<PAGE>
[LOGO OF NEW ENGLAND
FINANCIAL APPEARS HERE]
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Zenith Fund
Variable Products
Annual Reports
December 31, 1998
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Loomis Sayles Small Cap Series.............................................. 1
Morgan Stanley International Magnum Equity Series........................... 9
Alger Equity Growth Series.................................................. 17
Capital Growth Series....................................................... 23
Goldman Sachs Midcap Value Series........................................... 28
Davis Venture Value Series.................................................. 34
Westpeak Growth and Income Series........................................... 41
Westpeak Stock Index Series................................................. 48
Loomis Sayles Balanced Series............................................... 58
Back Bay Advisors Managed Series............................................ 67
Salomon Brothers Strategic Bond Opportunities Series........................ 75
Back Bay Advisors Bond Income Series........................................ 85
Salomon Brothers U.S. Government Series..................................... 93
Back Bay Advisors Money Market Series....................................... 99
Notes to Financial Statements............................................... 105
Footnotes to Portfolio Manager Commentary................................... 114
</TABLE>
Important:
Some funds appearing in this report may not be available under your variable
annuity product.
<PAGE>
February, 1999
To Our Policyholders/Contract Owners:
We are pleased to provide you with the 1998 Annual Report for the Zenith
variable life insurance and variable annuity products.* This report includes
performance histories, present investments, and financial reports as of
December 31, 1998, as well as the outlook and strategy of each fund. It is
intended to help you make an informed decision regarding the investment of the
contract value of your variable product.
New England Financial and its affiliates offer many variable life and variable
annuity products to help you meet your financial objectives. We are committed
to meeting your expectations by providing quality products with strong
performance potential and excellent personal service.
Please feel free to contact your Registered Representative with any questions
you may have regarding your financial objectives. Thank you for choosing a
Zenith variable product.
Sincerely,
/s/ David Allen /s/ Bruce Long
David Allen Bruce Long
Senior Vice President President
New England Life Insurance Company New England Annuities
(a business unit of New England Life
Insurance Company)
* Variable products are offered through New England Securities Corporation.
New England Financial is the service mark for New England Life Insurance
Company, Boston, MA and related companies.
[RECYCLED LOGO APPEARS HERE]
<PAGE>
Loomis Sayles Small Cap Series
Portfolio Managers: Jeffrey C. Petherick and Mary C. Champagne Loomis, Sayles
& Company, L.P.
[photo of Jeffrey Petherick appears here]
[photo of Mary Champagne appears here]
Q. How did the Series perform in 1998?
A. The Series posted a total return of (1.7)% (based on net asset value) for
the year. The Series lagged the Lipper Variable Products Small Cap Fund Aver-
age/15/ return of 1.4%. However, the Series did outpace the Russell 2000 In-
dex/23/, which returned (2.6)% over the same period.
Q. What factors had the greatest influence on performance over the year?
A. The past year was difficult for small-cap investors. Because economic trou-
bles in global markets had a negative effect on U.S. stocks, most investors
were risk averse. As a result, they favored the liquidity and perceived safety
of large-cap stocks, even though, in our opinion, small-cap stocks appeared
more attractively valued and appeared to present greater potential for earn-
ings growth and price appreciation.
Throughout the year, the portfolio held its value relative to the Russell 2000
Index. It weathered the July-August market correction well, and when the
market rebounded in the fall, the Series outperformed many of its peers.
Q. How did you manage the Series during 1998?
A. In managing the Series, we emphasized high quality securities with attrac-
tive valuations and consistent projected earnings growth. During the first six
months, we invested a significant portion of assets in real estate investment
trusts (REITs). While REITs provided relatively high dividend yields in the 6%
to 8% range, they still underperformed the Russell 2000 Index. Because of
their poor performance, we reduced the Series' allocation to REITs, and at the
end of the year, they comprised only about 5.5% of the Series assets. We be-
lieve the remaining REITs have the potential to produce solid gains and should
be attractive to investors because of their excellent yields and low prices.
During the second half of the year, we emphasized companies that had been out
of favor for a significant period. We found value in technology and health
stocks. At the end of the year, technology and health stocks accounted for
21.5% of the Series' assets. Many high quality technology companies had been
underperformers since 1996 and were selling at very low valuations. Two par-
ticularly strong performers were Alpha Industries, a semiconductor manufac-
turer and Hutchinson Technology, a company that supplies components to the
disk-drive industry. Both stocks more than doubled in price during the fourth
quarter.
At the end of the year, 9.1% of the assets were invested in health care
stocks. Athough these stocks got off to a slow start, by the end of the year
many of them generated double digit returns. These companies included Alle-
giance Corporation, Pathogensis and Respironics, all of which performed well
for the year.
Q. What is your current outlook for 1999?
A. Looking ahead, we believe the economic troubles in world markets may result
in a slower growing U.S. economy. We anticipate a challenging investment envi-
ronment, one in which industry groups rotate in and out of favor with invest-
ors. We feel strongly, however, that small-cap stocks offer relatively favora-
ble values. Some of the valuations of these companies are at twenty-year lows
relative to large cap stocks, and most small companies have limited exposure
to global markets. We believe these companies have the potential for strong
earnings growth and price appreciation in the months ahead.
1
<PAGE>
[CHART APPEARS HERE]
Date Small Cap Series Russell 2000
---- ---------------- ------------
5/1/94 $10,000 $10,000
12/31/94 $ 9,676 $10,027
12/31/95 $12,470 $12,879
12/31/96 $16,295 $15,004
12/31/97 $20,344 $18,358
12/31/98 $19,998 $17,891
Average Annual Return
Small Cap Russell Lipper Variable Small
Series 2000/23/ Company Fund Average/15/
1 year (1.7)% (2.6)% 1.4%
3 years 17.0 11.6 14.0
Since Inception 16.0 14.5 n/a
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[GRAPHIC APPEARS HERE] Fund Facts
Goal: Long-term growth from investment in common stocks or their equivalent.
Start date: May 2, 1994
Size: $239 million as of December 31, 1998
Managers: Jeffrey Petherick and Mary Champagne. Mr. Petherick has managed the
Series since its inception in May 1994. Ms. Champagne joined the management of
the Fund in July 1995. Mr. Petherick has also managed the Loomis Sayles portion
of the New England Star Advisers Fund since July 1, 1994. Ms. Champagne has co-
managed the Loomis Sayles portion of the New England Star Advisers Fund since
July 1995. They also manage the Loomis Sayles Small Cap Fund and the Maxim
Series--Small Cap Fund. Mr. Petherick joined Loomis Sayles in 1990. Ms.
Champagne joined Loomis Sayles in 1993.
Performance numbers are net of all Series expenses but do not include any in-
surance, sales or administrative charges of variable annuity or life insurance
contracts. If these charges were included, the returns shown would be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
2
<PAGE>
New England Zenith Fund
(Loomis Sayles Small Cap Series)
Investments as of December 31, 1998
Common Stocks--93.3% of Total Net Assets
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Aerospace/Defense--2.4%
30,500 Alliant Techsystems, Inc.(c)............................. $ 2,514,344
31,900 Gencorp, Inc............................................. 795,506
44,600 Newport News Shipbuilding, Inc........................... 1,491,312
43,200 Nichols Research Corp.................................... 901,800
-----------
5,702,962
-----------
Automobile & Related--1.7%
48,400 Dura Automotive Systems, Inc. ........................... 1,651,650
86,300 Intermet Corp. .......................................... 1,127,294
51,800 Tower Automotive, Inc. .................................. 1,291,762
-----------
4,070,706
-----------
Banks--Savings & Loan--6.1%
49,400 Bank United Corp. ....................................... 1,938,950
89,500 Community First Bancshares, Inc. ........................ 1,885,094
49,900 City National Corp. ..................................... 2,077,088
30,995 CNB Bancshares........................................... 1,445,142
71,512 Commercial Federal Corp. ................................ 1,658,185
34,600 Cullen/Frost Bankers, Inc. .............................. 1,898,675
46,120 Downey Financial Corp. .................................. 1,173,178
57,200 Local Financial Corp. ................................... 514,800
3,800 Pacific Bank National Association........................ 165,775
47,700 Staten Island Bancorp.................................... 951,019
32,200 Western Bancorp.......................................... 941,850
-----------
14,649,756
-----------
Beverages--0.5%
49,500 Whitman Corp. ........................................... 1,256,063
-----------
Broadcast--T.V./Radio/Cable--0.7%
54,000 Hearst Argyle Television, Inc. .......................... 1,782,000
-----------
Building & Related--3.0%
93,900 Champion Enterprises, Inc. .............................. 2,570,513
75,700 Furniture Brands International, Inc. .................... 2,062,825
40,300 Giant Cement Holdings, Inc.(c)........................... 997,425
59,700 Shaw Industries, Inc. ................................... 1,447,725
-----------
7,078,488
-----------
Business Services--3.0%
74,900 ACNielson Corp. ......................................... 2,115,925
35,800 Cort Business Services Corp.(c).......................... 868,150
57,800 Information Resources.................................... 588,838
115,900 Viad Corp. .............................................. 3,520,463
-----------
7,093,376
-----------
Chemicals-Major--1.4%
63,900 Ferro Corp. ............................................. 1,661,400
77,800 Solutia, Inc. ........................................... 1,740,775
-----------
3,402,175
-----------
Chemicals--Specialty--1.7%
44,300 Cuno, Inc. .............................................. 719,875
47,600 Cytec Industries, Inc. .................................. 1,011,500
Great Lakes Chemical
27,300 Corp. .................................................. 1,092,000
35,000 Scotts Co. .............................................. 1,345,313
-----------
4,168,688
-----------
Communucations Equipment--1.0%
58,000 Inter-Tel, Inc. ......................................... 1,355,750
64,100 Tekelec, Inc. ........................................... 1,061,656
-----------
2,417,406
-----------
Computer Hardware--3.1%
Digi International,
71,000 Inc. ................................................... 789,875
71,900 Fore Systems, Inc. ...................................... 1,316,669
Hutchinson Technology,
21,400 Inc. ................................................... 762,375
Micron Electronics,
35,900 Inc. ................................................... 621,519
62,000 Quantum Corp. ........................................... 1,317,500
Sequent Computer
93,200 Systems, Inc. .......................................... 1,124,225
Smart Modular
47,800 Technologies, Inc. ..................................... 1,326,450
-----------
7,258,613
-----------
Computer Software & Services--4.3%
38,500 Choicepoint, Inc. ....................................... 2,483,250
62,900 DSP Group, Inc. ......................................... 1,313,037
Platinum Technology,
121,700 Inc. ................................................... 2,327,513
Sterling Software,
42,000 Inc. ................................................... 1,136,625
71,400 Symantec Corp. .......................................... 1,552,950
Wang Laboratories,
53,400 Inc. ................................................... 1,481,850
-----------
10,295,225
-----------
Consumer--Jewelry/Novelties/Gifts--1.0%
62,000 Jostens, Inc. ........................................... 1,623,625
23,300 Zale Corp.(c)............................................ 751,425
-----------
2,375,050
-----------
Electric Companies--2.4%
27,700 BEC Energy............................................... 1,140,894
Commonwealth Energy
20,800 System.................................................. 842,400
Rochester Gas &
40,800 Electric................................................ 1,275,000
68,700 WPS Resources Corp. ..................................... 2,421,675
-----------
5,679,969
-----------
Electrical Equipment--1.5%
27,800 Alpha Industries, Inc. .................................. 1,000,800
54,500 Artesyn Technology....................................... 763,000
Sensormatic Electronics
84,500 Corp. .................................................. 586,219
Vishay Intertechnology,
79,820 Inc. ................................................... 1,157,390
-----------
3,507,409
-----------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
New England Zenith Fund
(Loomis Sayles Small Cap Series)
Investments as of December 31, 1998
Common Stocks--(Continued)
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Electronics--4.0%
29,100 ATMI, Inc. .............................................. $ 734,775
52,700 AVX Corp. ............................................... 892,606
32,000 Beckman Coulter.......................................... 1,736,000
30,500 Credence Systems Corp. .................................. 564,250
107,600 Cypress Semiconductor Corp. ............................. 894,425
29,000 Litton Industries, Inc. ................................. 1,892,250
6,300 Novellus Systems, Inc. .................................. 311,850
20,100 Photronics, Inc. ........................................ 481,772
27,100 Speedfam International, Inc. ............................ 464,087
49,200 Textronicx, Inc. ........................................ 1,479,075
-----------
9,451,090
-----------
Entertainment--0.6%
52,800 CEC Entertainment, Inc. ................................. 1,465,200
-----------
Financial--Consumer/Diversified--6.0%
136,100 Amresco, Inc. ........................................... 1,190,875
122,700 Anthracite Capital, Inc. ................................ 958,594
79,200 Brandywine Realty Trust.................................. 1,415,700
129,900 Capital Automotive REIT.................................. 1,932,262
79,399 Healthcare Realty Trust.................................. 1,771,590
85,100 Imperial Credit Industries............................... 712,713
63,200 Koger Equity, Inc. ...................................... 1,086,250
83,700 Liberty Properties, Inc. ................................ 2,061,112
60,400 Sun Communities, Inc. ................................... 2,102,675
144,500 Unicapital Corp. ........................................ 1,065,687
-----------
14,297,458
-----------
Foods--3.5%
29,500 Corn Products International, Inc. ....................... 896,062
65,400 International Home Foods, Inc. .......................... 1,103,625
97,000 International Multifoods Corp. .......................... 2,503,812
103,800 Michael Foods, Inc. ..................................... 3,114,000
31,000 Vlasic Foods International............................... 738,187
-----------
8,355,686
-----------
Freight Transportation--0.7%
44,500 CNF Transportation, Inc. ................................ 1,671,531
-----------
Health Care--Drugs--1.5%
41,800 Biovail Corp. International.............................. 1,580,562
24,100 Chirex, Inc. ............................................ 515,137
38,700 Jones Pharmaceuticals, Inc. ............................. 1,412,550
-----------
3,508,249
-----------
Health Care--Medical Property/Supplies--5.8%
85,900 ADAC Labs................................................ 1,715,316
89,300 Conmed Corp. ............................................ 2,946,900
84,000 DVI, Inc. ............................................... 1,522,500
89,800 Dentsply International, Inc. ............................ 2,312,350
120,100 Endosonics Corp. ........................................ 1,193,494
39,600 PSS World Medical, Inc. ................................. 910,800
48,100 Respironics, Inc. ....................................... 963,503
42,500 Safeskin Corp. .......................................... 1,025,312
46,600 Steris Corp. ............................................ 1,325,187
-----------
13,915,362
-----------
Health Care--Services--1.8%
51,100 Alternative Living Services, Inc.(c)..................... 1,750,175
73,700 Capital Senior Living Corp. ............................. 1,027,194
47,100 Curative Health Services, Inc. .......................... 1,577,850
-----------
4,355,219
-----------
Household Products/Personal Care--0.3%
22,000 Dial Corp. New........................................... 635,250
-----------
Insurance--6.9%
39,800 AmerUs Life Holdings..................................... 890,525
48,400 Capital Re Corp. ........................................ 971,025
24,800 CMAC Investment Corp. ................................... 1,139,250
65,300 Everest Reinsurance Holdings............................. 2,542,619
65,500 Horace Mann Educators.................................... 1,866,750
29,550 Medical Assurance, Inc. ................................. 976,997
73,100 Protective Life Corp. ................................... 2,910,294
20,800 Reinsurance Group of America, Inc. ...................... 1,456,000
128,800 Reliance Group of America................................ 1,658,300
55,100 Trigon Healthcare, Inc. ................................. 2,055,919
-----------
16,467,679
-----------
Lodging/Hotels--0.5%
63,385 Meristar Hospitality Corp. .............................. 1,176,584
-----------
Machinery--0.5%
18,700 SPX Corp. ............................................... 1,252,900
-----------
Manufacturing--Diversified--3.8%
42,950 Smith A. O. Corp. ....................................... 1,054,959
29,600 Crane Co. ............................................... 893,550
69,800 Mascotech, Inc. ......................................... 1,195,325
35,800 National Service Industries, Inc. ....................... 1,360,400
43,100 Pentair, Inc ............................................ 1,715,919
83,900 Premark International, Inc. ............................. 2,905,037
-----------
9,125,190
-----------
Manufacturing--Special--2.3%
38,200 Cognex Corp. ............................................ 764,000
76,600 Federal Signal Corp. .................................... 2,096,925
82,800 Hussmann International, Inc. ............................ 1,604,250
40,400 Regal Beloit Corp. ...................................... 929,200
-----------
5,394,375
-----------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
New England Zenith Fund
(Loomis Sayles Small Cap Series)
Investments as of December 31, 1998
Common Stocks--(Continued)
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Metals & Mining--1.3%
29,800 Minerals Technologies, Inc. ............................. $ 1,219,937
7,400 Quanex Corp. ............................................ 166,962
132,300 Worthington Industries, Inc. ............................ 1,653,750
-----------
3,040,649
-----------
Natural Gas--2.5%
37,300 Eastern Enterprises...................................... 1,631,875
81,100 MCN Energy Group, Inc. .................................. 1,545,969
17,300 New Jersey Resources Corp. .............................. 683,350
47,100 Public Service Co. N.C., Inc. ........................... 1,224,600
32,800 Washington Gas Light Co. ................................ 889,700
-----------
5,975,494
-----------
Office Equipment & Supply--1.8%
47,100 Bell & Howell Co. ....................................... 1,780,969
40,500 Hon Industries........................................... 969,469
44,700 National Computer Systems, Inc. ......................... 1,653,900
-----------
4,404,338
-----------
Oil & Gas--Drilling Equipment--0.6%
72,600 B.J. Services Co. ....................................... 1,134,375
62,300 Key Energy Corp. ........................................ 292,031
-----------
1,426,406
-----------
Oil & Gas--Exploration Products--1.3%
101,800 Forcenergy, Inc. ........................................ 267,225
53,900 Newfield Exploration Co. ................................ 1,125,162
56,000 Plains Resources, Inc. .................................. 787,500
103,400 Vintage Petroleum, Inc.(c)............................... 891,825
-----------
3,071,712
-----------
Paper & Forest Products--0.6%
36,000 Chesapeake Corp. ........................................ 1,327,500
-----------
Restaurants--2.0%
42,900 Brinker International.................................... 1,238,737
75,800 Foodmaker, Inc. ......................................... 1,672,337
13,100 Outback Steakhouse, Inc. ................................ 522,362
67,200 Wendy's International, Inc. ............................. 1,465,800
-----------
4,899,236
-----------
Retail--Food Chains--1.1%
15,400 Great Atlantic & Pacific Tea, Inc. ...................... 456,225
40,800 Hannaford Bros. Co. ..................................... 2,162,400
-----------
2,618,625
-----------
Retail--General Merchandise--0.6%
29,600 BJ's Wholesale Club Inc. ................................ $ 1,370,850
-----------
Retail--Specialty--3.1%
114,200 Burlington Coat Factory Warehouse........................ 1,862,887
41,800 Claire's Stores, Inc. ................................... 856,900
26,000 Payless Shoesource, Inc. ................................ 1,231,750
34,700 Ross Stores, Inc. ....................................... 1,366,312
41,500 Talbots, Inc. ........................................... 1,302,068
112,800 Venator Group, Inc. ..................................... 726,150
-----------
7,346,067
-----------
Services--2.9%
75,300 Borg Warner Security..................................... 1,411,875
94,900 Daisytek International, Corp. ........................... 1,803,100
77,500 Neilson Media Research, Inc. ............................ 1,395,000
104,800 R.H. Donnelley Corp. .................................... 1,526,150
900 Staffmark, Inc. ......................................... 20,137
26,400 Stykes Enterprises, Inc. ................................ 805,200
-----------
6,961,462
-----------
Services/Facility Environment--0.4%
33,000 American States Water Co. ............................... 899,250
-----------
Specialty Printing--1.8%
32,300 Banta Corp. ............................................. 884,212
40,100 Cadmus Communications Corp. ............................. 756,887
34,400 De Luxe Corp. ........................................... 1,257,750
51,700 Harte Hanks, Inc. ....................................... 1,473,450
-----------
4,372,299
-----------
Steel--0.6%
39,000 AK Steel Holdings Co. ................................... 916,500
75,500 Bethlehem Steel Corp. ................................... 632,312
-----------
1,548,812
-----------
Telecommunication--Long Distance--0.2%
19,500 Transaction Network Services, Inc. ...................... 391,219
-----------
Textiles/Apparel--0.5%
36,800 Liz Claiborne, Inc. ..................................... 1,161,500
-----------
Waste Management--0.0%
4,950 World Fuel Services Corp. ............................... 53,212
-----------
Total Common Stocks
(Identified Cost $205,590,663).......................... 222,678,290
-----------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
New England Zenith Fund
(Loomis Sayles Small Cap Series)
Investments as of December 31, 1998
Short-Term Investments--7.4%
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
$11,336,755 Associates First Capital Corp.,
5.000%, 1/04/99................................... $ 11,336,755
6,300,000 Chevron Oil Finance Co.
4.800%, 1/04/99................................... 6,300,000
------------
Short-Term Investments
(Identified Cost $17,636,755)..................... 17,636,755
------------
Total Investments--100.7%
(Identified Cost $223,227,418)(b) 240,315,045
Other assets less liabilities...................... (1,725,590)
------------
Total Net Assets--100.0%........................... $238,589,455
============
</TABLE>
(a) See Note 1A of Notes to Financial Statements.
(b) Federal Tax Information:
At December 31,1998 the net unrealized appreciation on investments based on
cost of $223,357,729 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.......................................................... $ 31,868,397
Aggregate gross unrealized
depreciation for all
investments in which there is
an excess of tax cost over
value......................................................... (14,911,081)
------------
Net unrealized appreciation.................................... $ 16,957,316
============
</TABLE>
For federal income tax purposes, the Series has a capital loss carryforward
at December 31, 1998 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.
6
<PAGE>
New England Zenith Fund
(Loomis Sayles Small Cap Series)
Statement of Assets & Liabilities
December 31, 1998
<TABLE>
<S> <C> <C>
Assets
Investments at value................................ $240,315,045
Receivable for:
Fund shares sold.................................... 904,953
Securities sold..................................... 901,190
Dividends and interest.............................. 346,572
------------
242,467,760
Liabilities
Payable for:
Securities purchased................................ $3,078,332
Fund shares redeemed................................ 544,207
Accrued expenses:
Management fees..................................... 126,624
Deferred trustees' fees............................. 4,566
Other expenses...................................... 124,576
----------
3,878,305
------------
Net Assets........................................... $238,589,455
============
Net Assets consist of:
Capital paid in..................................... $228,364,119
Undistributed net investment income................. 31,144
Accumulated net realized gains (losses)............. (6,893,435)
Unrealized appreciation (depreciation) on
investments........................................ 17,087,627
------------
Net Assets........................................... $238,589,455
============
Computation of offering price:
Net asset value and redemption price per share
($238,589,455 divided by 1,554,081 shares of
beneficial interest)................................ $ 153.52
============
Identified cost of investments....................... $223,227,418
============
</TABLE>
Statement of Operations
Year Ended December 31, 1998
<TABLE>
<S> <C> <C>
Investment Income
Dividends........................................ $ 2,821,460 (a)
Interest......................................... 1,266,966
-----------
4,088,426
Expenses
Management fees.................................. $2,178,725
Trustees' fees and expenses...................... 16,864
Custodian........................................ 100,581
Audit and tax services........................... 11,923
Legal............................................ 15,853
Printing......................................... 69,934
Insurance........................................ 6,110
Miscellaneous.................................... 4,291
----------
Total expenses................................... 2,404,281
Less expenses assumed by the investment adviser.. (225,557) 2,178,724
---------- -----------
Net investment income............................. 1,909,702
Realized and Unrealized Gain (Loss) on Investments
Realized gain (loss) on:
Investments--net................................. (6,792,530)
Unrealized appreciation
(depreciation) on:
Investments--net................................. 899,887
-----------
Net gain (loss) on investment
transactions..................................... (5,892,643)
-----------
Net Increase (Decrease) in Net Assets from
Operations....................................... $(3,982,941)
===========
</TABLE>
(a) Net of foreign taxes of: $195.
See accompanying notes to financial statements.
7
<PAGE>
New England Zenith Fund
(Loomis Sayles Small Cap Series)
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
From Operations
Net investment income............................. $ 1,362,282 $ 1,909,702
Net realized gain (loss) on investments........... 22,598,381 (6,792,530)
Unrealized appreciation (depreciation) on
investments...................................... 5,981,132 899,887
------------ ------------
Increase (decrease) in net assets from operations. 29,941,795 (3,982,941)
------------ ------------
From Distributions to Shareholders
Net investment income............................. (1,336,197) (1,908,277)
Net realized gain on investments.................. (21,404,296) (1,896,046)
In excess of net realized gain on investment...... -- (106,613)
------------ ------------
(22,740,493) (3,910,936)
------------ ------------
From Capital Shares Transactions
Proceeds from sale of shares...................... 117,472,557 108,988,919
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income.......... 1,336,197 1,908,277
Distributions from net realized gain.............. 21,404,296 2,002,659
------------ ------------
140,213,050 112,899,855
Cost of shares redeemed........................... (36,502,923) (66,521,977)
------------ ------------
Increase (decrease) in net assets derived from
capital share transactions....................... 103,710,127 46,377,878
------------ ------------
Total increase (decrease) in net assets........... 110,911,429 38,484,001
Net Assets
Beginning of the year............................. 89,194,025 200,105,454
------------ ------------
End of the year................................... $200,105,454 $238,589,455
============ ============
Undistributed Net Investment Income
Beginning of the year............................. $ 9,342 $ 35,427
============ ============
End of the year................................... $ 35,427 $ 31,144
============ ============
Number of Shares of the Fund:
Issued from the sale of shares.................... 721,830 707,174
Issued in connection with the reinvestment of:
Distributions from net investment income.......... 8,598 12,870
Distributions from net realized gain.............. 137,451 13,107
------------ ------------
867,879 733,151
Redeemed.......................................... (226,920) (438,200)
------------ ------------
Net change........................................ 640,959 294,951
============ ============
</TABLE>
Financial Highlights
<TABLE>
<CAPTION>
May 2, 1994(a)
through Year Year Year Year
December 31, Ended Ended Ended Ended
1994 1995 1996 1997 1998
-------------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year...... $100.00 $ 96.61 $118.80 $ 144.29 $ 158.92
------- ------- ------- -------- --------
Income From Investment
Operations
Net Investment Income.. 0.14 0.85 1.05 1.22 1.24
Net Realized and
Unrealized Gain (Loss)
on Investments........ (3.38) 26.93 35.03 34.11 (4.01)
------- ------- ------- -------- --------
Total From Investment
Operations............ (3.24) 27.78 36.08 35.33 (2.77)
------- ------- ------- -------- --------
Less Distributions
Distributions From Net
Investment Income..... (0.15) (0.78) (1.03) (1.21) (1.24)
Distributions From Net
Realized Capital
Gains................. 0.00 (4.81) (9.56) (19.49) (1.32)
Distribution in excess
of Net Realized
Capital Gains......... -- -- -- -- (0.07)
------- ------- ------- -------- --------
Total Distributions.... (0.15) (5.59) (10.59) (20.70) (2.63)
------- ------- ------- -------- --------
Net Asset Value, End of
Year................... $ 96.61 $118.80 $144.29 $ 158.92 $ 153.52
======= ======= ======= ======== ========
Total Return (%)........ (3.2)(b) 28.9 30.7 24.9 (1.7)
Ratio of Operating
Expenses to Average Net
Assets (%)............. 1.00 (c) 1.00 1.00 1.00 1.00
Ratio of Net Investment
Income to Average Net
Assets (%)............. 0.32 (c) 1.26 1.15 0.97 0.88
Portfolio Turnover Rate
(%).................... 80 (c) 98 62 87 111
Net Assets, End of Year
(000).................. $ 3,105 $27,741 $89,194 $200,105 $238,589
The ratios of expenses
to average net assets
without giving effect
to the voluntary
expense agreement
described in Note 4 to
the Financial
Statements would have
been (%)............... 2.31 (c) 1.91 1.29 1.14 1.10
</TABLE>
(a) Commencement of operations.
(b) Not computed on an annualized basis.
(c) Computed on an annualized basis.
See accompanying notes to financial statements.
8
<PAGE>
Morgan Stanley International Magnum Equity Series
Portfolio Manager: Francine J. Bovich Morgan Stanley Asset Management
[PHOTO OF FRANCINE J. BORICH]
Q. How did the Series perform over the year?
A. The Series posted a 7.3% total return (based on net asset value) for the
year. This performance lagged the Lipper Variable Products International Funds
Average/12/ return of 13.4% over the same period. 1998 was a challenging year
for the international markets and the International Magnum Series. The Series
underperformed the Morgan Stanley Capital International Europe, AustrialAsia,
Far East Index/18/ (EAFE) which returned 20.6% primarily due to our stock se-
lection of European value stocks and small and mid-cap companies. European
value stocks have been underperforming European growth stocks by a wide margin
for the past six months, with the largest companies providing the majority of
the gains as investors sought safety in the most liquid names. On the positive
side, stock selection in Japan and Asia enhanced the Series' performance as
did our regional allocation policy, in which we were overweight or neutral in
Europe and underweight in Japan and Asia virtually all year. Stock selection
in Europe, however, was the main factor in the Series' underperformance.
Q. How did you manage the Series during the year?
A. Although the benchmark EAFE Index ended the year up 20.6%, most of the in-
dex gains were attributable to a strong performance in Europe, which comprises
over 70% of the EAFE Index. Following a first quarter rally, volatility in-
creased in markets around the world. Global markets corrected sharply in Au-
gust and September, sparked by the Russian debt default and near collapse of a
U.S. hedge fund. The markets then settled down in the final quarter of the
year, posting a recovery helped by interest rate cuts in Europe and the U.S.
The weakening of the U.S. dollar at year end also contributed to returns for
dollar-based investors. The Series' European holdings underperformed the Euro-
pean index for the second half of the year after a strong performance in the
first half. While companies like Telecom Italia, Nestle, Imperial Tobacco and
France Telecom were strong performers for the year, the Series was hurt by
holdings in oil (Premier Oil, Total) as well as by weak stock selection, espe-
cially in the U.K. The Series also suffered as large and mega cap growth
stocks were unstoppable, while 1998 was one of the worst years on record for
value investors. Furthermore, the valuation gap between small/mid sized compa-
nies and their larger peers reached the widest point in over thirteen years.
The Series has increased its exposure over the last 18 months to small/mid cap
companies with relatively lower price/earnings ratios. In the recent flight to
liquidity, however, these small/mid cap companies were shunned by investors,
often for reasons unrelated to fundamentals. This has been the principal cause
for our recent underperformance.
Turning to our Asian ex-Japan holdings, we maintained a defensive portfolio
during the year. Although our holdings outperformed relative to the region,
most positions were still down for the year. The Series was helped by the fact
that our Asian holdings were a small (i.e., less than 5 per cent) portion of
the Series in absolute terms, and underweighted versus the EAFE Index.
The only strong performer in the region was the Australian Stock Index, which
rose 6% for the year as the domestic economy exhibited strong economic funda-
mentals--low inflation, sound monetary policy, a budget surplus and a healthy
banking system. Additionally, many Australian companies were well managed with
an eye toward increasing profitability. Telstra, a telecom company, Fosters, a
beer manufacturer, and National Australia Bank were all strong performers for
the year.
Finally, in Japan, our strategy of focusing on blue chip exporters (e.g., Sony
and Nintendo) and avoiding banks and more domestically oriented stocks con-
tributed to relative outperformance of our Japanese stocks. Japanese equities
hit 12 year lows in 1998 as sentiment became increasingly negative on the fu-
ture of the Japanese economy. As a result, we have held a smaller position in
Japan than the EAFE index. We also actively hedged our yen exposure during the
year, which was helpful as the yen fell to 147 yen per dollar during the first
half of the year, but hurt performance as the yen strengthened during the last
quarter.
Q. What is your current outlook for the months ahead?
A. We remain cautiously optimistic about the outlook for Europe in 1999, as we
expect demand for equities to continue to rise and merger and restructuring
activity to remain brisk. However, risks include the new Euro currency, which
has shown signs of possible strengthening versus the U.S. dollar and would
hurt the exporters that have led the European recovery. Furthermore, there are
signs of a more dramatic than expected economic slowing in Europe, which could
put further pressure on already high unemployment rates. Finally, valuations
particularly in the largest companies are at very high levels, making them ex-
tremely vulnerable to earnings disappointments, should the economic backdrop
9
<PAGE>
worsen. Experience tells us that owning a portfolio of undervalued companies
(e.g. low price/cash flow) builds in a margin of safety for those periods when
markets fall on tough times. While we were disappointed by our European re-
sults in 1998, we believe that with valuation gaps so extreme and earnings ex-
pectations still very positive, our European stocks are well positioned for
the new year.
In Asia ex-Japan, the turnaround in several key countries in the region such
as Thailand and South Korea has contributed to increasing stability and should
benefit the region as a whole in the new year. Singapore and New Zealand
should benefit more than the more insular Asian economies or Hong Kong.
Throughout the region, restructuring should become increasingly important as
companies seek to enhance their own performance and create shareholder value.
There will be several factors to monitor throughout the region, including the
performance of the Japanese economy (as it is a major trading partner with
most Asian nations), the large supply of new offerings and capital raisings we
expect to see in Asia and growth in the developed economies that are the pri-
mary markets for Asian exports. We also remain cautious about the outlook for
China and Hong Kong. China has seen several corporate defaults in recent weeks
and the recent volatility in Latin America raises questions about the strength
of the renminbi and the sustainability of the Hong Kong/U.S. dollar peg. Up-
side surprises for the region could include successful bank recapitalization
and economic recovery in Japan and stronger than expected import demand from
the U.S. and Europe.
1999 should be another difficult year for Japan, with GDP growth flat to nega-
tive. Further bank failures are likely and the credit crunch should continue
as a result. While Prime Minister Obuchi has provided a platform for signifi-
cant tax cuts and economic stimulus packages to support Japan on a macro lev-
el, adjustments to over capacity and over employment and deleveraging on the
micro level will probably become the dominant themes for investors in 1999. As
Japan increasingly gravitates to "international" accounting standards, corpo-
rate sector restructuring should ensue, challenging the traditional full em-
ployment socialist system and further dampening consumer sentiment as unem-
ployment rises. Japan also remains vulnerable to any global economic slowdown
as well as a stronger yen and higher domestic interest rates. We will remain
highly selective in our stock selection, favoring PC, semiconductor, service,
pharmaceutical and select domestic sectors such as housing and housing related
securities. As we enter 1999, we are cautiously optimistic that this year the
private sector will finally foster real structural changes in areas such as
wages, employment efficiencies, and shareholder value (e.g., focus on return-
on-equity). After 10 years of economic stagnation, Japan has entered the final
phase for real change, making this an important time for long term investors
in Japanese equities. Should changes occur, we believe the markets would im-
prove correspondingly.
In conclusion, we believe 1999 will be an interesting year in the
international equity markets overall. We have remained close to market weight
in Europe and underweight in Japan and Asia relative to EAFE for much of the
past year. Overall, we will remain vigilant to find the best investment
opportunities to put money to work, and adjust our portfolio accordingly.
[GRAPH APPEARS HERE]
A $10,000 investment compared to the EAFE Index
since the Series' inception
Date International Equity Series EAFE
---- --------------------------- ----
10/31/94 $10,000 $10,000
12/31/94 $10,260 $9,555
12/31/95 $10,879 $10,455
12/31/96 $11,627 $10,915
12/31/97 $11,476 $11,476
12/31/98 $12,311 $13,809
Average Annual Return
International Magnum EAFE/18/ Lipper Variable International
Equity Series Funds Average/12/
1 year 7.3% 20.6% 13.4%
3 years 4.2 9.0 11.3
Since Inception 5.1 8.0 n/a
X Fund Facts
Goal: Total return from long-term
growth of capital
Start date: October 31, 1994
Size: $68 million as of
December 31, 1998
Manager: Francine Bovich manages
the Morgan Stanley International
Magnum Equity Series. 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.
10
<PAGE>
New England Zenith Fund
(Morgan Stanley International Magnum Equity Series)
Investments as of December 31, 1998
Common Stocks--93.5% of Total Net Assets
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Australia--1.8%
4,000 Brambles Industries, Ltd.................................. $ 97,432
32,350 Colonial, Ltd............................................. 111,012
7,150 Commonwealth Bank......................................... 101,486
42,800 Fosters Brewing........................................... 115,924
6,800 Lend Lease Corp........................................... 91,672
9,150 National Australia Bank, Ltd. ............................ 137,931
17,400 News Corp., Ltd........................................... 114,941
37,000 Oil Search, Ltd........................................... 37,410
10,000 Rio Tinto, Ltd. .......................................... 118,604
33,800 Telstra Corp.............................................. 158,033
8,500 Westpac Banking Corp. .................................... 56,879
16,300 WMC, Ltd.................................................. 49,143
18,150 Woolworths, Ltd. ......................................... 61,794
-----------
1,252,261
-----------
Belgium--1.0%
12,670 GIB Inno.................................................. 659,705
-----------
Denmark--0.8%
6,100 Unidanmark................................................ 551,121
-----------
Finland--4.7%
7,780 Huhtamaki OY 'I' Free..................................... 296,003
4,195 Kone OY, Series B......................................... 485,399
9,470 Konecranes Interna........................................ 427,162
93,780 Merita, Ltd. Series A..................................... 592,217
22,150 Metra OY, Series B........................................ 382,271
33,158 Rauma OY.................................................. 481,211
13,000 Sampo Insurance Co., Ltd.................................. 493,332
2,345 Valmet OY................................................. 31,273
-----------
3,188,868
-----------
France--7.9%
21,100 Bull S.A.................................................. 158,127
5,591 Cie de St. Gobain......................................... 789,000
16,900 CNP Assurances............................................ 513,257
1,590 Groupe Danone............................................. 455,017
5,980 Elf Aquitaine............................................. 690,946
2,580 Lafarge-Coppee............................................ 245,033
6,211 Legris.................................................... 304,274
12,250 Michelin Series B......................................... 489,693
13,550 Rohne-Poulenc S.A. Series A............................... 697,010
5,450 Total S.A. Series B....................................... 551,726
3,520 Union Assure Federales.................................... 467,151
-----------
5,361,234
-----------
Germany--8.9%
18,010 Basf AG................................................... 687,289
5,800 Bayer AG.................................................. 242,044
6,640 Bayer Hypo Vereins........................................ 519,933
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
1,490 Buderus AG............................................... $ 542,680
1,660 Dyckerhoff AG, Preferred................................. 460,170
1,570 Fresenius AG, Preferred.................................. 330,655
1,630 Hornbach Holding AG, Preferred........................... 96,826
4,331 Philipp Holzmann......................................... 682,160
3,440 Plettac AG............................................... 269,363
1,400 Sudzucker AG, Preferred.................................. 635,905
10,710 Veba AG.................................................. 640,698
520 Viag AG.................................................. 304,836
8,280 Volkswagen AG............................................ 660,770
-----------
6,073,329
-----------
Great Britain--18.9%
249,800 Aegis Group.............................................. 361,067
10,600 Allied Domecq PLC........................................ 98,005
23,800 Allied Zurich............................................ 357,652
35,937 Bank of Ireland.......................................... 786,322
64,429 Bank of Scotland......................................... 770,707
63,508 BG PLC................................................... 408,333
35,100 British Telecom PLC...................................... 531,253
43,600 Bunzl PLC................................................ 170,228
50,322 Burmah Castrol PLC....................................... 719,005
81,050 Capital Radio............................................ 787,743
93,300 Charter PLC.............................................. 511,530
112,000 Devro.................................................... 321,914
43,964 Diageo PLC............................................... 487,555
58,380 Greal Universal Stores PLC............................... 615,905
212,300 Halma PLC................................................ 426,787
41,600 IMI...................................................... 163,110
75,000 Imperial Tobacco Group................................... 785,014
70,000 Lonrho PLC............................................... 381,459
110,600 Morgan Crucible Co....................................... 507,154
72,100 Premier Farnell PLC...................................... 191,660
780,600 Premier Cons Oilfields LTD............................... 207,503
68,400 Reckitt and Colman....................................... 905,144
37,940 RMC Group PLC............................................ 518,767
85,854 Royal Sun Alliance Insurance............................. 698,928
133,400 Scapa Group.............................................. 217,199
9,000 Scot Media Group......................................... 105,117
3,900 Williams................................................. 22,289
139,400 WPP Group PLC............................................ 845,340
-----------
12,902,690
-----------
Hong Kong--1.6%
28,000 China Telecommunications................................. 48,428
12,000 CLP Holdings............................................. 59,786
33,000 Dairy Farm International (USD)........................... 37,950
41,800 Hong Kong & China Gas.................................... 53,143
16,500 Hong Kong Electric Holdings.............................. 50,048
34,000 Hong Kong Telecommunications............................. 59,464
6,000 HSBC Holdings PLC........................................ 149,466
30,000 Hutchison Whampoa........................................ 212,291
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
New England Zenith Fund
(Morgan Stanley International Magnum Equity Series)
Investments as of December 31, 1998
Common Stocks--(Continued)
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Hong Kong--(Continued)
20,000 LI & Fung, Ltd. ......................................... $ 41,432
12,000 Smartone Telecommunications.............................. 33,301
27,000 Sun Hung Kai Props....................................... 196,900
18,000 Swire Pacific............................................ 80,618
8,000 Television Broadcasts.................................... 20,651
5,000 Vtech Holdings........................................... 21,813
-----------
1,065,291
-----------
Ireland--0.8%
111,900 Greencore Group.......................................... 515,898
-----------
Italy--5.2%
13,155 BCA Pop Bergam CV........................................ 319,039
5,900 ItalGas (Soc Ital)....................................... 31,918
68,060 Magneti Marelli Spa...................................... 117,725
46,255 Marzotto & Figli......................................... 509,142
92,750 Mediaset................................................. 751,671
130,100 Sogefi................................................... 353,291
234,812 Telecom Italia Spa....................................... 1,476,939
-----------
3,559,725
-----------
Japan--19.0%
4,000 Aiwa Co. ................................................ 105,440
24,000 Amada, Ltd............................................... 116,126
2,000 Autobacs Seven Co. ...................................... 67,227
17,000 Canon, Inc............................................... 363,158
23,000 Casio Computer Co........................................ 169,677
15,000 Dai Nippon Printing...................................... 239,098
56,000 Daicel Chemical.......................................... 166,440
31,000 Daifuku Co............................................... 165,626
25,000 Daikin Industries........................................ 247,678
3,000 Familymart Co., Ltd. .................................... 149,668
11,000 Fuji Machine Manufacturing............................... 347,368
11,000 Fuji Photo Film, Ltd..................................... 408,669
18,000 Fujitec Co............................................... 115,913
32,000 Fujitsu, Ltd. ........................................... 426,006
44,000 Furukawa Electric Co. ................................... 149,845
13,000 Hitachi Credit Corp. .................................... 288,633
61,000 Hitachi, Ltd............................................. 377,709
15,000 Inabata and Co........................................... 40,071
36,000 Kaneka Corp. ............................................ 269,721
12,000 Kurita Water Industries.................................. 175,993
4,000 Kyocera Corp............................................. 211,234
16,000 Kyudenko Corp............................................ 108,129
8,000 Lintec Corp.............................................. 74,374
24,000 Matsushita Electric Industries........................... 424,379
11,000 Minebea Co............................................... 125,909
69,000 Mitsubishi Chemical Industries........................... 145,263
19,000 Mitsubishi Estate........................................ 170,252
59,000 Mitsubishi Heavy Industries.............................. 229,633
16,000 Mitsumi Electric......................................... 338,257
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
7,000 Murata Manufacturing Co................................... $ 290,402
40,000 NEC Corp.................................................. 367,979
17,000 Nifco, Inc. .............................................. 136,992
4,800 Nintendo, Ltd............................................. 464,927
55 Nippon Telephone & Telegraph Corp. ....................... 424,237
85,000 Nissan Motors............................................. 260,150
13,000 Nissha Printing Co........................................ 79,345
24 NTT Data Corp............................................. 119,098
6,000 ONO Pharmaceutical........................................ 187,351
42,000 Ricoh Co.................................................. 387,121
6,000 Rinnai Corp............................................... 104,874
2,000 Rohm Co................................................... 182,043
5,000 Ryosan Co................................................. 79,832
5,000 Sangetsu Co. ............................................. 74,746
17,000 Sankyo Co................................................. 371,429
27,000 Sanwa Shutter Corp........................................ 117,983
21,000 Sekisui Chemical.......................................... 141,176
16,000 Sekisui House............................................. 169,129
25,000 Shin-Estu Polymer Co. .................................... 130,473
5,500 Sony Corp................................................. 400,398
9,000 Sumitomo Marine and Fire.................................. 57,001
16,000 Suzuki Motor Corp. ....................................... 189,651
4,000 TDK Corp. ................................................ 365,502
7,000 Tokyo Electron, Ltd....................................... 265,635
64,000 Toshiba Corp.............................................. 381,000
12,000 Toyota Motor Corp. ....................................... 325,874
35,000 Tsubakimoto Chain......................................... 74,613
15,000 Yamaha Corp............................................... 155,241
13,000 Yamanouchi Pharmacy....................................... 418,576
-----------
12,940,274
-----------
Malaysia--0.1%
5,000 Carlsberg Brewery......................................... 14,342
8,000 Guinness Anchor........................................... 8,042
1,000 Nestle Malay.............................................. 4,000
6,000 R. J. Reynolds............................................ 6,789
4,000 Rothmans of Pall Mall..................................... 23,579
1,000 Telekom Malaysia.......................................... 2,632
-----------
59,384
-----------
Netherlands--3.5%
17,400 ABN Amro Holdings......................................... 365,838
15,440 Akzo Nobel NV............................................. 702,677
14,618 Ing Groep NV.............................................. 890,915
6,500 Philips Electronics....................................... 435,940
-----------
2,395,370
-----------
New Zealand--0.1%
8,700 Telecom Corp. of New Zealand.............................. 37,769
1,400 Telecom Corp. of New Zealand Installment Receipt.......... 3,057
-----------
40,826
-----------
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
New England Zenith Fund
(Morgan Stanley International Magnum Equity Series)
Investments as of December 31, 1998
Common Stocks--(Continued)
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Norway--1.2%
20,500 Saga Petroleum Series B.................................. $ 187,504
33,300 Sparebanken Primary Cap.................................. 648,602
-----------
836,106
-----------
Singapore--0.3%
8,000 City Developments........................................ 34,646
15,000 Natsteel Electronics, Ltd................................ 38,159
5,000 Singapore Airlines....................................... 36,644
26,000 Singapore Technical Engineering.......................... 24,252
10,000 United Overseas Bank..................................... 64,203
7,000 Venture Manufacturing.................................... 26,711
-----------
224,615
-----------
Spain--3.5%
31,250 Banco Bilboa Vizcaya..................................... 489,243
57,300 Iberdrola S.A. .......................................... 1,070,444
8,063 Telefonica de Espana..................................... 357,990
8,063 Telefonica de Espana, (Rights)........................... 7,148
43,680 Uralita S.A.............................................. 485,607
-----------
2,410,432
-----------
Sweden--4.4%
20,900 Autoliv, Inc............................................. 748,560
19,300 BT Industries AB......................................... 280,303
134,900 Nordbanken AS............................................ 863,381
40,700 Svedala Industries....................................... 591,104
12,900 Svenska Handelsbkn....................................... 543,004
-----------
3,026,352
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Switzerland--9.8%
322 Bobst AG............................................ $ 398,486
1,120 Forbo Holdings...................................... 489,190
725 Holderbk Financiere Glarus.......................... 858,157
710 Nestle S.A.......................................... 1,545,388
968 Richemont Series A.................................. 1,368,462
315 Schindler Holding AG................................ 536,580
520 Sig Schweiz Industry Holding AG..................... 306,617
1,360 Swisscom AG......................................... 569,265
289 UBS AG.............................................. 88,781
2,010 Valora Holding AG................................... 543,579
-----------
6,704,505
-----------
Total Common Stocks
(Identified Cost $61,829,706)...................... 63,767,986
-----------
Short-Term Investment--6.5%
<CAPTION>
Face
Amount
<C> <S> <C>
$4,449,000 Repurchase agreement with State Street Corp. dated
12/31/98 at 4.0% to be repurchased at $4,450,977 on
1/04/99 collateralized by $3,330,000 U.S. Treasury
Note 8.125% due 8/15/2019 with a value of
$4,539,726......................................... 4,449,000
-----------
Total Short-Term Investment
(Identified Cost $4,449,000) 4,449,000
-----------
Total Investments--100.0%
(Identified Cost $66,278,706)(b)................... 68,216,986
Other assets less liabilities....................... (48,342)
-----------
Total Net Assets--100%.............................. $68,168,644
===========
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
New England Zenith Fund
(Morgan Stanley International Magnum Equity Series)
Investments as of December 31, 1998
Forward Contracts Outstanding at December 31, 1998
<TABLE>
<CAPTION>
Local Aggregate Unrealized
Currency Delivery Currency Face Total Appreciation/
Contract Date Amount Value Value (Depreciation)
<S> <C> <C> <C> <C> <C>
Japanese Yen
(bought)............ 1/13/1999 413,568,200 $3,598,942 $3,664,598 $ 65,656
Japanese Yen (sold).. 1/13/1999 413,568,200 3,459,943 3,664,598 (204,655)
Japanese Yen
(bought)............ 1/19/1999 80,894,000 700,502 717,368 16,866
Japanese Yen (sold).. 1/19/1999 80,894,000 674,398 717,368 (42,970)
Japanese Yen
(bought)............ 1/27/1999 173,546,000 1,498,230 1,540,645 42,415
Japanese Yen (sold).. 1/27/1999 173,546,000 1,446,216 1,540,645 (94,429)
---------
Net unrealized depreciation of
forward currency contracts..... $(217,117)
=========
</TABLE>
Ten Largest Industry Holdings at December 31, 1998 (Unaudited)
<TABLE>
<C> <S> <C>
1 Finance 17.3%
2 Consumer Basics 11.3%
3 Capital Goods 9.5%
4 Utilities 7.9%
5 Consumer Durables 6.8%
6 Basic Industries 6.8%
7 Shelter 5.6%
8 Consumer Non Durables 5.3%
9 Technology 4.2%
10 Energy 4.1%
</TABLE>
(a) See Note 1A of Notes to Financial Statements.
(b) Federal Tax Information:
At December 31,1998 the net unrealized appreciation on investments based on
cost of $66,683,612 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........ $ 7,448,351
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value........ (5,914,977)
-----------
Net unrealized appreciation................................ $ 1,533,374
===========
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
New England Zenith Fund
(Morgan Stanley International Magnum Equity Series)
Statement of Assets & Liabilities
December 31, 1998
<TABLE>
<S> <C> <C>
Assets
Investments at value.................................... $68,216,986
Cash.................................................... 1,989
Foreign cash at value (Identified cost $138,888)........ 138,805
Receivable for:
Fund shares sold........................................ 309,652
Dividends and interest.................................. 135,838
Foreign taxes........................................... 90,028
Unamortized organization expense ....................... 1,666
-----------
68,894,964
Liabilities
Payable for:
Securities purchased.................................... $132,620
Open forward currency contracts--net.................... 217,117
Fund shares redeemed.................................... 216,926
Withholding taxes....................................... 12,153
Accrued expenses:
Management fees......................................... 52,283
Deferred trustees' fees................................. 5,121
Other expenses.......................................... 90,100
--------
726,320
-----------
$68,168,644
===========
Net Assets
Net Assets consist of:
Capital paid in......................................... $67,075,774
Overdistributed net investment income................... (179,114)
Accumulated net realized
gains (losses)......................................... (455,172)
Unrealized appreciation (depreciation) on investments,
forward contracts and foreign currency................. 1,727,156
-----------
Net Assets............................................... $68,168,644
===========
Computation of offering price:
Net asset value and redemption price per share
($68,168,644 divided by 5,978,157 shares of beneficial
interest)............................................... $ 11.40
===========
Identified cost of investments........................... $66,278,706
===========
</TABLE>
Statement of Operations
Year Ended December 31, 1998
<TABLE>
<S> <C> <C>
Investment Income
Dividends........................................... $1,191,706(a)
Interest............................................ 302,016
----------
1,493,722
Expenses
Management fees..................................... $ 566,848
Trustees' fees and expenses......................... 10,532
Custodian........................................... 237,267
Audit and tax services.............................. 26,347
Legal............................................... 11,651
Printing............................................ 21,488
Insurance........................................... 1,920
Amortization of organization expenses............... 2,011
Miscellaneous....................................... 3,065
----------
Total expenses..................................... 881,129
Less expenses assumed by the investment adviser.... (62,316) 818,813
---------- ----------
Net investment income................................ 674,909
Realized and Unrealized Gain (Loss) on Investments,
Forward Currency Contracts and Foreign Currency
Transactions
Realized gain (loss) on:
Investments--net.................................... 617,759
Foreign currency transactions--net.................. 80,429
----------
Total realized gain (loss) on investments and
foreign currency transactions...................... 698,188
----------
Unrealized appreciation (depreciation) on:
Investments--net.................................... 2,486,756
Foreign currency transactions--net.................. (683,136)
----------
Total unrealized appreciation (depreciation) on
investments and foreign currency transactions...... 1,803,620
----------
Net gain (loss) on investment transactions........... 2,501,808
----------
Net Increase (Decrease) in Net Assets From
Operations.......................................... $3,176,717
==========
</TABLE>
(a) Net of foreign taxes of: $153,275.
See accompanying notes to financial statements.
15
<PAGE>
New England Zenith Fund
(Morgan Stanley International Magnum Equity Series)
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
From Operations
Net investment income............................... $ 451,721 $ 674,909
Net realized gain (loss) on investments and foreign
currency transactions.............................. 392,080 698,188
Unrealized appreciation (depreciation) on
investments and foreign currency transactions...... (1,984,775) 1,803,620
----------- -----------
Increase (decrease) in net assets from operations... (1,140,974) 3,176,717
----------- -----------
From Distributions to Shareholders
Net investment income............................... (401,271) (674,909)
In excess of net investment income.................. 0 (146,749)
Net realized gain on investments.................... (394,830) (658,590)
In excess of net realized gain on investment........ (542,890) 0
----------- -----------
(1,338,991) (1,480,248)
----------- -----------
From Capital Shares Transactions
Proceeds from sale of shares........................ 31,343,810 31,156,503
Net asset value of shares issued in connection with
the reinvestment of:
Distributions from net investment income........... 401,271 821,658
Distributions from net realized gain............... 937,720 658,590
----------- -----------
32,682,801 32,636,751
Cost of shares redeemed............................. (16,560,469) (19,199,129)
----------- -----------
Increase (decrease) in net assets derived from
capital share transactions......................... 16,122,332 13,437,622
----------- -----------
Total increase (decrease) in net assets............. 13,642,367 15,134,091
Net Assets
Beginning of the year............................... 39,392,186 53,034,553
----------- -----------
End of the year..................................... $53,034,553 $68,168,644
=========== ===========
Undistributed (overdistributed) Net Investment Income
Beginning of the year............................... $ (55,074) $ (116,715)
=========== ===========
End of the year..................................... $ (116,715) $ (179,114)
=========== ===========
Number of Shares of the Fund:
Issued from the sale of shares...................... 2,737,081 2,622,460
Issued in connection with the reinvestment of:
Distributions from net investment income........... 36,467 68,127
Distributions from net realized gain............... 86,482 57,720
----------- -----------
2,860,030 2,748,307
Redeemed............................................ (1,465,482) (1,655,274)
----------- -----------
Net change.......................................... 1,394,548 1,093,033
=========== ===========
</TABLE>
Financial Highlights
<TABLE>
<CAPTION>
October 31, 1994(a)
through Year Year Year Year
December 31, Ended Ended Ended Ended
1994 1995 1996 1997 1998
------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year...... $10.00 $ 10.23 $ 10.73 $ 11.29 $ 10.86
------ ------- ------- ------- -------
Income From Investment
Operations
Net Investment Income.. 0.03 0.09 0.06 0.08 0.14
Net Realized and
Unrealized Gain (Loss)
on Investments........ 0.23 0.53 0.68 (0.23) 0.66
------ ------- ------- ------- -------
Total From Investment
Operations............ 0.26 0.62 0.74 (0.15) 0.80
------ ------- ------- ------- -------
Less Distributions
Distributions From Net
Investment Income..... (0.02) (0.09) (0.02) (0.09) (0.12)
Distributions in Excess
of Net Investment
Income................ 0.00 (0.03) 0.00 0.00 (0.03)
Distributions From Net
Realized Capital
Gains................. 0.00 0.00 (0.16) (0.08) (0.11)
Distributions in Excess
of Net Realized
Capital Gains......... 0.00 0.00 0.00 (0.11) 0.00
Distributions From
Paid-in Capital....... (0.01) 0.00 0.00 0.00 0.00
------ ------- ------- ------- -------
Total Distributions.... (0.03) (0.12) (0.18) (0.28) (0.26)
------ ------- ------- ------- -------
Net Asset Value, End of
Year................... $10.23 $ 10.73 $ 11.29 $ 10.86 $ 11.40
====== ======= ======= ======= =======
Total Return (%)........ 2.6(b) 6.0 6.9 (1.3) 7.3
Ratio of Operating
Expenses to Average Net
Assets (%)............. 1.30(c) 1.30 1.30 1.30 1.30
Ratio of Net Investment
Income to Average Net
Assets (%)............. 2.56(c) 1.29 0.67 0.96 1.07
Portfolio Turnover Rate
(%).................... 4(c) 89 64 115 40
Net Assets, End of Year
(000).................. $2,989 $16,268 $39,392 $53,035 $68,169
The ratios of expenses
to average net assets
without giving effect
to the voluntary
expense agreement
described in Note 4 to
the Financial
Statements would have
been (%)............... 5.38(c) 3.12 1.66 1.59 1.40
</TABLE>
(a) Commencement of operations.
(b) Not computed on an annualized basis.
(c) Computed on an annualized basis.
See accompanying notes to financial statements.
16
<PAGE>
Alger Equity Growth Series
Portfolio Manager: David D. Alger Fred Alger Management, Inc.
[PHOTO OF DAVID D. ALGER APPEARS HERE]
Q. How did the portfolio perform in 1998?
A. 1998 proved a turbulent and challenging year for investors in the U.S. stock
market. During the first half of the year, stocks that had been undeservedly
oversold in the wake of the Asian crisis rebounded nicely. Inflation remained
subdued and the Federal Reserve left interest rates unchanged. The post-Asian
crisis earnings season came and went with some predictable casualties, but most
companies got through it unscathed. Moreover, after a year where value stocks
significantly outperformed growth stocks, investors returned to the more ag-
gressive discipline. By mid-July, most major market indices were trading at
record levels.
Amid incidents of international economic instability and domestic political
controversy, the market sold off dramatically in August. Specifically, the Rus-
sian economy collapsed and the state of Japan's banking system worsened. Eco-
nomic activity was slowed by a credit crunch, as spreads between corporate and
Treasury bonds widened. As measured by the S&P 500 Index/25/, the historically
placid month of August proved to be the worst performing month since October of
1987. The markets recovered during September in anticipation of relief from the
Federal Reserve Board (the "Fed") yet sold off sharply toward the end of the
month following what was perceived to be a disappointing reduction of the Fed-
eral Funds Rate by 0.25%.
As October progressed, stocks gained a boost from a rare intra-meeting rate re-
duction by the Fed. The technology sector stabilized as Intel, Microsoft and
Apple all reported better than expected quarterly earnings. A rally prompted by
additional relief from the Fed in November highlighted a strong fourth quarter,
which anchored another lucrative albeit challenging year for the U.S. stock
market. As a result, the Alger Equity Growth Series posted a quarterly return
of 26.1% which brought its return for 1998 to 47.8% (based on net asset value),
significantly outpacing the Lipper Variable Products Growth Fund Average/10/
return of 24.7% and the S&P 500 Index/25/ which returned 28.7% for the year.
Q. How did you manage the Series during the past year?
A. The management of the Series remained unchanged, a research intensive, bot-
tom-up approach focusing on rapidly growing large cap stocks. Strong positive
cash inflows for the year helped fuel investment opportunities and precluded
the selling of core holdings in order to satisfy redemptions.
The Series benefited from its large cap positioning. As of December 31, 1998
the Series possessed a weighted average market cap of $85.7 billion. The Series
strong performance for the year was also augmented by the performance of tech-
nology and pharmaceutical holdings. Notable performing stocks for the year in-
cluded America Online, Microsoft, MCI Worldcom, and Cisco Systems. Key holdings
in the retail sector also boosted the Series annual performance. These compa-
nies included Home Depot, Wal-Mart and Staples, which were all up in excess of
100% for the year.
Q. What is your investment outlook for the months ahead?
A. Looking ahead, we remain cautiously optimistic, however 1999 should be a
wonderful year for the American economy and American investors in general.
While there are undoubtedly going to be problems around the world, some new and
some recycled (Japan, Brazil, Clinton), overall, we expect the stock market to
move upward.
It is true that valuations are high on a historical basis. However, high valua-
tions are warranted because of the extremely low levels of both inflation and
fixed-income yields. Moreover, while corporate profits growths will be subdued
this year, growth in America's more dynamic sectors, such as technology, should
be spectacular.
As always, we will continue to seek out and invest in companies that we feel
will grow their earnings rapidly and consistently.
17
<PAGE>
[GRAPH APPEARS HERE]
Date Alger Equity Growth S&P 500
---- ------------------- -------
10/31/94 $10,000 $10,000
12/31/94 $ 9,580 $9,794
12/31/95 $14,245 $13,461
12/31/96 $16,122 $16,544
12/31/97 $20,254 $22,055
12/31/98 $29,931 $28,345
Average Annual Return
Equity Growth Lipper Variable Growth
Series S&P 500/25/ Fund Average/10/
1 year 47.8% 28.7% 24.7%
3 years 28.1 28.3 23.9
Since Inception 30.1 28.4 n/a
X Fund Facts
Goal: Long-term capital
appreciation.
Start date: October 31, 1994
Size: $411 million as of December
31, 1998
Manager: David D. Alger has
managed the Alger Equity Growth
Series since its inception in
1994. Mr. Alger is President and
Chief Financial Officer of Fred
Alger Management, Inc., and has
been portfolio manager of The
Alger Growth Portfolio since 1986,
The Alger American Fund Growth
Portfolio since 1989 and the Alger
Retirement Fund since 1993.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts. If these charges were included, the returns shown would
be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
18
<PAGE>
New England Zenith Fund
(Alger Equity Growth Series)
Investments as of December 31, 1998
Common Stocks--87.1% of Total Net Assets
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Airlines--1.0%
76,000 US Airways Group, Inc.(c)................................ $ 3,952,000
-----------
Banks--6.4%
50,200 Bank of New York......................................... 2,020,550
99,000 BankAmerica Corp. ....................................... 5,952,375
204,000 Citigroup, Inc. ......................................... 10,098,000
24,624 Firstar Corp. ........................................... 2,296,188
69,900 First Union Corp. ....................................... 4,250,794
26,200 State Street Corp. ...................................... 1,822,538
-----------
26,440,445
-----------
Casinos & Resorts--1.2%
100,000 Carnival Corp. .......................................... 4,800,000
-----------
Communications--1.2%
209,000 L. M. Ericsson Telecommunications Co. ................... 5,002,937
-----------
Communications Equipment--1.4%
61,375 Cisco Systems, Inc.(c)................................... 5,696,367
-----------
Communications Services--1.6%
97,800 Ascend Communications, Inc.(c)........................... 6,430,350
-----------
Computer Related & Business Equipment--10.4%
66,100 America Online(c)........................................ 10,576,000
97,200 Compaq Computer Corp. ................................... 4,076,325
116,600 Dell Computer Corp.(c)................................... 8,533,662
89,000 EMC Corp. ............................................... 7,565,000
64,300 International Business Machines.......................... 11,879,425
-----------
42,630,412
-----------
Computer Software--3.8%
55,200 Compuware Corp. ......................................... 4,312,500
82,300 Microsoft Corp. ......................................... 11,413,981
-----------
15,726,481
-----------
Consumer Products--4.7%
45,500 Corning, Inc. ........................................... 2,047,500
52,600 McKesson Corp. .......................................... 4,158,687
175,040 Tyco International, Ltd. ................................ 13,204,580
-----------
19,410,767
-----------
Financial Services--5.9%
122,600 Federal Home Loan Mortgage Corp. ........................ 7,900,037
208,800 Household International.................................. 8,273,700
115,000 Morgan Stanley Dean Witter............................... 8,165,000
-----------
24,338,737
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Health Care--5.2%
86,550 Cardinal Health......................................... $ 6,566,981
25,000 Elan plc (ADR).......................................... 1,739,063
70,900 IMS Health, Inc. ....................................... 5,348,519
104,800 Medtronic, Inc. ........................................ 7,781,400
------------
21,435,963
------------
Insurance--2.3%
78,000 American International Group............................ 7,536,750
24,000 SunAmerica, Inc. ....................................... 1,947,000
------------
9,483,750
------------
Miscellaneous--5.2%
25,600 Biogen, Inc. ........................................... 2,124,800
58,900 Costco Companies, Inc. ................................. 4,251,844
94,700 Intel Corp. ............................................ 11,227,869
44,900 Texas Instruments, Inc. ................................ 3,841,756
------------
21,446,269
------------
Pharmaceuticals--12.6%
29,200 Bristol-Myers Squibb Co. ............................... 3,907,325
78,200 Eli Lilly & Co. ........................................ 6,950,025
62,400 Merck & Co., Inc. ...................................... 9,215,700
90,000 Pfizer, Inc. ........................................... 11,289,375
95,800 Schering-Plough......................................... 5,292,950
78,300 Smithkline Beecham...................................... 5,441,850
126,800 Warner-Lambert Co. ..................................... 9,533,775
------------
51,631,000
------------
Pollution Control--3.1%
277,000 Waste Management, Inc. ................................. 12,915,125
------------
Railroad--1.6%
136,000 Kansas City Southern Industries......................... 6,689,500
------------
Retail--14.1%
104,300 CVS Corp. .............................................. 5,736,500
33,100 Fred Meyer, Inc. ....................................... 1,994,275
215,200 Home Depot, Inc. ....................................... 13,167,550
148,700 Kroger Co. ............................................. 8,996,350
52,800 Office Depot, Inc. ..................................... 1,950,300
134,400 Safeway, Inc.(c)........................................ 8,190,000
146,500 Staples, Inc.(c)........................................ 6,400,219
137,300 Wal-Mart Stores, Inc. .................................. 11,181,369
------------
57,616,563
------------
Telecom Networks--5.4%
139,800 Comcast Corp. .......................................... 8,204,512
29,900 Cox Communications, Inc. ............................... 2,066,838
164,100 MCI Worldcom, Inc. ..................................... 11,774,175
------------
22,045,525
------------
Total Common Stocks
(Identified Cost $250,423,254)......................... 357,692,191
------------
</TABLE>
See accompanying notes to financial statements.
19
<PAGE>
New England Zenith Fund
(Alger Equity Growth Series)
Investments as of December 31, 1998
Short-Term Investments--11.7%
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
$4,000,000 Bayerische Hypotheken,
5.800%, 1/05/1999................................... $ 3,997,422
3,000,000 Deutsche Bank Financial, Inc.,
6.220%, 1/05/1999................................... 2,997,927
4,000,000 Eagle Funding Capital Corp.,
5.700%, 1/19/1999................................... 3,988,600
4,000,000 Ford Motors Credit Co.,
5.690%, 1/08/1999................................... 3,995,574
4,000,000 Halifax Building Society,
5.700%, 1/06/1999................................... 3,996,833
4,000,000 Hertz Corp.,
5.690%, 1/05/1999................................... 3,997,471
4,000,000 Montauk Funding Corp.,
5.700%, 1/06/1999................................... 3,996,833
3,000,000 National Australia Funding Corp.,
6.220%, 1/05/1999................................... 2,997,927
4,000,000 New Jersey National Gas Co.,
5.670%, 1/05/1999................................... 3,997,480
3,000,000 Paribas Financial, Inc.,
5.950%, 1/05/1999................................... 2,998,017
2,271,465 State Street Global Advisors, Money Market Fund...... 2,271,465
4,500,000 Twin Towers, Inc.,
4.950%, 1/13/1999................................... 4,492,575
4,500,000 W. W. Grainger, Inc.,
5.000%, 1/07/1999................................... 4,496,250
------------
Total Short-Term Investments
(Identified Cost $48,224,374)....................... 48,224,374
------------
Total Investments--98.8%
(Identified cost $298,647,628)(b)................... 405,916,565
Other assets less liabilities........................ 4,809,064
------------
Total Net Assets--100%............................... $410,725,629
============
(a) See Note 1A of the Notes to Financial Statements.
(b) Federal Tax Information:
At December 31, 1998 the net unrealized appreciation on investments based on
cost of $302,732,069 for federal income tax purposes was as follows:
</TABLE>
<TABLE>
<S> <C> <C>
Aggregate
gross
unrealized
appreciation
for all
investments
in which
there is an
excess of
value over
tax cost..... $105,195,045
Aggregate
gross
unrealized
depreciation
for all
investments
in which
there is an
excess of
tax cost
over value... (2,010,549)
Net
unrealized
appreciation. $103,184,496
</TABLE>
(c) Non-income producing security.
ADR/GDR--An American Depositary Receipt (ADR) or Global Depositary Receipt
(GDR) is a certificate issued by a custodian Bank representing the
right to receive securities of the foreign issuer described. The
values of ADRs and GDRs are significantly influenced by trading on
exchanges not located in the United States or Canada.
20
<PAGE>
New England Zenith Fund
(Alger Equity Growth Series)
Statement of Assets & Liabilities
December 31, 1998
<TABLE>
<S> <C> <C>
Assets
Investments at value.................................. $405,916,565
Cash.................................................. 12,419
Receivable for:
Fund shares sold...................................... 1,557,616
Securities sold....................................... 12,402,201
Dividends and interest................................ 97,785
Foreign taxes......................................... 1,708
Unamortized organization expense...................... 1,666
------------
419,989,960
Liabilities
Payable for:
Securities purchased.................................. $8,586,451
Fund shares redeemed.................................. 388,865
Accrued expenses:
Management fees....................................... 240,181
Deferred trustees' fees............................... 7,461
Other expenses........................................ 41,373
----------
9,264,331
------------
$410,725,629
============
Net Assets
Net Assets consist of:
Capital paid in....................................... $279,437,135
Undistributed net investment income................... 607
Accumulated net realized gains (losses)............... 24,018,950
Unrealized appreciation (depreciation) on investments. 107,268,937
------------
Net Assets............................................. $410,725,629
============
Computation of offering price:
Net asset value and redemption price per share
($410,725,629 divided by 16,353,873 shares of
beneficial interest).................................. $ 25.11
============
Identified cost of investments......................... $298,647,628
============
</TABLE>
Statement of Operations
Year Ended December 31, 1998
<TABLE>
<S> <C> <C>
Investment Income
Dividends......................................... $ 1,628,943(a)
Interest.......................................... 1,267,940
------------
2,896,883
Expenses
Management fees................................... $2,115,106
Trustees' fees and expenses....................... 20,679
Custodian......................................... 76,817
Audit and tax services............................ 17,618
Legal............................................. 27,662
Printing.......................................... 74,486
Insurance......................................... 7,657
Amortization of organization
expenses......................................... 2,011
Miscellaneous..................................... 7,486
----------
Total expenses.................................... 2,349,522
------------
Net investment income.............................. 547,361
Realized and Unrealized Gain (Loss) on Investments
Realized gain (loss) on:
Investments--net.................................. 37,574,347
Unrealized appreciation
(depreciation) on:
Investments--net.................................. 78,578,213
------------
Net gain (loss) on investment
transactions...................................... 116,152,560
------------
Net Increase (Decrease) in Net Assets from
Operations........................................ $116,699,921
============
</TABLE>
(a)Net of foreign taxes of: $4,692
See accompanying notes to financial statements.
21
<PAGE>
New England Zenith Fund
(Alger Equity Growth Series)
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
From Operations
Net investment income............................. $ 214,111 $ 547,361
Net realized gain (loss) on investments .......... 19,818,623 37,574,347
Unrealized appreciation (depreciation) on
investments...................................... 14,830,675 78,578,213
------------ ------------
Increase (decrease) in net assets from operations. 34,863,409 116,699,921
------------ ------------
From Distributions to Shareholders
Net investment income............................. (155,793) (608,527)
Net realized gain on investments.................. (19,679,801) (13,814,120)
------------ ------------
(19,835,594) (14,422,647)
------------ ------------
From Capital Shares Transactions
Proceeds from sale of shares...................... 86,896,157 151,770,313
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income.......... 155,793 608,527
Distributions from net realized gain.............. 19,679,801 13,814,120
------------ ------------
106,731,751 166,192,960
Cost of shares redeemed........................... (36,896,638) (63,063,040)
------------ ------------
Increase (decrease) in net assets derived from
capital share transactions....................... 69,835,113 103,129,920
------------ ------------
Total increase (decrease) in net assets........... 84,862,928 205,407,194
Net Assets
Beginning of the year............................. 120,455,507 205,318,435
------------ ------------
End of the year................................... $205,318,435 $410,725,629
============ ============
Undistributed Net Investment Income
Beginning of the year............................. $ 2,272 $ 0
============ ============
End of the year................................... $ 0 $ 607
============ ============
Number of Shares of the Fund:
Issued from the sale of shares.................... 4,818,140 7,106,627
Issued in connection with the reinvestment of:
Distributions from net investment income.......... 9,023 24,816
Distributions from net realized gain.............. 1,146,276 551,319
------------ ------------
5,973,439 7,682,762
Redeemed.......................................... (2,053,180) (2,982,315)
------------ ------------
Net change........................................ 3,920,259 4,700,447
============ ============
</TABLE>
Financial Highlights
<TABLE>
<CAPTION>
October 31, 1994(a)
through Year Year Year Year
December 31, Ended Ended Ended Ended
1994 1995 1996 1997 1998
------------------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year...... $10.00 $ 9.56 $ 13.80 $ 15.58 $ 17.62
------ ------- -------- -------- --------
Income From Investment
Operations
Net Investment Income.. 0.02 0.01 0.04 0.02 0.04
Net Realized and
Unrealized Gain (Loss)
on Investments........ (0.44) 4.65 1.78 3.92 8.37
------ ------- -------- -------- --------
Total From Investment
Operations............ (0.42) 4.66 1.82 3.94 8.41
------ ------- -------- -------- --------
Less Distributions
Distributions From Net
Investment Income..... (0.02) (0.01) (0.04) (0.02) (0.04)
Distributions From Net
Realized Capital
Gains................. 0.00 (0.41) 0.00 (1.88) (0.88)
------ ------- -------- -------- --------
Total Distributions.... (0.02) (0.42) (0.04) (1.90) (0.92)
------ ------- -------- -------- --------
Net Asset Value, End of
Year................... $ 9.56 $ 13.80 $ 15.58 $ 17.62 $ 25.11
====== ======= ======== ======== ========
Total Return (%)........ (4.2)(b) 48.8 13.2 25.6 47.8
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.85 (c) 0.85 0.90 0.87 0.83
Ratio of Net Investment
Income to Average Net
Assets (%)............. 1.07 (c) 0.14 0.24 0.12 0.19
Portfolio Turnover Rate
(%).................... 32 (c) 107 78 137 119
Net Assets, End of Year
(000).................. $1,917 $46,386 $120,456 $205,318 $410,726
The ratios of expenses
to average net assets
without giving effect
to the voluntary
expense agreement
described in Note 4 to
the Financial
Statements would have
been (%)............... 2.74 (c) 2.45 0.90 -- --
</TABLE>
(a) Commencement of operations.
(b) Not computed on an annualized basis.
(c) Computed on an annualized basis.
See accompanying notes to financial statements.
22
<PAGE>
Capital Growth Series
Portfolio Manager: G. Kenneth Heebner Capital Growth Management Limited
Partnership
[Photo of G. Kenneth Heebner appears here]
Q. How did Capital Growth Series perform during 1998?
A. It performed very well. For the 12 months ending December 31, 1998, the Se-
ries posted a total return of 34.1% (based on net asset value)--performance
well above that of the Lipper Variable Products Growth Fund Average/10/ return
of 24.7%. The Series also outperformed the S&P 500/25/ return of 28.7%.
Q. What was the investment environment like in 1998?
A. I would describe it as excellent. The U.S. economy was strong, inflation
was low, and interest rates declined. Having said that, during the year in-
vestors periodically became concerned that problems in foreign economies would
start to hurt growth in the United States. These problems included Russia's
devaluation of its currency and default on its debt, the ongoing decline of
Asian economies, Japan's lack of aggressiveness in attempting to overcome
problems in their economy, and worries that Brazil would devalue its currency.
The U.S. economy continued to grow in spite of these obstacles.
In my judgment, investors overreacted to these overseas concerns. In fact, I
would argue that these problems were beneficial for the U.S. stock market be-
cause they created deflationary influences worldwide that, in turn, helped re-
duce domestic inflationary pressures. Global turmoil created an incentive
later in the year for the Federal Reserve Board to reduce short-term interest
rates three times, which helped the U.S. stock market.
Q. Did this backdrop lead you to alter your investment strategy?
A. Not at all. I kept the fund fully invested and did not alter the structure
of the portfolio, feeling that the issues overseas would not affect our
economy. I continued to look for stocks selling at reasonable valuations that
would deliver earnings growth in excess of market expectations.
Q. Where did you find these opportunities?
A. The groups of companies that were important to the Fund over the course of
the year were banks, technology, insurance and pharmaceuticals. I felt that
certain companies in these groups were undervalued relative to their growth
prospects. For example, in the bank group I invested in Chase Manhattan, a
company with superior management that gained market share in important global
businesses and earned returns that were strong enough to spur the company to
commence a share repurchase program. Technology proved to be one of the fast-
est growing segments of the economy. Insurance companies such as American Gen-
eral and AIG were undervalued relative to their growth rates. And pharmaceuti-
cal companies were strong due to new product introductions.
Shareholders should know that I did not focus on these groups because I was
attracted to sector-specific trends. Rather, these groups were well repre-
sented in the Fund because they, more than others, tended to include individ-
ual stocks that I picked because they offered attractive prospects.
Q. Which stocks helped performance, and which ones did not?
A. On the positive side, Nokia enjoyed significant success in its cellular
telephone and infrastructure business, which was driven by the superior fea-
tures offered by its equipment. It gained market share in a rapidly growing
market. Warner Lambert posted strong returns based on the success of its new
anti-cholesterol drug, which garnered about a 35% share of that market and
Dell Computer, the leading personal computer company in 1998, enjoyed signifi-
cant market share gains in a strong industry. Philip Morris benefited from a
positive shift in investor sentiment, as the threat of Congressional legisla-
tion faded and a settlement with several states' attorneys general was
achieved. IBM was a strong performer as investors came to appreciate the
company's balance-sheet restructuring and share-repurchase programs, and as
its underlying businesses began to grow, particularly mainframe computers and
computer outsourcing.
On the negative side, Mattel posted disappointing earnings because Toys R US,
a major customer, reduced inventories. Kmart also proved to be disappointing
because the company's management, contrary to expectations, was unable to show
as much improvement as had been hoped in a difficult environment for discount
retailers.
23
<PAGE>
Q. What is your outlook for 1999?
A. I expect moderate economic growth and low inflation to continue in the
United States, an environment that should be favorable for stocks. I think
that continued weakness in Japan and Latin America will continue to provide an
incentive for the Federal Reserve Board to maintain low interest rates. As far
as the Series is concerned, I will continue to focus on well established com-
panies selling at reasonable prices whose future earnings I expect will favor-
ably impress investors.
[GRAPH APPEARS HERE]
A $10,000 Investment Compared to the S&P 500 Index over the past 10 years
Date Zenith Capital Growth S&P 500
---- --------------------- -------
12/31/88 $10,000 $10,000
12/31/89 $13,076 $13,159
12/31/90 $12,619 $12,749
12/31/91 $19,434 $16,617
12/31/92 $18,258 $17,881
12/31/93 $20,993 $19,675
12/31/94 $19,508 $19,942
12/31/95 $26,927 $27,409
12/31/96 $32,602 $33,686
12/31/97 $40,256 $44,909
12/31/98 $53,980 $57,717
Average Annual Total Return
Capital Growth Lipper Variable Growth
Series S&P 500/25/ Fund Average/10/
1 year 34.1% 28.7% 24.7%
3 years 26.1 28.3 23.9
5 years 20.8 24.1 20.4
10 years 18.4 19.2 19.9
Since Inception 23.9 17.6 n/a
X Fund Facts
Goal: Long-term growth of capital.
Start date: August 26, 1983
Size: $1.9 billion as of December
31, 1998
Manager: G. Kenneth Heebner has
managed the Capital Growth Series
since its inception in 1983. He
has also been portfolio manager of
New England Growth Fund since
1976; CGM Capital Development Fund
since 1976; CGM Mutual Fund since
1981; CGM Realty Fund since May
1994; 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.
24
<PAGE>
New England Zenith Fund
(Capital Growth Series)
Investments as of December 31, 1998
Common Stocks--99.9% of Total Net Assets
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Automotive & Related--5.2%
6,350,000 Volkswagen AG (ADR)................................... $ 99,218,750
------------
Banks--Money Center--6.4%
1,795,000 Chase Manhattan Corp. ................................ 122,172,188
------------
Banks--Regional--17.6%
2,590,000 Bank of New York...................................... 104,247,500
1,440,000 BankAmerica Corp. .................................... 86,580,000
410,000 First Union Corp. .................................... 24,933,125
1,239,000 Firstar Corp. ........................................ 115,536,750
------------
331,297,375
------------
Beverage & Tobacco--11.6%
1,482,000 Anheuser Busch Companies, Inc. ....................... 97,256,250
2,310,000 Philip Morris Companies, Inc. ........................ 123,585,000
------------
220,841,250
------------
Computer Software & Services--1.8%
525,000 Computer Sciences Corp.(c)............................ 33,829,687
------------
Electronic Components--23.9%
863,000 Intel Corp. .......................................... 102,319,438
1,850,000 Micron Technology, Inc.(c)............................ 93,540,625
1,345,000 Nokia Corp. (ADR)..................................... 161,988,437
1,100,000 Texas Instruments, Inc. .............................. 94,118,750
------------
451,967,250
------------
Freight Transportation--4.5%
2,541,000 Burlington Northern Santa Fe.......................... 85,758,750
------------
Insurance--13.2%
1,170,000 American General Corp. ............................... 91,260,000
855,912 American International Group, Inc. ................... 82,702,497
480,000 Jefferson Pilot Corp. ................................ 36,000,000
700,000 Unum Corp. ........................................... 40,862,500
------------
250,824,997
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Microcomputers--2.9%
645,000 Sun Microsystems,
Inc.(c)................ $ 55,228,125
--------------
Office Equipment and
Supplies--5.8%
596,000 International Business
Machines............... 110,111,000
--------------
Retail--7.0%
1,625,000 Wal-Mart Stores, Inc. .. 132,335,938
--------------
Total Common Stock
(Identified Cost
$1,451,954,624)......... 1,893,585,310
--------------
</TABLE>
Short-Term Investment--0.2%
<TABLE>
<CAPTION>
Face
Amount
<C> <S> <C>
$4,695,000 American Express, 4.850%, 1/4/99.................. 4,695,000
--------------
Total Short-Term Investment
(Identified Cost $4,695,000)..................... 4,695,000
--------------
Total Investments--100.1%
(Identified Cost
$1,456,649,624)(b)............................... 1,898,280,310
Other assets less liabilities..................... (2,531,838)
--------------
Total Net Assets--100%............................ $1,895,748,472
==============
</TABLE>
(a) See Note 1A of Notes to Financial Statements.
(b) Federal Tax Information:
At December 31, 1998 the net unrealized appreciation on investments based on
cost of $1,459,950,808 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..... $438,915,663
Aggregate
gross
unrealized
depreciation
for all
investments
in which
there is an
excess of
tax cost
over value... (586,161)
------------
Net
unrealized
appreciation. $438,329,502
============
</TABLE>
(c) Non-income producing security.
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.
25
<PAGE>
New England Zenith Fund
(Capital Growth Series)
Statement of Assets & Liabilities
December 31, 1998
<TABLE>
<S> <C> <C>
Assets
Investments at value.............................. $1,898,280,310
Cash.............................................. 1,819
Receivable for:
Fund shares sold.................................. 910,805
Securities sold................................... 7,386,480
Dividends and interest............................ 1,856,253
Foreign taxes..................................... 1,854,870
Due from Investment Adviser....................... 84,549
--------------
1,910,375,086
Liabilities
Payable for:
Securities purchased.............................. $12,099,789
Fund shares redeemed.............................. 1,374,730
Accrued expenses:
Management fees................................... 956,913
Deferred trustees' fees........................... 91,606
Other expenses.................................... 103,576
-----------
14,626,614
--------------
$1,895,748,472
==============
Net Assets
Net Assets consist of:
Capital paid in................................... $1,454,914,023
Undistributed net investment income............... 3,878
Accumulated net realized gains (losses)........... (800,115)
Unrealized appreciation (depreciation) on
investments...................................... 441,630,686
--------------
Net Assets......................................... $1,895,748,472
==============
Computation of offering price:
Net asset value and redemption price per share
($1,895,748,472 divided by 4,050,492 shares of
beneficial interest).............................. $ 468.03
==============
Identified cost of investments..................... $1,456,649,624
==============
</TABLE>
Statement of Operations
Year Ended December 31, 1998
<TABLE>
<S> <C> <C>
Investment Income
Dividends........................................ $ 30,013,003(a)
Interest......................................... 408,483
------------
................................................ 30,421,486
Expenses
Management fees.................................. $10,272,927
Trustees' fees and expenses...................... 96,906
Custodian........................................ 202,944
Audit and tax services........................... 14,957
Legal............................................ 141,919
Printing......................................... 173,061
Insurance........................................ 46,484
Miscellaneous.................................... 8,122
-----------
Total expenses................................... 10,957,320
------------
Net investment income............................. 19,464,166
Realized and Unrealized Gain (Loss) on Investments
Realized gain (loss) on:
Investments--net................................. 169,787,977
Unrealized appreciation
(depreciation) on:
Investments--net................................. 294,106,307
------------
Net gain (loss) on investment transactions........ 463,894,284
------------
Net Increase (Decrease) in net Assets From
Operations....................................... $483,358,450
============
</TABLE>
(a)Net of foreign taxes of: $1,464,140.
See accompanying notes to financial statements.
26
<PAGE>
New England Zenith Fund
(Capital Growth Series)
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1997 1998
-------------- --------------
<S> <C> <C>
From Operations
Net investment income......................... $ 6,977,596 $ 19,464,166
Net realized gain (loss) on investments....... 362,271,018 169,787,977
Unrealized appreciation (depreciation) on in-
vestments.................................... (100,549,025) 294,106,307
-------------- --------------
Increase (decrease) in net assets from opera-
tions........................................ 268,699,589 483,358,450
-------------- --------------
From Distributions to Shareholders
Net investment income......................... (6,943,584) (19,530,694)
Net realized gain on investments.............. (339,035,607) (224,364,814)
In excess of net realized gain on investments. 0 (800,115)
-------------- --------------
(345,979,191) (244,695,623)
-------------- --------------
From Capital Shares Transactions
Proceeds from sale of shares.................. 281,227,370 326,247,422
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income...... 6,943,584 19,530,694
Distributions from net realized gain.......... 339,035,607 225,164,929
-------------- --------------
627,206,561 570,943,045
Cost of shares redeemed....................... (266,868,046) (339,576,488)
-------------- --------------
Increase (decrease) in net assets derived from
capital share transactions................... 360,338,515 231,366,557
-------------- --------------
Total increase (decrease) in net assets....... 283,058,913 470,029,384
Net Assets
Beginning of the year......................... 1,142,660,175 1,425,719,088
-------------- --------------
End of the year............................... $1,425,719,088 $1,895,748,472
============== ==============
Undistributed Net Investment Income
Beginning of the year......................... $ 36,394 $ 70,406
============== ==============
End of the year............................... $ 70,406 $ 3,878
============== ==============
Number of Shares of the Fund:
Issued from the sale of shares................ 569,332 711,259
Issued in connection with the reinvestment of:
Distributions from net investment income...... 17,731 41,316
Distributions from net realized gain.......... 845,144 471,438
-------------- --------------
1,432,207 1,224,013
Redeemed...................................... (539,860) (741,374)
-------------- --------------
Net change.................................... 892,347 482,639
============== ==============
</TABLE>
Financial Highlights
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Begin-
ning of Year........... $ 351.63 $ 312.30 $ 374.62 $ 427.08 $ 399.60
-------- -------- ---------- ---------- ----------
Income From Investment
Operations
Net Investment Income.. 5.28 3.47 3.08 2.52 5.29
Net Realized and
Unrealized Gain (Loss)
on Investments........ (30.54) 114.91 74.80 95.67 130.40
-------- -------- ---------- ---------- ----------
Total From Investment
Operations............ (25.26) 118.38 77.88 98.19 135.69
-------- -------- ---------- ---------- ----------
Less Distributions
Distributions From Net
Investment Income..... (5.15) (3.48) (3.08) (2.52) (5.31)
Distributions From Net
Realized Capital
Gains................. (8.92) (52.58) (22.34) (123.15) (61.73)
Distribution in excess
of Net Realized Capi-
tal Gain.............. (0.00) (0.00) (0.00) (0.00) (0.22)
-------- -------- ---------- ---------- ----------
Total Distributions.... (14.07) (56.06) (25.42) (125.67) (67.26)
-------- -------- ---------- ---------- ----------
Net Asset Value, End of
Year................... $ 312.30 $ 374.62 $ 427.08 $ 399.60 $ 468.03
======== ======== ========== ========== ==========
Total Return (%)........ (7.1) 38.0 21.1 23.5 34.1
Ratio of Operating Ex-
penses to Average Net
Assets (%)............. 0.67 0.71 0.69 0.67 0.66
Ratio of Net Investment
Income to Average Net
Assets (%)............. 1.61 0.92 0.79 0.52 1.18
Portfolio Turnover Rate
(%).................... 140 242 207 214 204
Net Assets, End of Year
(000).................. $667,127 $921,444 $1,142,660 $1,425,719 $1,895,748
</TABLE>
See accompanying notes to financial statements.
27
<PAGE>
Goldman Sachs Midcap Value Series
Portfolio Manager: Paul D. Farrell; Eileen A. Aptman; Matthew B. McLennon &
Karma Wilson
Goldman Sachs Asset Management
Q. How did the Series perform over the year?
A. Goldman Sachs Asset Management ("GSAM") became the subadviser to the Goldman
Sachs Midcap Value Series (the "Series"), formerly the Loomis Sayles Avanti
Growth Series, on May 1, 1998. For the twelve months ended December 31, 1998,
the Series had a return of (5.5)% (based on net asset value), compared to the
Lipper Variable Products Midcap Fund Average/14/ which returned 18.3%. The Se-
ries also lagged the Russell Midcap Index/22/ ("Russell Midcap") which returned
10.1% over the same period.
Q. How did you manage the Series during the year and what factors affected
performance?
A. Since assuming management responsibilities for the portfolio on May 1, 1998,
GSAM has employed an investment strategy that considers three investment
themes: value, momentum and low risk. Our discipline suffered in 1998's market
environment, as stocks of companies in lower capitalization ranges were
severely harmed by investor concerns surrounding global liquidity and market
volatility. Despite a rebound in the fourth quarter of 18.5%, for the year
ended 1998, the Russell Midcap Index significantly underperformed the S&P 500
Index/25/ ("S&P 500") return of 28.7%.
In addition to a preference for large-cap stocks capitalization bias, investors
appeared to prefer growth versus value investing. The Russell Midcap Growth In-
dex year end return of 17.9% significantly outpaced the Russell Midcap Value
Index, which appreciated only 5.1% for the same period. On a more positive
note, this environment has created an attractive valuation opportunity. Over
the last two decades, mid-cap stocks have sold at close to a 3% premium to
stocks of larger companies. Based on 1998 earnings, the Russell Midcap Index
now sells at over a 20% price to earnings discount to the S&P 500 Index. The
Russell Midcap Index is at its most attractive valuation in over 20 years, and
our portfolio is priced at an even greater discount.
Currently, the average stock in the Series is valued at only 12.5 times 1999
estimated earnings, and 1.7 times book value. The Russell Midcap Index is val-
ued at 18.4 times estimated 1999 earnings and 2.9 times book value, and the S&P
500 Index at 24.8 times estimated 1999 earnings and 4.9 times book value. We
believe that the Series has the potential to overcome the
near-term uncertainty that has discounted the portfolio and achieve valuation
restoration as the long-term earnings and cash flow potential of our holdings
are realized.
Pharmaceutical stocks held by the Series underperformed the market during the
latter part of the reporting period as there was a rotation out of this sector
and into technology. However, pharmaceuticals have exhibited strong performance
for the one-year period and we have confidence in their long-term profitability
due to several factors: 1) we believe the aging of the "baby boom" generation
will continue to increase investment opportunities in the pharmaceutical busi-
nesses; 2) more healthcare providers are emphasizing "preventive care," driving
up demand for pharmaceutical products; 3) FDA approval time has been substan-
tially shortened (cut in half); and 4) the industry also benefits from strong
unit growth, stable pricing, and expanding margins, resulting in an increase in
earnings and free cash flow.
On the individual stock level, several of our technology holdings have added to
the Series' recent returns. Avnet Inc. and Vishay Intertechnology benefited
from restored investor confidence for semiconductor-related business and appre-
ciated 64% and 21%, respectively.
Q. What is your current outlook for the months ahead?
A. GSAM is optimistic about the long-term value offered by mid-cap companies,
particularly those comprising the Series. The asset class reached a significant
discount during the past year relative to issuers with larger capitalizations.
We believe the discounted valuations will attract capital and drive returns to
more traditional levels, with mid-cap stocks trading at a premium to stocks of
larger companies. In all environments, we perform rigorous, first-hand research
into mid-cap stocks which trade at a discount to the market and their peers due
to obscurity or uncertainty. We aim to exploit market anomalies by investigat-
ing what is undiscovered or misunderstood by the marketplace. The recovery ex-
perienced in the fourth quarter affirms our conviction that our value-based ap-
proach should deliver strong results to the long-term investor.
28
<PAGE>
A $10,000 investment compared to the S&P 500 and Russell Midcap Index
Since the Series' inception
[GRAPH APPEARS HERE]
Date Mid-Cap Value series S&P 500 Russell Midcap
---- -------------------- ------- --------------
Inception 4/30/93 $10,000 $10,000 $10,000
12/31/93 $11,474 $10,819 $10,859
12/31/94 $11,443 $10,966 $10,628
12/31/95 $14,916 $15,072 $14,340
12/31/96 $17,538 $18,524 $17,245
12/31/97 $20,581 $24,695 $23,172
12/31/98 $19,459 $31,738 $24,352
Average Annual Total Return
Lipper Variable
Midcap Fund
Midcap Value Russell Midcap/22/ S&P 500/25/ Average/14/
1 year (5.5)% 10.1% 28.7% 18.3%
3 years 9.3 19.1 28.3 16.9
5 years 11.1 17.3 24.1 14.5
Since Inception 12.5 17.4 22.6 n/a
X Fund Facts
Goal: Long-term growth of
capital.
Start date: April 30, 1993
Size: $113 million as of
December 31, 1998
Managers: Eileen A. Aptman,
Paul D. Farrell, Matthew B.
McLennan and Karma Wilson,
all of whom 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.
29
<PAGE>
New England Zenith Fund
(Goldman Sachs Mid Cap Value Series)
Investments as of December 31, 1998
Common Stocks--87.5% of Net Assets
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Airfreight, Truck & Other--1.5%
45,000 CNF Transportation...................................... $ 1,690,312
------------
Auto Suppliers--4.5%
10,900 Federal Mogul Corp. .................................... 648,550
28,700 Lear Seating Corp. ..................................... 1,104,950
48,800 Lucasvarity, plc (ADR).................................. 1,634,800
26,500 Magna International Inc. ............................... 1,643,000
------------
5,031,300
------------
Banks--6.0%
147,400 Pacific Century Finance Corp. .......................... 3,592,875
68,800 Republic New York Corp. ................................ 3,134,700
------------
6,727,575
------------
Biotechnology--2.0%
124,500 Quest Diagnostics, Inc. (d)............................. 2,217,656
------------
Business Services--1.6%
41,000 Dun & Bradstreet Corp. ................................. 1,294,062
38,500 Veritas DGS, Inc. ...................................... 500,500
------------
1,794,562
------------
Commodity Chemicals--1.3%
52,400 IMC Global, Inc......................................... 1,120,050
12,000 Olin Corp............................................... 339,750
------------
1,459,800
------------
Electric Utilities--1.2%
88,800 Northeast Utilities..................................... 1,420,800
------------
Financial Services--4.5%
42,600 Cit Group, Inc. ........................................ 1,355,212
24,600 Finova Group, Inc. ..................................... 1,326,862
1,564 Waddell & Reed Financial, Inc. CL A..................... 37,047
103,734 Waddell & Reed Financial, Inc. CL B..................... 2,411,815
------------
5,130,936
------------
Forest Products--4.1%
130,000 Georgia Pacific Timber Group............................ 3,095,625
25,400 Georgia-Pacific Corp. .................................. 1,487,487
------------
4,583,112
------------
Healthcare Management--4.9%
41,000 Aetna, Inc. ............................................ 3,223,625
86,100 Tenet Healthcare Corp. ................................. 2,260,125
------------
5,483,750
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Hotels--2.3%
78,000 Hilton Hotels Corp. .................................... $ 1,491,750
75,300 Mirage Resorts, Inc. ................................... 1,124,794
------------
2,616,544
------------
Insurance Brokers & Other Insurance--4.1%
35,900 Loews Corp. ............................................ 3,527,175
16,400 Everest Reinsurance Holdings............................ 638,575
14,200 Torchmark, Inc. ........................................ 501,437
------------
4,667,187
------------
Leisure--1.4%
42,900 Hasbro, Inc............................................. 1,549,762
------------
Life Insurance--0.6%
13,800 Reliastar Financial Corp................................ 636,525
------------
Logistics/Rails--1.1%
66,800 Canadian Pacific LTD. .................................. 1,260,850
------------
Newspapers--2.3%
53,500 Belo A.H. Corp.......................................... 1,066,656
43,500 New York Times Co....................................... 1,508,906
------------
2,575,562
------------
Oil & Gas--5.4%
63,200 Baker Hughes, Inc. ..................................... 1,117,850
23,800 Elf Aquatine (ADR)...................................... 1,347,675
62,700 Occidental Petroleum Corp............................... 1,058,062
54,100 Transocean Offshore, Inc................................ 1,450,556
12,500 USX Marathon Group...................................... 376,562
42,900 Weatherford, Inc........................................ 831,187
------------
6,181,892
------------
Packaging--3.3%
32,800 Crown Cork & Seal, Inc. ................................ 1,010,650
21,900 Sealed Air Corp. ....................................... 1,118,269
103,554 Smurfit Stone Container Corp. .......................... 1,637,448
------------
3,766,367
------------
Property & Casualty Insurance--3.6%
69,400 CNA Financial Corp...................................... 2,793,350
22,600 Allmerica Financial Corp................................ 1,307,975
------------
4,101,325
------------
Personal Computers &
Peripherals--2.2%
115,100 Quantum Corp. .......................................... 2,445,875
------------
</TABLE>
See accompanying notes to financial statements.
30
<PAGE>
New England Zenith Fund
(Goldman Sachs Mid Cap Value Series)
Investments as of December 31, 1998
Common Stocks--(Continued)
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Pharmaceuticals--1.8%
234,500 Perrigo Co.............................................. $ 2,066,531
------------
Restaurants--1.5.%
33,100 Tricon Global Restaurants, Inc. ........................ 1,659,137
------------
Refining & Marketing--1.9%
81,300 Tosco Corp.............................................. 2,103,637
------------
Retail--6.3%
177,900 CMP Group, Inc. ........................................ 3,357,862
27,600 Federated Dept. Stores, Inc. ........................... 1,202,325
30,500 Sears Roebuck & Co. .................................... 1,296,250
80,100 Toys R US, Inc. ........................................ 1,351,687
------------
7,208,124
------------
Semiconductors--5.1%
53,700 Avnet, Inc. ............................................ 3,248,850
171,925 Vishay Intertechnology, Inc. ........................... 2,492,917
------------
5,741,767
------------
Steel--4.5%
112,700 Ispat International NV.................................. 873,425
104,000 AK Steel Holding Corp................................... 2,444,000
97,100 Ucar International, Inc................................. 1,729,594
------------
5,047,019
------------
Supermarkets--1.3%
141,400 Fleming Companies, Inc. ................................ 1,467,025
------------
Textiles--0.8%
66,300 Fruit of The Loom, Inc. CL A............................ 915,769
------------
Tires & Other Related--0.9%
20,900 Goodyear Tire & Rubber Co. ............................. 1,054,144
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Tobacco--4.6%
85,600 UST, Inc.......................................... $ 2,985,300
20,300 Philip Morris Companies, Inc...................... 1,086,050
38,200 RJR Nabisco Holdings Corp. ....................... 1,134,062
------------
5,205,412
------------
Waste Management--0.9%
36,900 Browning Ferris Industries, Inc................... 1,049,347
------------
Total Common Stocks
(Identified Cost $111,192,542)................... 98,859,604
------------
Short Term Investment--11.8%
<CAPTION>
Face Amount
<C> <S> <C>
$13,400,000 Goldman Sachs Joint Account Repo(c)............... 13,400,000
------------
Total Short-Term Investments
(Identified cost $13,400,000).................... 13,400,000
------------
Total Investments 99.3%
(Identified cost $124,592,542)(b)................ 112,259,604
Other assets less liabilities..................... 737,424
------------
Total Net Assets--100%............................ $112,997,028
============
(a) See Note 1A of Notes to Financial Statements.
(b) Federal Tax Information:
At December 31, 1998 the net unrealized depreciation on investments based on
cost of $124,628,320 for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost.......... $ 4,738,838
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value.......... (17,107,554)
------------
Net unrealized depreciation.................................. $(12,368,716)
============
</TABLE>
(c) See Note 1E of Notes to Financial Statements.
(d) Non-income producing security.
ADR/GDR--An American Depositary Receipt (ADR) or Global Depositary Receipt
(GDR) is a certificate issued by a Custodian Bank representing the
right to receive securities of the foreign issuer described. The
values of ADRs and GDRs are significantly influenced by trading on
exchanges not located in the United States or Canada.
See accompanying notes to financial statements.
31
<PAGE>
New England Zenith Fund
(Goldman Sachs Midcap Value Series)
Statement of Assets & Liabilities Statement of Operations
December 31, 1998 Year Ended December 31, 1998
<TABLE>
<S> <C> <C>
Assets
Investments at value................................... $112,259,604
Cash................................................... 68,022
Receivable for:
Fund shares sold....................................... 281,924
Securities sold........................................ 1,582,130
Dividends and interest................................. 105,609
Foreign taxes.......................................... 1,691
------------
114,298,980
Liabilities
Payable for:
Securities purchased................................... $889,864
Fund shares redeemed................................... 273,023
Withholding taxes...................................... 1,749
Accrued expenses:
Management fees........................................ 114,412
Deferred trustees' fees................................ 4,651
Other expenses......................................... 18,253
--------
1,301,952
------------
$112,997,028
============
Net Assets
Net Assets consist of:
Capital paid in........................................ $125,509,565
Overdistributed net investment income.................. (992)
Accumulated net realized gains (losses)................ (178,607)
Unrealized appreciation (depreciation) on investments.. (12,332,938)
------------
Net Assets.............................................. $112,997,028
============
Computation of offering price:
Net asset value and redemption price per share
($112,997,028 divided by 919,816 shares of beneficial
interest).............................................. $ 122.85
============
Identified cost of investments.......................... $124,592,542
============
</TABLE>
Investment Income
<TABLE>
<S> <C> <C>
Dividends........................................ $ 1,408,456(a)
Interest......................................... 399,830
-----------
1,808,286
Expenses
Management fees.................................. $ 859,331
Trustees' fees and expenses...................... 12,496
Custodian........................................ 56,645
Audit and tax services........................... 13,898
Legal............................................ 68,909
Printing......................................... 45,021
Insurance........................................ 3,306
Miscellaneous.................................... 4,038
------------
Total expenses.................................. 1,063,644
Less expenses assumed by the investment adviser. (28,403) 1,035,241
------------ -----------
Net investment income............................. 773,045
Realized and Unrealized Gain (Loss) on Investments
and Futures Contracts
Realized gain (loss) on:
Investments--net................................. 24,143,616
Futures contracts--net........................... (137,933)
------------
Total realized gain (loss) on investments and
futures contracts............................... 24,005,683
------------
Unrealized appreciation (depreciation) on:
Investments--net................................. (31,637,944)
------------
Net gain (loss) on investment transactions........ (7,632,261)
-----------
Net Increase (Decrease) in Net Assets from
Operations....................................... $(6,859,216)
===========
</TABLE>
(a)Net of foreign taxes of: $9,248
See accompanying notes to financial statements.
32
<PAGE>
New England Zenith Fund
(Goldman Sachs Midcap Value Series)
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
From Operations
Net investment income (loss)...................... $ (164,084) $ 773,045
Net realized gain (loss) on investments and
futures contracts................................ 9,407,484 24,005,683
Unrealized appreciation (depreciation) on
investments...................................... 6,733,998 (31,637,944)
------------ ------------
Increase (decrease) in net assets from operations. 15,977,398 (6,859,216)
------------ ------------
From Distributions to Shareholders
Net investment income............................. 0 (774,037)
Net realized gain on investments.................. (8,951,638) (25,623,971)
In excess of net realized gain on investments..... 0 (178,608)
------------ ------------
(8,951,638) (26,576,616)
------------ ------------
From Capital Shares Transactions
Proceeds from sale of shares...................... 43,452,563 39,367,155
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income.......... 0 774,037
Distributions from net realized gain.............. 8,951,638 25,802,579
------------ ------------
52,404,201 65,943,771
Cost of shares redeemed........................... (27,480,727) (34,127,490)
------------ ------------
Increase (decrease) in net assets derived from
capital share transactions....................... 24,923,474 31,816,281
------------ ------------
Total increase (decrease) in net assets........... 31,949,234 (1,619,551)
Net Assets
Beginning of the year............................. 82,667,345 114,616,579
------------ ------------
End of the year................................... $114,616,579 $112,997,028
============ ============
Overdistributed Net Investment Income
Beginning of the year............................. $ 0 $ 0
============ ============
End of the year................................... $ 0 $ (992)
============ ============
Number of Shares of the Fund:
Issued from the sale of shares.................... 255,355 235,104
Issued in connection with the reinvestment of:
Distributions from net investment income.......... 0 6,500
Distributions from net realized gain.............. 52,904 212,633
------------ ------------
308,259 454,237
Redeemed.......................................... (159,978) (206,302)
------------ ------------
Net change........................................ 148,281 247,935
============ ============
</TABLE>
Financial Highlights
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year........................... $113.67 $112.77 $142.44 $ 157.88 $ 170.59
------- ------- ------- -------- --------
Income From Investment Opera-
tions
Net Investment Income.......... 0.59 0.42 0.11 0.00 1.09
Net Realized and Unrealized
Gain (Loss) on Investments.... (0.89) 33.80 24.88 27.12 (11.41)
------- ------- ------- -------- --------
Total From Investment
Operations.................... (0.30) 34.22 24.99 27.12 (10.32)
------- ------- ------- -------- --------
Less Distributions
Distributions From Net
Investment Income............. (0.60) (0.40) (0.13) 0.00 (1.09)
Distributions From Net Realized
Capital Gains................. 0.00 (4.15) (9.42) (14.41) (36.08)
Distribution in excess of Net
Realized Capital Gains........ -- -- -- -- (0.25)
------- ------- ------- -------- --------
Total Distributions............ (0.60) (4.55) (9.55) (14.41) (37.42)
------- ------- ------- -------- --------
Net Asset Value, End of Year.... $112.77 $142.44 $157.88 $ 170.59 $ 122.85
======= ======= ======= ======== ========
Total Return (%) ............... (0.3) 30.4 17.6 17.4 (5.5)
Ratio of Operating Expenses to
Average Net Assets (%)......... 0.84 0.85 0.85 0.85 0.88
Ratio of Net Investment Income
to Average Net Assets (%)...... 0.67 0.37 0.08 (0.16) 0.66
Portfolio Turnover Rate (%)..... 67 58 65 49 171
Net Assets, End of Year (000)... $25,622 $48,832 $82,667 $114,617 $112,997
The ratios of expenses to
average net assets without
giving effect to the voluntary
expense agreement described in
Note 4 to the Financial
Statements would have been (%). 0.84 1.06 0.92 0.86 0.90
</TABLE>
See accompanying notes to financial statements.
33
<PAGE>
Davis Venture Value
Portfolio Manager: Christopher C. Davis
Davis Selected Advisers, L.P.
[PHOTO OF CHRISTOPHER C. DAVIS
APPEARS HERE]
Q. How did the portfolio perform during 1998?
A. Investors often measure performance on both an absolute and a relative ba-
sis. After several years of solid performance on both counts, the Davis Ven-
ture Value Series fired on only one cylinder in 1998, as its solid absolute
return of 14.4% (based on net asset value) was overshadowed by returns of
28.7% and 24.7% for the S&P 500 Index/25/ and the Lipper Variable Products
Growth Fund Average/10/, respectively. During the last half of the year, the
Series posted a return of 10.4% compared to a return of 9.2% for the S&P 500
and 16.2% for the Lipper Variable Products Growth Fund Average.
Q. How did you manage the Series during the past year?
A. Several factors contributed to the portfolio's disappointing results last
year, and one contributor was mistakes. Our biggest mistake involved the Se-
ries' holdings in the energy sector. The energy services companies we own are
among the best companies in that industry. However, we overestimated how much
control a well-run company can have over its own destiny in an industry with
deteriorating fundamentals. As Asian economies slowed, the demand for oil fell
far below levels that we had anticipated. Caught with excess inventory and ca-
pacity, major oil companies dramatically reduced their exploration and produc-
tion budgets and, therefore, their need for the equipment and services pro-
vided by the type of companies that we own.
Although many of these stocks have fallen significantly, we do not see the
outlook brightening for some time, and we have sold many of our positions at
prices well below what we paid. While we continue to own some of these compa-
nies, such as Schlumberger and Halliburton, we have not added to them even at
these low prices.
A second factor contributing to our disappointing relative performance was not
a mistake, but instead was a direct result of our investment philosophy. This
philosophy includes a strict price discipline that prevents us from buying
high-flying glamorous growth companies--not because we don't like the compa-
nies, but because we don't like their high valuations. In particular, we see a
speculative bubble developing in Internet stocks were valuations have inflated
to levels reminiscent of the biotech craze of the early 1990's and the emerg-
ing markets craze of the mid-1990s.
Unfortunately, the outstanding performance of just these kinds of glamour
stocks drove the market last year, and not owning them hurt our relative per-
formance. Nevertheless, we think that our price discipline has served us well
over the years and helped produce strong risk-adjusted returns for our invest-
ors. As we expect 1999 to be another extremely volatile year, this discipline
will remain at the heart of our investment philosophy.
Another aspect of our investment philosophy that contributed to our mixed
short-term results was our fundamental belief in the importance of companies
having successful international operations. Last year, companies with signifi-
cant operations outside the United States hurt the performance of the Series.
Holdings such as American Express and Hewlett-Packard were the major contribu-
tors to our relative underperformance. But the fact that 95% of the world's
population lives outside the United States should make it obvious that the
ability to operate globally is a big long-term advantage. Unlike the category
of mistakes discussed above, our belief in being global and our price disci-
pline are at the heart of our investment process.
Given the poor relative showing of financial stocks last year, some investors
have asked if we consider the Series' ownership of many high-quality financial
companies to be a mistake. We do not. First, we always remember that financial
stocks rarely perform in a uniform way. For example, while companies such as
BankAmerica and Allstate were down 1% and almost 14%, respectively, the shares
of SunAmerica and Progressive surged 90% and 41%, respectively. More general-
ly, however, we continue to think that favorable demographics, a benign inter-
est-rate environment, ongoing consolidation and the globalization of the fi-
nancial industry combined with reasonable valuations make this diverse sector
an attractive area to be invested in.
Q. What is your current outlook for the months ahead?
A. Looking ahead, if the market euphoria leading up to the new millennium con-
tinues, we may again lag behind funds that do not use a price discipline in
choosing their stocks. In such an environment, we would be pleased to again
achieve good absolute results even if relative results lag.
34
<PAGE>
Our price discipline is an important element in controlling risk and avoiding
big losses, such as those investors experienced in 1973 and 1974 after a
similar bubble developed in growth stock valuations and was subsequently
burst. We've often said that a successful long-term investment record is built
as much by avoiding the big losses as by picking the big winners. In the
coming years, that theory may again be put to the test.
In addition to euphoria, the approaching millennium may begin to increase
investor anxiety regarding possible year 2000 computer problems. Such
uncertainty combined with such euphoria promises to create another year of
exceptional volatility that will again test investors' nerves. Although short-
term results may be extremely volatile, we feel confident that the Series is
positioned to weather any storm.
[LINE GRAPH APPEARS HERE]
Date Venture Value S&P 500
---- ------------- -------
10/31/94 $10,000 $10,000
12/31/94 $ 9,650 $ 9,793
12/31/95 $13,441 $13,461
12/31/96 $16,914 $16,544
12/31/97 $22,580 $22,055
12/31/98 $25,834 $28,345
Average Annual Return
Venture Value Lipper
Series S&P 500 Growth Fund Average
1 year 14.4% 28.7% 24.7%
3 years 24.3 28.3 23.9
Since inception 25.6 28.4 n/a
X Fund Facts
Goal: Growth of capital.
Start date: October 31, 1994
Size: $440 million as of
December 31, 1998
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.
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.
35
<PAGE>
New England Zenith Fund
(Davis Venture Value Series)
Investments as of December 31, 1998
Common Stocks--92.7% of Total Net Assets
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Banks and Savings & Loans--13.8%
68,513 Banc One Corp........................................... $ 3,498,445
157,559 BankAmerica Corp........................................ 9,473,235
299,187 Citigroup, Inc.......................................... 14,809,756
1,000 First Union Corp........................................ 60,813
36,100 State Street Corp....................................... 2,511,206
27,900 Suntrust Banks, Inc..................................... 2,134,350
112,300 U.S. Bancorp............................................ 3,986,650
610,500 Wells Fargo & Co........................................ 24,381,844
------------
60,856,299
------------
Building Materials--3.8%
140,800 Martin Marietta Materials, Inc.......................... 8,756,000
276,000 Masco Corp.............................................. 7,935,000
------------
16,691,000
------------
Consumer Products--5.5%
88,400 American Home Products Corp............................. 4,978,025
2,700 Coca-Cola Co............................................ 180,563
900 Fortune Brands, Inc..................................... 28,463
900 Gallaher Group (ADR)(c)................................. 24,469
2,800 General Electric Co..................................... 285,775
24,100 Gillette Co............................................. 1,164,331
27,300 Hasbro, Inc............................................. 986,212
10,400 Mattel, Inc............................................. 237,250
306,900 Philip Morris Companies, Inc............................ 16,419,150
------------
24,304,238
------------
Diversified Financial Services--9.0%
230,500 American Express Co..................................... 23,568,625
12,400 Boardwalk Equities, Inc. (CAD).......................... 137,102
76,900 Federal Home Loan Mortgage Corp......................... 4,955,244
27,000 Golden West Financial Corp.............................. 2,475,562
193,700 Household International, Inc............................ 7,675,362
15,500 ReliaStar Financial Corp. .............................. 714,938
------------
39,526,833
------------
Drilling--1.1%
108,100 Dover Corp.............................................. 3,959,163
32,700 Smith International, Inc.(c)............................ 823,631
------------
4,782,794
------------
Electronic Equipment--4.3%
80,687 Molex, Inc.............................................. 3,076,192
187,100 Texas Instruments, Inc. ................................ 16,008,744
------------
19,084,936
------------
Energy--3.3%
400 Amerada Hess Corp....................................... 19,900
600 Amoco Corp.............................................. 35,400
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
1,000 Atlantic Richfield Co................................... $ 65,250
18,883 British Petroleum PLC (ADR)............................. 1,793,885
8,800 Burlington Resources, Inc............................... 315,150
1,700 Chevron Corp............................................ 140,994
72,000 Devon Energy Corp....................................... 2,209,500
5,600 Exxon Corp.............................................. 409,500
115,300 Halliburton Co.......................................... 3,415,762
600 Mobil Corp.............................................. 52,275
49,864 Noble Affiliates, Inc................................... 1,227,901
101,500 Schlumberger, Ltd....................................... 4,681,687
100 Sempra Energy........................................... 2,538
500 Sonat, Inc.............................................. 13,531
------------
14,383,273
------------
Food & Restaurant--4.5%
257,600 McDonald's Corp......................................... 19,738,600
------------
International Closed-End Investment Company--0.3%
178,934 Morgan Stanley Asia Pacific Fund, Inc................... 1,252,538
------------
Investment Firms--2.4%
55,000 Donaldson, Lufkin & Jenrette, Inc. ..................... 2,255,000
800 J.P. Morgan & Co., Inc.................................. 84,050
114,955 Morgan Stanley Dean Witter.............................. 8,161,805
------------
10,500,855
------------
Life Insurance--1.7%
93,750 SunAmerica, Inc......................................... 7,605,469
------------
Manufacturing--1.3%
129,900 Applied Materials, Inc.(c).............................. 5,545,106
200 Dow Chemical Co......................................... 18,188
800 Maytag Corp............................................. 49,800
------------
5,613,094
------------
Marketing--0.0%
33 A. C. Nielson Corp...................................... 932
------------
Miscellaneous--2.8%
42,100 Cooper Cameron Corp..................................... 1,031,450
6,800 Glaxo Wellcome PLC (ADR)................................ 472,600
30,700 Public Storage, Inc..................................... 830,819
20 R. H. Donnelley Corp.................................... 291
69,400 Sealed Air Corp......................................... 3,543,737
19,800 Tyco International, Ltd................................. 1,493,662
36,200 Vulcan Materials Co..................................... 4,762,562
------------
12,135,121
------------
</TABLE>
See accompanying notes to financial statements.
36
<PAGE>
New England Zenith Fund
(Davis Venture Value Series)
Investments as of December 31, 1998
Common Stocks--(Continued)
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Paper Products--0.0%
300 International Paper Co.................................. $ 13,444
400 Union Camp Corp......................................... 27,000
------------
40,444
------------
Pharmaceutical & Health Care--4.2%
15,200 Bristol-Myers Squibb Co................................. 2,033,950
13,600 Eli Lilly & Co.......................................... 1,208,700
100 IMS Health, Inc......................................... 7,544
19,500 Johnson & Johnson....................................... 1,635,562
12,600 Merck & Co., Inc. ...................................... 1,860,862
28,600 Novartis AG (ADR)....................................... 2,802,800
10,500 Pfizer, Inc............................................. 1,317,094
112,200 SmithKline Beecham plc (ADR)............................ 7,797,900
------------
18,664,412
------------
Property/Casualty Insurance--14.0%
16,075 American International Group, Inc....................... 1,553,247
141,100 Chubb Corp.............................................. 9,153,862
293 Berkshire Hathaway Class A.............................. 20,510,000
27 Berkshire Hathaway Class B.............................. 63,450
78,900 Progressive Corp., (Ohio)............................... 13,363,687
106,762 The Allstate Corp....................................... 4,123,682
115,450 Transatlantic Holdings, Inc............................. 8,723,691
29,500 20th Century Industries, Inc............................ 684,031
53,400 UNUM Corp............................................... 3,117,225
17,600 W.R. Berkley Corp....................................... 599,500
------------
61,892,375
------------
Publishing--1.4%
100 Dun & Bradstreet Corp................................... 3,156
50,400 Gannet Co., Inc......................................... 3,250,800
8,200 New York Times Co....................................... 284,438
33 Nielsen Media Research, Inc............................. 594
15,900 The News Corp. Ltd. (ADR)............................... 420,356
20,100 Tribune Co.............................................. 1,326,600
1,200 Washington Post Co...................................... 693,525
------------
5,979,469
------------
Railroad--1.1%
104,300 Burlington Northern Santa Fe Corp....................... 3,520,125
28,594 Canadian National Railway Co............................ 1,483,314
------------
5,003,439
------------
Real Estate--3.8%
13,400 CenterPoint Properties Corp. ........................... 453,088
123,100 Crescent Real Estate Equities, Inc. .................... 2,831,300
42,200 Equity Office Properties Trust.......................... 1,012,800
18,400 Equity Residential Properties Trust..................... 744,050
10,900 Federal Realty Investment Trust......................... 257,513
9,400 Gables Residential Trust................................ 217,963
80,200 General Growth Properties, Inc. ........................ 3,037,575
8,200 Home Properties, New York, Inc. ........................ 211,150
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
2,400 Kimco Realty Corp. .................................... $ 95,250
27,200 Mack California Realty Corp. .......................... 839,800
24,000 Reckson Associates Realty Corp. ....................... 532,500
150,800 Rouse Co. ............................................. 4,147,000
12,000 United Dominion Realty Trust, Inc. .................... 123,750
64,200 Vornado Realty Trust................................... 2,166,750
3,300 Weingarten Realty Investors............................ 147,263
------------
16,817,752
------------
Retail--1.2%
98,200 Harcourt General, Inc. ................................ 5,223,012
------------
Technology--11.5%
322,700 Hewlett-Packard Co. ................................... 22,044,444
81,400 Intel Corp. ........................................... 9,650,987
96,100 International Business Machines Corp. ................. 17,754,475
24,600 Micron Technology, Inc. ............................... 1,243,837
------------
50,693,743
------------
Telecommunications--1.7%
77,900 AirTouch Communications, Inc.(c)....................... 5,618,538
9,704 Globalstar Telecommunications Ltd.(c).................. 195,293
18,900 Loral Space & Communications(c)........................ 336,656
21,700 Motorola, Inc. ........................................ 1,325,056
600 SBC Communications, Inc. .............................. 32,175
------------
7,507,718
------------
Utilities--0.0%
300 Carolina Power & Light Co. ............................ 14,119
300 Duke Energy Corp. ..................................... 19,219
200 Edison International................................... 5,575
200 New England Electric Systems........................... 9,625
600 Southern Co. .......................................... 17,438
200 Wisconsin Energy Corp. ................................ 6,288
------------
72,264
------------
Waste Management--0.0%
290 Waste Management, Inc. ................................ 13,521
------------
Total Common Stocks (Identified Cost $313,632,982)..... 408,384,131
------------
Convertible Preferred Stocks--0.7%
5,496 AirTouch Communications, Inc., Class C, 4.250%......... 566,088
7,000 Devon Financing Trust, 6.500%.......................... 395,500
69,000 General Growth Properties, 7.250%...................... 1,776,750
4,400 Rouse Co., Series B.................................... 190,850
2,000 Vornado Realty Trust, 6.500%........................... 97,000
------------
Total Preferred Stocks (Identified Cost $2,815,585).... 3,026,188
------------
</TABLE>
See accompanying notes to financial statements.
37
<PAGE>
New England Zenith Fund
(Davis Venture Value Series)
Investments as of December 31, 1998
Short Term Investment--6.8%
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
$29,735,000 Repurchase Agreement with State Street Corp. dated
12/31/1998 at 4.6% to be repurchased at
$29,750,198 on 1/4/1999, collateralized by
$29,220,000 Federal Home Loan Bank, 4.95% due
12/4/2000 with a value of $29,364,580 and
$1,230,000 Federal Home Loan Bank, 5.0% due
10/27/1999 with a value of $1,270,944............ $ 29,735,000
------------
Total Short-Term Investments (Identified Cost
$29,735,000)..................................... 29,735,000
------------
Total Investments--100.2%
(Identified Cost $346,183,567)(b)................ 441,145,319
Other assets less liabilities..................... (794,412)
------------
Total Net Assets--100%............................ $440,350,907
============
(a) See Note 1A of Notes to Financial Statements.
(b) Federal Tax Information:
At December 31, 1998 the net unrealized appreciation on investments based
on cost of $346,139,083 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.......... $103,434,971
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value.......... (8,428,735)
------------
Net unrealized appreciation.................................. $ 95,006,236
============
</TABLE>
(c) Non-income producing security.
ADR/GDR--An American Depositary Receipt (ADR) or Global Depositary Receipt
(GDR) is a certificate issued by a Custodian Bank representing the
right to receive securities of the foreign issuer described. The
values of ADRs and GDRs are significantly influenced by trading on
exchanges not located in the United States or Canada.
CAD-- Security is denominated in Canadian Dollars.
See accompanying notes to financial statements.
38
<PAGE>
New England Zenith Fund
(Davis Venture Value Series)
Statement of Assets & Liabilities Statement of Operations
December 31, 1998 Year Ended December 31, 1998
<TABLE>
<S> <C> <C>
Assets
Investments at value.................................. $441,145,319
Cash.................................................. 14,813
Receivable for:
Fund shares sold...................................... 1,221,605
Securities sold....................................... 448,436
Dividends and interest................................ 418,882
Foreign taxes......................................... 1,570
Unamortized organization expense...................... 1,666
------------
443,252,291
Liabilities
Payable for:
Securities purchased.................................. $2,055,819
Fund shares redeemed.................................. 533,669
Withholding taxes..................................... 4,779
Accrued expenses:
Management fees....................................... 268,306
Deferred trustees' fees............................... 6,591
Other expenses........................................ 32,220
----------
2,901,384
------------
$440,350,907
============
Net Assets
Net Assets consist of:
Capital paid in....................................... $342,803,424
Undistributed net investment
income............................................... 12,192
Accumulated net realized gains (losses)............... 2,573,461
Unrealized appreciation (depreciation) on investments
and foreign currency................................. 94,961,830
------------
Net Assets............................................. $440,350,907
============
Computation of offering price:
Net asset value and redemption price per share
($440,350,907 divided by 19,022,696 shares of
beneficial interest).................................. $ 23.15
============
Identified cost of investments......................... $346,183,567
============
</TABLE>
<TABLE>
<S> <C> <C>
Investment Income
Dividends........................................... $ 4,281,941(a)
Interest............................................ 1,674,364
-----------
5,956,305
Expenses
Management fees..................................... $2,706,162
Deferred expense reimbursement...................... 41,906
Trustees' fees and expenses......................... 22,750
Custodian........................................... 77,398
Audit and tax services.............................. 17,617
Legal............................................... 27,197
Printing............................................ 80,582
Insurance........................................... 10,025
Amortization of organization
expenses........................................... 2,012
Miscellaneous....................................... 4,846
----------
Total expenses...................................... 2,990,495
-----------
Net investment income................................ 2,965,810
Realized and Unrealized Gain
(Loss) on Investments and
Foreign Currency Transactions
Realized gain (loss) on:
Investments--net.................................... 11,066,361
Foreign currency transactions--net.................. 74
----------
Total realized gain (loss) on investments and
foreign currency transactions..................... 11,066,435
----------
Unrealized appreciation (depreciation) on:
Investments--net.................................... 35,305,977
Foreign currency transactions--net.................. (541)
----------
Total unrealized appreciation (depreciation) on
investments and foreign currency transactions..... 35,305,436
----------
Net gain (loss) on investment transactions.......... 46,371,871
-----------
Net Increase (Decrease) in Net Assets From
Operations.......................................... $49,337,681
===========
(a)Net of foreign taxes of: $39,554
</TABLE>
See accompanying notes to financial statements.
39
<PAGE>
New England Zenith Fund
(Davis Venture Value Series)
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
From Operations
Net investment income............................. $ 1,777,660 $ 2,965,810
Net realized gain (loss) on investments and
foreign currency transactions.................... 6,969,133 11,066,435
Unrealized appreciation (depreciation) on
investments and foreign currency transactions.... 41,444,414 35,305,436
------------ ------------
Increase (decrease) in net assets from operations. 50,191,207 49,337,681
------------ ------------
From Distributions to Shareholders
Net investment income............................. (1,734,376) (2,955,699)
Net realized gain on investments.................. (6,838,667) (8,942,796)
------------ ------------
(8,573,043) (11,898,495)
------------ ------------
From Capital Shares Transactions
Proceeds from sale of shares...................... 161,182,195 198,875,194
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income.......... 1,734,376 2,955,699
Distributions from net realized gain.............. 6,838,667 8,942,796
------------ ------------
169,755,238 210,773,689
Cost of shares redeemed........................... (39,114,351) (88,310,045)
------------ ------------
Increase (decrease) in net assets derived from
capital share transactions....................... 130,640,887 122,463,644
------------ ------------
Total increase (decrease) in net assets........... 172,259,051 159,902,830
Net Assets
Beginning of the year............................. 108,189,026 280,448,077
------------ ------------
End of the year................................... $280,448,077 $440,350,907
============ ============
Undistributed Net Investment Income
Beginning of the year............................. $ 17,317 $ 0
============ ============
End of the year................................... $ 0 $ 12,192
============ ============
Number of Shares of the Fund:
Issued from the sale of shares.................... 8,370,050 9,098,582
Issued in connection with the reinvestment of:
Distributions from net investment income.......... 85,008 127,786
Distributions from net realized gain.............. 335,095 387,229
------------ ------------
8,790,153 9,613,597
Redeemed.......................................... (2,030,066) (4,074,457)
------------ ------------
Net change........................................ 6,760,087 5,539,140
============ ============
</TABLE>
Financial Highlights
<TABLE>
<CAPTION>
October 31, 1994(a)
through Year Year Year Year
December 31, Ended Ended Ended Ended
1994 1995 1996 1997 1998
------------------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year...... $10.00 $ 9.62 $ 13.10 $ 16.09 $ 20.80
------ ------- -------- -------- --------
Income From Investment
Operations
Net Investment Income.. 0.03 0.10 0.13 0.18 0.16
Net Realized and
Unrealized Gain (Loss)
on Investments........ (0.38) 3.68 3.26 5.20 2.84
------ ------- -------- -------- --------
Total From Investment
Operations............ (0.35) 3.78 3.39 5.38 3.00
------ ------- -------- -------- --------
Less Distributions
Distributions From Net
Investment Income..... (0.03) (0.10) (0.13) (0.14) (0.16)
Distributions From Net
Realized Capital
Gains................. 0.00 (0.20) (0.27) (0.53) (0.49)
------ ------- -------- -------- --------
Total Distributions.... (0.03) (0.30) (0.40) (0.67) (0.65)
------ ------- -------- -------- --------
Net Asset Value, End of
Year................... $ 9.62 $ 13.10 $ 16.09 $ 20.80 $ 23.15
====== ======= ======== ======== ========
Total Return (%)........ (3.5)(b) 39.3 25.8 33.5 14.4
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.90 (c) 0.90 0.90 0.90 0.83
Ratio of Net Investment
Income to Average Net
Assets (%)............. 2.54 (c) 1.39 1.25 0.94 0.82
Portfolio Turnover Rate
(%).................... 1 (c) 20 18 17 25
Net Assets, End of Year
(000).................. $3,371 $35,045 $108,189 $280,448 $440,351
The ratios of expenses
to average net assets
without giving effect
to the voluntary
expense agreement
described in Note 4 to
the Financial
Statements would have
been (%)............... 3.97(c) 1.51 0.96 0.90 --
</TABLE>
(a) Commencement of operations.
(b) Not computed on an annualized basis.
(c) Computed on an annualized basis.
See accompanying notes to financial statements.
40
<PAGE>
Westpeak Growth and Income
Portfolio Manager: Gerald H. Scriver and Philip J. Cooper Westpeak Investment
Advisors, L.P.
(Photo of Gerald H. Scriver)
(Photo of Philip J. Cooper)
Q. How did the Westpeak Growth and Income Series perform during 1998?
A. For the 12 months ending December 31, 1998, the Series had a total return
of 24.4% (based on net asset value). The Series' results lagged the 28.7%
return of the S&P 500/25/ during the period but significantly outpaced the
16.5% return of the Lipper Variable Products Growth and Income Fund
Average/11/.
Q. Describe the market environment in 1998.
A. Extending what is by now a familiar story, 1998's market results were de-
fined by the performance of a relative handful of very large capitalization
stocks. The markets adjusted to the ongoing tumult in Asia and recorded a
fourth consecutive year of double-digit returns in the Dow Jones Industrial
Average and the S&P 500, two widely followed indicators of market activity.
Along the way, U.S. markets displayed remarkable resilience, snapping back
smartly from a sharp summer decline. The market's July plunge had its origins
in Moscow, where the Russian government failed to repay debt that it owed to
other countries; fears of parallel events in Brazil--and therefore much of
Latin America--extended the slide. Bond markets were especially affected, as a
flight from overseas markets into the reassuring quality of U.S. government
securities left other fixed-income sectors adrift in search of buyers.
The Federal Reserve Board took an assertive stance against the looming credit
crunch with three interest rate cuts between September and November, lowering
short-term interest rates by three-quarters of a percentage point. These steps
encouraged buyers to return to the markets for both stocks and bonds, and the
Dow Jones Industrial Average closed the year at 9181, not far from its then
record high of 9374, set on November 24, 1998.
Q. Given this environment, what was your investment strategy during the year?
A. Our portfolio-building style is based on analysis of dozens of fundamental
and technical measures that we use to identify stocks that may be candidates
for inclusion in the Series. To that quantitative information we apply our
professional judgment and the lessons of experience to make final investment
selections. Because we always keep the Series fully invested and never try to
gauge the market's next moves, the overall investment environment does not in-
fluence our positioning of the Series.
Over the course of the year, we gradually shifted the Series' portfolio empha-
sis from growth stocks to stocks in the S&P 500 Index with lower price-
/earnings ratios, an objective measure that permits investors to compare the
costs of stocks. We kept the Series underweighted in overvalued growth sectors
and in very expensive technology stocks; in both instances we thought pros-
pects for earnings expansion were fully reflected in market valuations. We
overweighted the Series' portfolio (relative to the S&P 500) in reasonably
priced technology and telecommunications companies. We were underweighted the
Series in drug companies, whose high valuations did not seem justified, and in
consumer staples.
Q. What were the principal factors affecting performance?
A. Our underweighted position in the largest-cap growth stocks left the Series
underrepresented in one of the year's most productive sectors. Avoiding ex-
tremely high-priced technology companies also hampered performance. Among the
sectors that helped performance were the regional Bell companies and estab-
lished technology companies with demonstrated earnings, including CISCO Sys-
tems, which manufactures products for computer networks, and Sun Microsystems,
the leading producer of networked workstations. Other selections that helped
boost performance were healthcare companies Genentech and Omnicare, as well as
IBM, United Technology and Gulfstream, a manufacturer of jet aircraft for
businesses.
Q. What is your current outlook for the market and the Series?
A. We believe that business conditions in Asia and elsewhere are stabilizing,
and that some overseas economies may already have begun to climb out of their
troughs. Without the drag of crisis-weakened export markets, growth in our
Gross Domestic Product should continue, but at a lower rate than in 1998. In-
flation represents no immediate threat, and we think there is enough momentum
in the economy to forestall any likelihood of a recession, especially given
the current climate of lower interest rates. But the Federal Reserve Board
will continue to have a huge impact on market psychology, and any rise in in-
terest rates could represent a significant risk for the market.
41
<PAGE>
Therefore we believe that markets in 1999 will oscillate between optimism over
continued low rates and concern that continued growth could trigger a rate
hike on the part of the Federal Reserve Board, cutting short any earnings ex-
pansion and darkening the mood of investors. Perhaps most importantly, we ex-
pect that investors will finally put aside their obsession with the very larg-
est capitalization growth companies as valuations for these stocks become more
and more unrealistic--in our opinion there must come a point where valuations
mean something. The implication for the markets could be a greater focus on
value than in recent years, an eventuality that we believe we can address suc-
cessfully through the proprietary stock selection techniques that we have been
fine-tuning for over 25 years.
[GRAPH APPEARS HERE]
A $10,000 investment compared to the S&P 500 Index
since the Series' inception
Date Growth and Income S&P 500
---- ----------------- -------
4/30/93 $10,000 $10,000
12/31/93 $11,424 $10,819
12/31/94 $11,286 $10,966
12/31/95 $15,402 $15,072
12/31/96 $18,189 $18,524
12/31/97 $24,278 $24,695
12/31/98 $30,214 $31,738
Average Annual Return
Growth
& Income Lipper Variable Products Growth
Series S&P 500/25/ and Income Average/11/
1 year 24.4% 28.7% 16.5%
3 years 25.2 28.3 21.5
5 years 21.5 24.1 18.8
Since Inception 21.5 22.6 n/a
X Fund Facts
Goal: Long-term total return
through investment in equity
securities.
Start date: April 30, 1993
Size: $282 million as of December
31, 1998
Managers: Gerald Scriver and
Philip Cooper. Mr. Scriver and Mr.
Cooper have managed the Series
from its inception in 1993; they
also have managed Westpeak Stock
Index Series since August 1993,
New England Growth Opportunities
Fund since May 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.
42
<PAGE>
New England Zenith Fund
(Westpeak Growth and Income Series)
Investments as of December 31, 1998
Common Stocks--97.9% of Total Net Assets
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Airlines--1.9%
41,100 AMR, Corp.(c)........................................... $ 2,440,312
22,900 Delta Air Lines, Inc. .................................. 1,190,800
34,300 US Airways Group, Inc.(c)............................... 1,783,600
------------
5,414,712
------------
Automotive--2.4%
113,500 Ford Motor Co. ......................................... 6,661,031
------------
Banks--6.8%
24,600 Banc One Corp........................................... 1,256,137
87,900 BB&T Corp............................................... 3,543,469
58,900 Comerica, Inc........................................... 4,016,244
68,200 PNC Bank Corp........................................... 3,691,325
56,300 SunTrust Banks, Inc..................................... 4,306,950
66,000 UnionBanCal Corp........................................ 2,248,125
------------
19,062,250
------------
Business Services--0.6%
25,900 HBO & Co................................................ 743,006
17,700 Omnicom Group........................................... 1,026,600
------------
1,769,606
------------
Chemicals--1.4%
33,100 Dow Chemical Co. ....................................... 3,010,031
29,300 Ecolab, Inc............................................. 1,060,294
------------
4,070,325
------------
Computer Software & Services--1.8%
49,800 Compuware Corp.(c)...................................... 3,890,625
30,500 NCR Corp.(c)............................................ 1,273,375
------------
5,164,000
------------
Computers & Business Equipment--9.9%
84,750 Cisco Systems, Inc.(c).................................. 7,865,859
22,200 EMC Corp.(c)............................................ 1,887,000
56,200 International Business Machines......................... 10,382,950
63,700 Lexmark International Group, Inc.(c).................... 6,401,850
7,700 Sun Microsystems, Inc.(c)............................... 659,313
5,200 Xerox Corp. ............................................ 613,600
------------
27,810,572
------------
Construction--1.3%
20,700 Armstrong World Industries, Inc. ....................... 1,248,469
32,500 Fluor Corp. ............................................ 1,383,281
28,200 Lafarge Corp. .......................................... 1,142,100
------------
3,773,850
------------
Defense & Aerospace--3.5%
24,200 B.F. Goodrich Co. ...................................... 868,175
53,500 Gulfstream Aerospace Corp.(c)........................... 2,848,875
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Defense & Aerospace--(Continued)
18,000 Litton Industries, Inc.(c).............................. $ 1,174,500
94,700 Sundstrand Corp. ....................................... 4,912,563
------------
9,804,113
------------
Drugs--8.7%
70,500 Amgen, Inc.(c).......................................... 7,371,656
56,200 Genentech, Inc.(c)...................................... 4,478,438
51,200 McKesson Corp........................................... 4,048,000
28,500 Pharmacia & Upjohn, Inc................................. 1,613,812
127,400 Schering-Plough Corp. .................................. 7,038,850
------------
24,550,756
------------
Electric Utilities--3.1%
94,400 DTE Energy Co. ......................................... 4,047,400
69,000 Pinnacle West Capital Corp.............................. 2,923,875
54,000 Western Resources, Inc.................................. 1,795,500
------------
8,766,775
------------
Electronics--3.5%
18,900 Comverse Technology, Inc.(c)............................ 1,341,900
69,000 Honeywell, Inc. ........................................ 5,196,563
22,500 Lucent Technologies, Inc. .............................. 2,475,000
12,800 Tellabs, Inc.(c)........................................ 877,600
------------
9,891,063
------------
Energy Reserves--1.7%
66,500 Exxon Corp. ............................................ 4,862,813
------------
Financial Services--3.3%
43,400 Countrywide Credit Industries, Inc. .................... 2,178,137
96,800 Federal National Mortgage Association................... 7,163,200
------------
9,341,337
------------
Food & Beverages--3.9%
43,100 H.J. Heinz Co........................................... 2,440,538
33,900 Quaker Oats Co. ........................................ 2,017,050
78,200 Unilever N.V............................................ 6,485,713
------------
10,943,301
------------
Gas & Pipeline Utilities--3.0%
104,700 El Paso Energy Corp..................................... 3,644,869
166,000 LG&E Energy Corp........................................ 4,699,875
------------
8,344,744
------------
Health Care--Products--1.9%
13,100 Allegiance Corp. ....................................... 610,787
9,500 Guidant Corp. .......................................... 1,047,375
47,500 TYCO International, Ltd................................. 3,583,281
------------
5,241,443
------------
</TABLE>
See accompanying notes to financial statements.
43
<PAGE>
New England Zenith Fund
(Westpeak Growth and Income Series)
Investments as of December 31, 1998
Common Stocks--(Continued)
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Industrial--Parts & Machinery--4.5%
49,000 Caterpillar, Inc. ...................................... $ 2,254,000
120,300 Ingersoll-Rand Co. ..................................... 5,646,581
44,600 United Technologies Corp. .............................. 4,850,250
------------
12,750,831
------------
Leisure--1.2%
47,600 Eastman Kodak Co. ...................................... 3,427,200
------------
Life Insurance--5.2%
33,900 American General Corp. ................................. 2,644,200
36,600 CIGNA Corp. ............................................ 2,829,637
51,100 Jefferson Pilot Corp. .................................. 3,832,500
46,800 Transamerica Corp....................................... 5,405,400
------------
14,711,737
------------
Liquor--0.9%
36,500 Anheuser-Busch Companies, Inc. ......................... 2,395,312
------------
Media & Entertainment--1.8%
74,400 Carnival Corp........................................... 3,571,200
19,000 Viacom, Inc., Class B(c)................................ 1,406,000
------------
4,977,200
------------
Medical--Services--0.2%
12,700 Omnicare, Inc........................................... 441,325
------------
Metals & Mining--1.9%
171,800 Alcan Aluminum, Ltd..................................... 4,649,338
25,400 USX-U.S. Steel Group.................................... 584,200
------------
5,233,538
------------
Oil--Refining & Distribution--0.4%
33,400 Coastal Corp. .......................................... 1,166,912
------------
Property & Casualty Insurance--1.6%
71,600 Allstate Corp........................................... 2,765,550
12,400 MGIC Investment Corp. .................................. 493,675
56,575 Old Republic International Corp. ....................... 1,272,937
------------
4,532,162
------------
Publishing--2.4%
87,800 Deluxe Corp............................................. 3,210,188
71,200 Knight-Ridder, Inc...................................... 3,640,100
------------
6,850,288
------------
Retail-Clothing--2.2%
175,600 Limited, Inc............................................ 5,114,350
34,600 TJX Companies, Inc. .................................... 1,003,400
------------
6,117,750
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Retail--Department Store--3.8%
38,000 Dayton Hudson Corp. .................................... $ 2,061,500
27,700 Federated Department Stores, Inc.(c).................... 1,206,681
91,600 Wal-Mart Stores, Inc.................................... 7,459,675
------------
10,727,856
------------
Retail--Food & Drug--1.2%
29,800 Albertson's, Inc. ...................................... 1,897,888
22,800 Safeway, Inc.(c)........................................ 1,389,375
------------
3,287,263
------------
Retail--Specialty--0.2%
14,300 Tandy Corp. ............................................ 588,981
------------
Securities & Asset Management--0.8%
50,000 Lehman Brothers Holdings, Inc. ......................... 2,203,125
------------
Semi-Conductors--2.6%
62,900 Intel Corp.............................................. 7,457,581
------------
Telecommunciation--7.1%
86,500 Ameritech Corp.......................................... 5,481,938
105,000 AT&T Corp............................................... 7,901,250
13,400 Bell Atlantic Corp...................................... 710,200
91,500 U.S. West, Inc. ........................................ 5,913,188
------------
20,006,576
------------
Thrifts--1.2%
36,000 Golden West Financial Corp. ............................ 3,300,750
------------
Total Common Stocks (Identified Cost $228,549,832)...... 275,649,078
------------
</TABLE>
See accompanying notes to financial statements.
44
<PAGE>
New England Zenith Fund
(Westpeak Growth and Income Series)
Investments as of December 31, 1998
Short-Term Investment--1.8%
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
$5,190,000 Repurchase agreement with State Street Corp. dated
12/31/1998 at 4.000% to be repurchased at
$5,192,307 on 1/04/1999 collaterized by $3,885,000
U.S Treasury Bond 8.125% due 8/15/2019 with a value
of $5,296,347...................................... $ 5,190,000
------------
Total Short-Term Investment
(Identified cost $5,190,000)....................... 5,190,000
------------
Total Investments--99.7%
(Identified cost $233,739,832)(b).................. 280,839,078
Other assets less liabilities....................... 718,121
------------
Total Net Assets--100%.............................. $281,557,199
============
</TABLE>
(a) See Note 1A of Notes to Financial Statements.
(b) Federal Tax Information:
At December 31,1998 the net unrealized appreciation on investments based on
cost of $233,779,161 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............... $51,863,194
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value............... (4,803,277)
-----------
Net unrealized appreciation.................................... $47,059,917
===========
</TABLE>
(c) Non-income producing security.
See accompanying notes to financial statements.
45
<PAGE>
New England Zenith Fund
(Westpeak Growth and Income Series)
Statement of Assets & Liabilities
December 31, 1998
<TABLE>
<S> <C> <C>
Assets
Investments at value.................................... $280,839,078
Cash.................................................... 477
Receivable for:
Fund shares sold........................................ 753,731
Dividends and interest.................................. 400,587
Foreign taxes........................................... 697
------------
281,994,570
Liabilities
Payable for:
Fund shares redeemed.................................... $253,078
Accrued expenses:
Management fees......................................... 154,368
Deferred trustees' fees................................. 6,688
Other expenses.......................................... 23,237
--------
437,371
------------
$281,557,199
============
Net Assets
Net Assets consist of:
Capital paid in......................................... $226,865,622
Undistributed net investment income..................... 11,052
Accumulated net realized gains (losses)................. 7,581,279
Unrealized appreciation (depreciation) on investments... 47,099,246
------------
Net Assets............................................... $281,557,199
============
Computation of offering price:
Net asset value and redemption price
per share ($281,557,199 divided by 1,351,407 shares of
beneficial
interest)............................................... $ 208.34
============
Identified cost of investments........................... $233,739,832
============
</TABLE>
Statement of Operations
Year Ended December 31, 1998
<TABLE>
<S> <C> <C>
Investment Income
Dividends.......................................... $ 2,955,991(a)
Interest........................................... 331,021
-----------
3,287,012
Expenses
Management fees.................................... $1,462,154
Trustees' fees and expenses........................ 17,001
Custodian.......................................... 59,422
Audit and tax services............................. 11,377
Legal.............................................. 13,895
Printing........................................... 45,398
Insurance.......................................... 5,767
Miscellaneous...................................... 3,954
----------
Total expenses..................................... 1,618,968
-----------
Net investment income............................... 1,668,044
Realized and Unrealized Gain (Loss) on Investments
Realized gain (loss) on:
Investments--net................................... 19,998,285
Unrealized appreciation
(depreciation) on:
Investments--net................................... 24,191,543
-----------
Net gain (loss) on investment transactions.......... 44,189,828
-----------
Net Increase (Decrease) in Net Assets from
Operations......................................... $45,857,872
===========
</TABLE>
(a) Net of foreign taxes of: $6,716.
See accompanying notes to financial statements.
46
<PAGE>
New England Zenith Fund
(Westpeak Growth and Income Series)
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
From Operations
Net investment income............................. $ 1,047,363 $ 1,668,044
Net realized gain (loss) on investments........... 17,943,986 19,998,285
Unrealized appreciation (depreciation) on
investments...................................... 12,979,433 24,191,543
------------ ------------
Increase (decrease) in net assets from operations. 31,970,782 45,857,872
------------ ------------
From Distributions to Shareholders
Net investment income............................. (1,033,253) (1,671,571)
Net realized gain on investments.................. (15,362,335) (17,136,182)
------------ ------------
(16,395,588) (18,807,753)
------------ ------------
From Capital Shares Transactions
Proceeds from sale of shares...................... 64,665,884 131,989,323
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income.......... 1,033,253 1,671,571
Distributions from net realized gain.............. 15,362,335 17,136,182
------------ ------------
81,061,472 150,797,076
Cost of shares redeemed........................... (26,228,431) (49,028,374)
------------ ------------
Increase (decrease) in net assets derived from
capital share transactions....................... 54,833,041 101,768,702
------------ ------------
Total increase (decrease) in net assets........... 70,408,235 128,818,821
Net Assets
Beginning of the year............................. 82,330,143 152,738,378
------------ ------------
End of the year................................... $152,738,378 $281,557,199
============ ============
Undistributed Net Investment Income
Beginning of the year............................. $ 469 $ 14,579
============ ============
End of the year................................... $ 14,579 $ 11,052
============ ============
Number of Shares of the Fund:
Issued from the sale of shares.................... 362,661 660,083
Issued in connection with the reinvestment of:
Distributions from net investment income.......... 5,886 8,032
Distributions from net realized gain.............. 86,752 82,416
------------ ------------
455,299 750,531
Redeemed.......................................... (149,104) (247,768)
------------ ------------
Net change........................................ 306,195 502,763
============ ============
</TABLE>
Financial Highlights
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year........................... $112.32 $109.03 $141.31 $ 151.77 $ 179.98
------- ------- ------- -------- --------
Income From Investment
Operations
Net Investment Income........... 1.90 1.77 1.78 1.37 1.30
Net Realized and Unrealized Gain
(Loss) on Investments.......... (3.25) 37.91 23.69 48.76 42.44
------- ------- ------- -------- --------
Total From Investment
Operations..................... (1.35) 39.68 25.47 50.13 43.74
------- ------- ------- -------- --------
Less Distributions
Distributions From Net
Investment Income.............. (1.92) (1.71) (1.82) (1.35) (1.31)
Distributions From Net Realized
Capital Gains.................. 0.00 (5.69) (13.19) (20.57) (14.07)
Distributions From Paid-in
Capital........................ (0.02) 0.00 0.00 0.00 0.00
------- ------- ------- -------- --------
Total Distributions............. (1.94) (7.40) (15.01) (21.92) (15.38)
------- ------- ------- -------- --------
Net Asset Value, End of Year.... $109.03 $141.31 $151.77 $ 179.98 $ 208.34
======= ======= ======= ======== ========
Total Return (%)................ (1.2) 36.5 18.1 33.5 24.4
Ratio of Operating Expenses to
Average Net Assets (%)......... 0.85 0.85 0.85 0.82 0.78
Ratio of Net Investment Income
to Average Net Assets (%)...... 2.30 1.63 1.40 0.91 0.80
Portfolio Turnover Rate (%)..... 133 92 104 93 100
Net Assets, End of Year (000)... $22,934 $48,129 $82,330 $152,738 $281,557
The ratios of expenses to
average net assets without
giving effect to the voluntary
expense agreement described in
Note 4 to the Financial
Statements would have been (%). 0.86 1.06 0.91 -- --
</TABLE>
See accompanying notes to financial statements.
47
<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 portfolio perform during 1998?
A. The Westpeak Stock Index Series returned 27.9% (based on net asset value)
for 1998. This return lagged the S&P 500/25/ return of 28.7% and the Lipper
Variable Products S&P 500 Index Fund Average/16/ which returned 28.3%. The Se-
ries remained fully participated in the 500 stocks which make up the S&P 500
Index. It is our strategy to weight the allocation of the Series virtually in
the same portion as the S&P 500 Index so as to better duplicate the perfor-
mance.
Q. What is your current outlook for the market and the Series?
A. We believe that business conditions in Asia and elsewhere are stabilizing,
and that some overseas economies may already have begun to climb out of their
troughs. Without the drag of crisis-weakened export markets, growth in our
Gross Domestic Product should continue, but at a lower rate than 1998. Infla-
tion represents no immediate threat, and we think there is enough momentum in
the economy to forestall any likelihood of a recession, especially given the
current climate of lower interest rates. But the Federal Reserve Board will
continue to have a huge impact on market psychology, and any rise in interest
rates could represent a significant risk for the market. Therefore, we believe
that markets in 1999 will oscillate between optimism over continued low rates
and concern that continued growth could trigger a rate hike on the part of the
Federal Reserve Board, cutting short any earnings expansion and darkening the
mood of investors. Perhaps most importantly, we expect that investors will fi-
nally put aside their obsession with the very largest capitalization growth
companies as valuations for these stocks become more and more unrealistic--
there must come a point where valuations mean something, in our opinion.
[GRAPH APPEARS HERE]
A $10,000 Investment Compared to the S&P 500 Index over the past 10 years
Date Stock Index Series S&P 500
---- ------------------ -------
12/31/88 $10,000 $10,000
12/31/89 $13,015 $13,159
12/31/90 $12,476 $12,749
12/31/91 $16,265 $16,617
12/31/92 $17,452 $17,881
12/31/93 $19,149 $19,675
12/31/94 $19,367 $19,942
12/31/95 $26,510 $27,409
12/31/96 $32,466 $33,686
12/31/97 $43,016 $44,909
12/31/98 $55,027 $57,717
Average Annual Total Return
Stock Index Lipper Variable Products
Series S&P 500/25/ S&P 500 Fund Index Average/16/
1 year 27.9% 28.7% 28.3%
3 years 27.6 28.3 27.8
5 years 23.5 24.1 23.6
10 years 18.6 19.2 20.5
Since Inception 15.9 16.5 n/a
X 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: $186 million as of
December 31, 1998
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 Opportunities 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.
48
<PAGE>
New England Zenith Fund
(Westpeak Stock Index Series)
Investments as of December 31, 1998
Common Stocks--99.3% of Total Net Assets
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Airlines--0.3%
3,300 AMR Corp.(c)............................................. $ 195,937
2,800 Delta Air Lines, Inc. ................................... 145,600
6,200 Southwest Airlines Co. .................................. 139,113
1,800 US Airways Group, Inc.(c)................................ 93,600
------------
574,250
------------
Apparel & Textiles--0.2%
1,300 Fruit of the Loom, Inc.(c)............................... 17,956
1,200 Liz Claiborne, Inc. ..................................... 37,875
5,300 NIKE, Inc., Class B...................................... 214,981
1,100 Reebok International, Ltd.(c)............................ 16,363
600 Russell Corp. ........................................... 12,188
300 Springs Industries, Inc. ................................ 12,431
2,200 VF Corp. ................................................ 103,125
------------
414,919
------------
Automotive--1.4%
1,400 Cooper Tire & Rubber Co. ................................ 28,612
3,022 Dana Corp. .............................................. 123,524
700 Fleetwood Enterprises, Inc. ............................. 24,325
22,400 Ford Motor Co. .......................................... 1,314,600
12,100 General Motors Corp. .................................... 865,906
2,900 Goodyear Tire & Rubber................................... 146,269
2,200 ITT Industries, Inc. .................................... 87,450
1,320 Navistar International Corp.(c).......................... 37,620
1,390 PACCAR, Inc. ............................................ 57,164
------------
2,685,470
------------
Banks--6.4%
31,824 BankAmerica Corp. ....................................... 1,913,418
5,500 BankBoston Corp. ........................................ 214,156
1,800 Bankers Trust New York Corp. ............................ 153,788
5,300 BB&T Corp. .............................................. 213,656
15,840 Chase Manhattan Corp. ................................... 1,078,110
42,353 Citigroup, Inc. ......................................... 2,096,474
2,900 Comerica, Inc. .......................................... 197,744
4,900 Fifth Third Bancorp...................................... 349,431
17,970 First Union Corp. ....................................... 1,092,801
10,524 Fleet Financial Group, Inc. ............................. 470,291
3,940 Huntington Bancshares, Inc. ............................. 118,446
3,300 J.P. Morgan & Co., Inc. ................................. 346,706
8,200 Keycorp.................................................. 262,400
2,800 Mercantile Bancorp, Inc. ................................ 129,150
6,100 National City Corp. ..................................... 442,250
5,600 PNC Bank Corp. .......................................... 303,100
4,000 Regions Financial Corp. ................................. 161,250
2,000 Republic New York Corp. ................................. 91,125
3,200 Summit Bancorp........................................... 139,800
5,900 SunTrust Banks, Inc. .................................... 451,350
4,950 Synovus Financial Corp. ................................. 120,656
2,400 Union Planters Corp. .................................... 108,750
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
3,800 Wachovia Corp. .......................................... $ 332,263
30,030 Wells Fargo & Co. ....................................... 1,199,323
------------
11,986,438
------------
Banks & Thrifts--1.8%
21,692 Banc One Corp. .......................................... 1,107,648
13,900 Bank of New York, Inc. .................................. 559,475
4,300 Firstar Corp. ........................................... 399,900
4,800 Mellon Bank Corp. ....................................... 330,000
2,000 Northern Trust Corp. .................................... 174,625
3,000 State Street Corp. ...................................... 208,687
13,808 U.S. Bancorp............................................. 490,184
------------
3,270,519
------------
Broadcasting--0.5%
6,800 Comcast Corp. ........................................... 399,075
11,300 MediaOne Group, Inc.(c).................................. 531,100
------------
930,175
------------
Business Services--1.2%
5,600 Automatic Data Processing, Inc. ......................... 449,050
1,400 Ceridian Corp.(c)........................................ 97,738
2,900 Computer Sciences Corp.(c)............................... 186,869
9,100 Electronic Data Systems Corp. ........................... 457,275
7,900 HBO & Co. ............................................... 226,631
3,020 IMS Health, Inc. ........................................ 227,821
3,100 Omnicom Group............................................ 179,800
3,000 Paychex, Inc. ........................................... 154,312
500 Shared Medical System.................................... 24,938
2,500 The Interpublic Group of Companies, Inc. ................ 199,375
------------
2,203,809
------------
Chemicals--2.3%
4,300 Air Products & Chemicals, Inc. .......................... 172,000
1,400 Ashland, Inc. ........................................... 67,725
2,100 Avery Dennison Corp. .................................... 94,631
4,150 Dow Chemical Co. ........................................ 377,391
21,000 E.l. du Pont de Nemours & Co. ........................... 1,114,312
1,400 Eastman Chemical Co. .................................... 62,650
2,400 Ecolab, Inc. ............................................ 86,850
2,625 Engelhard Corp. ......................................... 51,188
1,100 Great Lakes Chemical Corp. .............................. 44,000
1,700 Hercules, Inc. .......................................... 46,538
7,500 Minnesota Mining & Manufacturing Co. .................... 533,437
11,100 Monsanto Co. ............................................ 527,250
2,400 Morton International, Inc. .............................. 58,800
1,200 Nalco Chemical Co. ...................................... 37,200
6,600 Occidental Petroleum Corp. .............................. 111,375
3,300 PPG Industries, Inc. .................................... 192,225
2,900 Praxair, Inc. ........................................... 102,225
3,300 Rohm & Haas Co. ......................................... 99,412
1,596 Sealed Air Corp.(c)...................................... 81,496
</TABLE>
See accompanying notes to financial statements.
49
<PAGE>
New England Zenith Fund
(Westpeak Stock Index Series)
Investments as of December 31, 1998
Common Stocks--(Continued)
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Chemicals--(Continued)
3,200 Sherwin Williams Co...................................... $ 94,000
3,100 Tenneco, Inc............................................. 105,594
2,500 Union Carbide Corp....................................... 106,250
1,400 W.R. Grace & Co.(c)...................................... 21,963
1,875 Westvaco Corp............................................ 50,273
------------
4,238,785
------------
Computer Software & Services--4.9%
1,300 Adobe Systems, Inc....................................... 60,775
800 Autodesk, Inc............................................ 34,150
3,800 BMC Software, Inc.(c).................................... 169,337
15,948 Cendant Corp.(c)......................................... 304,009
10,400 Computer Associates International, Inc................... 443,300
3,400 Compuware Corp.(c)....................................... 265,625
8,300 First Data Corp. ........................................ 263,006
45,700 Microsoft Corp.(c)....................................... 6,338,019
6,500 Novell, Inc.(c).......................................... 117,812
18,037 Oracle Systems Corp.(c).................................. 777,846
5,000 Parametric Technology Corp.(c)........................... 81,250
4,200 PeopleSoft, Inc.(c)...................................... 79,538
4,700 Unisys Corp.(c).......................................... 161,856
------------
9,096,523
------------
Computers & Business Equipment--7.0%
6,700 3Com Corp.(c)............................................ 300,244
2,500 Apple Computer(c)........................................ 102,344
4,000 Ascend Communications, Inc.(c)........................... 263,000
3,100 Cabletron Systems, Inc.(c)............................... 25,962
28,825 Cisco Systems, Inc.(c)................................... 2,675,320
30,947 Compaq Computer Corp. ................................... 1,297,840
900 Data General Corp.(c).................................... 14,794
23,500 Dell Computer Corp.(c)................................... 1,719,906
9,200 EMC Corp.(c)............................................. 782,000
2,900 Gateway 2000, Inc.(c).................................... 148,444
19,300 Hewlett-Packard Co. ..................................... 1,318,431
2,600 Ikon Office Solutions, Inc. ............................. 22,263
17,300 International Business Machines.......................... 3,196,175
5,100 Pitney Bowes, Inc. ...................................... 336,919
4,500 Seagate Technology(c).................................... 136,125
3,500 Silicon Graphics, Inc.(c)................................ 45,062
6,100 Xerox Corp. ............................................. 719,800
------------
13,104,629
------------
Computer Hardware--0.3%
7,000 Sun Microsystems, Inc.(c)................................ 599,375
------------
Construction--0.2%
700 Armstrong World Industries, Inc. ........................ 42,219
1,100 Centex Corp. ............................................ 49,569
1,500 Fluor Corp. ............................................. 63,844
700 Kaufman & Broad Home Corp. .............................. 20,125
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
6,300 Masco Corp. ........................................... $ 181,125
1,000 Owens-Corning.......................................... 35,437
800 Pulte Corp. ........................................... 22,250
------------
414,569
------------
Consumer Goods & Services--0.2%
1,700 Black & Decker Corp. .................................. 95,306
1,700 Maytag Corp. .......................................... 105,825
1,400 Whirlpool Corp. ....................................... 77,525
------------
278,656
------------
Consumer--Jewelry/Novelty/Gifts--0.0%
600 Jostens, Inc. ......................................... 15,712
------------
Defense & Aerospace--1.3%
500 Aeroquip-Vickers, Inc. ................................ 14,969
10,400 Allied Signal, Inc. ................................... 460,850
1,400 B.F. Goodrich Co. ..................................... 50,225
2,300 General Dynamics Corp. ................................ 134,838
3,615 Lockheed Martin Corp. ................................. 306,371
1,300 Northrop Grumman Corp. ................................ 95,063
6,300 Raytheon Co., Class B.................................. 335,475
3,000 Textron, Inc. ......................................... 227,812
18,754 The Boeing Co. ........................................ 611,849
2,300 TRW, Inc. ............................................. 129,231
------------
2,366,683
------------
Drugs--8.7%
1,200 Allergan, Inc. ........................................ 77,700
1,600 ALZA Corp.(c).......................................... 83,600
24,400 American Home Products Corp. .......................... 1,374,025
4,600 Amgen, Inc.(c)......................................... 480,988
18,480 Bristol-Myers Squibb Co. .............................. 2,472,855
3,700 Cardinal Health, Inc. ................................. 280,738
20,400 Eli Lilly & Co. ....................................... 1,813,050
22,100 Merck & Co. ........................................... 3,263,894
24,200 Pfizer, Inc. .......................................... 3,035,587
9,380 Pharmacia & Upjohn, Inc. .............................. 531,142
27,200 Schering-Plough Corp. ................................. 1,502,800
1,800 Sigma-Aldrich.......................................... 52,875
15,200 Warner-Lambert Co. .................................... 1,142,850
------------
16,112,104
------------
Electric Utilities--2.4%
3,300 AES Corp.(c)........................................... 156,338
2,500 Ameren Corp.(c)........................................ 106,719
3,500 American Electric Power, Inc. ......................... 164,719
2,800 Baltimore Gas & Electric Co ........................... 86,450
2,800 Carolina Power & Light Co. ............................ 131,775
3,900 Central & South West Corp. ............................ 107,006
2,911 Cinergy Corp. ......................................... 100,066
4,300 Consolidated Edison, Inc. ............................. 227,362
</TABLE>
See accompanying notes to financial statements.
50
<PAGE>
New England Zenith Fund
(Westpeak Stock Index Series)
Investments as of December 31, 1998
Common Stocks--(Continued)
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Electric Utilities--(Continued)
3,650 Dominion Resources, Inc. ................................ $ 170,638
2,700 DTE Energy Co. .......................................... 115,763
6,727 Duke Power Co. .......................................... 430,948
6,600 Edison International..................................... 183,975
4,600 Entergy Corp. ........................................... 143,175
4,400 FirstEnergy Corp.(c)..................................... 143,275
3,300 FPL Group, Inc. ......................................... 203,362
2,300 GPU, Inc. ............................................... 101,631
5,448 Houston Industries, Inc. ................................ 175,017
2,100 New Century Energies, Inc. .............................. 102,375
3,500 Niagara Mohawk Power Corp.(c)............................ 56,438
2,800 Northern States Power Co. ............................... 77,700
7,100 Pacific Gas & Electric Corp. ............................ 223,650
5,600 Pacificorp............................................... 117,950
4,100 PECO Energy Co. ......................................... 170,662
2,800 PP&L Resources, Inc. .................................... 78,050
4,300 Public Service Enterprise Group.......................... 172,000
12,900 Southern Co. ............................................ 374,906
5,125 Texas Utilities Co. ..................................... 239,273
4,000 Unicom Corp. ............................................ 154,250
------------
4,515,473
------------
Electronics--3.5%
4,056 AMP, Inc. ............................................... 211,165
1,530 Andrew Corp.(c).......................................... 25,245
2,200 Cooper Industries, Inc. ................................. 104,912
4,300 Corning, Inc. ........................................... 193,500
1,300 Eaton Corp. ............................................. 91,894
800 EG&G, Inc. .............................................. 22,250
8,100 Emerson Electric Co. .................................... 490,050
800 Foster Wheeler Corp. .................................... 10,550
2,800 General Instrument Corp.(c).............................. 95,025
1,500 Harris Corp. ............................................ 54,938
2,300 Honeywell, Inc. ......................................... 173,219
1,500 Johnson Controls, Inc. .................................. 88,500
24,412 Lucent Technologies, Inc. ............................... 2,685,320
800 Millipore Corp. ......................................... 22,750
11,100 Motorola, Inc. .......................................... 677,794
12,100 Northern Telecom, Ltd. .................................. 606,512
1,100 Phelps Dodge Corp. ...................................... 55,962
1,500 Raychem Corp. ........................................... 48,469
3,500 Rockwell International Corp. ............................ 169,969
1,400 Scientific Atlanta, Inc. ................................ 31,938
2,200 Solectron Corp.(c)....................................... 204,462
950 Tektronix, Inc. ......................................... 28,559
3,500 Tellabs, Inc.(c)......................................... 239,969
900 The Perkin-Elmer Corp. .................................. 87,806
3,100 Thermo Electron Corp.(c)................................. 52,506
1,000 Thomas & Betts Corp. .................................... 43,313
1,800 W.W. Grainger, Inc. ..................................... 74,925
------------
6,591,502
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Energy Reserves--4.9%
1,700 Amerada Hess Corp. ...................................... $ 84,575
2,200 Anadarko Petroleum Corp. ................................ 67,925
1,800 Apache Corp. ............................................ 45,563
5,900 Atlantic Richfield Co. .................................. 384,975
3,262 Burlington Resources, Inc. .............................. 116,820
12,100 Chevron Corp. ........................................... 1,003,544
45,200 Exxon Corp. ............................................. 3,305,250
14,500 Mobil Corp. ............................................. 1,263,312
2,000 Oryx Energy Corp.(c)..................................... 26,875
4,800 Phillips Petroleum Co. .................................. 204,600
39,700 Royal Dutch Petroleum Co. ............................... 1,900,637
9,900 Texaco, Inc. ............................................ 523,463
4,764 Union Pacific Resources Group, Inc. ..................... 43,174
4,500 Unocal Corp. ............................................ 131,344
------------
9,102,057
------------
Environmental Services--0.3%
3,200 Browning-Ferris Industries, Inc. ........................ 91,000
10,600 Waste Management, Inc. .................................. 494,225
------------
585,225
------------
Financial Services--6.4%
8,400 American Express Co. .................................... 858,900
3,100 Aon Corp. ............................................... 171,663
12,902 Associates First Capital Corp. .......................... 546,722
1,200 Capital One Financial Corp. ............................. 138,000
2,100 Countrywide Credit Industries, Inc. ..................... 105,394
3,120 Dun & Bradstreet Corp. .................................. 98,475
2,700 Equifax, Inc. ........................................... 92,306
12,600 Federal Home Loan Mortgage Corp. ........................ 811,912
19,200 Federal National Mortgage Association.................... 1,420,800
60,300 General Electric Co. .................................... 6,154,369
1,900 H & R Block, Inc. ....................................... 85,500
9,153 Household International, Inc. ........................... 362,688
4,700 Marsh & McLennan Companies, Inc. ........................ 274,656
13,970 MBNA Corp. .............................................. 348,377
2,500 Provident Companies, Inc. ............................... 103,750
2,550 Providian Financial Corp. ............................... 191,250
3,100 SLM Holding Corp. ....................................... 148,800
612 Waddell & Reed Financial, Inc.(c)........................ 14,229
------------
11,927,791
------------
Food & Beverages--6.1%
11,058 Archer-Daniels-Midland Co. .............................. 190,059
5,300 Bestfoods................................................ 282,225
8,300 Campbell Soup Co. ....................................... 456,500
45,700 Coca-Cola Co. ........................................... 3,056,187
7,500 Coca-Cola Enterprises, Inc. ............................. 268,125
9,000 ConAgra, Inc. ........................................... 283,500
2,800 General Mills, Inc. ..................................... 217,700
6,700 H.J. Heinz Co. .......................................... 379,387
2,600 Hershey Foods Corp. ..................................... 161,688
</TABLE>
See accompanying notes to financial statements.
51
<PAGE>
New England Zenith Fund
(Westpeak Stock Index Series)
Investments as of December 31, 1998
Common Stocks--(Continued)
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Food & Beverages--(Continued)
7,500 Kellogg Co. ............................................. $ 255,938
27,300 PepsiCo, Inc. ........................................... 1,117,594
45,100 Philip Morris Companies, Inc. ........................... 2,412,850
4,500 Pioneer Hi-Bred International, Inc. ..................... 121,500
2,500 Quaker Oats Co. ......................................... 148,750
6,000 RJR Nabisco Holdings Corp. .............................. 178,125
17,200 Sara Lee Corp. .......................................... 484,825
2,200 Supervalu, Inc. ......................................... 61,600
6,200 Sysco Corp. ............................................. 170,113
11,900 Unilever NV.............................................. 986,956
2,100 William Wrigley Jr. Co. ................................. 188,081
------------
11,421,703
------------
Freight Transportation--0.2%
2,780 Federal Express Corp. ................................... 247,420
6,100 Laidlaw, Inc ............................................ 61,381
------------
308,801
------------
Gas & Pipeline Utilities--0.2%
1,500 Columbia Energy Group, Inc. ............................. 86,625
1,800 Consolidated Natural Gas Co. ............................ 97,200
900 Nicor, Inc. ............................................. 38,025
600 ONEOK, Inc., New......................................... 21,675
600 Peoples Energy Corp. .................................... 23,925
4,455 Sempra Energy(c)......................................... 113,046
------------
380,496
------------
Health Care--Products--3.4%
28,500 Abbott Laboratories...................................... 1,396,500
1,000 Bausch & Lomb, Inc. ..................................... 60,000
5,300 Baxter International, Inc. .............................. 340,856
4,600 Becton, Dickinson & Co. ................................. 196,363
2,000 Biomet, Inc. ............................................ 80,500
7,300 Boston Scientific Corp.(c)............................... 195,731
1,000 C.R. Bard, Inc. ......................................... 49,500
2,800 Guidant Corp. ........................................... 308,700
24,900 Johnson & Johnson........................................ 2,088,488
1,300 Mallinckrodt, Inc. ...................................... 40,056
8,700 Medtronic, Inc. ......................................... 645,975
1,600 St. Jude Medical, Inc.(c)................................ 44,300
11,888 TYCO International, Ltd. ................................ 896,801
------------
6,343,770
------------
Health Care--Services--0.5%
11,986 Columbia/HCA Healthcare Corp. ........................... 296,653
2,000 HCR Manor Care, Inc.(c).................................. 58,750
7,800 HEALTHSOUTH Corp.(c)..................................... 120,413
3,100 Humana, Inc.(c).......................................... 55,219
4,800 Service Corporation International........................ 182,700
5,700 Tenet Healthcare Corp.(c)................................ 149,625
3,600 United Healthcare Corp. ................................. 155,025
------------
1,018,385
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Hotels & Restaurants--0.8%
2,600 Darden Restaurants, Inc. ................................ $ 46,800
1,850 Harrahs Entertainment, Inc.(c)........................... 29,022
4,800 Hilton Hotels Corp. ..................................... 91,800
4,600 Marriott International, Inc.(c).......................... 133,400
12,700 McDonald's Corp. ........................................ 973,137
3,400 Mirage Resorts, Inc.(c).................................. 50,788
2,820 Tricon Global Restaurants, Inc.(c)....................... 141,352
2,300 Wendy's International, Inc. ............................. 50,169
------------
1,516,468
------------
Household Products--2.7%
1,000 Alberto Culver Co. ...................................... 26,688
4,900 Avon Products, Inc. ..................................... 216,825
1,300 Brown-Forman Corp., Class B.............................. 98,394
1,900 Clorox Co. .............................................. 221,944
5,500 Colgate-Palmolive Co. ................................... 510,812
3,200 Fortune Brands, Inc. .................................... 101,200
20,800 Gillette Co. ............................................ 1,004,900
2,000 International Flavours & Fragrances, Inc. ............... 88,375
800 National Service Industries, Inc. ....................... 30,400
3,000 Newell Co. .............................................. 123,750
24,820 Procter & Gamble Co. .................................... 2,266,376
5,800 Ralston Purina Co. ...................................... 187,775
2,800 Rubbermaid, Inc. ........................................ 88,025
1,100 Tupperware Corp. ........................................ 18,081
------------
4,983,545
------------
Industrial Services--0.0%
1,400 Ryder Systems, Inc. ..................................... 36,400
------------
Industrial Parts & Machinery--1.1%
400 Briggs & Stratton Corp. ................................. 19,950
1,400 Case Corp. .............................................. 30,538
6,700 Caterpillar, Inc. ....................................... 308,200
1,200 Crane Co. ............................................... 36,225
700 Cummins Engine, Inc. .................................... 24,850
2,500 Danaher Corp. ........................................... 135,781
4,500 Deere & Co. ............................................. 149,062
4,100 Dover Corp. ............................................. 150,162
3,300 Genuine Parts Co. ....................................... 110,344
900 Harnischfeger Industries, Inc. .......................... 9,169
4,600 Illinois Tool Works, Inc. ............................... 266,800
3,000 Ingersoll-Rand Co. ...................................... 140,812
1,100 McDermott International, Inc. ........................... 27,156
700 Milacron, Inc. .......................................... 13,475
100 Nacco Industries, Inc. .................................. 9,200
2,300 Pall Corp. .............................................. 58,219
2,050 Parker Hannifin Corp. ................................... 67,138
1,050 Snap-On, Inc. ........................................... 36,553
1,600 Stanley Works............................................ 44,400
1,100 Timken Co. .............................................. 20,763
4,200 United Technologies Corp. ............................... 456,750
------------
2,115,547
------------
</TABLE>
See accompanying notes to financial statements.
52
<PAGE>
New England Zenith Fund
(Westpeak Stock Index Series)
Investments as of December 31, 1998
Common Stocks--(Continued)
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Internet Content--0.7%
8,500 America Online........................................... $ 1,360,000
------------
Leisure--0.4%
1,800 Brunswick Corp. ......................................... 44,550
5,950 Eastman Kodak Co. ....................................... 428,400
2,450 Hasbro, Inc. ............................................ 88,506
5,450 Mattel, Inc. ............................................ 124,328
800 Polaroid Corp. .......................................... 14,950
------------
700,734
------------
Life Insurance--1.1%
2,683 Aetna, Inc. ............................................. 210,951
4,698 American General Corp. .................................. 366,444
3,900 CIGNA Corp. ............................................. 301,519
5,807 Conseco, Inc. ........................................... 177,476
1,937 Jefferson Pilot Corp. ................................... 145,275
1,800 Lincoln National Corp., Inc. ............................ 147,262
3,800 SunAmerica, Inc. ........................................ 308,275
2,600 Torchmark Corp. ......................................... 91,813
1,100 Transamerica Corp. ...................................... 127,050
2,600 UNUM Corp. .............................................. 151,775
------------
2,027,840
------------
Liquor--0.5%
600 Adolph Coors Co., Class B................................ 33,863
8,900 Anheuser-Busch Companies, Inc. .......................... 584,062
7,300 Seagram Company, Ltd. ................................... 277,400
------------
895,325
------------
Media & Entertainment--2.7%
11,500 Carnival Corp. .......................................... 552,000
13,300 CBS Corp.(c)............................................. 435,575
4,600 Clear Channel Communications(c).......................... 250,700
1,300 King World Productions, Inc.(c).......................... 38,269
9,700 Tele-Communications, Inc.(c)............................. 536,531
22,200 Time Warner, Inc. ....................................... 1,377,787
2,200 Tribune Co. ............................................. 145,200
6,657 Viacom, Inc., Class B(c)................................. 492,618
37,994 Walt Disney Co........................................... 1,139,820
------------
4,968,500
------------
Metals & Mining--0.5%
4,200 Alcan Aluminium, Ltd. ................................... 113,662
3,632 Allegheny Teledyne, Inc. ................................ 74,229
3,400 Aluminum Company of America.............................. 253,512
800 ASARCO, Inc. ............................................ 12,050
500 Ball Corp. .............................................. 22,875
2,400 Bethlehem Steel Corp.(c)................................. 20,100
2,300 Crown Cork & Seal Company, Inc. ......................... 70,869
1,850 Cyprus Amax Minerals Co. ................................ 18,500
3,100 Inco, Ltd. .............................................. 32,744
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
1,600 Nucor Corp. ............................................. $ 69,200
2,900 Owens Illinois, Inc.(c).................................. 88,813
1,300 Reynolds Metals Co. ..................................... 68,494
1,620 USX-U.S. Steel Group..................................... 37,260
1,700 Worthington Industries, Inc. ............................ 21,250
------------
903,558
------------
Natural Gas--0.0%
400 Eastern Enterprises...................................... 17,500
------------
Oil--Foreign--0.0%
900 Kerr-McGee Corp. ........................................ 34,425
------------
Oil--Refining & Distribution--0.6%
3,900 Coastal Corp. ........................................... 136,256
6,100 Enron Corp. ............................................. 348,082
2,100 Sonat, Inc. ............................................. 56,831
1,700 Sunoco, Inc. ............................................ 61,306
5,700 USX-Marathon Group....................................... 171,713
7,900 Williams Companies, Inc. ................................ 246,381
------------
1,020,569
------------
Oil Services--0.5%
5,900 Baker Hughes, Inc. ...................................... 104,356
600 FMC Corp.(c)............................................. 33,600
8,100 Halliburton Co. ......................................... 239,963
900 Helmerich & Payne, Inc. ................................. 17,438
1,600 Rowan Companies, Inc.(c)................................. 16,000
10,100 Schlumberger, Ltd. ...................................... 465,862
------------
877,219
------------
Paper & Forest Products--0.9%
1,000 Bemis, Inc. ............................................. 37,938
1,033 Boise Cascade Corp. ..................................... 32,023
1,800 Champion International Corp. ............................ 72,900
4,100 Fort James Corp. ........................................ 164,000
1,700 Georgia Pacific Corp. ................................... 99,556
5,710 International Paper Co. ................................. 255,879
10,112 Kimberly-Clark Corp. .................................... 551,104
2,000 Louisiana Pacific Corp. ................................. 36,625
1,900 Mead Corp. .............................................. 55,694
500 Potlatch Corp. .......................................... 18,438
1,881 Smurfit Container Corp.(c)............................... 29,743
1,000 Temple-Inland, Inc. ..................................... 59,312
1,300 Union Camp Corp. ........................................ 87,750
3,700 Weyerhaeuser Co. ........................................ 188,006
2,000 Willamette Industries, Inc. ............................. 67,000
------------
1,755,968
------------
</TABLE>
See accompanying notes to financial statements.
53
<PAGE>
New England Zenith Fund
(Westpeak Stock Index Series)
Investments as of December 31, 1998
Common Stocks--(Continued)
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Precious Metal--0.2%
6,900 Barrick Gold Corp........................................ $ 134,550
4,300 Battle Mountain Gold Co.................................. 17,737
3,300 Freeport McMoRan Copper & Gold,
Class B(c).............................................. 34,444
4,500 Homestake Mining Co...................................... 41,344
3,041 Newmont Mining Corp...................................... 54,928
4,600 Placer Dome, Inc......................................... 52,900
------------
335,903
------------
Property & Casualty Insurance--2.1%
15,372 Allstate Corp............................................ 593,743
19,477 American International Group, Inc. ...................... 1,881,965
3,000 Chubb Corp............................................... 194,625
3,100 Cincinnati Financial Corp................................ 113,538
4,300 Hartford Financial Services Group........................ 235,962
2,100 Loews Corp............................................... 206,325
1,800 MBIA, Inc................................................ 118,013
2,100 MGIC Investment Corp..................................... 83,606
1,300 Progressive Corp......................................... 220,187
2,600 Safeco Corp.............................................. 111,638
4,370 St. Paul Companies, Inc. ................................ 151,858
------------
3,911,460
------------
Publishing--0.7%
1,300 American Greetings Corp.................................. 53,381
1,500 Deluxe Corp.............................................. 54,844
1,800 Dow Jones & Company, Inc................................. 86,625
5,300 Gannett Co............................................... 341,850
1,300 Harcourt General, Inc.................................... 69,144
1,400 Knight-Ridder, Inc....................................... 71,575
1,800 McGraw-Hill Companies, Inc............................... 183,375
1,000 Meredith Corp............................................ 37,875
1,800 Moore Corporation, Ltd................................... 19,800
3,500 New York Times Co........................................ 121,406
2,500 R.R. Donnelley & Sons Co................................. 109,531
1,600 Times Mirror Co.......................................... 89,600
------------
1,239,006
------------
Railroads & Equipment--0.5%
8,766 Burlington Northern Santa Fe............................. 295,852
4,100 CSX Corp. ............................................... 170,150
7,000 Norfolk Southern Corp.................................... 221,812
4,600 Union Pacific Corp....................................... 207,288
------------
895,102
------------
Retail--Clothing--0.5%
10,875 Gap, Inc................................................. 611,719
4,193 Limited, Inc............................................. 122,121
2,800 Nordstrom, Inc........................................... 97,125
5,900 TJX Companies, Inc....................................... 171,100
------------
1,002,065
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Retail--Department Store--3.0%
4,039 Costco Companies, Inc.(c)................................ $ 291,565
8,100 Dayton Hudson Corp....................................... 439,425
2,100 Dillard's, Inc........................................... 59,588
3,900 Federated Department Stores, Inc.(c)..................... 169,894
2,900 Fred Meyer, Inc.(c)...................................... 174,725
4,700 J.C. Penney, Inc......................................... 220,313
9,100 K mart Corp.(c).......................................... 139,344
2,900 Kohls Corp.(c)........................................... 178,169
4,300 May Department Stores Co................................. 259,612
7,200 Sears, Roebuck & Co...................................... 306,000
41,400 Wal-Mart Stores, Inc..................................... 3,371,512
------------
5,610,147
------------
Retail--Food & Drug--0.8%
4,600 Albertson's, Inc......................................... 292,963
5,100 American Stores Co....................................... 188,381
700 Great Atlantic & Pacific Tea Co.......................... 20,738
4,800 Kroger Co.(c)............................................ 290,400
9,000 Safeway, Inc.(c)......................................... 548,437
2,800 Winn-Dixie Stores, Inc................................... 125,650
------------
1,466,569
------------
Retail--Specialty--2.1%
2,800 Autozone, Inc.(c)........................................ 92,225
1,900 Circuit City Stores, Inc. ............................... 94,881
2,000 Consolidated Stores Corp.(c)............................. 40,375
7,200 CVS Corp................................................. 396,000
3,450 Dollar General Corp...................................... 81,506
27,246 Home Depot, Inc.......................................... 1,667,115
700 Longs Drug Stores Corp................................... 26,250
6,500 Lowe's Companies, Inc. .................................. 332,719
1,200 Pep Boys-Manny, Moe & Jack............................... 18,825
4,800 Rite Aid Corp............................................ 237,900
5,300 Staples, Inc.(c)......................................... 231,544
1,800 Tandy Corp............................................... 74,137
5,075 Toys R Us, Inc.(c)....................................... 85,641
9,200 Walgreen Co.............................................. 538,775
------------
3,917,893
------------
Securities & Asset Management--1.0%
2,100 Bear Stearns Companies, Inc.............................. 78,488
7,425 Charles Schwab Corp...................................... 417,192
4,700 Franklin Resources, Inc.................................. 150,400
2,200 Lehman Brothers Holdings, Inc. .......................... 96,937
6,400 Merrill Lynch & Company, Inc............................. 427,200
10,899 Morgan Stanley Dean Witter............................... 773,829
------------
1,944,046
------------
</TABLE>
See accompanying notes to financial statements.
54
<PAGE>
New England Zenith Fund
(Westpeak Stock Index Series)
Investments as of December 31, 1998
Common Stocks--(Continued) Short Term Investment--1.1%
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Semi-Conductors--2.7%
2,700 Advanced Micro Devices, Inc.(c).......................... $ 78,131
6,700 Applied Materials, Inc.(c)............................... 286,006
31,100 Intel Corp............................................... 3,687,294
1,600 KLA Instruments Corp.(c)................................. 69,400
2,600 LSI Logic Corp.(c)....................................... 41,925
4,000 Micron Technology, Inc.(c)............................... 202,250
3,100 National Semiconductor Corp.(c).......................... 41,850
7,200 Texas Instruments, Inc................................... 616,050
------------
5,022,906
------------
Telecommunication--8.2%
10,700 AirTouch Communications, Inc.(c)......................... 771,738
5,100 ALLTEL Corp.............................................. 305,044
20,500 Ameritech Corp........................................... 1,299,187
33,535 AT&T Corp................................................ 2,523,509
28,852 Bell Atlantic Corp....................................... 1,529,156
36,600 BellSouth Corp........................................... 1,825,425
3,300 Frontier Corp............................................ 112,200
17,900 GTE Corp................................................. 1,163,500
32,970 MCI Worldcom, Inc.(c).................................... 2,365,597
5,400 NEXTEL Communications, Inc.(c)........................... 127,575
36,316 SBC Communications, Inc.................................. 1,947,445
8,000 Sprint Corp.(c).......................................... 673,000
3,900 Sprint PCS............................................... 90,188
9,392 United States West, Inc.................................. 606,958
------------
15,340,522
------------
Thrift--0.3%
1,000 Golden West Financial Corp. ............................. 91,688
10,913 Washington Mutual, Inc................................... 416,740
------------
508,428
------------
Tobacco--0.1%
3,400 UST, Inc................................................. 118,575
------------
Total Common Stock
(Identified Cost $96,691,492)........................... 185,014,039
------------
</TABLE>
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
$2,054,000 Repurchase Agreement with State Street Corp. dated
12/31/1998 at 4.00% to be repurchased at $2,054,913
on 1/04/1999 collateralized by $1,540,000 U.S.
Treasury Bond 8.125% due 8/15/2019 with a value of
$2,099,453......................................... $ 2,054,000
------------
Total Short Term Investment
(Identified Cost $2,054,000)....................... 2,054,000
------------
Total Investments--100.4%
(Identified Cost $98,745,492)(b)................... 187,068,039
Other assets less liabilities....................... (789,808)
------------
Total Net Assets--100%.............................. $186,278,231
============
</TABLE>
(a) See Note 1A of Notes to Financial Statements.
(b) Federal Tax Information:
At December 31, 1998 the net unrealized appreciation on investments based on
cost of $98,888,507 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.............. $ 90,403,877
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value.............. (2,224,345)
------------
Net unrealized appreciation................................... $ 88,179,532
============
</TABLE>
(c) Non-income producing security.
See accompanying notes to financial statements.
55
<PAGE>
New England Zenith Fund
(Westpeak Stock Index Series)
Statement of Assets & Liabilities Statement of Operations
December 31, 1998 Year Ended December 31, 1998
<TABLE>
<S> <C> <C>
Assets
Investments at value................................. $187,068,039
Cash................................................. 2,974
Receivable for:
Fund shares sold..................................... 237,913
Securities sold...................................... 1,381,671
Dividends and interest............................... 193,788
Foreign taxes........................................ 788
------------
188,885,173
Liabilities
Payable for:
Securities purchased................................. $2,361,408
Fund shares redeemed................................. 116,916
Withholding taxes.................................... 15
Accrued expenses:
Management fees...................................... 38,050
Deferred trustees' fees.............................. 68,986
Other expenses....................................... 21,567
----------
2,606,942
------------
$186,278,231
============
Net Assets
Net Assets consist of:
Capital paid in...................................... $ 97,217,861
Overdistributed net investment
income.............................................. (1,334)
Accumulated net realized gains (losses).............. 739,157
Unrealized appreciation (depreciation) on
investments......................................... 88,322,547
------------
Net Assets............................................ $186,278,231
============
Computation of offering price:
Net asset value and redemption price per share
($186,278,231 divided by 948,805 shares of beneficial
interest)............................................ $ 196.33
============
Identified cost of investments........................ $ 98,745,492
============
</TABLE>
<TABLE>
<S> <C> <C>
Investment Income
Dividends............................................. $ 2,242,316(a)
Interest.............................................. 91,547
-----------
2,333,863
Expenses
Management fees....................................... $381,940
Trustees' fees and expenses........................... 28,747
Custodian............................................. 79,451
Audit and tax services................................ 12,888
Legal................................................. 9,295
Printing.............................................. 41,119
Insurance............................................. 4,150
Miscellaneous......................................... 3,950
--------
Total expenses....................................... 561,540
-----------
Net investment income.................................. 1,772,323
Realized and Unrealized Gain (Loss) on Investments
Realized gain (loss) on:
Investments--net...................................... 1,822,491
Unrealized appreciation (depreciation) on:
Investments--net...................................... 34,683,663
-----------
Net gain (loss) on investment transactions............. 36,506,154
-----------
Net Increase (Decrease) in Net Assets from Operations.. $38,278,477
===========
</TABLE>
(a)Net of foreign taxes of: $13,113
See accompanying notes to financial statements.
56
<PAGE>
New England Zenith Fund
(Westpeak Stock Index Series)
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
From Operations....................................
Net investment income............................. $ 1,474,760 $ 1,772,323
Net realized gain (loss) on investments........... 327,190 1,822,491
Unrealized appreciation (depreciation) on
investments...................................... 26,442,859 34,683,663
------------ ------------
Increase (decrease) in net assets from operations. 28,244,809 38,278,477
------------ ------------
From Distributions to Shareholders
Net investment income............................. (1,486,184) (1,781,029)
Net realized gain on investments.................. (619,246) (965,891)
------------ ------------
(2,105,430) (2,746,920)
------------ ------------
From Capital Shares Transactions
Proceeds from sale of shares...................... 41,747,560 63,090,085
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income.......... 1,486,184 1,781,029
Distributions from net realized gain.............. 619,246 965,891
------------ ------------
43,852,990 65,837,005
Cost of shares redeemed........................... (24,172,689) (41,673,859)
------------ ------------
Increase (decrease) in net assets derived from
capital share transactions....................... 19,680,301 24,163,146
------------ ------------
Total increase (decrease) in net assets........... 45,819,680 59,694,703
Net Assets
Beginning of the year............................. 80,763,848 126,583,528
------------ ------------
End of the year................................... $126,583,528 $186,278,231
============ ============
Undistributed (overdistributed) Net Investment
Income
Beginning of the year............................. $ 8,445 $ 7,372
============ ============
End of the year................................... $ 7,372 $ (1,334)
============ ============
Number of Shares of the Fund:
Issued from the sale of shares.................... 294,863 362,065
Issued in connection with the reinvestment of:
Distributions from net investment income.......... 9,711 9,000
Distributions from net realized gain.............. 4,056 4,886
------------ ------------
308,630 375,951
Redeemed.......................................... (171,087) (239,835)
------------ ------------
Net change........................................ 137,543 136,116
============ ============
</TABLE>
Financial Highlights
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year........................... $ 76.48 $ 75.35 $100.09 $ 119.62 $ 155.76
------- ------- ------- -------- --------
Income From Investment
Operations
Net Investment Income.......... 1.80 1.88 1.91 1.86 1.92
Net Realized and Unrealized
Gain (Loss) on Investments.... (0.92) 25.89 20.58 36.95 41.60
------- ------- ------- -------- --------
Total From Investment
Operations.................... 0.88 27.77 22.49 38.81 43.52
------- ------- ------- -------- --------
Less Distributions
Distributions From Net
Investment Income............. (1.82) (1.85) (1.93) (1.86) (1.91)
Distributions From Net Realized
Capital Gains................. (0.16) (1.18) (1.03) (0.67) (1.04)
Distributions in Excess of Net
Realized Capital Gains........ 0.00 0.00 0.00 (0.14) 0.00
Distributions From Paid-in
Capital....................... (0.03) 0.00 0.00 0.00 0.00
------- ------- ------- -------- --------
Total Distributions............ (2.01) (3.03) (2.96) (2.67) (2.95)
------- ------- ------- -------- --------
Net Asset Value, End of Year.... $ 75.35 $100.09 $119.62 $ 155.76 $ 196.33
======= ======= ======= ======== ========
Total Return (%)................ 1.1 36.9 22.5 32.5 27.9
Ratio of Operating Expenses to
Average Net Assets (%)......... 0.33 0.40 0.40 0.40 0.37
Ratio of Net Investment Income
to Average Net Assets (%)...... 2.59 2.20 1.84 1.41 1.16
Portfolio Turnover Rate (%)..... 2 5 4 3 3
Net Assets, End of Year (000)... $37,164 $58,671 $80,764 $126,584 $186,278
The ratios of expenses to
average net assets without
giving effect to the voluntary
expense agreement described in
Note 4 to the Financial
Statements would have been (%). -- 0.54 0.50 0.43 --
</TABLE>
See accompanying notes to financial statements.
57
<PAGE>
Loomis Sayles Balanced Series
Portfolio Managers: Tricia H. Mills, Tom Kolefas, John Hyll, Barr Segal and
Meri Anne Beck
Loomis, Sayles & Company, L.P.
(PHOTO OF TRICIA MILLS APPEARS HERE)
(PHOTO OF BARR SEGAL APPEARS HERE)
(PHOTO OF JOHN HYLL APPEARS HERE)
(PHOTO OF TOM KOLEFAS APPEARS HERE)
(PHOTO OF MERI ANNE BECK APPEARS HERE)
Q. Please tell us about the performance of Loomis Sayles Balanced Series over
the past year.
A. For the twelve months ended December 31, 1998, the Balanced Series had a
total return of 9.1% (based on net asset value). The Series underperformed the
Lipper Variable Products Balanced Fund Average/7/ which returned 14.9% over
the same period.
Q. What was the investment environment like and how did you respond during
this period?
A. Large capitalization growth stocks drove the popular market averages to
double digit returns again in 1998. Repeating a four year pattern, returns on
most individual stocks failed to reflect strong gains seen in the broader in-
dices. As an example of the very narrow range of stocks that defined perfor-
mance, just ten stocks out of 500--the ten largest in the S&P 500/25/--ac-
counted for nearly half of that Index's return last year. In addition, sharp
drops and recoveries were more frequent than we have seen in several years, as
the investment mood swung from near euphoria to anxious unease. Behind this
volatility was the same question that caused so much uncertainty in 1997:
Would upheavals in Asia and elsewhere take a severe toll on corporate earnings
in the United States? That concern applied not only to exporters whose sales
were directly affected by weak economies and falling currency values overseas,
but also to manufacturers and others whose pricing might be undercut by low
cost and competitive imports.
Soon, anxiety grew that a drop in corporate profits was imminent. In fact,
several companies alerted analysts that their optimistic earnings forecast
might need to be revised. But a decline in interest rates gave the market a
solid underpinning and investors planned on continued economic expansion.
Q. Given this environment, what was your equity strategy over the year?
A. Early in 1998 we positioned the Series to emphasize cyclical sectors, in-
cluding basic industries like chemicals and industrial companies, and consumer
cyclicals, because of the attractive valuations relative to the market. By cy-
clical companies we mean are those whose fortunes rise and fall with swings in
the nation's economy.
As the year evolved and the corporate earnings outlook began to deteriorate,
we cut back exposure to cyclical industries and built up the Series' holdings
in consumer staples as well as financial and energy stocks. Staple industries
supply services or products that are in relatively constant demand regardless
of economic ups and downs, such as food and health care.
In view of the uncertain economic climate overseas, we added positions in the
retail industries. In our view, retailers seemed well insulated from foreign
economic problems; nearly all of their revenues originate domestically. More-
over, retailing is a natural beneficiary of the nation's sustained low unem-
ployment rate and resulting high levels of consumer confidence.
For most of the year, the Series' asset allocation--the way it is divided be-
tween stocks and bonds--remained fairly stable at 60% stocks/40% bonds.
Q. What were the principal factors affecting equity performance?
A. It was a difficult year for our value-focused investment style. With in-
vestors focused on a few large-cap growth stocks, other sectors, including
value orientated areas where the Series concentrates, were largely neglected.
Nevertheless, the Series benefited from its commitment in the regional Bell
companies. Ameritech, Bell Atlantic, Bell South, and SBC Communications posted
impressive gains for the year. Investment by the
58
<PAGE>
Series in the technology sector also produced solid gains. Individual stocks
such as IBM, Sun Microsystems and Gateway 2000, were the Series major contrib-
utors in this sector.
Performance suffered principally because our investment style excludes very
high-priced stocks like those that dominated the market activity this past
year. Investments in energy and oil-related sectors also were disappointing,
due in part to the falling oil prices worldwide.
Q. What was the environment like for the fixed-income segment of the Series
and how did you respond?
A. Most bond markets were extremely volatile last year, as shifting economic
news had investors rapidly shifting from one sector to another. The year began
relatively quietly, with fairly narrow differences between yields--known as
spreads--on quality corporate bonds and those on U.S. Government issues. Nar-
row spreads generally signal confidence in the outlook for corporate bonds.
But when confidence evaporated in the second and third quarters of 1998, in-
vestors sold corporates and fled to the relative safety of Treasury securi-
ties. This "flight to quality" was triggered by the default of Russia on it
sovereign debt. All debt tied to emerging markets quickly became so suspect
that there were essentially no buyers in the sector. Investors moved out of
U.S. corporate issues for fear that deflation--falling prices and sinking
profits--and possible recession would invade the U.S. economy from overseas.
After the Federal Reserve Board's three cuts in short-term interest rates last
Fall, investors began returning to corporate bonds; spreads again narrowed and
performance improved in many sectors. At year-end, bond markets fell back
slightly, as low unemployment and other indicators suggested that economic
growth would persist, at least for a time. Strong growth tends to raise con-
cerns over rekindled inflation, a development that could undermine the values
of fixed-income assets.
The bond portion of the Series benefited from our decision to avoid all emerg-
ing market debt and to concentrate on Treasury securities and high quality U.
S. corporate bonds. Early in 1998 we reduced exposure to corporate issues be-
cause they were expensive compared to Treasury securities. To add potential
impetus to our Treasury purchases, we extended duration of that part of the
portfolio. (Duration is a measure of a portfolio's sensitivity to changes in
interest rates.) By year-end we had changed emphasis, taking advantage of at-
tractive prices among quality corporate bonds. These purchases built the Se-
ries' corporate position to 60% of the fixed-income portfolio, well above the
sector's 25% representation in the Lehman Brothers Corporate Bond Index and
indicative of the positive prospects we foresee for these bonds.
Q. What is the current outlook for 1999?
A. We expect the U.S. economy to decelerate--growth will be slower than in re-
cent years. Although we do not anticipate recession, we believe that the re-
strained economic environment will make it difficult for companies to raise
prices, allowing only modest profit growth. Furthermore, the impact of uncer-
tainties abroad has yet to be fully felt here, in our opinion. As a result,
more companies may experience difficulties living up to analysts' expecta-
tions.
On the equity side, we believe our value style approach is appropriate to the
economic scenario that we expect for 1999. We may have seen the peak of
outperformance of growth stocks over value stocks for this market cycle, as
economics inevitably dictate more rational pricing. If we are correct, the Se-
ries is positioned to benefit from its basic orientation as investors turn
their attention to value stocks.
A slowing but non-recessionary economic outlook is also good for bonds. We an-
ticipate rates to will stay low--there is little need to fear rate hikes in a
decelerating economy. Currently, corporate balance sheets are generally
healthy. We believe consumer spending must slow soon, as individual expendi-
tures are too high for available income. A drop in manufacturing employment
because of price competition from Asia should be offset by an upswing in serv-
ice sector jobs, including technology, keeping unemployment low.
59
<PAGE>
[GRAPH APPEARS HERE]
Date Balanced Series S&P 500 Leh/Gov't Corp.
10/31/94 $10,000 $10,000 $10,000
12/31/94 $ 9,990 $ 9,794 $10,048
12/31/95 $12,467 $13,461 $11,981
12/31/96 $14,575 $16,552 $12,328
12/31/97 $16,933 $22,055 $13,015
12/31/98 $18,476 $28,345 $14,814
Average Annual Total Return
Lipper Variable
Balanced Lehman Balanced Fund
Series S&P 500/25/ Government/Corp./3/ Average/7/
1 year 9.1% 28.7% 9.5% 14.9%
3 years 14.0 28.3 7.3 15.5
Since Inception 15.9 28.4 9.9 n/a
X Fund Facts
Goal: Reasonable long-term
investment return from a
combination of long-term capital
appreciation and moderate current
income.
Start date: October 31, 1994
Size: $191 million as of
December 31, 1998
Managers: Tricia H. Mills, Barr
Segal, John Hyll Tom Kolefas and
Meri Anne Beck serve as portfolio
managers of Loomis Sayles Balanced
Series. Ms. Mills, Mr. Hyll and Ms.
Beck have served as portfolio
managers since the Series
inception. Mr. Segal has served as
portfolio manager of the Series
since July 1996. Mr. Kolefas joined
the management of the Series in
September 1998.
[GRAPH APPEARS HERE]
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
(Loomis Sayles Balanced Series)
Investments as of December 31, 1998
Common Stocks--61.3% of Total Net Assets
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Aerospace/Defense--2.1%
30,300 Northrop Grumman Corp. .................................. $ 2,215,688
35,000 Sundstrand Corp. ........................................ 1,815,625
------------
4,031,313
------------
Airlines--0.8%
25,200 AMR Corp. ............................................... 1,496,250
------------
Auto & Related--1.4%
24,500 Ford Motor Co. .......................................... 1,437,844
19,600 Magna International, Inc. ............................... 1,215,200
------------
2,653,044
------------
Banks--7.6%
26,274 BankAmerica Corp. ....................................... 1,579,724
19,800 Chase Manhattan Corp. ................................... 1,347,637
35,000 Citigroup, Inc. ......................................... 1,732,500
74,700 Fleet Financial Group Inc. .............................. 3,338,156
38,200 National City Corp. ..................................... 2,769,500
22,500 PNC Bank Corp. .......................................... 1,217,812
62,300 Wells Fargo Co. ......................................... 2,488,106
------------
14,473,435
------------
Building & Related--3.0%
30,900 Black & Decker Corp. .................................... 1,732,331
53,100 Leggett & Platt, Inc. ................................... 1,168,200
43,100 Masco Corp. ............................................. 1,239,125
23,700 Philips Electronics NV (ADR)............................. 1,604,194
------------
5,743,850
------------
Chemicals/Major--1.0%
90,400 Crompton & Knowles Corp. ................................ 1,870,150
------------
Chemicals/Specialty--1.4%
59,800 Solutia Inc. ............................................ 1,338,025
87,600 W.R. Grace & Co. ........................................ 1,374,225
------------
2,712,250
------------
Computer Hardware--2.9%
21,100 Hewlett Packard Co. ..................................... 1,441,394
21,600 International Business Machines.......................... 3,990,600
------------
5,431,994
------------
Consumer--Jewelry/Novelties/Gifts--0.5%
23,700 American Greetings Corp. ................................ 973,181
------------
Electric Companies--2.0%
44,600 CMS Energy Corp. ........................................ 2,160,312
29,700 Energy East Corp. ....................................... 1,678,050
------------
3,838,362
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Electronics--1.1%
40,700 Raytheon Co. ............................................ $ 2,167,275
------------
Entertainment--1.5%
46,600 Time Warner, Inc. ....................................... 2,892,113
------------
Financial--Consumer Diversified--5.3%
41,200 Associates First Capital Corp. .......................... 1,745,850
40,700 CIT Group, Inc. ......................................... 1,294,769
48,000 Corrections Corp. of America............................. 846,000
39,900 Federal Home Loan Mortgage Corp. ........................ 2,571,056
23,500 Federal National Mortgage Association.................... 1,739,000
41,400 Reliastar Financial Corp. ............................... 1,909,575
------------
10,106,250
------------
Drugs--Healthcare--0.7%
27,100 Abbott Laboratories...................................... 1,327,900
------------
Electric Companies--1.8%
27,700 Pinnacle West Capital Corp. ............................. 1,173,787
49,200 Texas Utilities Co. ..................................... 2,297,025
------------
3,470,812
------------
Health Care--Services--1.9%
59,300 Tenet Healthcare Corp. .................................. 1,556,625
24,100 Wellpoint Health Networks, Inc. ......................... 2,096,700
------------
3,653,325
------------
Household Products--0.9%
11,000 American Home Products Corp. ............................ 619,437
26,500 Newell Co. .............................................. 1,093,125
------------
1,712,562
------------
Insurance--2.4%
70,300 ACE, Ltd. ............................................... 2,420,956
27,900 Allstate Corp. .......................................... 1,077,637
25,600 Everest Reinsurance Holdings, Inc. ...................... 996,800
------------
4,495,393
------------
Investment Banking/Broker/Management--0.8%
38,800 Paine Webber Group, Inc. ................................ 1,498,650
------------
Leisure Time--1.1%
60,100 Hasbro Inc. ............................................. 2,171,112
------------
Machinery--0.5%
24,900 Deere & Co. ............................................. 824,812
------------
</TABLE>
See accompanying notes to financial statements.
61
<PAGE>
New England Zenith Fund
(Loomis Sayles Balanced Series)
Investments as of December 31, 1998
Common Stocks--(Continued) Medium & Long Term Bonds & Notes--
35.2%
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C> <C>
Natural Gas--0.8%
27,600 Columbia Energy Group................................ $ 1,593,900
------------
Oil & Gas/Major Integrated--4.2%
25,110 British Petroleum plc (ADR).......................... 2,385,450
20,900 Conoco, Inc. ........................................ 436,287
34,500 Exxon Corp. ......................................... 2,522,813
38,200 Royal Dutch Petroleum Co. (ADR)...................... 1,828,825
29,700 USX Marathon Group................................... 894,712
------------
8,068,087
------------
Oil & Gas/Refining/Marketing--0.8%
60,700 Tosco Corp. ......................................... 1,570,612
------------
Paper & Forest Products--0.4%
14,500 Georgia Pacific Corp. ............................... 849,156
------------
Photography/Imaging--1.3%
21,500 Xerox Corp. ......................................... 2,537,000
------------
Retail/General--1.4%
38,200 Federated Department Stores, Inc. ................... 1,664,088
63,600 K Mart Corp. ........................................ 973,875
------------
2,637,963
------------
Retail/Specialty--1.9%
35,200 Office Depot, Inc. .................................. 1,300,200
77,000 TJX Companies, Inc. ................................. 2,233,000
------------
3,533,200
------------
Retail--Food & Drug--0.9%
29,100 Kroger Co.(c)........................................ 1,760,550
------------
Telephone--6.9%
52,300 Ameritech Corp. ..................................... 3,314,512
47,400 Bell Atlantic Corp. ................................. 2,512,200
77,800 BellSouth Corp. ..................................... 3,880,275
17,800 GTE Corp. ........................................... 1,157,000
40,100 SBC Communications, Inc. ............................ 2,150,368
------------
13,014,355
------------
Telephone/Long Distance--0.7%
15,600 Sprint Corp. ........................................ 1,312,350
------------
Tobacco--0.8%
44,900 UST, Inc. ........................................... 1,565,887
------------
Waste Management--0.5%
19,100 Waste Management, Inc. .............................. 890,537
------------
Total Common Stocks
(Identified Cost $101,765,154)...................... 116,877,630
------------
</TABLE>
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
Banks--0.8%
$ 1,280,000 Mellon Bank N.A.,
7.000%, 03/15/06................................... $ 1,374,835
50,000 Norwest Corp., 7.650%, 3/15/05...................... 54,758
------------
1,429,593
------------
Consumer--4.1%
1,325,000 Amerco, Inc., 7.85%, 05/15/03....................... 1,438,751
1,995,000 Coca Cola Enterprises, Inc.
6.750%, 1/15/38.................................... 2,054,930
880,000 Dell Computer Corp.,
6.550%, 04/15/08................................... 895,189
1,100,000 Dillards, Inc., 6.43%, 08/01/04..................... 1,119,976
950,000 FMC Corp., 7.125%, 11/25/02......................... 954,835
600,000 Northwest Airlines,
8.375%, 03/15/04................................... 587,406
760,000 Royal Caribbean Cruises Line,
7.500%, 10/15/27................................... 731,682
------------
7,782,769
------------
Cyclical--1.0%
740,000 USX Marathon, 8.500%, 3/01/23....................... 816,042
1,100,000 Carnival Corp., 7.050%, 5/15/05..................... 1,157,024
------------
1,973,066
------------
Energy--2.4%
125,000 Coastal Corp., 8.125%, 9/15/02...................... 134,167
1,040,000 Kerr McGee, 6.625%, 10/15/07........................ 1,104,844
790,000 Liberty Property L.P.
6.950%, 12/01/06................................... 742,031
1,250,000 Occidental Petroleum Corp.,
6.434%, 04/01/03................................... 1,268,775
1,230,000 Tosco Corp., 7.625%, 5/15/26........................ 1,312,570
------------
4,562,387
------------
Equipment Trust--0.0%
25,000 American Airlines,
10.180%, 1/02/13................................... 31,043
------------
Finance--1.5%
1,180,000 Household Finance Corp.,
6.500%, 11/15/08................................... 1,227,814
1,130,000 Provident Cos., 6.375%, 07/15/05.................... 1,160,137
520,000 Sears Roebuck Acceptance Corp.,
6.95%, 05/15/02.................................... 542,095
------------
2,930,046
------------
Service--2.2%
300,000 La Quinta Inns, Inc.,
7.400%, 9/15/05.................................... 297,000
</TABLE>
See accompanying notes to financial statements.
62
<PAGE>
New England Zenith Fund
(Loomis Sayles Balanced Series)
Investments as of December 31, 1998
Medium & Long Term Bonds & Notes--(Continued)
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
Service--(Continued)
$ 535,000 Lowen Group International, Inc.
7.750%, 10/15/01.................................. $ 458,613
1,180,000 MGM Grand, Inc.,
6.875%, 02/06/08.................................. 1,081,128
100,000 Secured Finance, 9.050%, 12/15/04.................. 114,370
1,500,000 Tricon Global Restaurants, Inc.,
7.450%, 05/15/05.................................. 1,545,120
680,000 U.S. West Capital Funding, Inc., 6.250%, 07/15/05.. 703,304
------------
4,199,535
------------
Gas Utilities--0.9%
1,650,000 K.N. Energy, Inc., 6.650%, 3/01/05................. 1,639,968
------------
Government Agency--13.7%
3,605,000 United States Treasury Notes,
6.500%, 8/15/05................................... 3,962,111
500,000 United States Treasury Notes,
5.625%, 2/15/06................................... 527,345
2,050,000 United States Treasury Notes,
7.000%, 7/15/06................................... 2,334,109
3,290,000 United States Treasury Notes,
6.625%, 5/15/07................................... 3,699,704
4,870,000 United States Treasury Notes,
6.125%, 8/15/07................................... 5,318,965
9,800,000 United States Treasury Stripped Bond,
Zero Coupon, 02/15/09............................. 5,909,008
1,300,000 United States Treasury Bonds,
10.375%, 11/15/12................................. 1,793,597
1,100,000 United States Treasury Bonds,
9.125%, 5/15/18................................... 1,591,216
1,000,000 United States Treasury Bonds,
6.500%, 11/15/26.................................. 1,162,810
------------
26,298,865
------------
Manufacturing--1.0%
260,000 Philips Electronics NV,
7.250%, 8/15/13................................... 270,709
670,000 Raytheon Co., 6.300%, 03/15/05..................... 686,743
700,000 Textron Inc., 6.625%, 11/15/07..................... 737,044
200,000 Tektronix, Inc., 7.625%, 8/15/02................... 207,308
------------
1,901,804
------------
Mortgage--3.3%
1,076,032 Federal Home Loan Bank,
6.000%, 8/15/22................................... 1,059,892
1,306,800 Federal Home Loan Bank,
6.000%, 12/01/27.................................. 1,290,870
620,000 Federal National Mortgage Association, 6.000%,
2/25/24........................................... 615,951
</TABLE>
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
$ 1,162,833 Federal National Mortgage Association, 6.000%,
3/01/28........................................... $ 1,147,565
2,193,217 Federal National Mortgage Association, 6.000%,
4/01/28........................................... 2,164,420
------------
6,278,698
------------
Other Finance--2.2%
225,000 Bankers Trust N.Y. Corp.,
7.625%, 08/15/05.................................. 238,401
1,040,000 Bear Stearns Cos., Inc.,
6.750%, 12/15/07.................................. 1,080,539
260,000 Dean Witter Discover & Co.,
6.750%, 1/01/16................................... 262,829
200,000 Donaldson Lufkin & Jennrette, Inc., 6.875%,
11/01/05.......................................... 208,785
200,000 Lehman Brothers Holdings, Inc.,
7.360%, 12/15/03.................................. 206,926
440,000 National Health Investors, Inc.,
7.300%, 07/16/07.................................. 484,832
280,000 Oasis Residential, Inc.,
7.000%, 11/15/03.................................. 280,078
840,000 Prologis Trust, 7.050%, 07/15/06................... 819,630
145,000 Salomon, Inc., 7.500%, 2/01/03..................... 153,098
480,000 Salomon, Inc., 7.000%, 3/15/04..................... 501,451
------------
4,236,569
------------
Telephone--0.5%
950,000 Sprint Spectrum L.P.,
0/12.500%, 08/15/06(d)............................ 864,500
------------
Transportation--1.6%
100,000 American Airlines, 10.290%, 03/08/21............... 128,688
1,400,000 Federal Express Corp.,
7.020%, 1/15/16................................... 1,436,182
460,000 Norfolk Southern Corp.,
7.050%, 05/01/37.................................. 501,736
960,000 Royal Caribbean Cruises Line,
7.000%, 10/15/07.................................. 961,334
------------
3,027,940
------------
Total Bonds & Notes
(Identified Cost $65,124,482)..................... 67,156,783
------------
</TABLE>
See accompanying notes to financial statements.
63
<PAGE>
New England Zenith Fund
(Loomis Sayles Balanced Series)
Investments as of December 31, 1998
Short-Term Investments--3.0%
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
$ 5,674,993 Associates First Cap Corp.,
5.000%, 01/04/99................................... $ 5,674,993
------------
Total Short-Term Investments
(Identified Cost $5,674,993)....................... 5,674,993
------------
Total Investments--99.5%
(Identified Cost $172,564,629)(b).................. 189,709,406
Other assets less liabilities....................... 867,654
------------
Total Net Assets--100%.............................. $190,577,060
============
</TABLE>
(a) See Note 1A of Notes to Financial Statements.
(b) Federal Tax Information: At December 31, 1998 the net unrealized
appreciation on investments based on cost of $172,570,554 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.............. $ 20,958,523
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value.............. (3,819,671)
------------
Net unrealized appreciation................................... $ 17,138,852
============
</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.
ADR/GDR--An American Depositary Receipt (ADR) or Global Depositary Receipt
(GDR) is a certificate issued by a Custodian Bank representing the
right to receive securities of the foreign issuer described. The
values of ADRs and GDRs are significantly influenced by trading on
exchanges not located in the United States or Canada.
See accompanying notes to financial statements.
64
<PAGE>
New England Zenith Fund
(Loomis Sayles Balanced Series)
Statement of Assets & Liabilities Statement of Operations
December 31, 1998 Year Ended December 31, 1998
<TABLE>
<S> <C> <C>
Assets
Investments at value................................... $189,709,406
Receivable for:
Fund shares sold....................................... 616,280
Securities sold........................................ 446,899
Dividends and interest................................. 1,131,177
Unamortized organization expense....................... 1,666
------------
191,905,428
Liabilities
Payable for:
Securities purchased................................... $690,945
Fund shares redeemed................................... 494,462
Withholding taxes...................................... 3,465
Accrued expenses:
Management fees........................................ 109,779
Deferred trustees' fees................................ 4,433
Other expenses......................................... 25,284
--------
1,328,368
------------
$190,577,060
============
Net Assets
Net Assets consist of:
Capital paid in........................................ $172,690,097
Undistributed net investment income.................... 16,938
Accumulated net realized gains (losses)................ 725,194
Unrealized appreciation (depreciation) on investments
and foreign currency.................................. 17,144,831
------------
Net Assets.............................................. $190,577,060
============
Computation of offering price:
Net asset value and redemption price per share
($190,577,060 divided by 12,286,960 shares of
beneficial interest)................................... $ 15.51
============
Identified cost of investments.......................... $172,564,629
============
</TABLE>
<TABLE>
<S> <C> <C>
Investment Income
Dividends.............................................. $ 1,342,333(a)
Interest............................................... 4,450,732
-----------
5,793,065
Expenses
Management fees.......................................$1,144,390
Deferred expense reimbursement........................ 62,746
Trustees' fees and expenses........................... 14,635
Custodian............................................. 61,423
Audit and tax services................................ 19,827
Legal................................................. 10,183
Printing.............................................. 22,462
Insurance............................................. 2,011
Amortization of organization expenses................. 4,586
Miscellaneous......................................... 4,027
----------
Total expenses....................................... 1,346,290
-----------
Net investment income.................................. 4,446,775
Realized and Unrealized Gain
(Loss) on Investments and
Foreign Currency Transactions
Realized gain (loss) on:
Investments--net...................................... 3,801,920
----------
Unrealized appreciation
(depreciation) on:
Investments--net...................................... 6,024,322
Foreign currency transactions--net.................... 43
----------
Total unrealized appreciation
(depreciation) on investments
and foreign currency
transactions........................................ 6,024,365
----------
Net gain (loss) on investment
transactions.......................................... 9,826,285
-----------
Net Increase (Decrease) in Net
Assets from Operations................................ $14,273,060
===========
</TABLE>
(a) Net of foreign taxes of: $17,141
See accompanying notes to financial statements.
65
<PAGE>
New England Zenith Fund
(Loomis Sayles Balanced Series)
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
From Operations
Net investment income............................. $ 2,423,147 $ 4,446,775
Net realized gain (loss) on investments........... 5,050,034 3,801,920
Unrealized appreciation (depreciation) on
investments and foreign currency transactions.... 5,612,032 6,024,365
------------ ------------
Increase (decrease) in net assets from operations. 13,085,213 14,273,060
------------ ------------
From Distributions to Shareholders
Net investment income............................. (2,381,795) (4,483,422)
Net realized gain on investments.................. (4,984,089) (3,664,526)
------------ ------------
(7,365,884) (8,147,948)
------------ ------------
From Capital Shares Transactions
Proceeds from sale of shares...................... 86,766,541 85,422,334
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income.......... 2,381,795 4,483,422
Distributions from net realized gain.............. 4,984,089 3,664,526
------------ ------------
94,132,425 93,570,282
Cost of shares redeemed........................... (20,933,471) (46,561,460)
------------ ------------
Increase (decrease) in net assets derived from
capital share transactions....................... 73,198,954 47,008,822
------------ ------------
Total increase (decrease) in net assets........... 78,918,283 53,133,934
Net Assets
Beginning of the year............................. 58,524,843 137,443,126
------------ ------------
End of the year................................... $137,443,126 $190,577,060
============ ============
Undistributed Net Investment Income
Beginning of the year............................. $ 10,566 $ 51,774
============ ============
End of the year................................... $ 51,774 $ 16,938
============ ============
Number of Shares of the Fund:
Issued from the sale of shares.................... 5,865,131 5,541,843
Issued in connection with the reinvestment of:
Distributions from net investment income.......... 161,887 290,551
Distributions from net realized gain.............. 337,428 237,397
------------ ------------
6,364,446 6,069,791
Redeemed.......................................... (1,433,106) (3,032,615)
------------ ------------
Net change........................................ 4,931,340 3,037,176
============ ============
</TABLE>
Financial Highlights
<TABLE>
<CAPTION>
October 31, 1994(a)
through Year Year Year Year
December 31, Ended Ended Ended Ended
1994 1995 1996 1997 1998
------------------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year...... $10.00 $ 9.94 $ 11.95 $ 13.55 $ 14.86
------ ------- ------- -------- --------
Income From Investment
Operations
Net Investment Income.. 0.05 0.26 0.27 0.28 0.38
Net Realized and
Unrealized Gain (Loss)
on Investments........ (0.06) 2.20 1.73 1.90 0.97
------ ------- ------- -------- --------
Total From Investment
Operations............ (0.01) 2.46 2.00 2.18 1.35
------ ------- ------- -------- --------
Less Distributions
Distributions From Net
Investment Income..... (0.05) (0.26) (0.27) (0.27) (0.38)
Distributions From Net
Realized Capital
Gains................. 0.00 (0.19) (0.13) (0.60) (0.32)
------ ------- ------- -------- --------
Total Distributions.... (0.05) (0.45) (0.40) (0.87) (0.70)
------ ------- ------- -------- --------
Net Asset Value, End of
Year................... $ 9.94 $ 11.95 $ 13.55 $ 14.86 $ 15.51
====== ======= ======= ======== ========
Total Return (%)........ (0.1)(b) 24.8 16.9 16.2 9.1
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.85 (c) 0.85 0.85 0.85 0.82
Ratio of Net Investment
Income to Average Net
Assets (%)............. 4.16 (c) 4.03 3.08 2.79 2.72
Portfolio Turnover Rate
(%).................... 0 (c) 72 59 60 72
Net Assets, End of Year
(000).................. $2,722 $18,823 $58,525 $137,443 $190,577
The ratios of expenses
to average net assets
without giving effect
to the voluntary
expense agreement
described in Note 4 to
the Financial
Statements would have
been (%)............... 3.73 (c) 1.85 0.99 0.86 --
</TABLE>
(a) Commencement of operations.
(b) Not computed on an annualized basis.
(c) Computed on an annualized basis.
See accompanying notes to financial statements.
66
<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 the Series perform during the year?
A. The Managed Series continued its strong relative and absolute performance
during 1998, returning 19.7% (at net asset value) versus 13.4% for the Lipper
Variable Products Flexible Portfolio Fund average/8/. The Series' performance
was basically in line with an unmanaged composite of 60% of the S&P 500 In-
dex/25/ (which returned 28.7% for 1998) and 40% of the Lehman
Government/Corporate Bond Index/3/ (which returned 9.5% for 1998) for a blended
return of 20.9%. The Series was ranked 14th of 89 funds in its peer group of
Lipper Variable Products Flexible Portfolio Funds for 1998, and is ranked 5th
for the three year period and 4th for the five year period.
Q. How did you manage the Series during the past year and what affected
performance?
A. Global financial turmoil accelerated in the third quarter (particularly in
August), taking its cue from the collapse of Russian financial markets--the
latest victim of the global liquidity/currency crisis that was first manifested
in Thailand over one year ago. Increased global market volatility and investor
uncertainty flowed over into the remaining G-7 non-Asian financial markets,
causing substantial damage to global equity and credit markets, with a corre-
sponding flight to quality (i.e. U.S. Treasuries). However, during the fourth
quarter, there was a dramatic reversal of the flight-to-quality trade of the
third quarter, as investors reduced U.S. Treasuries and other high quality safe
haven investments and began searching for reasonably valued stocks, and in a
more measured fashion, fixed income spread markets--markets that had been
shunned by investors at any cost just weeks earlier.
I managed the stock allocation between 63% and 68% of the total portfolio dur-
ing the 1998, and reduced the stock allocation on several occasions as equity
prices breached historically "full" valuation levels. Most recently, the stock
portion of the portfolio appreciated from 63.5% in September to 67.5% late in
December with the market rebound. However, with stock valuations at new record
highs, earnings growth uneven, the near term outlook for Treasury yields and
financial market volatility remaining stubbornly high, I shaved the stock allo-
cation back to 64.4%--just below my neutral allocation of 65/35 percent
stock/bond. Cash proceeds from the stock sale were used to modestly reduce the
duration of the bond portfolio and to add to Yankee sovereign exposure. The
bond portfolio was managed throughout the year with an overweight position to
spread product, providing the portfolio with a substantial yield advantage over
U.S. Treasuries. Credit spreads, which widened dramatically during the third
quarter on the global liquidity crisis, narrowed sharply during the fourth
quarter.
Q. What is your current outlook for the months ahead?
A. The U.S. domestic economy has proved very resilient to the tremendous finan-
cial market volatility and economic adversity that has been caused by the suc-
cession of emerging market crises over the past year and a half. Meltdowns in
Asia, Russia and now Brazil have sent liquidity-driven shock waves through
world financial markets and yet, after substantial sell-offs in risk assets
(stocks, corporate bonds, yankee bonds and mortgage pass-throughs), investors
have returned each time to buy the dip in price. While the unflappable consumer
has been instrumental in helping to sustain U.S. economic growth through this
period, the cornerstone of market confidence has rested on the Federal Reserve
Board's willingness to provide the market with much needed liquidity. This has
played a critical role in limiting the damage to financial markets, as hedge
funds, investment dealers and other financial institutions were forced to sell
losing positions and to de-leverage balance sheets during the second half of
1998. The inflation outlook remains positive at the sub-2% level and the U.S.
economy appears to be on track for another year of solid (but not runaway)
growth in the 2.5%-3.0% range. Asia also seems to be turning the corner, with
the region expected to register positive Gross Domestic Product growth in 1999,
after a significant contraction in 1998.
Corporate earnings growth projections have improved from expectations just last
fall, but leave little room for financial mishaps, such as the possible adverse
effect on the U.S. economy from a more protracted downturn in Latin economies
after Brazil's currency devaluation (the largest Latin
67
<PAGE>
economy and one of the U.S.'s largest trading partners). Liquidity is cur-
rently fueling the strong performance in U.S. (and global) financial markets,
with U.S. equity markets, in particular, benefiting in part from investors'
fear of missing the next rally. Bond yields are expected to remain range-
bound, helping to support high equity market multiples, with any commodity
price pressures in upcoming quarters largely mitigated by continued excess
global capacity. Therefore, over the near term, I expect that equity market
risk premiums will remain at low levels, supporting my neutral benchmark
weighting of 65 percent/35 percent stock-bonds, despite full stock valuations.
Clearly, the evolving corporate earnings growth/yield outlook will be critical
to maintaining the current allocation of stocks versus bonds. Whereas the
overall large-cap growth bias of the stock portfolio has driven performance
over the past several years, select large cap value holdings should start to
contribute more to the bottom line. Within the fixed income portion of the
portfolio, I expect to remain overweight to the credit sector and to maintain
a long duration, with further spread contraction from present non-recession
wide spreads expected to contribute to above average returns over the next
quarters.
[CHART APPEARS HERE]
Date Zenith Managed Series S&P 500 Leh/Gov't Corp.
---- --------------------- ------- ---------------
12/31/88 $10,000 $10,000 $10,000
12/31/89 $11,908 $13,159 $11,277
12/31/90 $12,291 $12,749 $12,311
12/31/91 $14,770 $16,617 $14,112
12/31/92 $15,760 $17,881 $15,124
12/31/93 $17,439 $19,675 $16,452
12/31/94 $17,244 $19,942 $16,134
12/31/95 $22,635 $27,409 $18,605
12/31/96 $26,039 $33,686 $19,360
12/31/97 $32,953 $44,909 $20,884
12/31/98 $39,430 $57,717 $24,415
Average Annual Total Return
Lipper Variable
Lehman Flexible Portfolio
Managed Series S&P 500/25/ Government/Corp. Fund Average/8/
1 year 19.7% 28.7% 9.5% 13.4%
3 years 20.3 28.3 7.3 15.6
5 years 17.7 24.1 7.3 13.8
10 years 14.7 19.2 9.3 14.8
Since Inception 13.3 16.5 9.0 n/a
X Fund Facts
Goal: A favorable total return
through investment in diversified
portfolio. The Series' portfolio
is expected to include a mix of
(1) common stocks, (2) notes and
bonds and (3) money market
instruments.
Start date: March 30, 1987
Size: $214 million as of
December 31, 1998
Manager: Peter Palfrey has managed
the Series since January 1994 and
joined Back Bay Advisors in 1993.
Mr. Palfrey also manages several
other fixed income and separate
accounts.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts, if these charges were included, the returns shown would
be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
68
<PAGE>
New England Zenith Fund
(Back Bay Advisors Managed Series)
Investments as of December 31, 1998
Common Stocks--64.4% of Total Net Assets
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Aerospace--0.7%
11,276 Boeing Co. .............................................. $ 367,880
5,400 Lockheed Martin Corp. ................................... 457,650
14,600 Rockwell International Corp. ............................ 709,013
------------
1,534,543
------------
Air Transportation--0.4%
5,800 Delta Air Lines, Inc. ................................... 301,600
22,725 Southwest Airlines Co. .................................. 509,892
------------
811,492
------------
Automobile & Related--0.7%
16,900 Ford Motor Co. .......................................... 991,819
4,500 Goodyear Tire & Rubber Co. .............................. 226,969
7,200 Paccar, Inc. ............................................ 296,100
------------
1,514,888
------------
Banks--5.1%
29,340 Banc One Corp. .......................................... 1,498,174
25,589 Bank America Corp. ...................................... 1,538,539
10,600 Bankers Trust New York Corp. ............................ 905,638
17,400 Chase Manhattan Corp. New................................ 1,184,287
31,944 Citicorp Group, Inc. .................................... 1,581,228
10,900 J.P. Morgan & Co., Inc. ................................. 1,145,181
10,000 Republic NY Corp. ....................................... 455,625
62,200 Wells Fargo & Co. ....................................... 2,484,112
------------
10,792,784
------------
Business Machines--2.8%
26,838 Compaq Computer Corp. ................................... 1,125,519
15,500 Dell Computer Corp. ..................................... 1,134,406
19,800 International Business Machines Corp. ................... 3,658,050
------------
5,917,975
------------
Business Services--0.6%
28,500 Browning Ferris Industries, Inc. ........................ 810,469
9,200 H & R Block, Inc. ....................................... 414,000
------------
1,224,469
------------
Chemicals--1.3%
8,000 Allied-Signals, Inc. .................................... 354,500
15,100 E.I. Du Pont de Nemours & Co. ........................... 801,244
11,000 Great Lakes Chemical Corp. .............................. 440,000
11,600 Monsanto Co. ............................................ 551,000
7,800 Pitney Bowes, Inc. ...................................... 515,288
5,100 Union Carbide Corp. ..................................... 216,750
------------
2,878,782
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Communication--7.1%
15,500 Airtouch Communications, Inc. ........................... $ 1,117,937
600 Ameritech Corp. ......................................... 38,025
39,261 AT&T Co. ................................................ 2,954,390
22,424 Bell Atlantic Corp. ..................................... 1,188,472
32,400 Bellsouth Corp. ......................................... 1,615,950
10,600 GTE Corp. ............................................... 689,000
12,800 Harris Corp. ............................................ 468,800
17,668 Lucent Technologies, Inc. ............................... 1,943,480
21,700 MCI Worldcom, Inc. ...................................... 1,556,975
11,900 Northern Telecom, Ltd. .................................. 596,488
28,274 SBC Communications, Inc. ................................ 1,516,193
23,900 US West, Inc. ........................................... 1,544,537
------------
15,230,247
------------
Conglomerates--0.6%
11,100 Frontier Corp. .......................................... 377,400
13,800 Minnesota Mining & Manufacturing Co. .................... 981,525
------------
1,358,925
------------
Construction--0.9%
18,000 Home Depot, Inc. ........................................ 1,101,375
29,800 Masco Corp. ............................................. 856,750
------------
1,958,125
------------
Consumer Durables--2.3%
7,300 Black & Decker Corp. .................................... 409,256
43,700 General Electric Co. .................................... 4,460,131
800 Whirlpool Corp. ......................................... 44,300
------------
4,913,687
------------
Containers--0.1%
6,000 Bemis, Inc. ............................................. 227,625
------------
Data Processing--3.1%
23,100 Intel Corp. ............................................. 2,738,794
28,700 Microsoft Corp. ......................................... 3,980,331
150 Oracle Systems Corp. .................................... 6,469
------------
6,725,594
------------
Domestic Oil--0.9%
4,300 Amerada Hess Corp. ...................................... 213,925
5,600 Amoco Corp. ............................................. 330,400
5,400 Atlantic Richfield Co. .................................. 352,350
7,200 Halliburton Co. ......................................... 213,300
3,601 Sunoco, Inc. ............................................ 129,861
6,200 Tenneco, Inc. ........................................... 211,188
15,600 Unocal Corp. ............................................ 455,325
------------
1,906,349
------------
</TABLE>
69
<PAGE>
New England Zenith Fund
(Back Bay Advisors Managed Series)
Investments as of December 31, 1998
Common Stocks--(Continued)
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Drugs & Medicine--6.2%
17,600 Abbott Laboratories...................................... $ 862,400
16,100 American Home Products Corp. ............................ 906,631
12,800 Bausch & Lomb, Inc. ..................................... 768,000
17,500 Baxter International, Inc. .............................. 1,125,469
19,200 Becton Dickinson & Co. .................................. 819,600
17,000 C.R. Bard, Inc. ......................................... 841,500
12,600 Corning, Inc. ........................................... 567,000
15,800 Eli Lilly & Co. ......................................... 1,404,225
11,200 Mallinckrodt, Inc. ...................................... 345,100
13,700 Merck & Co., Inc. ....................................... 2,023,319
20,800 Pfizer, Inc. ............................................ 2,609,100
18,400 Schering Plough Corp. ................................... 1,016,600
------------
13,288,944
------------
Electronics--2.3%
21,400 AMP, Inc. ............................................... 1,114,137
18,800 Emerson Electric Co. .................................... 1,137,400
20,000 Hewlett-Packard ......................................... 1,366,250
15,400 Raytheon Co. ............................................ 820,050
14,400 Tektronix, Inc. ......................................... 432,900
------------
4,870,737
------------
Energy & Utilities--2.1%
11,700 Consolidated Edison Co. ................................. 618,638
40,200 Edison International..................................... 1,120,575
22,000 Pacific Gas & Electric Corp. ............................ 693,000
10,700 Pepco Energy Co. ........................................ 445,388
7,700 Public Service Enterprise Group.......................... 308,000
8,900 Texas Utilities Co. ..................................... 415,519
21,200 Unicom Corp. ............................................ 817,525
------------
4,418,645
------------
Energy Raw Materials--0.2%
27,200 Occidental Petroleum Corp. .............................. 459,000
------------
Finance--2.1%
10,400 American Express Co. .................................... 1,063,400
8,858 Associates First Capital Corp. .......................... 375,358
21,800 Federal Home Loan Mortgage Corp. ........................ 1,404,737
21,400 Federal National Mortgage Association.................... 1,583,600
------------
4,427,095
------------
Food & Agriculture--3.1%
36,900 Coca Cola Co. ........................................... 2,467,687
20,450 H. J. Heinz Co. ......................................... 1,157,981
30,700 PepsiCo, Inc. ........................................... 1,256,781
32,000 Sara Lee Corp. .......................................... 902,000
30,400 Supervalue, Inc. ........................................ 851,200
------------
6,635,649
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Gas Utilities--0.3%
14,200 Eastern Enterprises...................................... $ 621,250
------------
Gold--0.1%
8,900 Barrick Gold Corp. ...................................... 173,550
------------
Insurance--2.5%
11,500 Aetna Life & Casualty Co. ............................... 904,188
21,136 Allstate Corp. .......................................... 816,378
14,400 American General Corp. .................................. 1,123,200
14,553 American International Group, Inc. ...................... 1,406,184
8,100 CIGNA Corp. ............................................. 626,231
4,600 Loews Corp. ............................................. 451,950
------------
5,328,131
------------
International Oil--3.1%
38,400 Exxon Corp. ............................................. 2,808,000
15,600 Mobil Corp. ............................................. 1,359,150
39,200 Royal Dutch Petroleum Co. (ADR).......................... 1,876,700
9,600 Texaco, Inc. ............................................ 507,600
------------
6,551,450
------------
Leisure--0.2%
17,000 Brunswick Corp. ......................................... 420,750
------------
Liquor--0.4%
6,600 Anheuser-Busch Companies, Inc. .......................... 433,125
11,700 Seagram, Ltd. ........................................... 444,600
------------
877,725
------------
Media--2.2%
20,100 Cisco Systems, Inc. ..................................... 1,865,531
6,000 Gannett Co., Inc. ....................................... 387,000
15,200 Tele-Communications, Inc., .............................. 840,750
26,400 Time Warner, Inc. ....................................... 1,638,450
------------
4,731,731
------------
Miscellaneous--1.1%
8,000 American Greetings Corp. ................................ 328,500
10,900 EG & G, Inc. ............................................ 303,156
10,000 IMS Health, Inc. ........................................ 754,375
21,200 Milacron, Inc. .......................................... 408,100
4,400 Nacco Industries, Inc. .................................. 404,800
7,926 Newmont Mining Corp. .................................... 143,163
------------
2,342,094
------------
Non-Ferrous Metals--0.5%
14,000 Aluminum Company of America.............................. 1,043,875
------------
</TABLE>
70
<PAGE>
New England Zenith Fund
(Back Bay Advisors Managed Series)
Investments as of December 31, 1998
Common Stocks--(Continued)
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
Office Equipment--0.9%
15,600 Xerox Corp. ............................................. $ 1,840,800
------------
Optical Photo, Equipment--0.1%
3,600 Eastman Kodak Co. ....................................... 259,200
------------
Paper & Forest Products--0.8%
9,900 Burlington Northern Santa Fe............................. 334,125
3,600 Georgia-Pacific Corp. ................................... 210,825
19,000 Kimberly Clark Corp. .................................... 1,035,500
8,400 Westvaco Corp. .......................................... 225,225
------------
1,805,675
------------
Pollution Control--0.2%
6,887 Waste Management, Inc. .................................. 321,106
------------
Publishing--0.3%
12,000 Knight Ridder, Inc. ..................................... 613,500
------------
Railroads & Shipping--0.3%
5,100 CSX Corp. ............................................... 211,650
13,500 Norfolk Southern Corp. .................................. 427,781
------------
639,431
------------
Restaurants--0.0%
3,070 Tricon Global Restaurants, Inc. ......................... 153,884
------------
Retail--3.4%
19,000 Albertsons, Inc. ........................................ 1,210,062
5,000 J. C. Penney, Inc. ...................................... 234,375
38,900 Kmart Corp.(c)........................................... 595,656
26,400 Mattel Inc. ............................................. 602,250
7,800 May Department Stores Co. ............................... 470,925
11,600 Nike Inc., Class B....................................... 470,525
11,400 Sears Roebuck & Co. ..................................... 484,500
15,000 Walgreen Co. ............................................ 878,438
28,100 Wal-Mart Stores, Inc. ................................... 2,288,394
------------
7,235,125
------------
Soaps & Cosmetics--3.7%
17,000 Alberto Culver Co. ...................................... 453,688
7,800 Avon Products, Inc. ..................................... 345,150
19,620 Bristol-Myers Squibb Co. ................................ 2,625,401
3,800 Clorox Co. .............................................. 443,888
18,000 Gillette Co. ............................................ 869,625
16,500 Johnson & Johnson........................................ 1,383,937
20,600 Procter & Gamble Co. .................................... 1,881,037
------------
8,002,726
------------
Steel--0.1%
7,720 USX-US Steel Group................................... 177,560
------------
Tobacco--1.0%
40,800 Philip Morris Companies, Inc. ....................... 2,182,800
------------
Travel & Recreation--0.6%
39,705 Walt Disney Co. ..................................... 1,191,150
------------
Total Common Stock
(Identified cost $66,455,590)....................... 137,609,068
------------
Warrant--0.1%
5,500 Republic of Argentina................................ $247,500
------------
Total Warrants
(Identified cost $123,860).......................... 247,500
------------
Bonds & Notes--32.0%
<CAPTION>
Face
Amount
<C> <S> <C>
Corporate Bonds--13.6%
$2,750,000 Aramark Services, Inc.,
7.000%, 7/15/06..................................... 2,805,632
1,000,000 CSC Holdings, Inc.
7.875%, 12/15/07.................................... 1,057,360
2,000,000 CSC Holdings, Inc.
7.875%, 2/15/18..................................... 2,032,500
3,000,000 Comcast Cable Communications,
8.500%, 5/01/27..................................... 3,676,350
2,000,000 Comcast Cellular Holdings, Inc.,
9.500%, 5/01/07, 144A............................... 2,135,000
4,285,000 Great Atlantic & Pacific Tea Co.,
7.750%, 4/15/07..................................... 4,245,707
2,000,000 MCI Communications Corp.
7.125%, 6/15/27..................................... 2,214,080
4,000,000 News America Holdings, Inc.,
10.125%, 10/15/12................................... 4,649,720
2,750,000 Norfolk Southern Corp.,
7.050%, 5/01/37..................................... 2,999,507
2,000,000 Total Access Communication,
8.375%, 11/04/06.................................... 1,327,500
1,850,000 United Utilities Corp.,
6.250%, 8/15/05..................................... 1,867,760
------------
29,011,116
------------
</TABLE>
See accompanying notes to financial statements.
71
<PAGE>
New England Zenith Fund
(Back Bay Advisors Managed Series)
Investments as of December 31, 1998
Bonds & Notes--(Continued)
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
Foreign--9.6%
$ 4,000,000 Government of Canada,
10.250%, 3/15/14 (CAD)............................ $ 4,042,918
5,000,000 Government of Canada,
Zero Coupon, 3/15/21 (CAD)........................ 1,003,108
15,000,000 Government of Canada,
Zero Coupon, 6/01/25 (CAD)........................ 2,493,327
3,000,000 Province of Ontario,
8.100%, 9/08/23 (CAD)............................. 2,587,831
30,000,000 Province of Ontario,
Zero Coupon, 09/08/23 (CAD)....................... 4,872,228
15,000,000 Province of Quebec Stripped,
Zero Coupon, 1/16/23 (CAD)........................ 2,331,698
3,600,000 Province of Quebec,
8.500%, 04/01/26 (CAD)............................ 3,178,410
------------
20,509,520
------------
Yankee--8.6%
850,000 Pemex Financial, Ltd.,
9.150%, 11/15/18.................................. 844,688
2,000,000 Petroleos Mexicanos,
9.500%, 9/15/27................................... 1,642,500
925,000 Pindo Deli Fin Mauritius,
10.750%, 10/01/07, 144A........................... 494,875
5,500,000 Republic of Argentina,
11.000%, 12/04/05................................. 5,458,750
5,000,000 Republic of Columbia
7.625%, 2/15/07................................... 4,162,500
1,000,000 Republic of Korea,
8.875%, 4/15/08................................... 1,032,560
5,008,000 Republic of Panama,
8.875%, 9/30/27, 144A............................. 4,695,000
------------
18,330,873
------------
U.S. Government Bonds--0.2%
234,917 Government National Mortgage Association, 10.000%,
9/15/18........................................... 254,516
255,634 Government National Mortgage Association, 11.500%
with various maturities to 2013................... 284,768
------------
539,284
------------
Total Bonds & Notes
(Identified Cost $65,980,913)..................... 68,390,793
------------
</TABLE>
Short-Term Investment--2.7%
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
$ 5,761,000 Household Finance Corp.,
5.000%, 1/4/99.................................... $ 5,758,600
------------
Total Short-Term Investment
(Identified Cost $5,758,600)...................... 5,758,600
------------
Total Investments--99.2%
(Identified Cost $138,318,963)(b)................. 212,005,961
Other assets less liabilities...................... 1,633,232
------------
Total Net Assets--100%............................. $213,639,193
============
(a)See Note 1A of Notes to Financial Statements.
(b)Federal Tax Information:
At December 31, 1998 the net unrealized appreciation on investments based
on cost of $138,318,963 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.............. $ 77,760,153
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value.............. (4,073,155)
------------
Net unrealized appreciation................................... $ 73,686,998
============
</TABLE>
(c)Non-income producing security.
ADR/GDR--An American Depositary Receipt (ADR) or Global Depositary Receipt (GDR)
is a certificate issued by a Custodian Bank representing the right to
receive securities of the foreign issuer described. The values of ADRs
and GDRs are significantly influenced by trading on exchanges not
located in the United States or Canada.
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 $7,324,875 or 3.4% of
total net assets.
CAD-- Security denominated in Canadian Dollars.
See accompanying notes to financial statements.
72
<PAGE>
New England Zenith Fund
(Back Bay Advisors Managed Series)
Statement of Assets & Liabilities
December 31, 1998
<TABLE>
<S> <C> <C>
Assets
Investments at value................................... $212,005,961
Cash................................................... 121,862
Foreign cash at value
(Identified cost $33)................................. 33
Receivable for:
Fund shares sold....................................... 104,417
Securities sold........................................ 495,681
Dividends and interest................................. 1,293,993
Foreign taxes.......................................... 632
------------
214,022,579
Liabilities
Payable for:
Fund shares redeemed................................... $229,093
Accrued expenses:
Management fees........................................ 88,603
Deferred trustees' fees................................ 54,804
Other expenses......................................... 10,886
--------
383,386
------------
$213,639,193
============
Net Assets
Net Assets consist of:
Capital paid in........................................ $136,108,055
Undistributed net investment income.................... 9,035
Accumulated net realized gains
(losses).............................................. 3,833,767
Unrealized appreciation
(depreciation) on investments
and foreign currency.................................. 73,688,336
------------
Net Assets.............................................. $213,639,193
============
Computation of offering price:
Net asset value and redemption price
per share ($213,639,193 divided by 1,028,313 shares of
beneficial interest)................................... $ 207.76
============
Identified cost of investments.......................... $138,318,963
============
</TABLE>
Statement of Operations
Year Ended December 31, 1998
<TABLE>
<S> <C> <C>
Investment Income
Dividends.......................................... $ 2,222,231(a)
Interest........................................... 5,265,645
-----------
7,487,876
Expenses
Management fees.................................... $ 1,003,695
Trustees' fees and expenses........................ 25,171
Custodian.......................................... 88,663
Audit and tax services............................. 14,308
Legal.............................................. 13,814
Printing........................................... 14,266
Insurance.......................................... 5,488
Miscellaneous...................................... 4,222
-----------
Total expenses..................................... 1,169,627
-----------
Net investment income............................... 6,318,249
Realized and Unrealized Gain (Loss) on Investments,
and Foreign Currency Transactions
Realized gain (loss) on:
Investments--net................................... 11,395,749
Foreign currency transactions--net................. (24,441)
-----------
Total realized gain (loss) on investments and
foreign currency transactions.................... 11,371,308
-----------
Unrealized appreciation (depreciation) on:
Investments--net................................... 18,224,361
Foreign currency transactions--net................. 16,332
-----------
Total unrealized appreciation (depreciation) on
investments, and foreign currency transactions... 18,240,693
-----------
Net gain (loss) on investment transactions.......... 29,612,001
-----------
Net Increase (Decrease) in Net Assets From
Operations......................................... $35,930,250
===========
(a) Net of foreign taxes of: $11,520
</TABLE>
See accompanying notes to financial statements.
73
<PAGE>
New England Zenith Fund
(Back Bay Advisors Managed Series)
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
From Operations
Net investment income............................. $ 5,630,618 $ 6,318,249
Net realized gain (loss) on investments and
foreign currency transactions.................... 21,058,248 11,371,308
Unrealized appreciation (depreciation) on
investments, and foreign currency transactions... 14,235,222 18,240,693
------------ ------------
Increase (decrease) in net assets from operations. 40,924,088 35,930,250
------------ ------------
From Distributions to Shareholders
Net investment income............................. (5,622,790) (6,267,551)
Net realized gain on investments.................. (16,617,273) (12,208,852)
------------ ------------
(22,240,063) (18,476,403)
------------ ------------
From Capital Shares Transactions
Proceeds from sale of shares...................... 22,338,847 28,307,821
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income.......... 5,622,790 6,267,551
Distributions from net realized gain.............. 16,617,273 12,208,852
------------ ------------
44,578,910 46,784,224
Cost of shares redeemed........................... (35,368,662) (39,381,579)
------------ ------------
Increase (decrease) in net assets derived from
capital share transactions....................... 9,210,248 7,402,645
------------ ------------
Total increase (decrease) in net assets........... 27,894,273 24,856,492
Net Assets
Beginning of the year............................. 160,888,428 188,782,701
------------ ------------
End of the year................................... $188,782,701 $213,639,193
============ ============
Undistributed Net Investment Income
Beginning of the year............................. $ 40,029 $ 5,466
============ ============
End of the year................................... $ 5,466 $ 9,035
============ ============
Number of Shares of the Fund:
Issued from the sale of shares.................... 115,122 137,877
Issued in connection with the reinvestment of:
Distributions from net investment income.......... 30,044 30,019
Distributions from net realized gain.............. 88,778 58,566
------------ ------------
233,944 226,462
Redeemed.......................................... (183,956) (192,507)
------------ ------------
Net change........................................ 49,988 33,955
============ ============
</TABLE>
Financial Highlights
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year........................ $ 137.18 $ 130.30 $ 163.52 $ 170.37 $ 189.85
-------- -------- -------- -------- --------
Income From Investment
Operations
Net Investment Income....... 5.42 6.34 6.43 6.38 6.56
Net Realized and Unrealized
Gain (Loss) on Investments. (6.92) 34.33 18.21 38.47 30.50
-------- -------- -------- -------- --------
Total From Investment
Operations................. (1.50) 40.67 24.64 44.85 37.06
-------- -------- -------- -------- --------
Less Distributions
Distributions From Net
Investment Income.......... (5.38) (6.34) (6.34) (6.42) (6.51)
Distributions in Excess of
Net Investment Income...... 0.00 (0.23) 0.00 0.00 0.00
Distributions From Net
Realized Capital Gains..... 0.00 (0.88) (11.45) (18.95) (12.64)
-------- -------- -------- -------- --------
Total Distributions......... (5.38) (7.45) (17.79) (25.37) (19.15)
-------- -------- -------- -------- --------
Net Asset Value, End of Year. $ 130.30 $ 163.52 $ 170.37 $ 189.85 $ 207.76
======== ======== ======== ======== ========
Total Return (%)............. (1.1) 31.3 15.0 26.6 19.7
Ratio of Operating Expenses
to Average Net Assets (%)... 0.54 0.64 0.62 0.61 0.58
Ratio of Net Investment
Income to Average Net Assets
(%)......................... 3.98 4.06 3.64 3.20 3.15
Portfolio Turnover Rate (%).. 76 51 72 65 25
Net Assets, End of Year
(000)....................... $121,877 $147,536 $160,888 $188,783 $213,639
</TABLE>
See accompanying notes to financial statements.
74
<PAGE>
Salomon Brothers Strategic Bond Opportunities Series
Portfolio Managers: Roger Lavan, Peter Wilby and David Scott
Salomon Brothers Asset Management Inc
[PHOTO OF ROGER LAVAN]
[PHOTO OF PETER WILBY]
[PHOTO OF DAVID SCOTT]
Q. How did the Series perform in 1998?
A. The Salomon Brothers Strategic Bond Opportunities Series had a total return
of 2.0% (based on net asset value) for 1998 versus 5.1% for the Lipper Variable
Products General Bond Fund Average/9/ and 8.7% for the Lehman Brothers Aggre-
gate Bond Index/2/. Underperformance of the Series was largely due to its expo-
sure to high yield and emerging markets debt during the unexpected credit cri-
sis in the summer of 1998.
Q. How did you manage the Series during the year?
A. For bonds, 1998 was a mixture of good and bad news. The good news was that
interest rates fell approximately 1% across the yield curve. Though low infla-
tion contributed to lower bond yields, exogenous factors such as equity market
fears, default fears and expectations of spreading global economic weakness
gave investors sufficient reasons to seek only the safety and liquidity of the
Treasury sector. The bad news for bonds that were not Treasuries was that yield
spreads across all sectors widened toward unexplainable and unsustainable lev-
els. High yield bonds and emerging market debt suffered their worst perfor-
mances in years. This was largely due to the increased global spreads.
Early in 1998, domestic demand readings in the U.S. remained exceptionally
healthy, benefiting from low interest rates, low unemployment rates and high
consumer confidence. Lower quality high yield bonds outperformed, so the Series
reaped the profits and upgraded into relatively higher quality bonds. The Se-
ries maintained a neutral duration relative to the Lehman Brothers Aggregate
Bond Index and increased its over weighting in mortgage backed securities. The
Series continued to invest in discount coupon mortgages and seasoned pass
through mortgages because of their superior performance as interest rates de-
cline. The Series ended the first quarter with 42% U.S. Investment Grade Bonds,
32% High Yield Bonds, 15% Emerging Markets Debt, 7% Non-U.S. Government Bonds
and 4% Cash.
The Series maintained its weightings in the high yield sector throughout the
second quarter, as credit fundamentals remained favorable. We continued to seek
opportunities to upgrade credit quality and moved to a more defensive position
within the sector. In the emerging markets sector of the portfolio, we lowered
our exposure to Russia and added Bulgaria and Peru. Mexico and Argentina con-
tinued to be core holdings, as their fundamentals remained strong.
During the third quarter, heightened global market volatility caused the Series
to take a more defensive stance in its high yield sector and to lower its allo-
cation to the emerging markets debt sector. We continued to decrease the Se-
ries' exposure to Russia and increase its positions in Argentina and Mexico as
fundamentals appeared more favorable. The Series continued to favor discount
and coupon mortgage backed securities in the investment grade portion of the
portfolio. The Series ended the third quarter with 45% investment grade, 30%
high yield, 13% emerging market debt, 6% non-U.S. dollar denominated bonds and
6% cash.
During November, high yield and emerging debt markets snapped back strongly
when it became apparent to investors that the financial market crisis was end-
ing. Bold steps taken by the Federal Reserve Board (the "Fed") in lowering
short-term interest rates and restoring liquidity in the markets began to put
investors at ease. We maintained our high yield sector of the portfolio as
credit spreads had room to improve and interest rates were cut 0.75%. We have
increased the Series' allocations in the emerging markets debt sector from 15%
to 23%, as the markets have recovered some 20% since their lows in early Sep-
tember.
Q. What is your outlook for the Series in 1999?
A. Investor optimism and recent economic data suggest that the U.S. economy is
performing well in the new year. As booming sectors moderate and external
growth continues to fade the current expansion will slow perceptibly. The opti-
mistic view assumes that the rest of the financial world holds together. Out-
side the U.S., where the main threat to domestic stability first emerged, con-
ditions have deteriorated since the Fed last rate cut. This backdrop leaves the
Fed in a watchful state, despite the complacency of today's marketplace and
75
<PAGE>
strong fourth-quarter Gross Domestic Product growth. Near-term job and eco-
nomic growth probably will remain fairly buoyant, given the boost from lower
commodity prices, warm weather and the fresh rise in the equity market. Howev-
er, with inflation pressures in remission, the Fed will have ample leeway to
renew its rescue efforts in 1999 if necessary.
We remain optimistic about the high yield market, as interest rates are low
and credit spreads have room to improve. The emerging debt markets have recov-
ered by some 20% since their lows in early September and while there will be
bumps along the way, we expect emerging debt to outperform the U.S. investment
grade market in 1999. We have increased our allocations in that sector from
15% to 23%.
[GRAPH APPEARS HERE]
Date Strategic Bond Opp. Series Lehman Aggregate Bond
---- -------------------------- ---------------------
10/31/94 $10,000 $10,000
12/31/94 $9,860 $10,047
12/31/95 $11,771 $11,903
12/31/96 $13,461 $12,335
12/31/97 $14,952 $13,529
12/31/98 $15,257 $14,702
Average Annual Return
Lipper Variable
Strategic Bond Lehman General Bond
Opp. Series Aggregate Bond/2/ Fund Average/9/
1 year 2.0% 8.7% 5.1%
3 years 9.0 7.3 7.2
Since Inception 10.7 9.7 n/a
[GRAPHIC APPEARS HERE] Fund Facts
Goal: A high level of total return consistent with the preservation of capital.
Start date: October 31, 1994
Size: $95 million as of December 31, 1998
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. 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.
76
<PAGE>
New England Zenith Fund
(Salomon Brothers Strategic Bond Opportunities Series)
Investments as of December 31, 1998
Bonds & Notes--98.0% 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................................ $ 261,562
250,000 Synthetic Industries, Inc., Series B 9.250%,
2/15/07......................................... 257,812
-----------
519,374
-----------
Automotive & Related--1.0%
250,000 BREED Technologies, Inc. 144A, 9.250%,
4/15/08(d)...................................... 220,625
200,000 Foamex L.P/Foamex Capital Corp.
9.875%, 6/15/07................................. 214,250
250,000 Hayes Lemmerz International, Inc.,
144A, 8.250%, 12/15/08(d)....................... 250,000
250,000 Key Plastic, Inc.
10.250%, 3/15/07................................ 234,375
-----------
919,250
-----------
Banks--0.6%
600,000 U.S. Bank National
Association of Minneapolis
5.700%, 12/15/08................................ 595,488
-----------
Biotechnology--0.3%
250,000 Monsanto Co.
144A, 5.875%, 12/08/08(d)....................... 249,890
-----------
Cable & Other Media--3.2%
250,000 Adelphia Communications Corp.
Series B 10.500%, 7/15/04....................... 273,750
150,000 American Media Operations
11.625%, 11/15/04............................... 153,750
500,000 Avalon Cable 144A,
0/11.125%, 12/01/08(c)(d)....................... 280,000
250,000 Capstar Broadcasting
9.250%, 7/01/07................................. 260,625
500,000 Century Communications
Zero Coupon, 1/15/08............................ 255,000
150,000 CSC Holdings, Inc.
10.500%, 5/15/16................................ 178,125
150,000 Diamond Cable Communication,
0/11.750%, 12/15/05(c).......................... 124,875
250,000 Falcon Holdings Group 8.375%, 4/15/10............ 257,500
200,000 Jacor Communications Co.
9.750%, 12/15/06................................ 222,000
500,000 LIN Holdings Corp. 0/10.000%, 3/01/08(c)......... 351,250
250,000 Marcus Cable Co. 14.250%, 12/15/05............... 240,000
150,000 Rogers Cablesystems, Ltd., Series B 10.000%,
3/15/05......................................... 168,938
99,000 SFX Broadcasting, Inc. 10.750%, 5/15/06.......... 109,271
400,000 United International Holdings, Series B
0/10.750%, 2/15/08(c)........................... 212,000
-----------
3,087,084
-----------
Capital Goods/Building Products--2.5%
225,000 Alvey Systems, Inc., 11.375%, 1/31/03............ 226,687
185,000 EnviroSource, Inc.
9.750%, 6/15/03................................. 166,500
250,000 High Voltage Engineering Corp.
10.500%, 8/15/04................................ 236,875
250,000 International Knife & Saw 11.375%, 11/15/06...... 257,187
100,000 Jordan Industries, Inc., Series B 10.375%,
8/01/07......................................... 103,625
250,000 Jordan Industries, Inc., Series B 11.750%
4/01/09......................................... 152,500
250,000 Motors & Gears, Inc., Series D 10.750%, 11/15/06. 263,437
250,000 Packard Biosciences, Inc., Series B 9.375%,
3/01/07......................................... 237,187
250,000 Polymer Group, Inc., Series B
9.000%, 7/01/07................................. 247,500
500,000 Praxair, Inc. 6.150%, 4/15/03.................... 500,315
-----------
2,391,813
-----------
Chemicals--0.5%
250,000 Huntsman Corp. 144A,
9.500%, 7/01/07(d).............................. 250,625
250,000 ISP Holdings, Inc. 9.000%, 10/15/03.............. 264,062
-----------
514,687
-----------
Computer Software & Services--1.1%
450,000 Comdisco, Inc. 6.130%, 8/01/01................... 458,802
200,000 DecisionOne Corp. 9.750%, 8/01/07................ 92,000
250,000 Primark Corp. 144A,
9.250%, 12/15/08(d)............................. 250,625
250,000 Unisys Corp. 7.875%, 4/01/08..................... 265,000
-----------
1,066,427
-----------
Consumer Products--1.1%
250,000 American Saftey Razor Series B 9.875%, 8/01/05... 252,187
300,000 Ekco Group, Inc., Series B
9.250%, 4/01/06................................. 300,375
</TABLE>
See accompanying notes to financial statements.
77
<PAGE>
New England Zenith Fund
(Salomon Brothers Strategic Bond Opportunities Series)
Investments as of December 31, 1998
Bonds & Notes--(Continued)
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
Consumer Products--(Continued)
$ 97,000 Hines Horticulture, Inc.
11.750%, 10/15/05............................... $ 102,820
250,000 North Atlantic Trading, Inc.
11.000%, 6/15/04................................ 247,500
150,000 Shop-Vac Corp. 10.625%, 9/01/03.................. 163,688
-----------
1,066,570
-----------
Cosmetics & Toiletries--0.4%
250,000 French Fragrances, Inc., Series B 10.375%,
5/15/07......................................... 249,687
300,000 Revlon Worldwide Corp., Series B
Zero Coupon, 3/15/01............................ 166,500
-----------
416,187
-----------
Defense & Aerospace--0.9%
250,000 BE Aerospace, Series B
8.000%, 3/01/08................................. 245,625
125,000 L-3 Communications Corp. 144A, 8.000%,
8/01/08(d)...................................... 125,625
250,000 Raytheon Co. 6.150%, 11/01/08.................... 253,837
250,000 Stellex Industries, Inc. 9.500%, 11/01/07........ 216,250
-----------
841,337
-----------
Electronics--0.5%
250,000 Amphenol Corp. 9.875%, 5/15/07................... 256,562
250,000 Jordan Telecommunication Products 9.875%,
8/01/07......................................... 252,500
-----------
509,062
-----------
Energy--0.9%
400,000 Occidental Petroleum Corp. 9.250%, 8/01/19....... 464,376
250,000 Transamerican Energy Corp., Series B, 0/13.000%,
6/15/02(c)...................................... 85,000
250,000 Transamerican Energy Corp.
11.500%, 6/15/02................................ 95,000
250,000 United Refining Co., Series B 10.750%, 6/15/07... 172,500
-----------
816,876
-----------
Environmental Control--0.8%
250,000 Allied Waste Industries, Inc. 144A,
7.875%, 1/01/09(d)............................. 254,062
250,000 Marsulex, Inc. 9.625%, 7/01/08................... 256,562
250,000 Safety Kleen Services, Inc. 9.250%, 6/01/08...... 256,250
-----------
766,874
-----------
Finance--1.2%
125,000 Airplane Pass Thru Trust, 10.875%, 3/15/19....... 132,930
250,000 DVI, Inc. 9.875%, 2/01/04........................ 240,625
310,000 Merrill Lynch & Co.
6.000%, 11/15/04................................ 317,025
450,000 Paine Webber Group, Inc. 7.000%, 3/01/00......... 454,891
-----------
1,145,471
-----------
Financial Leasing--0.7%
250,000 Navistar International 8.000%, 2/01/08........... 254,687
100,000 United States Leasing International, Inc.
8.450%, 1/25/05................................. 114,291
250,000 William Scotsman, Inc. 9.875%, 6/01/07........... 255,000
-----------
623,978
-----------
Food & Beverages--1.3%
250,000 CFP Holdings, Inc., Series B
11.625%, 1/15/04................................ 205,000
250,000 Delta Beverage Group 9.750%, 12/15/03............ 261,250
200,000 Dole Foods, Inc. 6.750%, 7/15/00................. 203,665
250,000 Imperial Holly Corp. 9.750%, 12/15/07............ 247,500
250,000 SC International Services, Inc. 9.250%, 9/01/07.. 251,250
150,000 Stroh Brewery Co.
11.100%, 7/01/06................................ 113,250
-----------
1,281,915
-----------
Foreign--3.6%
1,200,000,000 Euro Investment Bank 7.450%, 2/04/99(e).......... 729,838
273,400,000 Hellenic Republic
8.900%, 4/01/03(g).............................. 1,026,154
400,000 Korea Development Bank 9.600%, 12/01/00.......... 394,524
1,000,000 Morocco Loan 6.063%, 1/01/09..................... 805,000
90,000 New South Wales Treasury Corp. 7.375%,
2/21/07(h)...................................... 61,469
600,000 Nordiska Investeringsbanke 17.750%, 4/15/02(k)... 195,513
550,000 Sudwest Landes Bank 17.500%, 5/05/03(k).......... 185,449
50,515 Vnesheconombank USSR 144A, 5.968%,
12/15/15(d)(n).................................. 5,496
-----------
3,403,443
-----------
</TABLE>
See accompanying notes to financial statements.
78
<PAGE>
New England Zenith Fund
(Salomon Brothers Strategic Bond Opportunities Series)
Investments as of December 31, 1998
Bonds & Notes--(Continued)
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
Foreign Government--23.0%
$ 725,000 Federal Republic of Brazil, 6.125%, 4/15/24(n)..... $ 420,500
1,075,000 Federal Republic of Brazil 10.125%, 5/15/27........ 744,437
760,000 Federal Republic of Germany 5.625%, 1/04/28(f)..... 513,932
400,000 Federal Republic of Germany 4.125%, 7/04/08(f)..... 244,810
280,000 Federal Republic of Germany 4.750%, 7/04/08(f)..... 179,482
5,960,000 Kingdom of Denmark 8.000%, 5/15/03(i).............. 1,086,403
1,300,000 Kingdom of Morocco 4.375%, 1/01/09................. 964,437
3,800,000 Kingdom of Sweden 11.000%, 1/21/99(j).............. 469,761
2,100,000 Kingdom of Sweden 6.500%, 5/05/08(j)............... 304,217
2,400,000 National Republic of Bulgaria 6.687%, 7/28/11(n)... 1,608,000
1,081,000 Republic of Argentina 6.187%, 3/31/05(n)........... 913,877
2,800,000 Republic of Argentina 11.000%, 12/04/05............ 2,779,000
1,600,000 Republic of Argentina 5.750%, 3/31/23(c)........... 1,159,000
565,830 Republic of Ecuador 6.625%, 2/27/15(n)............. 231,283
1,500,000 Republic of Ecuador 3.500%, 2/28/25................ 637,575
1,000,000 Republic of Finland 6.000%, 4/25/08(l)............. 225,974
82,900,000 Republic of Greece 11.000%, 2/25/00(g)............. 287,164
29,000,000 Republic of Greece 8.700%, 4/08/05(g).............. 111,646
80,000,000 Republic of Greece 8.600%, 3/26/08(g).............. 317,279
1,000,000 Republic of Panama 4.000%, 7/17/14................. 745,000
3,100,000 Republic of Peru 4.000%, 3/07/17................... 1,945,250
370,000 Republic of Slovenia 5.375%, 5/27/05(m)............ 441,174
1,214,280 Republic of Venezuela 6.125%, 3/31/07(n)........... 763,114
2,785,713 Republic of Venezuela 5.937%, 12/18/07(n).......... 1,694,410
1,000,000 United Mexican States 6.250%, 12/31/19............. 781,300
2,225,000 United Mexican States 11.500%, 5/15/26............. 2,408,562
-----------
21,977,587
-----------
Government Agencies--16.2%
156,858 Federal Home Loan Mortgage 10.000%, 5/15/20...... 169,321
2,345 Federal Home Loan Mortgage 11.565%, 6/15/21...... 57,055
17,409 Federal National Mortgage Association 13.000%,
11/01/14........................................ 20,761
500,000 Federal National Mortgage Association 7.000%,
11/18/15........................................ 503,160
65,841 Federal National Mortgage Association 10.400%,
4/25/19......................................... 70,735
3,711,611 Federal National Mortgage Association 0.605%,
3/17/20(o)...................................... 95,388
855,897 Federal National Mortgage Association 6.500%,
3/01/26......................................... 861,777
104,640 Federal National Mortgage Association 7.000%,
5/01/26......................................... 106,766
5,059,504 Federal National Mortgage Association 1.641%,
2/25/35(o)...................................... 397,171
8,482,574 Federal National Mortgage Association 0.545%,
10/17/36(o)..................................... 235,815
10,000,000 Federal National Mortgage Association 6.000%,
12/01/2099...................................... 9,868,700
3,100,000 Federal National Mortgage Association 6.500%,
12/01/2099...................................... 3,120,336
-----------
15,506,985
-----------
Health Care--1.3%
200,000 Alaris Medical Systems, Inc. 9.750%, 12/01/06.... 198,250
250,000 Dade International, Inc. 11.125%, 5/01/06........ 277,812
150,000 Fresenius Medical Care Cap 9.000%, 12/01/06...... 156,000
150,000 Maxxim Medical, Inc. 10.500%, 8/01/06............ 161,625
250,000 Prime Medical Services, Inc. 8.750, 4/01/08...... 240,625
200,000 Vencor, Inc. 9.875%, 5/01/05..................... 174,000
-----------
1,208,312
-----------
Housing Related--0.3%
250,000 CB Richards Ellis Services 8.875%, 6/01/06....... 245,000
-----------
Insurance--0.4%
400,000 Aetna Services, Inc. 7.625%, 8/15/26............. 404,344
-----------
</TABLE>
See accompanying notes to financial statements.
79
<PAGE>
New England Zenith Fund
(Salomon Brothers Strategic Bond Opportunities Series)
Investments as of December 31, 1998
Bonds & Notes--(Continued)
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
Leisure Time--1.4%
$ 250,000 Empress Entertainment, Inc. 8.125%, 7/01/06...... $ 251,250
250,000 Grand Casino, Series B 9.000%, 10/15/04.......... 276,250
250,000 Park Place Entertainment Corp. 144A, 7.875%,
12/15/05(d)..................................... 250,625
250,000 Prime Hospitality Corp. 9.750%, 4/01/07.......... 252,500
250,000 Sun International, Ltd. 8.625%, 12/15/07......... 259,062
-----------
1,289,687
-----------
Metal/Mining/Steel--0.8%
250,000 Murrin Murrin Holdings Property, Ltd. 9.375%,
8/31/07......................................... 237,500
250,000 P&L Coal Holdings Corp. 144A, 9.625%, 5/15/08(d). 254,375
250,000 Renco Metals, Inc. 11.500%, 7/01/03.............. 258,750
-----------
750,625
-----------
Miscellaneous--2.7%
247,812 First Union Residential Securitization 7.000%,
8/25/28......................................... 232,014
250,000 Harrahs Operations, Inc. 7.875%, 12/15/05........ 251,250
250,000 HMH Properties, Inc. 7.875%, 8/01/08............. 244,062
350,000 Nebco Evans Holdings Co. 0/12.375%, 7/15/07(c)... 168,000
250,000 Neenah Corp. 11.125%, 5/01/07.................... 258,750
300,000 Norsk Hydro A.S.
6.700%, 1/15/18................................. 298,110
446,429 RG Receivables Co. 9.600%, 2/28/05............... 357,143
250,000 TeleWest plc
0/11.000%, 10/01/07(c).......................... 208,750
550,000 TPSA Fin BV 144A,
7.750%, 12/10/08(d)............................. 544,356
-----------
2,562,435
-----------
Mortgage--8.3%
250,000 ContiFinancial Corp. 8.125%, 4/01/08............. 162,500
9,746,846 DLJ Commercial Mortgage Corp. .897%, 5/10/23(o).. 459,856
9,000,000 DLJ Commercial Mortgage Corp. .851%, 11/12/31(o). 509,040
997,663 GE Capital Mortgage Services, Inc. 6.750%,
11/25/28........................................ 954,015
1,645,555 Green Tree Financial Corp. 7.070%, 9/15/07....... 1,705,207
1,559,513 Mid State Trust VI
7.340%, 7/01/35................................. 1,605,316
472,380 PNC Mortgage Securities Corp. 6.838%, 5/25/28.... 440,494
348,110 PNC Mortgage Securities Corp. 6.750%, 5/25/28.... 322,001
447,502 PNC Mortgage Securities Corp. 6.734%, 7/25/28.... 414,499
1,000,000 PNC Mortgage Securities Corp. 6.500%, 12/25/28... 941,250
450,000 PNC Mortgage Securities Corp. 6.250%, 11/28/28... 420,750
-----------
7,934,928
-----------
Oil & Gas--0.6%
250,000 Bellwether Exploration Co. 10.875%, 4/01/07...... 242,500
150,000 Benton Oil & Gas Co. 11.625%, 5/01/03............ 99,000
250,000 Frontier Oil Corp.
9.125%, 2/15/06................................. 232,500
-----------
574,000
-----------
Paper--0.1%
125,000 Doman Industries, Ltd. 8.750%, 3/15/04........... 96,250
-----------
Petroleum Services--0.1%
250,000 Dailey International, Inc. 9.500%, 2/15/08....... 112,500
-----------
Plastics & Packaging--1.5%
250,000 Anchor Advanced Products, Inc.,
Series B 11.750%, 4/01/04....................... 272,500
150,000 Berry Plastics 12.250%, 4/15/04.................. 157,688
250,000 Huntsman Packaging Corp. 9.125%, 10/01/07........ 248,750
250,000 Indesco International 9.750%, 4/15/08............ 233,750
200,000 Radnor Holdings Corp. 10.000%, 12/01/03.......... 202,000
250,000 Tekni-Plex, Inc. 11.250%, 4/01/07................ 275,937
-----------
1,390,625
-----------
Publishing--0.8%
250,000 Big Flower Press Holdings, Inc. 144A, 8.625%,
12/01/08(d)..................................... 250,937
250,000 Garden State Newspapers, Inc. 8.750%, 10/01/09... 242,187
250,000 Hollinger International 9.250%, 2/01/06.......... 263,437
-----------
756,561
-----------
</TABLE>
See accompanying notes to financial statements.
80
<PAGE>
New England Zenith Fund
(Salomon Brothers Strategic Bond Opportunities Series)
Investments as of December 31, 1998
Bonds & Notes--(Continued)
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
Retail--Food & Drug--0.9%
$ 150,000 Carr-Gottstein Foods Co. 12.000%, 11/15/05....... $ 171,750
250,000 Jitney-Jungle Stores 12.000%, 3/01/06............ 278,125
250,000 NBTY, Inc., Series B,
8.625%, 9/15/07................................. 245,938
125,000 Pueblo Xtra International
9.500%, 8/01/03................................. 119,375
-----------
815,188
-----------
Retail--1.3%
250,000 Advance Stores Co. 10.250%, 4/15/08.............. 253,750
250,000 Cole National Group, Inc. 9.875%, 12/31/06....... 262,500
150,000 Hills Stores Co. 12.500%, 7/01/03................ 105,000
250,000 Musicland Group, Series B 9.875%, 3/15/08........ 245,000
400,000 Staples, Inc. 7.125%, 8/15/07.................... 420,280
-----------
1,286,530
-----------
Services--2.9%
600,000 First Data 6.375%, 12/15/07...................... 634,926
250,000 Intertek Financial plc, Series B 10.250%,
11/01/06........................................ 232,500
250,000 Iron Mountain, Inc. 10.125%, 10/01/06............ 268,750
250,000 Kindercare Learning Centers 9.500%, 2/15/09...... 244,375
250,000 Loomis Fargo & Co. 10.000%, 1/15/04.............. 247,500
250,000 Mail Well Corp. 144A, 8.750%, 12/15/08(d)........ 251,250
250,000 Pierce Leahy Corp. 11.125%, 7/15/06.............. 278,125
250,000 Protection One Alarm, Inc. 144A, 8.125%,
1/15/09(d)...................................... 250,625
400,000 Service Corporation International 6.000%,
12/15/05........................................ 396,192
-----------
2,804,243
-----------
Telecommunications--3.4%
1,020,000 British Telecommunication 7.000%, 5/23/07........ 1,133,730
250,000 Centennial Cellular Corp. 144A, 10.750%,
12/15/08(d)..................................... 251,875
250,000 Comcast Cellular Holdings, Inc. 9.500%, 5/01/07.. 266,875
200,000 GTE Corp. 6.940%, 4/15/28........................ 211,158
275,000 ICG Holdings, Inc.
0/13.500%, 9/15/05(c)........................... 228,250
250,000 Intermedia Communications 8.600%, 6/01/08........ 246,250
350,000 International CableTel, Inc.,
0/11.500%, 2/01/06(c)........................... 281,750
200,000 Nextel Communications, Inc., 0/9.750%,
8/15/04(c)...................................... 194,250
250,000 Nextel Communications, Inc. 0/9.950%, 2/15/08(c). 150,625
250,000 Nextlink Communications, Ltd. 9.000%, 3/15/08.... 236,563
-----------
3,201,326
-----------
Transportation--1.3%
250,000 Atlantic Express Transportation Corp. 10.750%,
2/01/04......................................... 254,375
150,000 Enterprises Shipholding Corp. 8.875%, 5/01/08.... 122,489
200,000 Holt Group, Inc. 144A,
9.750%, 1/15/06(d).............................. 140,000
250,000 Offshore Logistics, Inc. 7.875%, 1/15/08......... 238,750
250,000 Stena AB 10.500%, 12/15/05....................... 254,375
400,000 TFM, S.A. DE CV,
0/11.750%, 6/15/09(c)........................... 216,000
-----------
1,225,989
-----------
U.S. Government--9.6%
200,000 United States Treasury Bonds 6.125%, 11/15/27.... 223,598
91,157 United States Treasury Bonds 3.625%, 4/15/28..... 88,565
700,000 United States Treasury Bonds 5.500%, 8/15/28..... 733,691
2,000,000 United States Treasury Bonds 5.250%, 11/15/28.... 2,048,720
200,000 United States Treasury Notes 6.375%, 3/31/01..... 207,446
500,000 United States Treasury Notes 6.625%, 3/31/02..... 529,000
1,000,000 United States Treasury Notes 5.875%, 9/30/02..... 1,039,400
400,000 United States Treasury Notes 5.625%, 12/31/02.... 413,608
3,200,000 United States Treasury Notes 6.125%, 8/15/07..... 3,503,168
350,000 United States Treasury Notes 4.750%, 11/15/08.... 352,723
-----------
9,139,919
-----------
Total Bonds & Notes
(Identified Cost $94,346,095)................... 93,498,760
-----------
</TABLE>
See accompanying notes to financial statements.
81
<PAGE>
New England Zenith Fund
(Salomon Brothers Strategic Bond Opportunities Series)
Investments as of December 31, 1998
Preferred Stock--0.0%
<TABLE>
<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 Stock
(Identified Cost $300)............................ 300
-----------
Warrant--0.1%
200 In Flight Phone Corp. ............................. 0
2,800 Republic of Argentina.............................. 126,000
-----------
Total Warrant
(Identified Cost $63,000)......................... 126,000
-----------
</TABLE>
Short-Term Investment--13.6%
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
$ 12,975,000 Repurchase agreement with State Street Corp.
dated 12/31/98 at 4.85% to be repurchased at
$12,981,992 on 1/04/1999 collateralized by
$12,240,000 U.S. Treasury Bond 6.25% due
2/15/03 with a value of $13,234,500........... $ 12,975,000
------------
Total Short-Term Investment
(Identified Cost $12,975,000)................. 12,975,000
------------
Total Investments--111.7%
(Identified Cost $107,384,395)(b)............. 106,600,060
Other assets less liabilities.................. (11,150,189)
------------
Total Net Assets--100%......................... $ 95,449,871
============
</TABLE>
Forward Currency Contracts Outstanding at December 31, 1998
<TABLE>
<CAPTION>
Local Aggregate Unrealized
Currency Delivery Currency Face Total Appreciation/
Contract Date Amount Value Value (Depreciation)
<S> <C> <C> <C> <C> <C>
Deutsche Mark
(sold) 02/16/1999 855,517 $512,286 $514,521 $(2,235)
Deutsche Mark
(bought) 02/16/1999 413,250 247,915 248,535 620
Deutsche Mark
(sold) 02/16/1999 366,599 215,901 220,480 (4,579)
Deutsche Mark
(bought) 02/16/1999 690,000 411,412 414,977 3,565
Finnish Markka
(sold) 02/16/1999 1,133,727 223,395 222,873 522
Italian Lira (sold) 02/16/1999 1,196,334,200 723,298 724,764 (1,466)
Swedish Krona
(sold) 02/16/1999 3,364,716 411,412 414,981 (3,569)
European Currency
Unit (sold) 02/16/1999 210,198 247,915 247,213 702
European Currency
Unit (sold) 02/16/1999 159,737 188,649 187,866 783
-------
Net unrealized Depreciation on Forward Currency contracts...... $(5,657)
=======
</TABLE>
(a) See Note 1A of Notes to Financial Statements
(b) Federal Tax Information: At December 31, 1998 the net unrealized
depreciation on investments based on cost of $108,062,531 for federal
income tax purposes was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost............... $ 1,992,369
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value............... (3,454,840)
-----------
Net unrealized depreciation.................................... $(1,462,471)
===========
</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 $4,080,991 or
4.3% of net assets.
(e) Denominated in Italian Lira
(f) Denominated in German Marks
(g) Denominated in Greek Drachma
(h) Denominated in Australian Dollars
(i) Denominated in Danish Krone
(j) Denominated in Swedish Krona
(k) Denominated in Polish Zloty
(l) Denominated in Finnish Markka
(m) Denominated in European Currency
(n) Floating Rate Security. Rate disclosed is as of 12/31/98.
(o) Interest only certificate. This security receives monthly interest
payments but is not entitled to principal payments.
See accompanying notes to financial statements.
82
<PAGE>
New England Zenith Fund
(Salomon Brothers Strategic Bond Opportunities Series)
Statement of Assets & Liabilities
December 31, 1998
<TABLE>
<S> <C> <C>
Assets
Investments at value............................... $106,600,060
Cash............................................... 4,238
Receivable for:
Fund shares sold................................... 481,851
Dividends and interest............................. 1,681,063
Miscellaneous...................................... 5,535
Unamortized organization expense................... 1,679
------------
108,774,426
Liabilities
Payable for:
Securities purchased............................... $12,991,318
Open forward currency
contracts--net.................................... 5,657
Fund shares redeemed............................... 232,551
Withholding taxes.................................. 781
Accrued expenses:
Management fees.................................... 63,641
Deferred trustees' fees............................ 3,191
Other expenses..................................... 27,416
-----------
13,324,555
------------
$ 95,449,871
============
Net Assets
Net Assets consist of:
Capital paid in.................................... $ 98,831,216
Overdistributed net investment income.............. (45,647)
Accumulated net realized gains (losses)............ (2,553,476)
Unrealized appreciation (depreciation) on
investments, forward contracts and foreign
currency.......................................... (782,222)
------------
Net Assets.......................................... $ 95,449,871
============
Computation of offering price:
Net asset value and redemption price per share
($95,449,871 divided by 8,353,715 shares of
beneficial interest)............................... $ 11.43
============
Identified cost of investments...................... $107,384,395
============
</TABLE>
Statement of Operations
Year Ended December 31, 1998
<TABLE>
<S> <C> <C>
Investment Income
Dividends.......................................... $ 5,865(a)
Interest........................................... 6,933,508(b)
-----------
6,939,373
Expenses
Management fees.................................... $ 560,007
Deferred expense
reimbursement..................................... 44,840
Trustees' fees
and expenses...................................... 11,275
Custodian.......................................... 72,068
Audit and tax
services.......................................... 18,717
Legal.............................................. 3,576
Printing........................................... 13,548
Insurance.......................................... 2,614
Amortization of
organization
expenses.......................................... 2,008
Miscellaneous...................................... 3,665
-----------
Total expenses.................................... 732,318
-----------
Net investment
income............................................. 6,207,055
Realized and
Unrealized Gain
(Loss) on
Investments,
Forward Currency
Contracts and
Foreign Currency
Transactions
Realized gain
(loss) on:
Investments--net................................... (2,385,817)
Foreign currency
transactions--
net............................................... (108,006)
-----------
Total realized
gain (loss) on
investments and
foreign
currency
transactions..................................... (2,493,823)
-----------
Unrealized
appreciation
(depreciation)
on:
Investments--net................................... (2,261,287)
Foreign currency
transactions--
net............................................... (68,148)
-----------
Total unrealized
appreciation
(depreciation)
on investments
and foreign
currency
transactions..................................... (2,329,435)
-----------
Net gain (loss) on
investment
transactions....................................... (4,823,258)
-----------
Net Increase
(Decrease) in Net
Assets from
Operations......................................... $ 1,383,797
===========
</TABLE>
(a) Net of foreign taxes of: $1,166
(b) Net of interest expense of $41,959.
See accompanying notes to financial statements.
83
<PAGE>
New England Zenith Fund
(Salomon Brothers Strategic Bond Opportunities Series)
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
From Operations
Net investment income............................. $ 3,981,350 $ 6,207,055
Net realized gain (loss) on investments and
foreign currency transactions.................... 1,004,553 (2,493,823)
Unrealized appreciation (depreciation) on
investments and foreign currency transactions.... 774,518 (2,329,435)
------------ ------------
Increase (decrease) in net assets from operations. 5,760,421 1,383,797
------------ ------------
From Distributions to Shareholders
Net investment income............................. (4,170,493) (6,162,469)
Net realized gain on investments.................. (739,272) (87,409)
In excess of net realized gain on investment...... 0 (137,672)
------------ ------------
(4,909,765) (6,387,550)
------------ ------------
From Capital Shares Transactions
Proceeds from sale of shares...................... 45,476,971 48,659,454
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income.......... 4,170,493 6,162,469
Distributions from net realized gain.............. 739,272 225,081
------------ ------------
50,386,736 55,047,004
Cost of shares redeemed........................... (15,843,098) (25,795,325)
------------ ------------
Increase (decrease) in net assets derived from
capital share transactions....................... 34,543,638 29,251,679
------------ ------------
Total increase (decrease) in net assets........... 35,394,294 24,247,926
Net Assets
Beginning of the year............................. 35,807,651 71,201,945
------------ ------------
End of the year................................... $ 71,201,945 $ 95,449,871
============ ============
Undistributed (overdistributed) Net Investment
Income
Beginning of the year............................. $ 18,251 $ (14,223)
============ ============
End of the year................................... $ (14,223) $ (45,647)
============ ============
Number of Shares of the Fund:
Issued from the sale of shares.................... 3,727,495 3,992,202
Issued in connection with the reinvestment of:
Distributions from net investment income.......... 347,510 540,056
Distributions from net realized gain.............. 61,591 18,721
------------ ------------
4,136,596 4,550,979
Redeemed.......................................... (1,291,407) (2,123,814)
------------ ------------
Net change........................................ 2,845,189 2,427,165
============ ============
</TABLE>
Financial Highlights
<TABLE>
<CAPTION>
October 31, 1994(a)
through Year Year Year Year
December 31, Ended Ended Ended Ended
1994 1995 1996 1997 1998
------------------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year...... $10.00 $ 9.74 $ 10.85 $ 11.62 $ 12.01
------ ------ ------- ------- -------
Income From Investment
Operations
Net Investment Income.. 0.12 0.58 0.51 0.75 0.80
Net Realized and
Unrealized Gain (Loss)
on Investments........ (0.26) 1.30 1.05 0.54 (0.56)
------ ------ ------- ------- -------
Total From Investment
Operations............ (0.14) 1.88 1.56 1.29 0.24
------ ------ ------- ------- -------
Less Distributions
Distributions From Net
Investment Income..... (0.12) (0.55) (0.60) (0.76) (0.79)
Distributions From Net
Realized Capital
Gains................. 0.00 (0.22) (0.19) (0.14) (0.02)
Distributions in excess
of Net Realized
Capital Gains......... -- -- -- -- (0.01)
------ ------ ------- ------- -------
Total Distributions.... (0.12) (0.77) (0.79) (0.90) (0.82)
------ ------ ------- ------- -------
Net Asset Value, End of
Year................... $ 9.74 $10.85 $ 11.62 $ 12.01 $ 11.43
====== ====== ======= ======= =======
Total Return (%)........ (1.4)(b) 19.4 14.4 11.1 2.0
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.85 (c) 0.85 0.85 0.85 0.85
Ratio of Net Investment
Income to Average Net
Assets (%)............. 7.05 (c) 8.39 7.79 7.32 7.20
Portfolio Turnover Rate
(%).................... 403 (c) 202 176 258 283
Net Assets, End of Year
(000).................. $3,450 $9,484 $35,808 $71,202 $95,450
The ratios of expenses
to average net assets
without giving effect
to the voluntary
expense agreement
described in Note 4 to
the Financial
Statements would have
been (%)............... 2.01 (c) 2.44 1.19 0.87 --
</TABLE>
(a) Commencement of operations.
(b) Not computed on an annualized basis.
(c) Computed on an annualized basis.
See accompanying notes to financial statements.
84
<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. Please tell us about Bond Income Series' performance during 1998.
A. We're proud of the Series performance. The Series continued its record of
providing consistently solid returns despite investment conditions that fa-
vored the safest financial instruments--U.S. Treasuries--instead of corporate
bonds, the Series chief investment. The Series ended the year with a total re-
turn of 9.0% (based on net asset value). This compares favorably to the Lipper
Variable Products "A"-Rated Corporate Bond Fund Average/6/ return of 8.1%, and
the Lehman Intermediate Government/Corporate/5/ composite return of 8.4%.
Q. What was the investment environment throughout the past year?
A. Positive economic expectations and the accompanying fear of renewed infla-
tion brought lower bond prices early in the year. The belief that Asia's eco-
nomic turmoil was largely spent suggested better business conditions for U.S.
exporters and possible upward pressure on prices, a combination that could
prompt the Federal Reserve Board to raise interest rates--usually a negative
for bonds. (Generally, bond prices and interest rates move in opposite direc-
tions.) Later, it became clear that Asia's financial crisis was unlikely to
end soon, removing a possible stimulus for U.S. business conditions; bond
prices rose and yields fell. But bond buyers' confidence vanished abruptly
when Russia stunned the investment world by failing to repay debt that had
come due to several foreign governments--the bottom dropped out of most fixed-
income markets during the third quarter.
By August, market liquidity--the willingness of buyers to purchase bonds that
were offered for sale--had dried up across nearly the entire quality spectrum.
Concern was widespread that other countries, including Brazil, a linchpin to
all South American economies, might follow Russia's lead and fail to make good
on their sovereign obligations (government bonds). Worried investors shunned
all but the most-respected securities--those of the U.S. government. The
flight to quality left other bond market segments adrift, all but closed off
the ability of companies to raise needed cash through the issuance of new
bonds and sent the high yield bond market into a tailspin. Adding to investor
anxiety, the well publicized troubles of some large hedge funds raised fears
of further deterioration in the credit markets. In fact, in August, corporate
bonds generally experienced their worst one-month performance ever in a non-
recessionary period. Spreads between government and corporate issues--that is,
the difference in their yields--reached levels previously seen only during re-
cessions.
When a one quarter percentage point cut in interest rates by the Federal Re-
serve Board failed to bolster market psychology, a second, similar, cut
quickly followed, producing the desired impact. The Federal Reserve Board then
cut rates a third time, signaling to investors that it was determined not to
allow the U.S. economy to slide into an Asia-driven recession.
Investors returned to the better quality corporate sectors, restoring some
sense of balance and liquidity to the bond markets. During the last part of
1998, rates moved back up modestly, as continued low unemployment and other
economic indicators showed a still-expanding U.S. economy.
Q. Given this environment, what was your investment strategy during 1998?
A. In the first half of the year, we reduced exposure to high yield, lower-
grade issues and to securities that might be tainted by global turmoil. We
eliminated emerging market debt as well as obligations tied to Asian economies
with dubious recovery prospects, and added positions in the domestic utili-
ties--especially telecommunications and electric companies--whose fortunes are
not tightly tied to economic cycles. For similar reasons we increased holdings
in cable and media issues. Finally, taking a longer term view, we backed off
slowly on U.S. government holdings because of their low yields--even those
(from a short-term perspective) that tend to be issues that hold their value
best in an unsettled environment.
Throughout this volatile period in the fixed income market, there was a steady
flow of new money into the Series. We used this cash to add to existing posi-
tions in our favored sectors-- utilities, telecommunications and cable/media
companies-- where prices had been dragged down by market forces unrelated to
business fundamentals of individual securities.
At year-end we held some bonds that were below investment grade--rated below
Baa/BBB by Moody's or Standard & Poor's. In this category, we limit our com-
mitment to issues with the potential for ratings upgrades; if our analysis is
correct and upgrades result, these bonds could experience sharp rises in
price.
85
<PAGE>
Q. What were the principal factors affecting performance?
A. The Series benefited from the decision to increase holding in utilities and
cable/media industries, as those positions recovered smartly from their lows
earlier in the year. Our commitment to Canadian issues hurt results, however,
because of weakness in the Canadian dollar, which fell victim to depressed
world commodity prices. Among individual issues, the bonds of Telecommunica-
tions, Inc. and of Time Warner rose when they were upgraded by the major rat-
ings services. Holdings in Newscorp., the giant Australian media conglomerate,
fell but we remained invested. By the end of the year, this holding had recov-
ered some of its decline.
Q. What is your current outlook for the bond market and the Series?
A. As 1999 opens, we do not expect a recession in the American economy. Gross
Domestic Product should grow modestly this year, perhaps in the range of 1.5%,
a slower rate of expansion than last year. We are generally optimistic about
interest rates; the slower economic growth we anticipate should give the Fed-
eral Reserve Board no cause to raise short-term interest rates. Long-term
rates, as measured by the 30-year Treasury bond should remain fairly stable be-
tween 4 3/4 and 5 1/4%. The possibility of meaningful reforms in Brazil and
other troubled overseas economies could also ease investor concerns.
In late 1998, there were signs of inventory build-up in many sectors of the
economy, suggesting a manufacturing slowdown in the first half of the year and
accounting in part for our slow-growth forecast. A small acceleration in GDP
growth is possible later in the year, as companies rebuild depleted stock piles
of goods.
We continue to be cautious about bond markets because there are still many
imponderables overseas. The Series' duration--its sensitivity to interest rate
changes--was at around six years at the end of 1998, equivalent to an average
maturity of just under ten years. This bullish positioning reflects our view
that interest rates will be confined to a narrow range for some time. As we be-
gin 1999, we will continue to allocate the Series' cash inflows to existing
holdings and sectors as opportunities pre-sent themselves. Our emphasis will
remain on better quality U.S. corporate debt, which we believe offers the best
combination of yield and price performance for the Series shareholders.
86
<PAGE>
[CHART APPEARS HERE]
Date Bond Income Series Lehman Gov't/corp Lehman Cost of Living
---- ------------------ ----------------- ---------------------
12/31/88 $10,000 $10,000 $10,000
12/31/89 $11,230 $11,277 $10,465
12/31/90 $12,138 $12,311 $11,104
12/31/91 $14,318 $14,112 $11,444
12/31/92 $15,489 $15,124 $11,776
12/31/93 $17,442 $16,452 $12,100
12/31/94 $16,855 $16,134 $12,423
12/31/95 $20,428 $18,605 $12,739
12/31/96 $21,370 $19,360 $13,162
12/31/97 $23,699 $20,884 $13,386
12/31/98 $25,840 $22,642 $13,610
Average Annual Total Return
Lipper Variable
Lehman Intermediate A-Rated Corp.
Bond Income Government Corp. COL/1/ Bond Fund Avg./6/
1 year 9.0% 8.4% 1.6% 8.1%
3 years 8.1 6.8 2.2 6.6
5 years 8.2 6.6 2.4 6.7
10 years 10.0 8.5 3.1 9.8
Since Inception 10.4 9.5 3.2 n/a
- --------------------------------------------------------------------------------
[GRAPHIC APPEARS HERE] Fund Facts
Back Bay Advisors Bond Income Series
Goal: A high level of current income consistent with the protection of capital
and moderate investment risk.
Start date: August 26, 1983
Size: $268 million as of December 31, 1998
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.
87
<PAGE>
New England Zenith Fund
(Back Bay Advisors Bond Income Series)
Investments as of December 31, 1998
Bonds & Notes--97.0% of Total Net Assets
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
Aerospace--1.9%
$ 4,700,000 Lockheed Martin Corp., 7.250%, 5/15/2006.......... $ 5,088,408
------------
Business Services--1.2%
3,000,000 Equifax, Inc., 6.900%, 7/01/2028.................. 3,116,220
------------
Containers--1.0%
1,500,000 Owens-Illinois, Inc., 7.150%, 5/15/2005........... 1,522,695
1,000,000 Owens-Illinois, Inc., 8.100%, 5/15/2007........... 1,073,810
------------
2,596,505
------------
Electric Utilities--8.9%
5,800,000 Arizona Public Service Corp., 8.000%, 12/30/2015.. 6,705,728
1,000,000 BVPS II Funding Corp., 8.680%, 6/01/2017.......... 1,159,330
2,000,000 BVPS II Funding Corp., 8.890%, 6/01/2017.......... 2,394,700
3,000,000 CalEnergy, Inc.,
9.500%, 9/15/2006................................ 3,330,000
1,000,000 CalEnergy, Inc.,
7.630%, 10/15/2007............................... 1,067,630
4,000,000 CalEnergy, Inc.,
7.520%, 9/15/2008................................ 4,201,400
2,878,000 EIP Funding Corp., 10.250%, 10/01/2012............ 3,436,562
1,500,000 Public Service Co. of New Mexico, 7.100%,
8/01/2005........................................ 1,513,950
------------
23,809,300
------------
Federal Agencies--4.5%
22,554 Federal Home Loan Bank,
9.000%, with various maturities to 2001.......... 22,761
5,796,434 Government National Mortgage Association, 7.000%
with various maturities to 2025.................. 5,932,245
4,645,547 Government National Mortgage Association, 7.500%
with various maturities to 2025.................. 4,791,845
1,147,622 Government National Mortgage Association, 8.500%
with various maturities to 2022.................. 1,223,163
142,620 Government National Mortgage Association, 9.000%,
10/15/2016....................................... 153,144
------------
12,123,158
------------
Finance & Banking--13.6%
2,000,000 American General Financing, 5.750%, 11/01/2003.... 2,008,980
7,180,000 American General Financing, 8.450%, 10/15/2009.... 8,591,803
5,660,000 Associates Corporation of North America, 8.550%,
7/15/2009........................................ 6,848,317
2,500,000 Associates Corporation of North America, 7.950%,
2/15/2010........................................ 2,913,075
7,645,000 BB & T Corp., 6.375%, 6/30/2005................... 7,846,446
4,800,000 NCNB Corp., 9.375%, 9/15/2009..................... 6,086,064
1,800,000 Pitney Bowes Credit Corp., 8.550%, 9/15/2009...... 2,240,766
------------
36,535,451
------------
Foreign--5.0%
10,900,000 Government of Canada, 7.250%, 6/01/2007 (CAD)..... 8,281,433
2,000,000 Government of Canada, 5.250%, 11/05/2008.......... 2,012,060
4,500,000 Province of British Columbia, 7.750%, 6/16/2003
(CAD)............................................ 3,259,372
------------
13,552,865
------------
Media & Entertainment--7.8%
3,100,000 Continental Cablevision, Inc.,
9.500%, 8/01/2013................................ 3,661,906
2,000,000 CSC Holdings, Inc., 7.875%, 12/15/2007............ 2,114,720
5,500,000 News America Holdings, Inc., 8.250%, 8/10/2018.... 6,252,015
1,800,000 News America Holdings, Inc., 7.750%, 2/01/2024.... 1,951,596
600,000 Time Warner, Inc., 9.150%, 2/01/2023.............. 784,962
500,000 Tele-Communications, Inc., 9.800%, 2/01/2012...... 667,660
2,935,000 Tele-Communications, Inc., 9.250%, 1/15/2023...... 3,341,879
2,150,000 USA Networks, Inc., 6.750%, 11/15/2005............ 2,150,924
------------
20,925,662
------------
Paper--1.1%
1,500,000 Abitibi-Consolidated, Inc., 6.950%, 4/01/2008..... 1,460,040
482,730 Fort Howard Trust, 11.000%, 1/02/2002............. 482,730
1,000,000 Pope and Talbot, Inc., 8.375%, 6/01/2013.......... 921,320
------------
2,864,090
------------
</TABLE>
See accompanying notes to financial statements.
88
<PAGE>
New England Zenith Fund
(Back Bay Advisors Bond Income Series)
Investments as of December 31, 1998
Bonds & Notes--(Continued)
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
Retail--1.7%
$ 450,000 Safeway, Inc.,
6.050%, 11/15/2003............................... $ 455,422
4,000,000 Bear Stearns Cos., Inc., 6.200%, 3/30/2003........ 4,035,000
------------
4,490,422
------------
Securities--1.5%
3,750,000 Fred Meyer, Inc.,
7.375%, 3/01/2005................................ 3,974,100
------------
Telecommunications--15.4%
4,300,000 AT&T Corp., 8.350%, 1/15/2025..................... 4,916,792
5,000,000 AT&T Corp., 8.625%, 12/01/2031.................... 5,594,450
1,000,000 GTE Corp., 9.100%, 6/01/2003...................... 1,137,320
1,200,000 GTE Corp., 7.510%, 4/01/2009...................... 1,374,576
4,800,000 GTE Corp., 7.900%, 2/01/2027...................... 5,340,048
3,500,000 GTE South, Inc.,
6.125%, 6/15/2007................................ 3,634,050
6,500,000 LCI International, Inc., 7.250%, 6/15/2007........ 6,693,570
1,186,000 Qwest Communications International, Inc., 10.875%,
4/01/2007........................................ 1,366,865
2,000,000 Qwest Communications International, Inc., 7.500%,
11/01/2008....................................... 2,092,500
4,900,000 Sprint Capital Corp., 5.700%, 11/15/2003.......... 4,897,550
3,761,000 WorldCom, Inc.,
8.875%, 1/15/2006................................ 4,098,437
------------
41,146,158
------------
U.S. Government--14.1%
2,400,000 U.S. Treasury Bonds, 5.500%, 8/15/2028............ 2,512,128
9,000,000 U.S. Treasury Notes, 8.500%, 11/15/2000........... 9,618,660
2,500,000 U.S. Treasury Notes, 8.000%, 5/15/2001............ 2,687,400
10,000,000 U.S. Treasury Notes, 6.625%, 3/31/2002............ 10,580,000
6,000,000 U.S. Treasury Notes, 5.750%, 4/30/2003............ 6,245,700
3,000,000 U.S. Treasury Notes, 5.750%, 8/15/2003............ 3,134,190
3,000,000 U.S. Treasury Notes, 4.750%, 11/15/2008........... 3,023,340
------------
37,801,418
------------
Utilities--1.3%
600,000 Gulf CDA Resource's, Ltd., 8.350%, 8/01/2006...... 598,284
3,000,000 United Utilities PLC, 6.250%, 8/15/2005........... 3,028,800
------------
3,627,084
------------
Yankee--18.0%
1,000,000 Bridas Co., 12.500%, 6/10/2003.................... 1,050,000
3,600,000 Freeport Term Malta PLC, 144A, 7.250%, 5/15/2028.. 3,715,632
9,500,000 Hydro Quebec,
8.050%, 7/07/2024................................ 11,554,565
6,000,000 Merita Bank, Ltd., 7.500%, 12/29/2049............. 6,046,500
2,500,000 Multicanal S.A.,
9.250%, 2/01/2002................................ 2,300,000
615,000 Multicanal S.A., 10.500%, 4/15/2018............... 522,750
1,000,000 Pemex Finance, 5.720%, 11/15/2003................. 1,000,000
2,000,000 Pemex Finance,
8.020%, 5/15/2007................................ 2,000,000
500,000 Pemex Petroleos Mexicanos, 8.625%, 12/01/2023..... 382,500
2,500,000 Petroleos Mexicanos, 144A,
8.625%, 12/01/2023............................... 1,912,500
1,000,000 Pioneer Natural Resources Co., 6.500%, 1/15/2008.. 850,440
5,100,000 Smurfit Capital, 6.750%, 11/20/2005............... 5,135,598
2,200,000 Republic of Argentina, 11.000%, 12/04/2005........ 2,183,500
4,090,000 Republic of Columbia, 7.250%, 2/15/2003........... 3,568,525
1,000,000 Republic of Columbia, 7.250%, 2/23/2004........... 852,500
3,000,000 Republic of Columbia, 7.625%, 2/15/2007........... 2,497,500
2,000,000 Republic of Columbia, 8.660%, 10/07/2016.......... 1,767,500
1,000,000 YPF Sociedad Anonima, 7.250%, 3/15/2003........... 940,140
------------
48,280,150
------------
Total Bonds and Notes
(Identified Cost $253,278,531)................... 259,930,991
------------
</TABLE>
See accompanying notes to financial statements.
89
<PAGE>
New England Zenith Fund
(Back Bay Advisors Bond Income Series)
Investments as of December 31, 1998
Warrant--0.1%
<TABLE>
<CAPTION>
Shares Value (a)
<C> <S> <C>
2,200 Republic of Argentina.............................. $ 99,000
------------
Total Warrant
(Identified Cost $49,544)......................... $ 99,000
------------
</TABLE>
Short-Term Investment--1.1%
<TABLE>
<CAPTION>
Face Amount
<C> <S> <C>
$ 2,997,000 Household Finance Corp., 5.000%, 1/04/99.... $ 2,995,751
------------
Total Short-Term Investment
(Identified Cost $2,995,751)............... 2,995,751
------------
Total Investments--98.2%
(Identified Cost $256,323,826)(b).......... 263,025,742
Other assets less liabilities............... 4,764,779
------------
Total Net Assets--100%...................... $267,790,521
============
(a) See Note 1A of Notes to Financial Statements.
(b) Federal Tax Information:
At December 31, 1998 the net unrealized appreciation on investments based
on cost of $256,524,476 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.................................... $ 8,216,054
Aggregate gross unrealized depreciation
for all investments in which there is an excess of tax
cost over value........................................ (1,714,788)
------------
Net unrealized appreciation............................. $ 6,501,266
============
</TABLE>
144A--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 $5,628,132 or 2.1% of net
assets.
CAD--Security denominated in Canadian Dollars
See accompanying notes to financial statements.
90
<PAGE>
New England Zenith Fund
(Back Bay Advisors Bond Income Series)
Statement of Assets & Liabilities
December 31, 1998
<TABLE>
<S> <C> <C>
Assets
Investments at value.................................... $263,025,742
Cash.................................................... 2,034
Receivable for:
Fund shares sold........................................ 907,227
Dividends and interest.................................. 4,386,031
Due from Investment Adviser............................. 22,149
------------
268,343,183
Liabilities
Payable for:
Fund shares redeemed.................................... $385,002
Withholding taxes....................................... 2,606
Accrued expenses:
Management fees......................................... 89,206
Deferred trustees' fees................................. 42,193
Other expenses.......................................... 33,655
--------
552,662
------------
$267,790,521
============
Net Assets
Net Assets consist of:
Capital paid in......................................... $260,537,100
Undistributed net investment income..................... 122,796
Accumulated net realized gains (losses)................. 428,181
Unrealized appreciation (depreciation) on investments
and foreign currency................................... 6,702,444
------------
Net Assets............................................... $267,790,521
============
Computation of offering price:
Net asset value and redemption price per share
($267,790,521 divided by 2,436,936 shares of beneficial
interest)............................................... $ 109.89
============
Identified cost of investments........................... $256,323,826
============
</TABLE>
Statement of Operations
Year Ended December 31, 1998
<TABLE>
<S> <C> <C>
Investment Income
Interest........................................... $16,370,666(a)
-----------
Expenses
Management fees.................................... $ 917,376
Trustees' fees and expenses........................ 20,551
Custodian.......................................... 90,602
Audit and tax services............................. 14,208
Legal.............................................. 15,965
Printing........................................... 28,325
Insurance.......................................... 6,458
Miscellaneous...................................... 4,326
----------
Total expenses.................................... 1,097,811
-----------
Net investment income............................... 15,272,855
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions
Realized gain (loss) on:
Investments--net................................... 4,748,027
Foreign currency transactions--net................. (904,513)
----------
Total realized gain (loss) on investments and
foreign currency transactions.................... 3,843,514
----------
Unrealized appreciation
(depreciation) on:
Investments--net................................... 977,988
Foreign currency transactions--net................. 528
----------
Total unrealized appreciation (depreciation) on
investments and foreign currency transactions.... 978,516
----------
Net gain (loss) on investment transactions.......... 4,822,030
-----------
Net Increase (Decrease) in Net Assets From
Operations......................................... $20,094,885
===========
</TABLE>
(a) Net of foreign taxes of: $2,606.
See accompanying notes to financial statements.
91
<PAGE>
New England Zenith Fund
(Back Bay Advisors Bond Income Series)
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
From Operations
Net investment income............................. $ 13,029,862 $ 15,272,855
Net realized gain (loss) on investments and
foreign currency transactions.................... 1,604,656 3,843,514
Unrealized appreciation (depreciation) on
investments, and foreign currency transactions... 4,839,580 978,516
------------ ------------
Increase (decrease) in net assets from operations. 19,474,098 20,094,885
------------ ------------
From Distributions to Shareholders
Net investment income............................. (13,039,485) (14,982,245)
Net realized gain on investments.................. (1,850,904) (3,901,599)
------------ ------------
(14,890,389) (18,883,844)
------------ ------------
From Capital Shares Transactions
Proceeds from sale of shares...................... 54,067,705 107,261,482
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income.......... 13,039,485 14,982,245
Distributions from net realized gain.............. 1,850,904 3,901,599
------------ ------------
68,958,094 126,145,326
Cost of shares redeemed........................... (51,012,776) (62,453,829)
------------ ------------
Increase (decrease) in net assets derived from
capital share transactions....................... 17,945,318 63,691,497
------------ ------------
Total increase (decrease) in net assets........... 22,529,027 64,902,538
Net Assets
Beginning of the year............................. 180,358,956 202,887,983
------------ ------------
End of the year................................... $202,887,983 $267,790,521
============ ============
Undistributed (overdistributed) Net Investment
Income
Beginning of the year............................. $ 146,994 $ (939)
============ ============
End of the year................................... $ (939) $ 122,796
============ ============
Number of Shares of the Fund:
Issued from the sale of shares.................... 489,276 947,129
Issued in connection with the reinvestment of:
Distributions from net investment income.......... 120,361 136,974
Distributions from net realized gain.............. 16,902 35,568
------------ ------------
626,539 1,119,671
Redeemed.......................................... (464,412) (552,385)
------------ ------------
Net change........................................ 162,127 567,286
============ ============
</TABLE>
Financial Highlights
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year........................ $ 106.14 $ 95.53 $ 108.67 $ 105.63 $ 108.52
-------- -------- -------- -------- --------
Income From Investment
Operations
Net Investment Income....... 7.05 7.34 7.72 7.43 6.76
Net Realized and Unrealized
Gain (Loss) on Investments. (10.61) 12.85 (2.70) 4.05 3.00
-------- -------- -------- -------- --------
Total From Investment
Operations................. (3.56) 20.19 5.02 11.48 9.76
-------- -------- -------- -------- --------
Less Distributions
Distributions From Net
Investment Income.......... (7.05) (7.05) (7.74) (7.51) (6.64)
Distributions From Net
Realized Capital Gains..... 0.00 0.00 (0.32) (1.08) (1.75)
-------- -------- -------- -------- --------
Total Distributions......... (7.05) (7.05) (8.06) (8.59) (8.39)
-------- -------- -------- -------- --------
Net Asset Value, End of Year. $ 95.53 $ 108.67 $ 105.63 $ 108.52 $ 109.89
======== ======== ======== ======== ========
Total Return (%)............. (3.4) 21.2 4.6 10.9 9.0
Ratio of Operating Expenses
to Average Net Assets (%)... 0.44 0.55 0.52 0.52 0.48
Ratio of Net Investment
Income to Average Net Assets
(%)......................... 6.75 7.22 7.22 6.97 6.66
Portfolio Turnover Rate (%).. 82 73 98 40 82
Net Assets, End of Year
(000)....................... $126,234 $162,712 $180,359 $202,888 $267,791
</TABLE>
See accompanying notes to financial statements.
92
<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 in 1998?
A. The Salomon Brothers U.S. Government Series returned 7.5% (based on net as-
set value) for 1998, outperforming in its Lipper Variable Products U.S. Mort-
gage and GNMA Fund Average/17/, which returned 7.3% for 1998. However, the Se-
ries lagged the broader Lehman Brothers Intermediate U.S. Government Index/9/
which returned 8.5% over the year. The Series' performance resulted from its
shift into longer duration bonds and a sizable allocation to Treasuries.
Q. How did you manage the Series during the year?
A. In January, we believed that Asia's economic woes would slow economic growth
in the U.S and push inflation lower. This would enable interest rates, in par-
ticular long term rates, to move modestly lower, pushing bond prices higher. To
take advantage of our expectations for lower interest rates and a flatter yield
curve, we moved the Series at year-end 1997 into a slightly long duration
barbelled position while overweighting discount mortgage securities.
We held this position until mid-August when it became apparent that the global
economy would slow down more than thought previously and the Federal Reserve
Board would ease monetary policy. We strategically reduced the Series' barbell
position by swapping long maturity Treasuries and mortgages into 5-year Trea-
suries. The 5-year area of the Treasury curve often performs best just prior to
a Federal easing cycle, and this time was no exception. To maintain duration,
we sold mortgage securities trading above par and bought discount pass-
throughs.
During the fourth quarter, it became apparent to investors that the global mar-
ket crisis that began mid-1997 had stabilized. A 0.75% cut of the Federal Re-
serve Board Funds Rate restored investor confidence and liquidity in the mar-
kets. The main strategy change in the Series was a reallocation to mortgage
pass-throughs from Treasuries. Presently, 69% of the portfolio consists of
mortgages, up 14% from the end of the third quarter.
Q. What is your outlook for the Series in 1999?
A. After seven years of uninterrupted growth, the U.S. economy faces a period
of slowing expansion and threatened instability. Although key areas of economic
activity remain buoyant, gradual slowing remains a likely scenario for 1999.
The Federal Reserve Board will probably condition further easing on renewed in-
tensification of financial stress or evidence that demand pressures are reced-
ing.
We expect interest rates to generally move lower in the first few months of the
year, followed by a gradual rise through the end of 1999. With the expectation
of further Federal Reserve Board easing, we look for the yield curve to steep-
en. As such, long-term bonds may stabilize in a range centered on 5% as long-
term inflation expectations fall.
93
<PAGE>
[GRAPH APPEARS HERE]
Date Salomon US Gov't Lehman Intermediate Government
---- ---------------- ------------------------------
10/31/94 $10,000 $10,000
12/31/94 $10,060 $9,989
12/31/95 $11,571 $11,430
12/31/96 $11,955 $11,894
12/31/97 $12,979 $12,832
12/31/98 $13,953 $13,924
Average Annual Total Return
Lehman Lipper Variable
US Government Intermediate US Mortgage
Series US Government/4/ and GNMA/17/
1 year 7.5% 8.5% 7.3%
3 years 6.4 6.7 6.7
Since Inception 8.3 8.2 n/a
- --------------------------------------------------------------------------------
[GRAPHIC APPEARS HERE] 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: $46 million as of December 31, 1998
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.
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
(Salomon Brothers U.S. Government Series)
Investments as of December 31, 1998
Bonds & Notes--90.5% of Total Net Assets
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
Federal Agency--71.8%
$ 300,000 Federal Home Loan Banks 5.940%, 6/13/00............... $ 304,323
1,000,000 Federal Home Loan Banks 5.800%, 9/02/08............... 1,033,520
198,431 Federal Home Loan Mortgage 7.500%, 5/01/07............ 204,384
16,430 Federal Home Loan Mortgage 6.000%, 10/01/10........... 16,502
312,848 Federal Home Loan Mortgage 7.000%, 7/01/11............ 319,887
49,113 Federal Home Loan Mortgage 11.750%, 1/01/12........... 55,820
474,293 Federal Home Loan Mortgage 6.500%, 8/01/13............ 481,256
750,000 Federal Home Loan Mortgage 10.000%, 3/01/16........... 815,625
258,593 Federal Home Loan Mortgage 8.250%, 4/01/17............ 270,928
150,337 Federal Home Loan Mortgage 9.000%, 10/01/17........... 158,934
325,179 Federal Home Loan Mortgage 8.000%, 12/01/19........... 336,765
344,956 Federal Home Loan Mortgage 10.500%, 6/01/20........... 382,180
758,973 Federal Home Loan Mortgage 8.000%, 7/01/20............ 795,563
900,000 Federal Home Loan Mortgage 6.247%, 3/25/21............ 929,250
215,287 Federal Home Loan Mortgage 7.000%, 4/15/21............ 217,640
57,813 Federal Home Loan Mortgage 6.500%, 5/01/26............ 58,283
55,047 Federal Home Loan Mortgage 6.500%, 6/01/26............ 55,495
790,914 Federal Home Loan Mortgage 6.500%, 7/01/26............ 797,345
1,347,375 Federal Home Loan Mortgage 6.000%, 10/01/28........... 1,330,951
2,692,620 Federal Home Loan Mortgage 6.000%, 11/01/28........... 2,659,797
3,000,000 Federal Home Loan Mortgage 6.000%, TBA................ 2,963,430
194,107 Federal National Mortgage Association 6.500%, 6/01/08. 196,924
913,455 Federal National Mortgage Association 6.500%, 4/01/13. 926,300
628,108 Federal National Mortgage Association 6.500%, 7/01/13. 636,940
18,133 Federal National Mortgage Association 14.500%,
11/01/14............................................. 21,929
53,602 Federal National Mortgage Association 12.500%,
9/01/15.............................................. 62,714
430,255 Federal National Mortgage Association 12.000%,
10/01/15............................................. 487,139
57,203 Federal National Mortgage Association 13.000%,
11/01/14............................................. 68,214
257,468 Federal National Mortgage Association 12.500%,
1/01/16.............................................. 301,237
26,538 Federal National Mortgage Association 12.000%,
1/01/16.............................................. 30,917
16,950 Federal National Mortgage Association 11.500%,
9/01/19.............................................. 19,408
334,626 Federal National Mortgage Association 6.500%,
3/01/26.............................................. 336,925
1,387,912 Federal National Mortgage Association 6.911%,
12/28/28............................................. 1,401,791
4,400,000 Federal National Mortgage Association 6.500%, TBA..... 4,428,864
3,150,000 Federal National Mortgage Association 7.000%, TBA..... 3,213,000
4,750,000 Federal National Mortgage Association 6.000%, TBA..... 4,687,632
800,000 Federal National Mortgage Association 6.527%,
5/25/30.............................................. 830,000
104,610 Government National Mortgage Association 9.000%,
10/20/16............................................. 111,571
219,790 Government National Mortgage Association 9.000%,
12/15/16............................................. 234,500
300,000 Student Loan Marketing Association 7.500%, 3/08/00.... 308,826
396,727 U.S. Department of Veteran Affairs 7.250%, 10/15/10... 396,973
-----------
32,889,682
-----------
U. S. Treasury--18.7%
100,000 U.S. Treasury Bonds 6.375%, 8/15/27................... 114,937
200,000 U.S. Treasury Bonds 5.250%, 11/15/28.................. 204,750
1,500,000 U.S. Treasury Notes 4.500%, 9/30/00................... 1,497,930
200,000 U.S. Treasury Notes 6.500%, 5/31/01................... 208,544
250,000 U.S. Treasury Notes 5.625%, 12/31/02.................. 258,505
600,000 U.S. Treasury Notes 5.750%, 4/30/03................... 624,570
1,400,000 U.S. Treasury Notes 6.625%, 5/15/07................... 1,578,276
850,000 U.S. Treasury Notes 6.125%, 8/15/07................... 930,529
1,050,000 U.S. Treasury Notes 5.625%, 5/15/08................... 1,120,381
2,000,000 U.S. Treasury Notes 4.750%, 11/15/08(c)............... 2,015,560
-----------
8,553,982
-----------
Total Bonds & Notes
(Identified Cost $41,040,840)........................ 41,443,664
-----------
</TABLE>
See accompanying notes to financial statements.
95
<PAGE>
New England Zenith Fund
(Salomon Brothers U.S. Government Series)
Investments as of December 31, 1998
Short-Term Investments--46.7%
<TABLE>
<CAPTION>
Face
Amount Value (a)
<C> <S> <C>
$5,406,000 Repurchase agreement with J.P. Morgan dated
12/31/1998 at 4.68% to be repurchased at
$5,408,811 on 1/04/1999 collateralized by
$4,525,000 U.S. Treasury Bond 6.75% due 8/15/26
with a value of $5,514,844........................ $ 5,406,000
7,000,000 Repurchase agreement with State Street Corp. dated
12/31/1998 at 4.85% to be repurchased at
$7,003,772 on 1/04/1999 collateralized by
$6,605,000 U.S. Treasury Note 6.25% due 2/15/2003
with a value of $7,141,656........................ 7,000,000
7,000,000 Repurchase agreement with Warburg Dillon Reed LLC
dated 12/31/1998 at 4.75% to be repurchased at
$7,003,694 on 1/04/1999 collateralized by
$6,123,000 U.S. Treasury Bond 6.375% due 8/15/2027
with a value of $7,140,949........................ 7,000,000
2,000,000 Safeway, Inc. 6.000%, 1/06/1999.................... 1,998,333
------------
Total Short-Term Investments
(Identified Cost $21,404,333)..................... 21,404,333
------------
Total Investments--137.2%
(Identified Cost $62,445,173)(b).................. 62,847,997
Other assets less liabilities...................... (17,041,430)
------------
Total Net Assets--100%............................. $ 45,806,567
============
</TABLE>
(a) See Note 1A of Notes to Financial Statements.
(b) Federal Tax Information:
At December 31, 1998 the net unrealized appreciation on investments based on
cost of $62,452,564 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................. $466,355
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value................. (70,922)
--------
Net unrealized appreciation...................................... $395,433
========
</TABLE>
(c) Portion of or entire principal amount delivered as collateral for reverse
repurchase agreement.
See accompanying notes to financial statements.
96
<PAGE>
New England Zenith Fund
(Salomon Brothers U.S. Government Series)
Statement of Assets & Liabilities
December 31, 1998
<TABLE>
<S> <C> <C>
Assets
Investments at value.................................. $62,847,997
Receivable for:
Fund shares sold...................................... 276,465
Dividends and interest................................ 286,764
Unamortized organization expense...................... 1,679
-----------
63,412,905
Liabilities
Payable for:
Securities purchased.................................. $15,288,316
Reverse repurchase agreements......................... 2,022,500
Fund shares redeemed.................................. 250,164
Due to custodial bank................................. 7,507
Accrued expenses:
Management fees....................................... 21,245
Deferred trustees' fees............................... 2,934
Other expenses........................................ 13,672
-----------
17,606,338
-----------
$45,806,567
===========
Net Assets
Net Assets consist of:
Capital paid in....................................... $45,289,221
Undistributed net investment income................... 16,486
Accumulated net realized gains (losses)............... 98,036
Unrealized appreciation (depreciation) on investments. 402,824
-----------
Net Assets............................................. $45,806,567
===========
Computation of offering price:
Net asset value and redemption price per share
($45,806,567 divided by 3,993,162 shares of beneficial
interest)............................................. $ 11.47
===========
Identified cost of investments........................ $62,445,173
===========
</TABLE>
Statement of Operations
Year Ended December 31, 1998
<TABLE>
<S> <C> <C>
Investment Income
Interest.............................................. $1,969,168(a)
----------
Expenses
Management fees....................................... $169,287
Trustees' fees and expenses........................... 9,067
Custodian............................................. 28,689
Audit and tax services................................ 17,618
Legal................................................. 915
Printing.............................................. 5,297
Insurance............................................. 969
Amortization of organization expenses................. 2,008
Miscellaneous......................................... 3,391
--------
Total expenses....................................... 237,241
Less expenses assumed by the investment adviser...... (21,784) 215,457
-------- ----------
Net investment income.................................. 1,753,711
Realized and Unrealized Gain (Loss) on Investments
Realized gain (loss) on:
Investments--net...................................... 273,855
Unrealized appreciation (depreciation) on:
Investments--net...................................... 196,244
----------
Net gain (loss) on investment transactions............. 470,099
----------
Net Increase (decrease) in Net Assets from Operations.. $2,223,810
==========
</TABLE>
(a) Net of interest expense of $26,668.
See accompanying notes to financial statements.
97
<PAGE>
New England Zenith Fund
(Salomon Brothers U.S. Government Series)
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
From Operations
Net investment income.............................. $ 1,083,527 $ 1,753,711
Net realized gain (loss) on investments............ 78,575 273,855
Unrealized appreciation (depreciation) on
investments....................................... 227,116 196,244
----------- ------------
Increase (decrease) in net assets from operations.. 1,389,218 2,223,810
----------- ------------
From Distributions to Shareholders
Net investment income.............................. (1,038,280) (1,671,941)
Net realized gain on investments................... (154,231) (240,092)
----------- ------------
(1,192,511) (1,912,033)
----------- ------------
From Capital Shares Transactions
Proceeds from sale of shares....................... 14,986,752 35,229,571
Net asset value of shares issued in connection with
the reinvestment of:
Distributions from net investment income........... 1,038,280 1,671,941
Distributions from net realized gain............... 154,231 240,092
----------- ------------
16,179,263 37,141,604
Cost of shares redeemed............................ (7,443,287) (13,790,161)
----------- ------------
Increase (decrease) in net assets derived from
capital share transactions........................ 8,735,976 23,351,443
----------- ------------
Total increase (decrease) in net assets............ 8,932,683 23,663,220
Net Assets
Beginning of the year.............................. 13,210,664 22,143,347
----------- ------------
End of the year.................................... $22,143,347 $ 45,806,567
=========== ============
Undistributed Net Investment Income
Beginning of the year.............................. $ 6,776 $ 0
=========== ============
End of the year.................................... $ 0 $ 16,486
=========== ============
Number of Shares of the Fund:
Issued from the sale of shares..................... 1,328,315 3,026,984
Issued in connection with the reinvestment of:
Distributions from net investment income........... 93,361 146,131
Distributions from net realized gain............... 13,834 20,987
----------- ------------
1,435,510 3,194,102
Redeemed........................................... (666,852) (1,189,557)
----------- ------------
Net change......................................... 768,658 2,004,545
=========== ============
</TABLE>
Financial Highlights
<TABLE>
<CAPTION>
October 31, 1994(a)
through Year Year Year Year
December 31, Ended Ended Ended Ended
1994 1995 1996 1997 1998
------------------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year...... $10.00 $ 9.96 $ 11.04 $ 10.83 $ 11.14
------ ------ ------- ------- -------
Income From Investment
Operations
Net Investment Income.. 0.10 0.33 0.58 0.53 0.47
Net Realized and
Unrealized Gain (Loss)
on Investments........ (0.04) 1.16 (0.21) 0.40 0.37
------ ------ ------- ------- -------
Total From Investment
Operations............ 0.06 1.49 0.37 0.93 0.84
------ ------ ------- ------- -------
Less Distributions
Distributions From Net
Investment Income..... (0.10) (0.33) (0.56) (0.53) (0.45)
Distributions From Net
Realized Capital
Gains................. 0.00 (0.08) (0.02) (0.05) (0.06)
Distributions in Excess
of Net Realized
Capital Gains......... 0.00 0.00 0.00 (0.04) 0.00
------ ------ ------- ------- -------
Total Distributions.... (0.10) (0.41) (0.58) (0.62) (0.51)
------ ------ ------- ------- -------
Net Asset Value, End of
Year................... $ 9.96 $11.04 $ 10.83 $ 11.14 $ 11.47
====== ====== ======= ======= =======
Total Return (%)........ 0.6(b) 15.0 3.3 8.6 7.5
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.70(c) 0.70 0.70 0.70 0.70
Ratio of Net Investment
Income to Average Net
Assets (%)............. 5.70(c) 5.62 6.13 6.42 5.70
Portfolio Turnover Rate
(%).................... 1,409(c) 415 388 572 496
Net Assets, End of Year
(000).................. $2,012 $7,542 $13,211 $22,143 $45,807
The ratios of expenses
to average net assets
without giving effect
to the voluntary
expense agreement
described in Note 4 to
the Financial
Statements would have
been (%)............... 2.54(c) 2.90 1.37 0.98 0.77
</TABLE>
(a) Commencement of operations.
(b) Not computed on an annualized basis.
(c) Computed on an annualized basis.
See accompanying notes to financial statements.
98
<PAGE>
Back Bay Advisors Money Market Series
Portfolio Manager: John Maloney Back Bay Advisors, L.P.
[PHOTO OF JOHN MALONEY APPEARS HERE]
Q. How did the Series perform over the past year?
A. The Series produced a total return of 5.3% (based on net asset value) for
the twelve months ending December 31, 1998 and maintained a constant $100.00*
share price. The Series' return included the reinvestment of $5.13 per share
in income distributions. As of December 31, 1998, Series' seven-day yield was
5.15%.
Q. What was the Fund's investment environment like during the period?
A. The investment environment was excellent for money market investors. In-
vestors benefited from ideal economic conditions, a favorable interest rate
environment and strong demand for safe, liquid investments. During the period,
investor concerns about global economies and the stability of the world's fi-
nancial markets caused a "flight-to-quality" that drove U.S. interest rates to
historic lows. Demand escalated only for those securities considered to have
the highest degree of safety and liquidity, typically U.S. Treasuries. To en-
courage economic growth, the Federal Reserve Board cut the Federal Funds rate
three times in the fall of 1998--from 5 1/2% to 4 3/4%. The federal funds rate
is the rate at which banks lend to each other overnight and is the benchmark
for other short-term interest rates.
With this background, money market investments generated solid returns that
were particularly attractive in light of their price stability. On average,
money market funds returned about 50% of the average total return of all long-
term bond funds and about 75% of the average total return of all intermediate-
term bond funds followed by Lipper, Inc. in 1998.
Q. What strategies did you use in managing the Fund?
A. We invested in securities with longer maturities in the early part of the
period because they offered an attractive yield advantage over securities with
shorter maturities. Throughout the entire period, we maintained a fairly long
average maturity --60-75 days--, which enhanced the Series' return as interest
rates fell. As of December 31, 1998, the Fund's average maturity was 58 days.
Q. What is your outlook for short-term interest rates over the next six
months?
A. We think short-term interest rates could move somewhat lower--perhaps an-
other one-quarter of one percent cut in the federal funds rate. We anticipate
slower U.S. economic growth in 1999, with a slowdown in manufacturing and a
reduction in consumer spending. However, much will depend on developments in
the global situation and the direction of the stock market.
The events of 1998 have underscored the value of money market holdings, which
seek capital preservation and reliable income. In our opinion, a well-rounded
investor portfolio is completed by the safety and liquidity of a money market
investment.
[GRAPHIC APPEARS HERE] Fund Facts
Goal: The highest possible level of current income consistent with the
preservation of capital.
Start date: August 1, 1983
Size: $204 million as of December 31, 1998
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.
99
<PAGE>
New England Zenith Fund
(Back Bay Advisors Money Market Series)
Investments as of December 31, 1998
Investments--98.1% of Total Net Assets
<TABLE>
<CAPTION>
Face Interest Maturity
Value Description Rate Date Value (a)
<C> <S> <C> <C> <C>
Certificates of Deposit--25.3%
$1,000,000 Societe Generale.................. 5.730% 01/06/99 $ 999,953
4,000,000 Credit Suisse..................... 5.740% 01/07/99 3,999,916
1,000,000 Societe Generale New York......... 5.730% 01/07/99 999,976
1,000,000 Swiss Bank New York............... 5.690% 01/07/99 1,000,036
8,000,000 Bank of Nova Scotia............... 5.450% 01/08/99 7,998,959
2,000,000 Rabobank Nederland NV............. 5.430% 01/12/99 1,999,792
1,000,000 Commerzbank AG New York........... 5.460% 01/15/99 1,000,001
2,000,000 Dresdner Bank AG New York......... 5.510% 01/15/99 1,999,903
3,000,000 Societe Generale.................. 5.560% 01/19/99 3,000,113
2,000,000 Canadian Imperial................. 5.550% 02/10/99 2,000,015
1,000,000 Commerzbank AG New York........... 5.545% 02/10/99 1,000,173
2,000,000 Deutsche Bank AG New York......... 5.550% 02/11/99 2,000,433
2,000,000 Commerzbank AG New York........... 5.370% 02/24/99 2,000,613
1,000,000 Royal Bank of Canada.............. 5.645% 03/09/99 999,693
2,500,000 National Westminster Bank plc..... 5.615% 03/19/99 2,498,994
2,000,000 Swiss Bank New York............... 5.635% 03/22/99 1,999,355
1,000,000 Bank of Nova Scotia............... 5.705% 03/31/99 1,001,315
1,000,000 Societe Generale.................. 5.800% 04/01/99 1,001,430
1,000,000 Deutsche Bank AG New York......... 5.730% 04/16/99 1,000,854
2,000,000 Societe Generale.................. 5.760% 04/16/99 2,002,225
1,000,000 Rabobank Nederland NV............. 5.700% 04/20/99 1,001,543
2,000,000 Credit Suisse..................... 5.870% 05/04/99 2,003,719
500,000 Deutsche Bank AG New York......... 5.820% 05/04/99 500,682
1,000,000 Svenska Handelsbanken AB Public... 5.750% 05/04/99 1,001,644
1,000,000 Svenska Handelsbanken............. 5.750% 05/04/99 1,001,723
2,500,000 Svenska Handelsbanken AB Public... 5.790% 05/07/99 2,504,745
1,000,000 National Westminster Bank plc..... 5.655% 07/26/99 1,003,114
1,000,000 National Westminster Bank plc..... 5.655% 07/30/99 1,002,457
1,000,000 Societe Generale.................. 5.710% 08/03/99 1,002,923
------------
Total Certificates of Deposit
(Cost $51,526,299)............... 51,526,299
------------
Commercial Paper--72.8%
Asset Backed--3.9%
500,000 Clipper Receivables Corp. ........ 5.480% 01/13/99 499,087
3,000,000 Clipper Receivables Corp. ........ 5.350% 01/21/99 2,991,083
2,000,000 Clipper Receivables Corp. ........ 5.300% 02/09/99 1,988,517
2,500,000 Clipper Receivables Corp. ........ 5.250% 02/12/99 2,484,687
------------
7,963,374
------------
Automotive--15.9%
500,000 General Motors Acceptance Corp.... 5.350% 01/04/99 499,777
1,500,000 Ford Motor Credit Corp. .......... 5.710% 01/06/99 1,498,810
500,000 Ford Motor Credit Corp. .......... 5.350% 01/08/99 499,480
1,335,000 Ford Motor Credit Corp. .......... 5.480% 01/13/99 1,332,561
460,000 General Motors Acceptance Corp.... 5.330% 01/19/99 458,774
1,010,000 General Motors Acceptance Corp.... 5.060% 01/22/99 1,007,019
2,000,000 General Motors Acceptance Corp.... 5.330% 01/22/99 1,993,782
2,250,000 General Motors Acceptance Corp.... 5.160% 01/27/99 2,241,615
2,000,000 American Honda Finance............ 5.130% 01/29/99 1,992,020
3,000,000 General Motors Acceptance Corp.... 5.000% 02/01/99 2,987,083
3,000,000 PACCAR Financial Corp............. 4.900% 02/03/99 2,986,525
2,000,000 Ford Motor Credit Corp. .......... 5.080% 02/04/99 1,990,404
3,000,000 American Honda Finance............ 5.230% 02/05/99 2,984,746
1,000,000 American Honda Finance............ 5.080% 02/11/99 994,214
2,000,000 American Honda Finance............ 5.070% 02/12/99 1,988,170
</TABLE>
See accompanying notes to financial statements.
100
<PAGE>
New England Zenith Fund
(Back Bay Advisors Money Market Series)
Investments as of December 31, 1998
Investments--(Continued)
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
Face Interest Maturity
Value Description Rate Date Value (a)
<C> <S> <C> <C> <C>
Automotive--(Continued)
$1,000,000 Ford Motor Credit Corp. .......... 5.080% 02/22/99 $ 992,662
3,000,000 Ford Motor Credit Corp. .......... 5.080% 02/23/99 2,977,563
2,500,000 PACCAR Financial Corp............. 5.040% 03/18/99 2,473,400
500,000 PACCAR Financial Corp............. 5.100% 03/25/99 494,121
------------
32,392,726
------------
Banking--10.8%
2,905,000 Deutsche Bank Finance, Inc........ 5.170% 01/05/99 2,903,331
1,000,000 Deutsche Bank Finance, Inc........ 5.220% 01/05/99 999,420
1,970,000 UBS Finance Delaware, Inc......... 5.220% 01/05/99 1,968,857
1,510,000 UBS Finance Delaware, Inc......... 5.250% 01/05/99 1,509,119
400,000 Commerzbank U.S. Finance.......... 5.420% 01/07/99 399,639
2,500,000 Commerzbank U.S. Finance.......... 5.470% 01/11/99 2,496,201
1,000,000 Commerzbank U.S. Finance.......... 5.060% 01/13/99 998,313
5,000,000 Northern Trust Co. ............... 5.700% 01/13/99 4,990,500
1,900,000 Banque National de Paris Canada... 5.220% 02/18/99 1,886,776
1,305,000 Wells Fargo & Co.................. 5.140% 02/25/99 1,294,752
750,000 Wells Fargo & Co.................. 5.020% 03/30/99 740,797
1,500,000 Banque National de Paris Canada... 4.980% 05/12/99 1,472,817
375,000 Banque National de Paris Canada... 5.000% 05/12/99 368,177
------------
22,028,699
------------
Diversified Conglomerates--0.5%
935,000 USAA Capital Corp................. 5.000% 03/31/99 923,442
------------
Drugs--1.7%
3,595,000 American Home Products Corp....... 5.150% 03/05/99 3,562,600
------------
Finance--20.8%
4,000,000 AIG Funding....................... 4.900% 01/04/99 3,998,367
3,000,000 American Express Co............... 5.750% 01/06/99 2,997,604
2,000,000 Household Finance Corp............ 5.370% 01/08/99 1,997,912
1,000,000 Household Finance Corp............ 5.300% 01/12/99 998,381
765,000 American Express Co............... 4.900% 01/14/99 763,646
890,000 General Electric Capital Corp..... 5.320% 01/19/99 887,633
2,500,000 Transamerica Finance Group, Inc. . 5.470% 01/20/99 2,492,783
365,000 General Electric Capital Corp..... 5.330% 01/22/99 363,865
550,000 Commercial Credit Co. ............ 5.170% 01/25/99 548,104
1,500,000 General Electric Capital Corp..... 5.490% 01/25/99 1,494,510
1,415,000 Household Finance Corp............ 5.160% 01/27/99 1,409,727
990,000 Associates Corp. of N.A........... 5.320% 01/27/99 986,196
2,000,000 Household Finance Corp............ 5.160% 01/28/99 1,992,260
315,000 General Electric Capital Corp..... 5.180% 02/04/99 313,459
1,000,000 Household Finance Corp............ 5.000% 02/12/99 994,167
1,500,000 Avco Financial Services, Inc...... 5.250% 02/22/99 1,488,625
1,525,000 General Electric Capital Corp..... 5.480% 03/08/99 1,509,679
770,000 General Electric Capital Corp..... 5.070% 03/12/99 762,409
2,000,000 Associates Corp. of N.A........... 4.910% 03/15/99 1,980,087
1,250,000 Associates Corp. of N.A........... 4.930% 03/19/99 1,236,819
1,085,000 Transamerica Finance Corp......... 5.050% 03/22/99 1,072,824
1,000,000 General Electric Capital Corp..... 5.100% 03/23/99 988,525
2,715,000 Associates Corp. of N.A........... 4.900% 03/24/99 2,684,698
420,000 General Electric Capital Corp..... 5.000% 03/25/99 415,158
3,365,000 CIT Group Holdings................ 5.020% 04/06/99 3,320,423
815,000 General Electric Capital Corp..... 4.990% 04/19/99 802,799
2,000,000 Transamerica Finance Corp......... 4.980% 05/06/99 1,965,417
</TABLE>
101
<PAGE>
New England Zenith Fund
(Back Bay Advisors Money Market Series)
Investments as of December 31, 1998
Investments--(Continued)
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
Face Interest Maturity
Value Description Rate Date Value (a)
<C> <S> <C> <C> <C>
Finance--(Continued)
$ 400,000 General Electric Capital Corp..... 4.980% 05/17/99 $ 392,475
1,500,000 General Electric Capital Corp..... 4.900% 05/28/99 1,469,988
------------
42,328,540
------------
Insurance--4.4%
500,000 Prudential Funding Corp. ......... 5.360% 01/12/99 499,181
1,500,000 Prudential Funding Corp. ......... 5.470% 01/14/99 1,497,037
910,000 Prudential Funding Corp. ......... 5.090% 01/15/99 908,199
500,000 Prudential Funding Corp. ......... 5.330% 01/21/99 498,519
1,375,000 Prudential Funding Corp. ......... 5.060% 02/01/99 1,369,009
740,000 Prudential Funding Corp. ......... 5.050% 02/03/99 736,574
2,000,000 Prudential Funding Corp. ......... 5.050% 02/05/99 1,990,181
1,500,000 Prudential Funding Corp. ......... 4.900% 02/09/99 1,492,038
------------
8,990,738
------------
Leasing--0.4%
800,000 International Lease Finance
Corp. ........................... 5.900% 01/05/99 799,476
------------
Retail--4.1%
1,000,000 J.C. Penney Funding Corp. ........ 5.180% 01/15/99 997,986
600,000 Sears Roebuck Acceptance Corp. ... 5.360% 01/21/99 598,213
1,000,000 Sears Roebuck Acceptance Corp. ... 5.350% 01/25/99 996,433
800,000 Sears Roebuck Acceptance Corp. ... 5.280% 02/09/99 795,424
1,100,000 Sears Roebuck Acceptance Corp. ... 5.250% 02/19/99 1,092,140
1,350,000 Sears Roebuck Acceptance Corp. ... 5.250% 03/08/99 1,337,006
1,500,000 Sears Roebuck Acceptance Corp. ... 4.930% 03/26/99 1,482,745
1,000,000 Sears Roebuck Acceptance Corp. ... 5.050% 04/27/99 983,728
------------
8,283,675
------------
Securities--10.3%
1,000,000 J.P. Morgan & Co. ................ 5.200% 01/14/99 998,122
1,000,000 Goldman Sachs Group............... 5.230% 01/14/99 998,111
500,000 J.P. Morgan & Co. ................ 5.250% 01/14/99 499,052
3,000,000 Merrill Lynch..................... 5.070% 01/28/99 2,988,593
800,000 Merrill Lynch..................... 5.350% 01/28/99 796,790
1,055,000 Merrill Lynch..................... 5.080% 01/29/99 1,050,832
225,000 Merrill Lynch..................... 5.230% 01/29/99 224,085
1,500,000 Merrill Lynch..................... 5.100% 02/01/99 1,493,413
1,500,000 Goldman Sachs Group............... 5.200% 02/10/99 1,491,333
1,200,000 Merrill Lynch..................... 5.030% 02/11/99 1,193,126
500,000 Goldman Sachs Group............... 5.180% 02/23/99 496,187
1,000,000 Goldman Sachs Group............... 5.130% 02/24/99 992,305
3,850,000 J.P. Morgan & Co. ................ 5.100% 02/26/99 3,819,457
1,000,000 Goldman Sachs Group............... 5.070% 03/18/99 989,297
3,000,000 Goldman Sachs Group............... 5.000% 04/20/99 2,954,583
------------
20,985,286
------------
Total Commercial Paper (Cost
$148,258,556).................... 148,258,556
------------
Total Investments--98.1% (Cost
$199,784,855)(b)................. 199,784,855
Other assets less liabilities..... 3,812,159
------------
Total Net Assets--100%............ $203,597,014
============
</TABLE>
(a) See Note 1A of Notes to Financial Statements.
(b) The aggregate cost for federal income tax purposes was $199,784,855.
102
<PAGE>
New England Zenith Fund
(Back Bay Advisors Money Market Series)
Statement of Assets & Liabilities Statement of Operations
December 31, 1998 Year Ended December 31, 1998
See accompanying notes to financial statements.
<TABLE>
<S> <C> <C>
Assets
Investments at value.................................... $199,784,855
Cash.................................................... 23,884
Receivable for:
Fund shares sold........................................ 3,426,819
Dividends and interest.................................. 1,950,785
------------
205,186,343
Liabilities
Payable for:
Fund shares redeemed.................................... $745,341
Dividends declared...................................... 718,710
Accrued expenses:
Management fees......................................... 50,324
Deferred trustees' fees................................. 32,053
Other expenses.......................................... 42,901
--------
1,589,329
------------
$203,597,014
============
Net Assets
Net Assets consist of:
Capital paid in......................................... $203,597,014
------------
Net Assets............................................... $203,597,014
============
Computation of offering price:
Net asset value and redemption price per share
($203,597,014 divided by 2,035,970 shares of beneficial
interest)............................................... $ 100.00
============
Cost of investments...................................... $199,784,855
============
</TABLE>
<TABLE>
<S> <C> <C>
Investment Income
Interest.................................................. $7,411,826
----------
Expenses
Management fees........................................... $463,281
Trustees' fees and expenses............................... 14,200
Custodian................................................. 65,879
Audit and tax services.................................... 11,644
Legal..................................................... 13,464
Printing.................................................. 22,534
Insurance................................................. 3,712
Miscellaneous............................................. 5,573
--------
Total expenses........................................... 600,287
----------
Net investment income...................................... 6,811,539
----------
Net Increase (decrease) in Net Assets from Operations...... $6,811,539
==========
</TABLE>
103
<PAGE>
New England Zenith Fund
(Back Bay Advisors Money Market Series)
Statement of Changes in Net Assets
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1997 1998
------------- -------------
<S> <C> <C>
From Operations
Net investment income........................... $ 6,038,343 $ 6,811,539
------------- -------------
Increase (decrease) in net assets from
operations..................................... 6,038,343 6,811,539
------------- -------------
From Distributions to Shareholders
Net investment income........................... (6,038,343) (6,811,539)
------------- -------------
(6,038,343) (6,811,539)
------------- -------------
From Capital Shares Transactions
Proceeds from sale of shares.................... 314,876,956 490,854,641
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income........ 6,003,198 6,569,907
------------- -------------
320,880,154 497,424,548
Cost of shares redeemed......................... (326,870,348) (404,836,059)
------------- -------------
Increase (decrease) in net assets derived from
capital share transactions..................... (5,990,194) 92,588,489
------------- -------------
Total increase (decrease) in net assets......... (5,990,194) 92,588,489
Net Assets
Beginning of the year........................... 116,998,719 111,008,525
------------- -------------
End of the year................................. $ 111,008,525 $ 203,597,014
============= =============
Number of Shares of the Fund:
Issued from the sale of shares.................. 3,148,769 4,908,547
Issued in connection with the reinvestment of:
Distributions from net investment income........ 60,032 65,699
------------- -------------
3,208,801 4,974,246
Redeemed........................................ (3,268,703) (4,048,361)
------------- -------------
Net change...................................... (59,902) 925,885
============= =============
</TABLE>
Financial Highlights
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1994 1995 1996 1997 1998
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year.......................... $100.00 $100.00 $ 100.00 $ 100.00 $ 100.00
------- ------- -------- -------- --------
Income From Investment
Operations
Net Investment Income......... 3.89 5.50 4.99 5.08 5.13
------- ------- -------- -------- --------
Total From Investment
Operations................... 3.89 5.50 4.99 5.08 5.13
Distributions From Net
Investment Income............. (3.89) (5.50) (4.99) (5.08) (5.13)
------- ------- -------- -------- --------
Total Distributions........... (3.89) (5.50) (4.99) (5.08) (5.13)
------- ------- -------- -------- --------
Net Asset Value, End of Year... $100.00 $100.00 $ 100.00 $ 100.00 $ 100.00
======= ======= ======== ======== ========
Total Return (%)............... 4.0 5.6 5.1 5.3 5.3
Ratio of Operating Expenses to
Average Net Assets (%)........ 0.40 0.50 0.50 0.45 0.45
Ratio of Net Investment Income
to Average Net Assets (%)..... 3.89 5.50 4.99 5.21 5.15
Net Assets, End of Year (000).. $73,960 $90,148 $116,999 $111,009 $203,597
The ratios of expenses to
average net assets without
giving effect to the voluntary
expense agreement described in
Note 4 to the Financial
Statements would have been
(%)........................... -- 0.51 0.50 -- --
</TABLE>
104
<PAGE>
New England Zenith Fund
Notes to Financial Statements--December 31, 1998
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 principle trading exchange or on the NASDAQ
National Market System (if that is the security's principle 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.
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
105
<PAGE>
New England Zenith Fund
Notes to Financial Statements--December 31, 1998--(Continued)
the results of operations reflecting fluctuations arising from changes in
market prices of the investment securities. Such fluctuations are included
with the net realized and unrealized gain or loss on investments.
Net realized foreign exchange gains or losses arise from sales of foreign
currency, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded by
each Series and the U.S. dollar equivalent of the amounts actually received
or paid by each Series. Net unrealized foreign exchange gains and losses
arise from changes in the value of assets and liabilities, other than
investment securities, resulting from changes in the exchange rate.
Forward Foreign Currency Contracts--Certain Series may use foreign currency
contracts to facilitate transactions in foreign securities and to manage
the Series' currency exposure. Contracts to buy generally are used to
acquire exposure to foreign currencies, while contracts to sell 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. Futures contracts--The Westpeak Growth and Income, Goldman Sachs Midcap
Value, Westpeak Stock Index, Back Bay Advisors Managed, Loomis Sayles
Balanced, Morgan Stanley International Magnum Equity, Salomon Brothers
U.S. Government, Salomon Brothers Strategic Bond Opportunities and Davis
Venture Value Series each may enter into futures contracts (or options
thereon) on the S&P 500 Index or other indices of stocks or on interest-
bearing securities or indices thereof, to hedge against changes in the
values of securities the Series owns or expects to purchase or, in the
case of Goldman Sachs Midcap Value Series, to increase total return.
Futures contracts are valued at the most recent settlement price, unless
such price does not reflect the fair market value of the contract, in
which case the position will be valued by or under the supervision of the
Board. Certain risks are associated with investments in futures contracts,
including risk of imperfect correlation between the value of a position in
futures contracts and the value of the corresponding stocks or bonds that
the Series is attempting to hedge. In addition, there is a risk that the
Series may not be able to close out its futures positions due to an
illiquid secondary market. At December 31, 1998 there were no such
contracts outstanding.
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.
106
<PAGE>
New England Zenith Fund
Notes to Financial Statements--December 31, 1998--(Continued)
The Goldman Sachs Midcap Value Series, together with other registered
investment companies having advisory agreements with Goldman Sachs Asset
Management or its affiliates, transfers uninvested cash into joint
accounts, the daily aggregate balance of which is invested in one or more
repurchase agreements. At December 31, 1998, the Goldman Sachs Midcap Value
Series had undivided interests in the repurchase agreements in the
following joint account which equaled $13,400,000, in principal amount. At
December 31, 1998 the following repurchase agreements held in this joint
account were fully collaterized by Federal Agency obligations.
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Repurchase Agreement Amount Rate Date Cost
-------------------- ------------ -------- ---------- --------------
<S> <C> <C> <C> <C>
ABN AMRO, Inc. ................ $120,000,000 5.15% 01/04/1999 $ 120,000,000
Deutsche Bank.................. 77,300,000 5.07% 01/04/1999 77,300,000
Donaldson, Lufkin & Jenrette,
Inc. ......................... 150,000,000 4.95% 01/04/1999 150,000,000
JP Morgan Securities, Inc. .... 700,000,000 4.75% 01/04/1999 700,000,000
Morgan Stanley, Dean Witter,
Discover & Co. ............... 200,000,000 4.95% 01/04/1999 200,000,000
NationsBanc Montgomery
Securities, LLC............... $125,000,000 5.15% 01/04/1999 125,000,000
--------------
TOTAL JOINT REPURCHASE
AGREEMENT ACCOUNT............. $1,372,300,000
==============
</TABLE>
F. Short Sales Against the Box--The Alger Equity Growth, Morgan Stanley
International Magnum Equity and Goldman Sachs Midcap Value Series may hedge
against changes in the value of investments by engaging in short sales
against the box. The Series had no such transactions during the year ended
December 31, 1998.
G. Reverse Repurchase Agreements--The Salomon Brothers U.S. Government and
Salomon Brothers Strategic Bond Opportunities Series may enter into reverse
repurchase agreements with qualified, third party broker-dealers as
determined by and under the direction of the 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. The amount of reverse repurchase agreements
outstanding at December 31, 1998 was $2,022,500, which was 4.42% of total
assets, for the Salomon Brothers U.S. Government Series. At December 31,
1998, there were no open reverse repurchase agreements for the Salomon
Brothers Strategic Bond Opportunities Series.
H. Federal taxes--Each Series, which is a separate taxable entity, intends to
meet the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute to its shareholders all of its
taxable income and any net realized capital gains at least annually.
Accordingly, no provision for federal income tax has been made.
I. Dividends and distributions to shareholders--Back Bay Advisors Money Market
Series dividends are declared daily to shareholders of record at the time
and are paid monthly. Dividends and distributions are recorded by all other
Series on the ex-dividend date. Net realized gains from security
transactions are distributed at least annually to shareholders. The timing
and characterization of certain income and capital gains distributions are
determined in accordance with federal tax regulations which may differ from
generally accepted accounting principles. Permanent book and tax basis
differences relating to shareholder distributions will result in
reclassification to paid in capital. These differences primarily relate to
tax equalization, investments in mortgage backed securities and investments
in foreign securities.
107
<PAGE>
New England Zenith Fund
Notes to Financial Statements--December 31, 1998--(Continued)
2. At December 31, 1998, MetLife held 30,906,686 shares of the Fund in
separate accounts funding annuity contracts issued by MetLife. NELICO held the
remaining 49,407,695 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 year ended December 31, 1998, purchases and sales of securities
(excluding short-term investments) for each of the Series were as follows:
<TABLE>
<CAPTION>
Purchases Sales
------------------------------ ------------------------------
Series U.S. Government Other U.S. Government Other
------ --------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Loomis Sayles Small Cap. -- $ 270,916,657 -- $ 216,059,829
Morgan Stanley
International Magnum
Equity................. -- 38,309,754 -- 23,039,101
Alger Equity Growth..... -- 363,239,639 -- 307,976,029
Capital Growth.......... -- 3,339,452,561 -- 3,330,106,905
Goldman Sachs Midcap
Value.................. $ 516,776 187,575,953 -- 193,858,599
Davis Venture Value..... -- 198,453,574 -- 80,600,414
Westpeak Growth and
Income................. -- 286,108,571 -- 203,449,286
Westpeak Stock Index.... -- 28,600,478 -- 4,529,365
Loomis Sayles Balanced.. 30,790,250 126,529,497 $33,579,680 79,288,570
Back Bay Advisors
Managed................ 709,625 48,580,776 710,500 52,695,991
Salomon Brothers
Strategic Bond
Opportunities.......... 16,391,759 243,063,688 16,489,809 212,780,615
Back Bay Advisors Bond
Income................. 29,627,190 222,453,746 33,934,199 154,710,796
Salomon Brothers U.S.
Government............. 16,852,400 139,255,215 12,823,242 121,033,390
</TABLE>
Purchases and sales of short-term obligations for the Back Bay Advisors Money
Market Series aggregated $841,712,667 and $757,017,407, respectively.
108
<PAGE>
New England Zenith Fund
Notes to Financial Statements--December 31, 1998--(Continued)
4. TNE Advisers, Inc. ("TNE Advisers") acts as adviser to all of the Series
except the Capital Growth Series, for which Capital Growth Management Limited
Partnership ("CGM") serves as adviser. Separate advisory agreements for each
Series provide for management fees payable by the Series as set forth below:
<TABLE>
<CAPTION>
Management
Fees Earned Annual
by TNE Advisers for Percentage Based on
the Year Ended Rates Paid to Series Average Daily Net Asset
Series December 31, 1998 Adviser Value Levels
------ ------------------- ------------- ------------------------------------
<S> <C> <C> <C>
Loomis Sayles Small Cap $2,178,725 1.00% of all assets
Series.................
Morgan Stanley 566,848 0.90% of all assets
International Magnum
Equity Series..........
Alger Equity Growth 2,115,106 0.75% of all assets
Series.................
Loomis Sayles Avanti
Growth Series(a)
(Period January 1, 1998
through April 30,
1998).................. 283,565 0.70% of the first $200 million
0.65% of the next $300 million
0.60% of amounts in excess of $500 million
Goldman Sachs Midcap
Value Series(a) (Period
May 1, 1998 through
December 31, 1998)..... 575,766 0.75% of all assets
Davis Venture Value 2,706,162 0.75% of all assets
Series.................
Westpeak Growth and 1,462,154 0.70% of the first $200 million
Income Series..........
0.65% of the next $300 million
0.60% of amounts in excess of $500 million
Westpeak Stock Index 381,940 0.25% of all assets
Series.................
Loomis Sayles Balanced 1,144,390 0.70% of all assets
Series.................
Back Bay Managed Series. 1,003,695 0.50% of all assets
Salomon Brothers 560,007 0.65% of all assets
Strategic Bond
Opportunities Series...
Back Bay Advisors Bond 917,376 0.40% of the first $400 million
Income Series..........
0.35% of the next $300 million
0.30% of the next $300 million
0.25% of amounts in excess of $1 billion
Salomon Brothers U.S. 169,287 0.55% of all assets
Government Series......
Back Bay Advisors Money 463,281 0.35% of the first $500 million
Market Series..........
0.30% of the next $500 million
0.25% of amounts in excess of $1 billion
</TABLE>
- -------
(a) Effective May 1, 1998 the Loomis Sayles Avanti Growth Series was renamed
Goldman Sachs Midcap Value Series and a new advisory agreement between
the Fund and TNE Advisers went into effect. The fees paid to TNE Advisers
before and after this change, taken together, equal the total management
fees paid by the Series for the year ended December 31, 1998.
The Capital Growth Series pays its adviser, CGM, an advisory fee at an
annual rate of 0.70% of the first $200 million of average daily net assets,
0.65% of the next $300 million of such assets, 0.60% of the next $1.5 billion
of such assets and 0.55% of such assets in excess of $2 billion. For advisory
services rendered during the year ended December 31, 1998, CGM was paid at an
average annual rate of 0.62% of the Capital Growth Series' average net assets,
totaling $10,272,927.
Sub-Advisory Fees. TNE Advisers has sub-contracted day-to-day portfolio
management responsibilities for the Series to each of the following sub-
advisers: Loomis, Sayles & Company, L.P. ("Loomis Sayles") for the Loomis
Sayles Small Cap, Loomis Sayles Avanti Growth (for the period January 1, 1998
through April 30, 1998) and Loomis Sayles Balanced Series, Goldman Sachs Asset
Management ("GSAM") for the Goldman Sachs Midcap Value Series (effective May
1, 1998); Morgan Stanley Asset Management ("MSAM") for the Morgan Stanley
International Magnum Equity Series; Fred Alger Management, Inc. ("Alger") for
the Alger Equity Growth Series; Davis Selected Advisers, L.P. ("Davis") for
the Davis Venture Value Series; Westpeak Investment Advisors, L.P.
("Westpeak") for the Westpeak Growth and Income and Westpeak Stock Index
Series; Back Bay Advisors, L.P. ("Back Bay Advisors") for the Back Bay
Advisors Managed, Back Bay Advisors Bond Income and Back Bay Advisors Money
Market Series and Salomon Brothers Asset Management Inc for the Salomon
Brothers Strategic
109
<PAGE>
New England Zenith Fund
Notes to Financial Statements--December 31, 1998--(Continued)
Bond Opportunities and Salomon Brothers U.S. Government Series. TNE Advisers,
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 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. TNE Advisers paid each sub-adviser as shown below for
providing sub-advisory services to the Series:
<TABLE>
<CAPTION>
Fees Earned
by Sub-
advisers for
the Year ended
Series December 31, 1998
------ -----------------
<S> <C>
Loomis Sayles Small Cap Series............................... $1,033,137
Morgan Stanley International Magnum Equity Series(b)......... 422,801
Alger Equity Growth Series................................... 1,178,056
Loomis Sayles Avanti Growth Series(a) (Period January 1, 1998 166,438
through April 30, 1998).....................................
Goldman Sachs Midcap Value Series(a) (Period May 1, 1998 340,636
through December 31, 1998)..................................
Davis Venture Value Series................................... 1,493,285
Westpeak Growth and Income Series............................ 801,534
Westpeak Stock Index Series.................................. 152,776
Loomis Sayles Balanced Series................................ 615,453
Back Bay Advisors Managed Series............................. 426,480
Salomon Brothers Strategic Bond Opportunities Series......... 283,464
Back Bay Advisors Bond Income Series......................... 482,973
Salomon Brothers U.S. Government Series...................... 69,254
Back Bay Advisors Money Market Series........................ 182,366
</TABLE>
- -------
(a) Effective May 1, 1998 a new Sub-advisory agreement between TNE Advisers
and GSAM went into effect, replacing the prior Sub-advisory agreement
between TNE Advisers and Loomis Sayles. The two Sub-advisory fee
schedules set forth above reflect all agreements which were in place
during the year ended December 31, 1998.
(b) Effective December 1, 1998, Morgan Stanley Asset Management Inc. changed
its name to Morgan Stanley Dean Witter Investment Management Inc. but
continues to do business in certain instances (including as subadviser to
the Morgan Stanley International Magnum Equity Series) using the name
Morgan Stanley Asset Management.
Voluntary Expense Limitation and Expense Deferral Agreement. Each Series,
except the Capital Growth Series, is subject to one of two forms of expense
limit. The first form of expense limit is a Voluntary Expense Limitation,
which relates to the Loomis Sayles Small Cap Series, Westpeak Growth and
Income Series, Westpeak Stock Index Series, Back Bay Advisors Managed Series,
Back Bay Advisors Bond Income Series and Back Bay Advisors Money Market
Series. A Voluntary Expense Limitation applicable to the Loomis Sayles Avanti
Growth Series terminated on April 30, 1998, the last day before the Series was
renamed the Goldman Sachs Midcap Value Series. Pursuant to this arrangement
TNE Advisers bears all expenses (other than advisory fees and any brokerage
costs, interest, taxes or extraordinary expenses) of each Series (except
110
<PAGE>
New England Zenith Fund
Notes to Financial Statements--December 31, 1998--(Continued)
the Loomis Sayles Small Cap Series) in excess of 0.15% of average daily net
assets. In the case of the Loomis Sayles Small Cap Series, TNE Advisers bears
all expenses (other than any brokerage costs, interest, taxes or extraordinary
expenses) in excess of 1.00% of the Series' average daily net assets. A
similar Voluntary Expense Limitation with New England Mutual Life Insurance
Company ("The New England") was in effect with respect to the Capital Growth
Series from November 1, 1994 to April 30, 1996.
The second form of expense limit is an Expense Deferral Agreement, which has
been in effect since November 1, 1994 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, and since
May 1, 1998 for the Goldman Sachs Midcap Value Series. Under this Agreement,
TNE Advisers has agreed to pay expenses of each Series' operations (exclusive
of any brokerage costs, interest, taxes or extraordinary expenses) in excess
of the annual percentages of each Series' net assets set forth below, subject
to the obligation of each Series to repay TNE Advisers 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 TNE Advisers more than
two years after the end of the fiscal year in which such expenses were
incurred. The percentage applicable to each Series is shown below:
TNE Advisers may terminate these expense arrangements at any time. If these
expense arrangements were terminated, some of the Series would have higher
expense ratios. For the year ended December 31, 1998, (i) the maximum expense
ratio for each Series after giving effect to the foregoing arrangements; (ii)
the amounts of expenses assumed by TNE Advisers for each Series to which the
Voluntary Expense Limitation applies; and (iii) the amounts of expenses
deferred for each Series to which the Expense Deferral Agreement applies, are
as follows:
<TABLE>
<CAPTION>
Maximum Expense
Ratio Under
Current Expenses Assumed
Voluntary Expense by TNE Advisers as a Expenses Deferred in Expenses Deferred in
Limitation or result of the Series 1997 (subject to 1998 (subject to
Expense Deferral exceeding the repayment until repayment until
Series Agreement Voluntary Expense Limit December 31, 1999) December 31, 2000)
------ ----------------- ----------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Back Bay Advisors Money
Market Series.......... 0.50% -- not applicable not applicable
Back Bay Advisors Bond
Income Series.......... 0.55% -- not applicable not applicable
Back Bay Advisors
Managed Series......... 0.65% -- not applicable not applicable
Westpeak Growth and
Income Series.......... 0.85% -- not applicable not applicable
Westpeak Stock Index
Series................. 0.40% -- not applicable not applicable
Loomis Sayles Small Cap
Series................. 1.00% $225,557 not applicable not applicable
Goldman Sachs Midcap
Value Series........... 0.90% 23,868 not applicable $ 4,535
Morgan Stanley
International Magnum
Equity Series.......... 1.30% not applicable $135,743 62,316
Alger Equity Growth
Series................. 0.90% not applicable -- --
Davis Venture Value
Series................. 0.90% not applicable -- --
Loomis Sayles Balanced
Series................. 0.85% not applicable -- --
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
</TABLE>
111
<PAGE>
New England Zenith Fund
Notes to Financial Statements--December 31, 1998--(Continued)
For the year ended December 31, 1998 the amount of deferred expense recovered
by TNE Advisers from each Series subject to the Expense Deferral Agreement is
set forth below:
<TABLE>
<CAPTION>
Deferred Expenses Deferred Expenses
Recovered by Recovered by
TNE Advisers TNE Advisers
Series from 1996 from 1997
------ ----------------- -----------------
<S> <C> <C>
Davis Venture Value Series........... $41,906 None
Goldman Sachs Midcap Value Series.... None None
Loomis Sayles Balanced Series........ 52,078 $10,668
Morgan Stanley International Magnum
Equity Series....................... None None
Salomon Brothers Strategic Bond
Opportunities Series................ 44,840 None
Salomon Brothers U.S. Government
Series.............................. None None
</TABLE>
5. The Fund does not pay any compensation to its officers or to any trustees
who are directors, officers or employees of MetLife, NELICO, Nvest, L.P. or
their affiliates, other than affiliated registered investment companies. Each
trustee who is not an "interested person" (as defined in the 1940 Act) of the
Fund ("Independent Trustees") receives the following amounts of compensation
from each Series:
<TABLE>
<CAPTION>
Bond Capital Money Stock Midcap Growth and Small
Income Growth Market Index Managed Value Income Cap
------ ------- ------ ----- ------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Annual Retainer......... $1,306 $7,775 $811 $781 $999 $534 $1,143 $1,023
Meeting Fee Per Meeting. $ 167 $ 167 $167 $167 $167 $167 $ 167 $ 167
Committee Chairman
Annual Retainer
(Contract Review)...... $ 392 $2,332 $243 $234 $300 $160 $ 343 $ 307
Committee Chairman
Annual Retainer
(Audit)................ $ 261 $1,555 $162 $156 $200 $107 $ 229 $ 205
</TABLE>
<TABLE>
<CAPTION>
Strategic
International U.S. Bond Venture Equity
Balanced Magnum Equity Government Opportunities Value Growth
-------- ------------- ---------- ------------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Annual Retainer......... $875 $318 $192 $486 $1,847 $1,572
Meeting Fee Per Meeting. $167 $167 $167 $167 $ 167 $ 167
Committee Chairman
Annual Retainer
(Contract Review)...... $263 $ 95 $ 58 $146 $ 554 $ 472
Committee Chairman
Annual Retainer
(Audit)................ $175 $ 64 $ 38 $ 97 $ 369 $ 314
</TABLE>
A deferred compensation plan is available to Independent Trustees on a
voluntary basis. Each participating trustee will receive deferred compensation
in an amount equal to the value that such compensation would have had if it
had been invested in the Series on the normal payment date.
112
<PAGE>
New England Zenith Fund
Report of Independent Auditors
To the Shareholders and Board of Trustees of New England Zenith Fund:
We have audited the accompanying statements of assets and liabilities of New
England Zenith Fund (the "Fund") (comprising, respectively, the Back Bay
Advisors Bond Income Series, Capital Growth Series, Back Bay Advisors Money
Market Series, Westpeak Stock Index Series, Back Bay Advisors Managed Series,
Goldman Sachs Midcap Value Series (formerly Loomis Sayles Avanti Growth
Series), Westpeak Growth & Income Series, Loomis Sayles Small Cap Series,
Loomis Sayles Balanced Series, Morgan Stanley International Magnum Equity
Series, Salomon Brothers U.S. Government Series, Salomon Brothers Strategic
Bond Opportunities Series, Davis Venture Value Series, and Alger Equity Growth
Series--the "Series"), including the portfolio of investments, as of December
31, 1998, and the related statements of operations for the year then ended,
changes in net assets and financial highlights for each of the two years then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial highlights for other periods indicated herein were
audited by other auditors whose report dated February 14, 1997 expressed an
unqualified opinion on these statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1998, by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective Series constituting New England Zenith Fund as of December
31, 1998, the results of their operations for the year then ended, the changes
in their net assets and the financial highlights for each of the two years
then ended, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 5, 1999
113
<PAGE>
Footnotes to Portfolio Manager Commentary
(1) COL (Cost of Living) is based on the Consumer Price Index, a widely
recognized measure of the cost of goods and services in the United
States, calculated by the U.S. Bureau of Labor Statistics.
(2) Lehman Brothers Aggregate Bond Index includes most obligations of the
U.S. Treasury, agencies and quasi-federal corporations, most publicly
issued investment grade corporate bonds, and most bonds backed by
mortgage pools of GNMA, FNMA and FHLMC. The index has not been adjusted
for ongoing management, distribution and operating expenses and sales
charges applicable to mutual fund investments.
(3) Lehman Brothers Government/Corporate Bond Index is an unmanaged index of
the market value of approximately 5,300 bonds with a face value currently
in excess of $1.3 trillion. To be included in the Lehman Brothers
Government/Corporate Bond Index, an issue must have amounts outstanding
in excess of $25 million, have at least one year to maturity and be rated
"Baa" or higher ("investment grade") by a nationally recognized rating
agency. The index has not been adjusted for ongoing management,
distribution and operating expenses and sales charges applicable to
mutual fund investments.
(4) Lehman Brothers Intermediate Government Bond Index includes most
obligations of the U.S. Treasury, agencies and quasi-federal corporations
having maturities of 1 to 10 years. The index has not been adjusted for
ongoing management, distribution and operating expenses and sales charges
applicable to mutual fund investments.
(5) Lehman Brothers Intermediate Government/Corporate Bond Index is an
unmanaged index of investment grade bonds issued by the U.S. Government
and U.S. corporations having maturities between one and ten years. The
index has not been adjusted for ongoing management, distribution and
operating expenses and sales charges applicable to mutual fund
investments.
(6) Lipper Variable Products A-Rated Corporate Bond Fund Average is an
average of the total return performance (calculated on the basis of net
asset value) of funds with similar investment objectives as calculated by
Lipper Analytical Services, an independent mutual fund ranking service.
(7) Lipper Variable Products Balanced Fund Average is an average of the total
return performance (calculated on the basis of net asset level) of funds
with similar investment objectives as calculated by Lipper Analytical
Services, an independent mutual fund ranking service.
(8) Lipper Variable Products Flexible Portfolio Fund Average is an average of
the total return performance (calculated on the basis of net asset value)
of funds with similar investment objectives as calculated by Lipper
Analytical Services, an independent mutual fund ranking service.
(9) Lipper Variable Products General Bond Fund Average is an average of the
total return performance (calculated on the basis of net asset value) of
funds with similar investment objectives as calculated by Lipper
Analytical Services, an independent mutual fund ranking service.
(10) Lipper Variable Products Growth Fund Average is an average of the total
return performance (calculated on the basis of net asset value) of funds
with similar investment objectives as calculated by Lipper Analytical
Services, an independent mutual fund ranking service.
(11) Lipper Variable Products Growth and Income Fund Average is an average of
the total return performance (calculated on the basis of net asset value)
of funds with similar investment objectives as calculated by Lipper
Analytical Services, an independent mutual fund ranking service.
(12) Lipper Variable Products International Fund Average is an average of the
total return performance (calculated on the basis of net asset value) of
funds with similar investment objectives as calculated by Lipper
Analytical Services, an independent mutual fund ranking service.
(13) Lipper Variable Products Intermediate Investment Grade Debt Average is an
average of the total return performance (calculated on the basis of net
asset value) of funds with similar investment objectives as calculated by
Lipper Analytical Services, an independent mutual fund ranking service.
(14) Lipper Variable Products Midcap Fund Average is an average of the total
return performance (calculated on the basis of net asset value) of funds
with similar investment objectives as calculated by Lipper Analytical
Services, an independent mutual fund ranking service.
114
<PAGE>
(15) Lipper Variable Products Small Company Fund Average is an average of the
total return performance (calculated on the basis of net asset value) of
funds with similar investment objectives as calculated by Lipper
Analytical Services, an independent mutual fund ranking service.
(16) Lipper Variable Products S&P 500 Index Fund Average is an average of the
total return performance (calculated on the basis of net asset value) of
funds with similar investment objectives as calculated by Lipper
Analytical Services, an independent mutual fund ranking service.
(17) Lipper Variable Products U.S. Mortgage and GNMA Fund Average is an
average of the total return performance (calculated on the basis of net
asset value) of funds with similar investment objectives as calculated by
Lipper Analytical Services, an independent mutual fund ranking service.
(18) Morgan Stanley Capital International Europe, Australasia, Far East (EAFE)
Index is an arithmetical average (weighted by market value) of the
performance (in U.S. dollars) of companies representing the stock markets
of Europe, Australia and the Far East. The index has not been adjusted
for ongoing management, distribution and operating expenses and sales
charges applicable to mutual funds.
(19) Morgan Stanley Capital International Europe Index is an arithmetical
average (weighted by market value) of the performance (in U.S. dollars)
of companies representing the stock markets of Austria, Belgium, Czech
Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland,
Italy, Netherlands, Norway, Poland, Portugal, Russia, Spain, Sweden,
Switzerland, Turkey and United Kingdom. The Index performance has not
been adjusted for ongoing management, distribution and operating expenses
and sales charges applicable to mutual funds.
(20) Morgan Stanley Capital International Japan Index is an arithmetical
average (weighted by market value) of the performance (in U.S. dollars)
of companies representing the stock markets of Japan. The Index
performance has not been adjusted for ongoing management, distribution
and operating expenses and sales charges applicable to mutual funds.
(21) Morgan Stanley Capital International Pacific Free ex-Japan Index is an
arithmetical average (weighted by market value) of the performance (in
U.S. dollars) of companies representing the stock markets of Australia,
China Free, Hong Kong, Indonesia, Korea, Malaysia, New Zealand,
Philippines, Singapore, Taiwan and Thailand. The Index performance has
not been adjusted for ongoing management, distribution and operating
expenses and sales charges applicable to mutual funds.
(22) Russell Midcap Index consists of 800 mid-capitalization stocks having an
average market capitalization of $3.7 billion as of 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 measures the performance of cash
pay and deferred interest bonds.
(25) Standard & Poor's 500 Index(R) (S&P 500(R)) is an unmanaged index
representing the performance of 500 major companies, most of which are
listed on the New York Stock Exchange. The S&P 500 performance has not
been adjusted for ongoing management, distribution and operating expenses
and sales charges applicable to mutual fund investments.
115
<PAGE>
Bulk Rate
U.S.
Postage
[LOGO OF NEW ENGLAND FINANCIAL APPEARS HERE] 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 variable contract owners of
New England Life Insurance Company, Boston, MA and variable contracts issued by
Metropolitan Life Insurance Company, New York, NY.
VA-158-99 VA1
