 5,074,280 11,965,474
CGU PLC 328,600 4,750,227
Cookson Group PLC 1,151,238 3,885,914
Courtaulds Textiles PLC 552,200 1,419,706
Diageo PLC 770,300 8,049,337
Dixons Group PLC 128,800 2,407,401
Gallaher Group PLC 182,900 1,127,989
General Electric Co. PLC 550,100 5,613,843
Glaxo Wellcome PLC 839,800 23,776,867
Hays PLC 156,400 1,649,121
Hilton Group PLC 382,600 1,517,740
Kingfisher PLC 713,400 8,214,294
Lloyds TSB Group PLC 1,473,800 19,991,773
Marks & Spencer PLC 93,700 542,400
National Grid Group PLC 563,390 3,923,324
National Westminster Bank PLC 146,400 3,105,830
Orange PLC (a) 408,700 5,995,175
Pearson PLC 269,800 5,485,411
Peninsular & Oriental Steam 124,100 1,864,451
Navigation Co.
Prudential Corp. PLC 454,200 6,691,266
Rentokil Initial PLC 3,144,500 12,275,554
Reuters Group PLC 618,600 8,142,365
Rio Tinto PLC (Reg.) 197,500 3,312,981
Royal & Sun Alliance 421,280 3,780,919
Insurance Group PLC
Royal Bank of Scotland Group 254,000 5,176,194
PLC
Sainsbury (J.) PLC 392,700 2,477,623
Schroders PLC 39,300 803,363
Scottish & Newcastle PLC 318,300 3,316,071
Scottish & Southern Energy PLC 356,300 3,647,328
Shell Transport & Trading Co. 4,304,300 33,268,981
PLC (Reg.)
Smith (David S.) Holdings PLC 511,600 1,198,316
SmithKline Beecham PLC 2,317,042 30,614,077
South African Breweries PLC 355,400 3,043,908
(a)
SHARES VALUE (NOTE 1)
Standard Chartered PLC 8,373 $ 136,822
Tarmac PLC 3,569,159 6,699,265
Tomkins PLC 396,800 1,721,150
Unilever PLC 1,494,910 13,921,405
Vodafone AirTouch PLC 1,340,144 26,400,842
Vodafone AirTouch PLC 59,650 11,751,050
sponsored ADR
WPP Group PLC 315,300 2,668,136
416,993,430
UNITED STATES OF AMERICA - 0.5%
Ask Jeeves, Inc. 400 5,600
Baker Hughes, Inc. 69,800 2,338,300
Clarent Corp. 1,400 21,000
Halliburton Co. 65,600 2,968,400
Kaiser Aluminum Corp. (a) 8,200 72,775
McDermott International, Inc. 20,500 579,125
Newmont Mining Corp. 136,800 2,718,900
Noble Drilling Corp. (a) 43,600 858,375
Smith International, Inc. (a) 13,300 577,719
Weatherford International, 39,100 1,432,038
Inc. (a)
11,572,232
TOTAL COMMON STOCKS 1,984,335,934
(Cost $1,517,977,494)
PREFERRED STOCKS - 1.0%
CONVERTIBLE PREFERRED STOCKS
- - 0.3%
AUSTRALIA - 0.3%
WBK STRYPES Trust (Westpac 174,300 5,642,963
Banking Corp.) $3.135
NONCONVERTIBLE PREFERRED
STOCKS - 0.7%
GERMANY - 0.5%
Dyckerhoff AG 7,000 2,121,657
SAP AG (Systeme Anwendungen 15,300 6,205,800
Produkte)
Wella AG 4,300 3,091,454
11,418,911
ITALY - 0.2%
Telecom Italia Spa Risp 742,025 4,049,025
TOTAL NONCONVERTIBLE 15,467,936
PREFERRED STOCKS
TOTAL PREFERRED STOCKS 21,110,899
(Cost $15,760,716)
INVESTMENT COMPANIES - 0.9%
EMERGING MARKETS - 0.2%
Asia Tigers Fund, Inc. 142,400 1,352,800
Templeton Dragon Fund, Inc. 310,500 3,434,906
4,787,706
INVESTMENT COMPANIES -
CONTINUED
SHARES VALUE (NOTE 1)
GERMANY - 0.2%
New Germany Fund, Inc. (The) 370,600 $ 4,516,688
HONG KONG - 0.1%
Asia Pacific Fund, Inc. 209,100 2,051,794
MULTI-NATIONAL - 0.4%
European Warrant Fund, Inc. 118,700 1,884,363
Morgan Stanley Asia-Pacific 670,800 6,456,450
Fund, Inc.
8,340,813
TOTAL INVESTMENT COMPANIES 19,697,001
(Cost $19,802,736)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CONVERTIBLE BONDS - 0.7%
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D)
FRANCE - 0.2%
Groupe Danone 3% 1/1/02 A1 EUR 1,547,358 2,617,159
Suez Lyonnaise des Eaux 4% A+ EUR 1,189,102 2,715,431
1/1/06
TOTAL FRANCE 5,332,590
NETHERLANDS - 0.1%
Koninklijke Ahold NV 3% Baa1 NLG 4,750,000 2,864,064
9/30/03
UNITED STATES OF AMERICA - 0.4%
Nestle Holdings, Inc. 3% - 5,480,000 6,432,150
6/17/02
Roche Holdings, Inc. liquid - 3,160,000 1,777,500
yield option note 0%
4/20/10 (e)
TOTAL UNITED STATES OF AMERICA 8,209,650
TOTAL CONVERTIBLE BONDS 16,406,304
(Cost $18,437,429)
GOVERNMENT OBLIGATIONS - 0.7%
UNITED STATES OF AMERICA - 0.7%
U.S. Treasury Bills, yield at - 15,000,000 14,917,721
date of purchase 4.34% to
4.78% 7/1/99 to 9/30/99 (f)
(Cost $14,915,527)
CASH EQUIVALENTS - 5.0%
SHARES
Taxable Central Cash Fund (c) 108,338,727 108,338,727
(Cost $108,338,727)
TOTAL INVESTMENT IN $ 2,164,806,586
SECURITIES - 100%
(Cost $1,695,232,629)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FUTURES CONTRACTS
EXPIRATION DATE UNDERLYING FACE AMOUNT UNREALIZED GAIN/(LOSS)
PURCHASED
253 Nikkei 225 Index Sept. 1999 $ 22,460,075 $ 1,494,740
Contracts (Japan)
149 Topix Index Contracts Sept. 1999 17,196,379 1,054,349
(Japan)
$ 39,656,454 $ 2,549,089
</TABLE>
THE FACE VALUE OF FUTURES PURCHASED AS A PERCENTAGE OF INVESTMENT IN
SECURITIES - 1.8%
CURRENCY ABBREVIATIONS
EUR - European Monetary Unit
NLG - Dutch guilder
SECURITY TYPE ABBREVIATIONS
STRYPES - Structured Yield Product
Exchangeable for Common Stock
LEGEND
(a) Non-income producing
(b) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
(c) At period end, the seven-day yield on the Taxable Central Cash
Fund was 4.84%. The yield refers to the income earned by investing in
the fund over the seven-day period, expressed as an annual percentage.
(d) Principal amount is stated in United States dollars unless
otherwise noted.
(e) 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 $15,141,087 or 0.7% of net assets.
(f) Security or a portion of the security was pledged to cover margin
requirements for futures contracts. At the period end, the value of
securities pledged amounted to $5,700,000.
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $813,754,126 and $840,324,471, respectively.
The market value of futures contracts opened and closed during the
period amounted to $109,159,004 and $142,544,989, 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 $825 for the
period.
INCOME TAX INFORMATION
At June 30, 1999, the aggregate cost of investment securities for
income tax purposes was $1,707,366,742. Net unrealized appreciation
aggregated $457,439,844, of which $531,467,130 related to appreciated
investment securities and $74,027,286 related to depreciated
investment securities.
MARKET SECTOR DIVERSIFICATION (UNAUDITED)
As a Percentage of Total Value of Investment in Securities
AEROSPACE & DEFENSE 0.1%
BASIC INDUSTRIES 3.8
CASH EQUIVALENTS 5.0
CONSTRUCTION & REAL ESTATE 2.4
DURABLES 4.5
ENERGY 7.1
FINANCE 21.2
GOVERNMENT OBLIGATIONS 0.7
HEALTH 8.0
HOLDING COMPANIES 0.3
INDUSTRIAL MACHINERY & 5.4
EQUIPMENT
INVESTMENT COMPANIES 0.9
MEDIA & LEISURE 2.3
NONDURABLES 6.6
PRECIOUS METALS 0.5
RETAIL & WHOLESALE 3.5
SERVICES 2.9
TECHNOLOGY 7.0
TRANSPORTATION 0.4
UTILITIES 17.4
100.0%
VARIABLE INSURANCE PRODUCTS FUND: OVERSEAS PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
ASSETS
Investment in securities, at $ 2,164,806,586
value (cost $1,695,232,629)
- - See accompanying schedule
Receivable for investments 52,491,547
sold
Receivable for fund shares 33,878,668
sold
Dividends receivable 6,352,043
Interest receivable 489,592
Other receivables 55,105
TOTAL ASSETS 2,258,073,541
LIABILITIES
Payable to custodian bank $ 1,109,260
Payable for investments 46,326,496
purchased
Payable for fund shares 460,624
redeemed
Accrued management fee 1,285,467
Distribution fees payable 4,658
Payable for daily variation 366,336
on futures contracts
Other payables and accrued 418,210
expenses
TOTAL LIABILITIES 49,971,051
NET ASSETS $ 2,208,102,490
Net Assets consist of:
Paid in capital $ 1,622,113,054
Undistributed net investment 5,415,058
income
Accumulated undistributed net 108,549,962
realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation 472,024,416
(depreciation) on
investments and assets and
liabilities in foreign
currencies
NET ASSETS $ 2,208,102,490
INITIAL CLASS: NET ASSET $20.80
VALUE, offering price and
redemption price per share
($2,144,918,224 (divided
by) 103,130,270 shares)
SERVICE CLASS: NET ASSET $20.77
VALUE, offering price and
redemption price per share
($63,184,266 (divided by)
3,042,463 shares)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30,
1999 (UNAUDITED)
INVESTMENT INCOME $ 30,054,894
Dividends
Interest 3,305,018
33,359,912
Less foreign taxes withheld (3,571,758)
TOTAL INCOME 29,788,154
EXPENSES
Management fee $ 7,714,595
Transfer agent fees 691,895
Distribution fees - Service 22,738
Class
Accounting fees and expenses 484,949
Non-interested trustees' 5,276
compensation
Custodian fees and expenses 710,068
Registration fees 8,712
Audit 23,977
Miscellaneous 30,875
Total expenses before 9,693,085
reductions
Expense reductions (522,927) 9,170,158
NET INVESTMENT INCOME 20,617,996
REALIZED AND UNREALIZED GAIN
(LOSS)
Net realized gain (loss) on:
Investment securities 112,336,696
Foreign currency transactions 40,488
Futures contracts 3,848,156 116,225,340
Change in net unrealized
appreciation (depreciation)
on:
Investment securities 29,187,214
Assets and liabilities in 72,114
foreign currencies
Futures contracts 5,102,727 34,362,055
NET GAIN (LOSS) 150,587,395
NET INCREASE (DECREASE) IN $ 171,205,391
NET ASSETS RESULTING FROM
OPERATIONS
OTHER INFORMATION $ 521,891
Expense reductions Directed
brokerage arrangements
Custodian credits 1,036
$ 522,927
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
INCREASE (DECREASE) IN NET SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
ASSETS 1999 (UNAUDITED)
Operations Net investment $ 20,617,996 $ 24,821,303
income
Net realized gain (loss) 116,225,340 46,470,387
Change in net unrealized 34,362,055 174,010,260
appreciation (depreciation)
NET INCREASE (DECREASE) IN 171,205,391 245,301,950
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (31,839,749) (37,913,851)
From net investment income
From net realized gain (51,354,434) (111,746,087)
TOTAL DISTRIBUTIONS (83,194,183) (149,659,938)
Share transactions - net 10,528,562 86,667,359
increase (decrease)
TOTAL INCREASE (DECREASE) 98,539,770 182,309,371
IN NET ASSETS
NET ASSETS
Beginning of period 2,109,562,720 1,927,253,349
End of period (including $ 2,208,102,490 $ 2,109,562,720
undistributed net investment
income of $5,415,058 and
$15,374,087, respectively)
</TABLE>
OTHER INFORMATION:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
1999 (UNAUDITED)
SHARES DOLLARS SHARES DOLLARS
Share transactions Initial 70,526,229 $ 1,408,673,445 83,667,719 $ 1,630,270,593
Class Sold
Reinvested 4,250,326 81,691,268 7,943,861 149,503,507
Redeemed (75,092,389) (1,505,806,021) (88,486,169) (1,726,300,500)
Net increase (decrease) (315,834) $ (15,441,308) 3,125,411 $ 53,473,600
Service Class Sold 3,330,146 $ 66,705,230 1,950,594 $ 38,211,430
Reinvested 78,277 1,502,916 8,320 156,588
Redeemed (2,098,635) (42,238,276) (274,725) (5,174,259)
Net increase (decrease) 1,309,788 $ 25,969,870 1,684,189 $ 33,193,759
Distributions From net $ 31,264,559 $ 37,874,182
investment income Initial
Class
Service Class 575,190 39,669
Total $ 31,839,749 $ 37,913,851
From net realized gain $ 50,426,708 $ 111,629,169
Initial Class
Service Class 927,726 116,918
Total $ 51,354,434 $ 111,746,087
$ 83,194,183 $ 149,659,938
</TABLE>
FINANCIAL HIGHLIGHTS - INITIAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30,
1999 YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 1997 1996 1995
Net asset value, beginning of $ 20.06 $ 19.20 $ 18.84 $ 17.06 $ 15.67
period
Income from Investment
Operations
Net investment income .20 D .23 D .30 D .32 D, E .17
Net realized and unrealized 1.35 2.13 1.70 1.88 1.34
gain (loss)
Total from investment 1.55 2.36 2.00 2.20 1.51
operations
Less Distributions
From net investment income (.31) (.38) (.33) (.20) (.06)
From net realized gain (.50) (1.12) (1.31) (.22) (.02)
In excess of net realized gain - - - - (.04)
Total distributions (.81) (1.50) (1.64) (.42) (.12)
Net asset value, end of period $ 20.80 $ 20.06 $ 19.20 $ 18.84 $ 17.06
TOTAL RETURN B, C 8.06% 12.81% 11.56% 13.15% 9.74%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 2,144,918 $ 2,074,843 $ 1,926,322 $ 1,667,601 $ 1,343,134
(000 omitted)
Ratio of expenses to average .93% A .91% .92% .93% .91%
net assets
Ratio of expenses to average .88% A, G .89% G .90% G .92% G .91%
net assets after expense
reductions
Ratio of net investment 1.99% A 1.19% 1.55% 1.84% 1.88%
income to average net assets
Portfolio turnover 85% A 84% 67% 92% 50%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
SELECTED PER-SHARE DATA 1994
Net asset value, beginning of $ 15.48
period
Income from Investment
Operations
Net investment income .19
Net realized and unrealized .08
gain (loss)
Total from investment .27
operations
Less Distributions
From net investment income (.08)
From net realized gain -
In excess of net realized gain -
Total distributions (.08)
Net asset value, end of period $ 15.67
TOTAL RETURN B, C 1.72%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 1,297,701
(000 omitted)
Ratio of expenses to average .92%
net assets
Ratio of expenses to average .92%
net assets after expense
reductions
Ratio of net investment 1.28%
income to average net assets
Portfolio turnover 42%
</TABLE>
FINANCIAL HIGHLIGHTS - SERVICE CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 1997 F
Net asset value, beginning of $ 20.04 $ 19.20 $ 19.36
period
Income from Investment
Operations
Net investment income D .18 .15 .01
Net realized and unrealized 1.36 2.19 (.17)
gain (loss)
Total from investment 1.54 2.34 (.16)
operations
Less Distributions
From net investment income (.31) (.38) -
From net realized gain (.50) (1.12) -
Total distributions (.81) (1.50) -
Net asset value, end of period $ 20.77 $ 20.04 $ 19.20
TOTAL RETURN B, C 8.02% 12.69% (0.83)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 63,184 $ 34,720 $ 931
(000 omitted)
Ratio of expenses to average 1.04% A 1.01% 1.02% A
net assets
Ratio of expenses to average .99% A, G .97% G 1.01% A, G
net assets after expense
reductions
Ratio of net investment 1.89% A .80% .31% A
income to average net assets
Portfolio turnover 85% A 84% 67%
A ANNUALIZED
B THE TOTAL RETURNS WOULD
HAVE BEEN LOWER HAD CERTAIN
EXPENSES NOT BEEN REDUCED
DURING THE PERIODS SHOWN.
C TOTAL RETURNS 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.
D NET INVESTMENT INCOME PER
SHARE HAS BEEN CALCULATED
BASED ON AVERAGE SHARES
OUTSTANDING DURING THE PERIOD.
E INVESTMENT INCOME PER SHARE
REFLECTS A SPECIAL DIVIDEND
WHICH AMOUNTED TO $.05 PER
SHARE.
F FOR THE PERIOD NOVEMBER 3,
1997 (COMMENCEMENT OF SALE
OF SERVICE CLASS SHARES) TO
DECEMBER 31, 1997.
G FMR OR THE FUND HAS ENTERED
INTO VARYING ARRANGEMENTS
WITH THIRD PARTIES WHO
EITHER PAID OR REDUCED A
PORTION OF THE CLASS'
EXPENSES.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
For the period ended June 30, 1999 (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
are expected to materially affect the value of those securities, then
they are valued at their fair value taking this trading or these
events into account. Fair value is determined in good faith under
consistently applied procedures under the general supervision of the
Board of Trustees. Securities (including restricted securities) for
which quotations are not readily available are valued primarily using
dealer-supplied valuations or at their fair value. Short-term
securities with remaining maturities of sixty days or less for which
quotations are not readily available are valued at amortized cost or
original cost plus accrued interest, both of which approximate current
value.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Purchases
and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the prevailing exchange rate on the
respective dates of the transactions.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, the difference
between the amount of net investment income accrued and the U.S.
dollar amount actually received, and gains and losses between trade
and settlement date on purchases and sales of securities. The effects
of changes in foreign currency exchange rates on investments in
securities are included with the net realized and unrealized gain or
loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
U.S. federal income taxes to the extent that it distributes
substantially all of its taxable income for its fiscal year. The fund
may be subject to foreign taxes on income and gains on investments
which are accrued based upon the fund's understanding of the tax rules
and regulations that exist in the markets in which it invests. The
fund accrues such taxes as applicable. The schedule of investments
includes information regarding income taxes under the caption "Income
Tax Information."
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend
date, except certain dividends from foreign securities where the
ex-dividend date may have passed, are recorded as soon as the fund is
informed of the ex-dividend date. Non-cash dividends included in
dividend income, if any, are recorded at the fair market value of the
securities received. Interest income, which includes accretion of
original issue discount, is accrued as earned. Investment income is
recorded net of foreign taxes withheld where recovery of such taxes is
uncertain.
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among the funds in the trust.
DEFERRED TRUSTEE COMPENSATION. Under a Deferred Compensation Plan (the
Plan) non-interested Trustees must defer receipt of a portion of, and
may elect to defer receipt of an additional portion of, their annual
compensation. Deferred amounts are treated as though equivalent dollar
amounts had been invested in a cross-section of other Fidelity funds.
Deferred amounts remain in the fund until distributed in accordance
with the Plan.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are recorded on the
ex-dividend date. Income dividends and capital gain distributions are
declared separately for each class.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for futures transactions, foreign currency transactions,
passive foreign investment companies (PFIC) and losses deferred due to
wash sales. The fund also utilized earnings and profits distributed to
shareholders on redemption of shares as a part of the dividends paid
deduction for income tax purposes.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments and foreign currency transactions
may include temporary book and tax basis differences which will
reverse in a subsequent period. Any taxable income or gain remaining
at fiscal year end is distributed in the following year.
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., 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), and the market value of future contracts
opened and closed, is included under the caption "Other Information"
at the end of the fund's schedule of investments.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .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.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the
1940 Act, the Board of Trustees has 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 $22,738, all of which was
reallowed to insurance companies, for the distribution of shares and
providing shareholder support services.
TRANSFER AGENT FEES. Fidelity Investments Institutional Operations
Company, Inc. (FIIOC), an affiliate of FMR, is the fund's transfer,
dividend disbursing and shareholder servicing agent. FIIOC receives
account fees and asset-based fees that vary according to account size
and type of account. FIIOC pays a portion of the expenses related to
the typesetting, printing and mailing of all shareholder reports,
except proxy statements. For the period, the transfer agent fees of
the fund were equivalent to an 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 the fund's expenses.
For the period, the reductions under these arrangements are shown
under the caption "Other Information" on the fund's Statement of
Operations.
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 13% 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
Matthew N. Karstetter, DEPUTY 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 *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
* 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
VIPOVRS-SANN-0899 81786
1.705696.101
