<PAGE>
[LOGO OF NEW ENGLAND FINANCIAL]
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ZENITH FUND
VARIABLE PRODUCTS
ANNUAL REPORTS
DECEMBER 31, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Back Bay Advisors Money Market Series....................................... 1
Back Bay Advisors Bond Income Series........................................ 7
Salomon Brothers Strategic Bond Opportunities Series........................ 15
Salomon Brothers U.S. Government Series..................................... 25
Back Bay Advisors Managed Series............................................ 31
Loomis Sayles Balanced Series............................................... 40
Alger Equity Growth Series.................................................. 49
Capital Growth Series....................................................... 56
Davis Venture Value Series.................................................. 61
Goldman Sachs Midcap Value Series........................................... 68
Loomis Sayles Small Cap Series.............................................. 74
MFS Investors Series........................................................ 84
MFS Research Managers Series................................................ 91
Westpeak Growth and Income Series........................................... 98
Westpeak Stock Index Series................................................. 105
Morgan Stanley International Magnum Equity Series........................... 116
Notes to Financial Statements............................................... 125
Footnotes to Portfolio Managers Commentary.................................. 135
</TABLE>
IMPORTANT:
Some funds appearing in this report may not be available under your variable
annuity product.
<PAGE>
February, 2000
TO OUR POLICYHOLDERS/CONTRACT OWNERS:
We are pleased to provide you with the 1999 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, 1999, as well as the outlook and strategy of each fund. It is
intended to help you make an informed decision regarding the investment of the
contract value of your variable product.
New England Financial and its affiliates offer many variable life and variable
annuity products to help you meet your financial objectives. We are committed
to meeting your expectations by providing quality products with strong
performance potential and excellent personal service.
Please feel free to contact your Registered Representative with any questions
you may have regarding your financial objectives. Thank you for choosing a
Zenith Variable product.
Sincerely,
/s/ David Allen /s/ Hugh C. McHaffie
David Allen Hugh C. McHaffie
Senior Vice President Senior Vice President Annuity Product
New England Life Insurance Company Management
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.
<PAGE>
The National Association of Securities Dealers Regulation, Inc. (NASDR) has a
"Public Disclosure Program" which provides current and historical information
on registered representatives and Financial Institutions registered with the
NASD. If you would like information pertaining to the "Public Disclosure
Program", including an informational brochure that describes the program, you
may contact the NASD directly by calling the NASDR, Inc. Public Disclosure
Hotline at 800-289-9999 or by visiting the NASDR, Inc.'s website at NASDR.com.
If you would like to contact New England Financial concerning any aspect of
your variable annuity contract, please call our customer service team at 800-
435-4117. Please call 800-388-4000 if you have any questions on our variable
life products.
<PAGE>
BACK BAY ADVISORS MONEY MARKET SERIES
PORTFOLIO MANAGER: JOHN MALONEY BACK BAY ADVISORS, L.P.
[PHOTO OF JOHN MALONEY]
Q: HOW DID THIS SERIES PERFORM DURING THE PAST TWELVE MONTHS RELATIVE TO ITS
INDEX AND RELATIVE TO ITS PEERS?
A: The Series returned 5.0% for the year ending December 31, 1999 compared to
the 4.8% return of the Three-Month Treasury Bill and the 4.8% return of the
Lipper Variable Product Money Market Fund Average./1/
Q: BRIEFLY DISCUSS THE INVESTMENT AND MARKET ENVIRONMENT DURING THE PAST SIX
MONTHS.
A: The U.S. economy was very strong in 1999. Retail sales, home sales and in-
dustrial activity were all strong. Job and income growth also showed strong
gains throughout the year. The Federal Reserve, in response to this above trend
growth, raised the Federal Funds rate by a total of 75 basis points with three
25 basis points moves (one in June, August, and the final one in November.)
These moves were meant to preempt accelerating future inflation.
Q: GIVEN THIS INVESTMENT ENVIRONMENT, WHAT WAS YOUR INVESTMENT STRATEGY? WHAT
CHANGES DID YOU MAKE SINCE THE START OF THE YEAR?
A: The Series extended its average days to maturity whenever interest rates in-
creased. As the market began to experience year-end pressure, the Series took
this opportunity to invest more of its assets that will mature in the new year.
This allowed the Series to pick up additional yield.
Q: WHAT WERE THE PRINCIPAL FACTORS AFFECTING YOUR PERFORMANCE (ON BOTH AN
ABSOLUTE AND RELATIVE BASIS) DURING THE PAST SIX MONTHS? WHAT INVESTMENT
DECISIONS WERE MOST EFFECTIVE AND WHICH ONES WERE LEAST EFFECTIVE?
A: At the end of the year, the Series had 74% of its assets invested in
commercial paper and 26% in Certificates of Deposit. All of the securities held
in the Series were first tier securities, which means that they are rated in
the top rating category by Moody's, Standard and Poor's, or Fitch.
Q: WHAT IS YOUR OUTLOOK FOR THE MARKET AND YOUR PORTFOLIO FOR THE NEXT SIX
MONTHS? WHAT CHANGES, IF ANY, WILL YOU MAKE TO THE WAY YOU MANAGE
YOUR PORTFOLIO?
A: The Federal Reserve is still concerned about the economy overheating, which
in our view means additional rate increases in the early part of 2000. The Se-
ries allowed its average days to maturity to shorten to 45 days in order to be
in position to be able to reinvest its maturing assets at higher rates. The Se-
ries will then look to lengthen its average days to maturity into the 60 to 70
day range over the next six months.
[checkmark] FUND FACTS
GOAL: The highest possible level
of current income consistent with
the preservation of capital.
START DATE: August 1, 1983
SIZE: $308 million as of December
31, 1999
MANAGER: John Maloney has served
as portfolio manager since 1996.
Mr. Maloney also manages the New
England Tax Exempt Money Market
Fund.
*The Back Bay Money Market Series is neither insured nor guaranteed by the U.S.
Government. The Series seeks but cannot assure a stable share price of $100.00.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts. If these charges were included, the returns shown would be
lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value may fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
1
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MONEY MARKET SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
INVESTMENTS--99.4% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
FACE INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1A)
<C> <S> <C> <C> <C>
CERTIFICATES OF DEPOSIT--25.8%
$ 5,000,000 Barclays Bank, Plc. ............. 5.030% 1/4/00 $ 4,999,467
4,000,000 Deutsche Bank AG New York........ 5.000% 1/6/00 3,999,116
4,000,000 Commerzbank AG New York.......... 5.010% 1/10/00 3,999,951
1,000,000 Deutsche Bank AG New York........ 5.030% 1/12/00 999,510
1,000,000 Societe Generale................. 5.020% 1/14/00 999,972
1,500,000 Societe Generale................. 5.025% 1/14/00 1,500,010
5,000,000 Svenska Handelsbanken............ 6.060% 1/14/00 5,000,054
2,000,000 ABN-Amro Bank NV................. 5.790% 1/18/00 1,999,840
1,000,000 Deutsche Bank AG New York........ 6.250% 1/18/00 1,000,047
2,000,000 Dresdner Bank AG New York........ 5.100% 1/18/00 1,998,527
2,000,000 Dresdner Bank AG New York........ 6.120% 1/19/00 2,000,019
4,000,000 Svenska Handelsbanken............ 6.060% 1/24/00 4,000,152
3,000,000 Canadian Imperial Bank........... 5.000% 1/27/00 2,998,955
2,000,000 Commerzbank AG New York.......... 4.975% 2/1/00 1,997,711
1,000,000 Societe Generale................. 5.990% 2/1/00 999,540
2,000,000 Canadian Imperial Bank........... 5.010% 2/7/00 1,999,922
4,000,000 Deutsche Bank AG New York........ 5.050% 2/9/00 3,999,522
3,000,000 Bank of Nova Scotia.............. 5.830% 2/14/00 2,999,574
2,000,000 Toronto Dominion Bank............ 5.050% 2/14/00 1,999,384
3,000,000 Rabobank Nederland NV............ 5.125% 2/18/00 2,999,970
1,000,000 Toronto Dominion Bank............ 5.270% 3/2/00 999,819
2,000,000 Deutsche Bank AG New York........ 5.330% 3/9/00 2,000,456
4,000,000 Barclays Bank, Plc............... 5.870% 3/14/00 3,998,282
1,000,000 Societe Generale................. 6.000% 3/14/00 999,586
1,000,000 Commerzbank AG New York.......... 5.230% 5/11/00 999,926
5,000,000 Bank Of Montreal................. 5.200% 5/12/00 4,999,130
3,000,000 Commerzbank AG New York.......... 5.295% 5/19/00 2,999,396
5,000,000 UBS AG Stamford, CT.............. 5.700% 7/27/00 4,998,635
5,000,000 UBS AG Stamford, CT.............. 6.240% 12/6/00 4,997,337
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Total Certificates of Deposit
(Cost $79,483,810).............. 79,483,810
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COMMERCIAL PAPER--73.6%
ASSET BACKED--3.8%
1,000,000 Clipper Receivables Corp......... 6.550% 1/14/00 997,635
4,000,000 Clipper Receivables Corp......... 6.280% 1/20/00 3,986,742
4,000,000 Clipper Receivables Corp......... 6.020% 2/2/00 3,978,596
2,705,000 Clipper Receivables Corp......... 6.120% 2/10/00 2,686,606
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11,649,579
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AUTOMOTIVE--11.3%
2,000,000 Ford Motor Credit Corp........... 5.950% 1/11/00 1,996,694
4,700,000 American Honda Finance........... 5.980% 1/12/00 4,691,412
5,000,000 Ford Motor Credit Corp........... 5.940% 1/12/00 4,990,925
1,000,000 General Motors Acceptance Corp... 5.410% 1/18/00 997,445
1,500,000 General Motors Acceptance Corp... 5.760% 1/19/00 1,495,680
3,000,000 General Motors Acceptance Corp... 5.410% 1/20/00 2,991,434
2,000,000 General Motors Acceptance Corp... 5.410% 1/21/00 1,993,989
1,050,000 General Motors Acceptance Corp... 5.780% 1/25/00 1,045,954
1,000,000 General Motors Acceptance Corp... 5.980% 1/25/00 996,013
3,400,000 Ford Motor Credit Corp........... 5.750% 2/11/00 3,377,735
3,000,000 American Honda Finance........... 5.850% 2/15/00 2,978,062
1,000,000 General Motors Acceptance Corp... 5.420% 2/15/00 993,225
3,900,000 Ford Motor Credit Corp........... 5.900% 2/18/00 3,869,320
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MONEY MARKET SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
INVESTMENTS--(CONTINUED)
<TABLE>
<CAPTION>
FACE INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1A)
<C> <S> <C> <C> <C>
AUTOMOTIVE--(CONTINUED)
$ 970,000 General Motors Acceptance Corp. . 5.790% 2/25/00 $ 961,420
1,505,000 General Motors Acceptance Corp. . 6.030% 3/10/00 1,487,606
------------
34,866,914
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BANKING--9.3%
2,000,000 UBS Finance Delaware, Inc. ...... 4.000% 1/3/00 1,999,556
3,000,000 Bank Of Nova Scotia.............. 5.720% 1/7/00 2,997,140
2,000,000 Bank Of Nova Scotia.............. 5.960% 1/11/00 1,996,689
6,000,000 Bank Of Nova Scotia.............. 6.500% 1/13/00 5,987,000
1,000,000 Citicorp......................... 5.750% 1/19/00 997,125
1,000,000 Svenska Handelsbanken............ 6.000% 2/3/00 994,500
4,000,000 Wells Fargo & Co. ............... 5.990% 2/8/00 3,974,709
4,520,000 Wells Fargo & Co. ............... 6.000% 2/10/00 4,489,867
1,475,000 Wells Fargo & Co. ............... 5.760% 2/22/00 1,462,728
1,870,000 Wells Fargo & Co. ............... 5.750% 2/29/00 1,852,378
2,000,000 Wells Fargo & Co. ............... 6.000% 2/29/00 1,980,333
------------
28,732,025
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BIOTECHNOLOGY--4.2%
1,000,000 Monsanto Co. .................... 5.750% 1/24/00 996,326
10,000,000 Monsanto Co. .................... 6.000% 3/21/00 9,866,667
890,000 Monsanto Co. .................... 6.100% 3/21/00 877,936
1,035,000 Monsanto Co. .................... 6.000% 3/24/00 1,020,682
------------
12,761,611
------------
DIVERSIFIED CONGLOMERATES--1.0%
3,000,000 USAA Capital Corp. .............. 5.750% 1/21/00 2,990,417
------------
FINANCE--22.2%
5,680,000 Dresdner U.S. Finance Corp. ..... 5.890% 1/6/00 5,675,353
2,000,000 Dresdner U.S. Finance Corp. ..... 6.270% 1/7/00 1,997,910
2,835,000 Household Finance Corp. ......... 6.000% 1/11/00 2,830,275
3,000,000 Household Finance Corp. ......... 6.000% 1/13/00 2,994,000
1,430,000 Dresdner U.S. Finance Corp. ..... 5.820% 1/18/00 1,426,070
4,000,000 CIT Group Holdings, Inc. ........ 6.010% 1/21/00 3,986,644
5,000,000 Associates Corp North America.... 6.000% 1/24/00 4,980,833
2,000,000 General Electric Capital Corp. .. 6.000% 1/24/00 1,992,333
1,000,000 General Electric Capital Corp. .. 5.970% 1/25/00 996,020
1,055,000 General Electric Capital Corp. .. 6.040% 1/26/00 1,050,575
140,000 General Electric Capital Corp. .. 6.010% 1/27/00 139,392
2,000,000 General Electric Capital Corp. .. 5.780% 1/28/00 1,991,330
2,000,000 General Electric Capital Corp. .. 5.970% 1/28/00 1,991,045
1,000,000 Household Finance Corp. ......... 6.030% 1/28/00 995,478
1,000,000 American Express Credit Corp. ... 5.970% 2/1/00 994,859
2,300,000 Transamerica Finance Corp. ...... 5.800% 2/3/00 2,287,772
3,000,000 Household Finance Corp. ......... 5.950% 2/7/00 2,981,654
1,965,000 American Express Credit Corp. ... 5.850% 2/11/00 1,951,908
2,000,000 Household Finance Corp. ......... 5.940% 2/11/00 1,986,470
3,065,000 Transamerica Finance Corp. ...... 5.850% 2/16/00 3,042,089
500,000 General Electric Capital Corp. .. 6.280% 2/17/00 495,901
1,500,000 General Electric Capital Corp. .. 5.780% 2/23/00 1,487,236
1,640,000 General Electric Capital Corp. .. 5.850% 2/23/00 1,625,876
2,000,000 General Electric Capital Corp. .. 6.200% 2/23/00 1,981,744
4,390,000 American Express Credit Corp. ... 5.790% 2/24/00 4,351,873
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MONEY MARKET SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
INVESTMENTS--(CONTINUED)
<TABLE>
<CAPTION>
FACE INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1A)
<C> <S> <C> <C> <C>
FINANCE--(CONTINUED)
$ 2,900,000 Associates Corp North America.... 5.900% 2/24/00 $ 2,874,335
205,000 General Electric Capital Corp. .. 5.950% 2/28/00 203,035
700,000 Transamerica Finance Corp. ...... 5.900% 3/8/00 692,314
4,600,000 Transamerica Finance Corp. ...... 6.200% 3/20/00 4,537,415
3,945,000 Transamerica Finance Corp. ...... 5.750% 4/12/00 3,880,729
------------
68,422,468
------------
INSURANCE--6.7%
2,000,000 Prudential Funding Corp. ........ 5.730% 1/24/00 1,992,678
800,000 Prudential Funding Corp. ........ 6.020% 1/27/00 796,522
1,000,000 Prudential Funding Corp. ........ 6.000% 1/31/00 995,000
2,250,000 Prudential Funding Corp. ........ 5.850% 1/31/00 2,239,031
1,000,000 Prudential Funding Corp. ........ 5.790% 2/1/00 995,014
3,715,000 American General Corp. .......... 5.960% 2/16/00 3,686,708
4,590,000 American General Corp. .......... 5.840% 2/17/00 4,555,004
3,500,000 American General Corp. .......... 6.000% 2/17/00 3,472,583
2,000,000 American General Corp. .......... 5.910% 3/10/00 1,977,345
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20,709,885
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PHARMACEUTICAL--2.7%
2,720,000 American Home Products Corp...... 5.720% 1/13/00 2,714,814
1,885,000 American Home Products Corp...... 5.720% 1/31/00 1,876,015
2,060,000 American Home Products Corp...... 5.850% 2/15/00 2,044,936
1,580,000 American Home Products Corp...... 6.150% 3/6/00 1,562,455
------------
8,198,220
------------
SECURITIES--12.4%
3,000,000 Morgan J P & Co Inc.............. 6.000% 1/14/00 2,993,500
2,000,000 Morgan J P & Co Inc.............. 5.400% 1/18/00 1,994,900
3,000,000 Morgan J P & Co Inc.............. 5.970% 1/19/00 2,991,045
2,605,000 Morgan J P & Co Inc.............. 5.970% 1/20/00 2,596,792
2,555,000 Goldman Sachs Group Lp........... 5.990% 1/25/00 2,544,797
2,350,000 Goldman Sachs Group Lp........... 5.760% 1/26/00 2,340,600
2,000,000 Goldman Sachs Group Lp........... 5.980% 1/26/00 1,991,694
2,000,000 Goldman Sachs Group Lp........... 5.980% 1/27/00 1,991,362
2,000,000 Goldman Sachs Group Lp........... 6.400% 1/31/00 1,989,333
1,000,000 Merrill Lynch & Co Inc........... 6.150% 2/2/00 994,533
2,280,000 Merrill Lynch & Co Inc........... 5.870% 2/3/00 2,267,732
3,000,000 Merrill Lynch & Co Inc........... 6.150% 2/3/00 2,983,088
1,000,000 Goldman Sachs Group Lp........... 6.000% 2/4/00 994,333
4,350,000 Merrill Lynch & Co Inc........... 5.930% 2/4/00 4,325,638
1,445,000 Merrill Lynch & Co Inc........... 5.850% 2/9/00 1,435,842
2,000,000 Goldman Sachs Group Lp........... 5.980% 2/10/00 1,986,711
1,500,000 Merrill Lynch & Co Inc........... 5.930% 2/11/00 1,489,870
195,000 Merrill Lynch & Co Inc........... 6.050% 2/11/00 193,656
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38,105,426
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Total Commercial Paper (Cost
$226,436,545)................... 226,436,545
------------
Total Investments--99.4% (Cost
$305,920,355)(a)................ 305,920,355
Other assets less liabilities.... 1,792,101
------------
TOTAL NET ASSETS--100%........... $307,712,456
============
</TABLE>
(a) The aggregate cost for federal income tax purposes was $305,920,355.
See accompanying notes to financial statements.
4
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MONEY MARKET SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value................................. $305,920,355
Cash................................................. 4,465
Receivable for:
Fund shares sold..................................... 1,456,952
Accrued interest..................................... 2,491,956
------------
Total Assets........................................ 309,873,728
LIABILITIES
Payable for:
Fund shares redeemed................................. $1,976,286
Dividends declared................................... 40,220
Accrued expenses:
Management fees...................................... 84,555
Deferred trustees fees............................... 35,944
Other expenses....................................... 24,267
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Total Liabilities................................... 2,161,272
------------
NET ASSETS............................................ $307,712,456
============
Net assets consist of:
Capital paid in...................................... $307,712,456
------------
NET ASSETS............................................ $307,712,456
============
Computation of offering price:
Net asset value and redemption price per share
($307,712,456 divided by 3,077,124 shares of
beneficial interest)................................. $ 100.00
============
Identified cost of investments........................ $305,920,355
============
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest................................................. $12,034,598
-----------
EXPENSES
Management fees.......................................... $796,250
Trustees' fees and expenses.............................. 16,842
Custodian................................................ 53,350
Audit and tax services................................... 10,246
Legal.................................................... 10,287
Printing................................................. 24,260
Insurance................................................ 4,022
Miscellaneous............................................ 3,589
--------
Total Expenses.......................................... 918,846
-----------
NET INVESTMENT INCOME..................................... 11,115,752
-----------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS..... $11,115,752
===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MONEY MARKET SERIES)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income........................... $ 11,115,752 $ 6,811,539
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS..................................... 11,115,752 6,811,539
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income........................... (11,115,752) (6,811,539)
------------- -------------
TOTAL DISTRIBUTIONS............................. (11,115,752) (6,811,539)
------------- -------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares.................... 563,690,635 490,854,641
Reinvestment of distributions................... 11,794,242 6,569,907
Cost of shares redeemed......................... (471,369,435) (404,836,059)
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS............................. 104,115,442 92,588,489
------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS......... 104,115,442 92,588,489
NET ASSETS
Beginning of the year........................... 203,597,014 111,008,525
------------- -------------
End of the year................................. $ 307,712,456 $ 203,597,014
============= =============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................. 5,636,906 4,908,547
Issued in reinvestment of distributions......... 117,942 65,699
Redeemed........................................ (4,713,694) (4,048,361)
------------- -------------
Net Change...................................... 1,041,154 925,885
============= =============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- -------
<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.... 4.85 5.13 5.08 4.99 5.50
-------- -------- -------- -------- -------
Total From Investment
operations.............. 4.85 5.13 5.08 4.99 5.50
-------- -------- -------- -------- -------
Less Distributions
Distributions From Net
Investment Income....... (4.85) (5.13) (5.08) (4.99) (5.50)
-------- -------- -------- -------- -------
Total Distributions...... (4.85) (5.13) (5.08) (4.99) (5.50)
-------- -------- -------- -------- -------
Net Asset Value, End of
Year..................... $ 100.00 $ 100.00 $ 100.00 $ 100.00 $100.00
======== ======== ======== ======== =======
TOTAL RETURN (%).......... 5.0 5.3 5.3 5.1 5.6
Ratio of Operating
Expenses to Average Net
Assets (%)............... 0.40 0.45 0.45 0.50 0.50
Ratio of Net Investment
Income to Average Net
Assets (%)............... 4.89 5.15 5.21 4.99 5.50
Net Assets, End of Year
(000).................... $307,712 $203,597 $111,009 $116,999 $90,148
The Ratios of operating
expenses to average net
assets without giving
effect to a voluntary
expense agreement would
have been (%)............ -- -- -- 0.50 0.51
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
BACK BAY ADVISORS BOND INCOME SERIES
PORTFOLIO MANAGER: PETER W. PALFREY, CFA
BACK BAY ADVISORS, L.P.
[PHOTO OF PETER PALFREY]
Q. HOW DID THE SERIES PERFORM DURING THE PAST TWELVE MONTHS RELATIVE TO ITS
INDEX AND RELATIVE TO ITS PEERS?
A. The Series performed very well on a relative basis, significantly
outperforming its Lipper peer group average. For the year ending December 31,
1999 the Series returned -0.5% versus -2.0% for the Lipper Variable Products
A-Rated Corporate Bond Fund Average./6/ The Series lagged the Lehman Brothers
Intermediate Gov./Corp. Bond Index/5/ but outperformed the Lehman Brothers Ag-
gregate Bond Index/2/ which returned 0.4% and -0.8%, respectively. This solid
performance places the Series in the top decile on a 1, 3, and 5-year basis
among its Lipper peers. Nevertheless, 1999 clearly was a disappointing year
for fixed income investors on an absolute return basis, especially when com-
pared to the strong performance of the broad equity market.
Q. BRIEFLY DISCUSS THE INVESTMENT AND MARKET ENVIRONMENT DURING THE PAST
TWELVE MONTHS.
A. As liquidity returned to the fixed income credit markets late in 1998, the
"flight to quality" dissipated, causing Treasury bond yields to rise sharply
through year-end 1998 and into 1999. Mitigating the negative effect of this
sharp rise in interest rates in the government market was a significant shift
in investor appetite back towards non-Treasury assets. This translated into a
significant tightening of spread product during the first five months of 1999,
as investors sold U.S. Treasuries in favor of corporates, mortgages and Yan-
kees (dollar-denominated bonds issued by foreign domiciled entities). The rel-
ative outperformance of spread products during this period pushed the Series'
performance well ahead of the Lehman benchmark, despite the Series' relatively
longer duration in a period of rising U.S. Treasury yields.
However, market conditions subsequently deteriorated. As it became clear that
most overseas economies and the U.S. had weathered the Russian default-in-
spired liquidity crisis of last fall (and were well on their way towards a
sustainable rebound), investor attention shifted to the threat of tighter Fed-
eral Reserve monetary policy. Rising commodity prices, tight U.S. labor mar-
kets, sustained consumer spending, and lofty equity market valuations subse-
quently prompted the Federal Reserve to raise short-term interest rates on
three separate occasions, in a preemptive effort to keep consumer prices in
check. Additionally, record new corporate bond and U.S. Agency issuance, as
well as heavy issuance in the mortgage market, took its toll on spread prod-
ucts. Yield spreads on non-government securities surpassed the levels posted
during the heat of the liquidity crisis of last fall. The supply problem was
compounded as corporations raced to bring offerings to market well before
year-end 1999, despite reduced liquidity from the investment community.
By September, the spread, or difference in yields between Treasuries and
corporates, mortgages, and Agencies had peaked at nearly double that of May's
levels, reflecting investors' desire to hold only the most liquid and secure
obligations available prior to year-end. However, as we entered the fourth
quarter, new issuance in the corporate, Agency and mortgage markets began to
wind down, and investor demand started to return, dramatically improving
spread market sentiment and liquidity in the final quarter of 1999. The re-
bound in the spread sector during November and December allowed the Series to
more than offset its relative underperformance recorded during the summer
months.
Q. GIVEN THIS ENVIRONMENT, WHAT WAS YOUR INVESTMENT STRATEGY? WHAT CHANGES DID
YOU MAKE SINCE THE START OF THE YEAR?
A. Coming into 1999, we maintained the Series' relatively full commitment to
bonds of high quality, non-cyclical companies, to take advantage of very at-
tractive yield spreads and acceptable market liquidity. We also selectively
added to holdings in more economically sensitive industries, including energy,
manufacturing and forest products, to participate in the re-inflation of the
U.S. and global economies.
For diversification purposes, we added to exposure in Canadian dollar denomi-
nated issues, to take advantage of the anticipated strengthening of the Cana-
dian dollar (driven largely by improving commodity prices). We expanded the
Series' non-dollar exposure in the Euro currency (third quarter) and in the
Australian dollar (fourth quarter) holdings, in order to further diversify in-
ternationally and be better positioned to participate in the global economic
rebound.
Late in the fourth quarter, we modestly reduced our corporate exposure to is-
sues in which we believed we had limited incremental upside, in favor of in-
creased exposure to the mortgage and Treasury markets. However, we have main-
tained a signifi-
7
<PAGE>
cant exposure to longer duration corporate and Yankee securities, which we be-
lieve hold considerable spread tightening potential as liquidity returns to
the market in the year 2000.
Q: WHAT WERE THE PRINCIPAL FACTORS AFFECTING YOUR PERFORMANCE (ON BOTH AN
ABSOLUTE AND RELATIVE BASIS) DURING THE TWELVE MONTHS? WHAT INVESTMENT
DECISIONS WERE MOST EFFECTIVE AND WHICH ONES WERE LEAST EFFECTIVE?
A: The significant rise in interest rates during 1999 overshadowed virtually
every other aspect of the fixed income market during the year. Rates rose by
as much as 180 basis points in the middle of the yield curve, with the U.S.
Treasury benchmark 10-year Note yield rising from approximately 4.6% to 6.4%
by the end of 1999. This translated to a total return of -8.4% on the 10-year
Treasury during 1999. While we maintained a longer than index duration through
1999, a significant portion of the duration contribution was concentrated in
spread product that tightened relative to U.S. Treasuries during the year.
This helped mitigate the negative effect of higher U.S. Treasury interest
rates on the Series' market value.
Our holdings in lower credit quality Yankee securities, many of which are
large exporters of energy products, as well as our direct holdings in the en-
ergy sector were the best performers in 1999. These sectors benefited from im-
proving economic conditions world-wide, which in turn provided a strong de-
mand-pull increase in energy prices though the year. Occidental Petroleum, Gulf
Canada, and YPF, the Argentine oil producer, all contributed. Holdings in for-
est products companies, including Abitibi, Jefferson Smurfit, and Kappa, a Dutch
packaging company, also helped performance. This industry has turned around
after a two-year slump, with stronger demand and reduced global capacity in
certain paper grades firming prices and thereby improving profits.
At the end of 1999, the Series' average credit quality was high "A", unchanged
from twelve months ago.
Q: WHAT IS YOUR OUTLOOK FOR THE MARKET AND YOUR PORTFOLIO FOR THE NEXT SIX
MONTHS? WHAT CHANGES, IF ANY, WILL YOU MAKE TO THE WAY YOU MANAGE YOUR
PORTFOLIO?
A: We believe that economic activity in the U.S. will be stronger in the first
half of 2000 than in the second half. With the U.S. economy currently showing
no sign of moderating, and year-end/Y2K related concerns now behind us, the
Federal Reserve is likely to tighten policy in February and perhaps again in
March, as necessary, in its desire to rein in U.S. economic growth closer to
its long term potential of 3-3 1/2 percent. Because monetary tightening works
with a lagged effect, a sustainable slowdown in U.S. economic activity is
likely to become more evident later in the year. We will continue to emphasize
yield, remaining overweight to the spread sector, including corporates, Yan-
kees, and mortgages, while maintaining an underweight position to U.S. Trea-
suries.
8
<PAGE>
A $10,000 Investment corpored to the Lehman Brothers Intermediate
Government Corporate Bond Index over the past ten yers
[GRAPH]
Back Bay Bond Lehman Intermediate
Income Series Government/Corp.
12/31/89 10,000 10,000
12/90 10,809 10,916
12/91 12,746 12,512
12/92 13,789 13,409
12/93 15,526 14,588
12/94 15,004 14,306
12/95 18,185 16,500
12/96 19,021 17,167
12/97 21,092 18,518
12/98 23,000 20,081
12/31/99 22,894 20,158
Average Annual Total Return
Lipper Variable
Lehman Intermediate A-Rated Corp.
Bond Income: Government Corp. Bond Avg.
1 Year -0.5% 0.4% -2.0%
3 Years 6.4 5.5 5.1
5 Years 8.8 7.1 7.2
10 years 8.6 7.3 7.5
Since Inception 9.6 8.9 n/a
[checkmark] FUND FACTS BACK BAY ADVISORS BOND INCOME SERIES
GOAL: A high level of current income consistent with the protection of capital.
START DATE: August 26, 1983
SIZE: $284 million as of December 31, 1999
MANAGER: Peter Palfrey has managed the Series since October 1999. He has also
served as portfolio manager of Back Bay Managed Series since 1994. He joined
Back Bay Advisors in April 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.
9
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS BOND INCOME SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
BONDS & NOTES--97.7% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
AEROSPACE & DEFENSE--0.7%
$ 890,000 Lockheed Martin Corp., 8.500%, 12/1/29............. $ 890,841
1,110,000 Lockheed Martin Corp., 8.200%, 12/1/09............. 1,107,634
------------
1,998,475
------------
AUTOMOBILES--0.7%
2,000,000 DaimlerChrysler AG, 7.200%, 9/01/09................ 1,967,069
------------
BUILDING MATERIALS--0.5%
1,500,000 Cemex SA, 9.625%, 10/1/09, 144A.................... 1,515,000
------------
BUSINESS SERVICES--0.9%
3,000,000 Equifax, Inc., 6.900%, 7/1/28...................... 2,637,633
------------
CONTAINERS--0.8%
2,533,000 Owens-Illinois, Inc., 8.100%, 5/15/07.............. 2,427,430
------------
ELECTRIC UTILITIES--5.8%
6,500,000 BVPS II Funding Corp., 8.890%, 6/1/17.............. 6,634,324
1,000,000 BVPS II Funding Corp., 8.680%, 6/1/17.............. 1,010,204
2,807,000 EIP Funding Corp., 10.250%, 10/1/12................ 3,119,745
5,800,000 PVNGS II Funding Corp., 8.000%, 12/30/15........... 5,656,288
------------
16,420,561
------------
FEDERAL AGENCIES--6.9%
6,596 Federal Home Loan Mortgage, 9.000%, 5/1/01......... 6,533
3,186 Federal Home Loan Mortgage, 9.000%, 9/1/01......... 3,183
1,798,008 Government National Mortgage Association, 6.500%,
11/15/28.......................................... 1,687,305
2,000,001 Government National Mortgage Association, 6.500%,
3/15/29........................................... 1,876,861
2,000,001 Government National Mortgage Association, 6.500%,
3/15/29........................................... 1,876,861
3,013,745 Government National Mortgage Association, 7.000%,
2/15/24........................................... 2,928,968
1,807,724 Government National Mortgage Association, 7.000%,
9/15/25........................................... 1,752,353
2,600,000 Government National Mortgage Association, 7.000%,
TBA............................................... 2,572,375
2,094,296 Government National Mortgage Association, 7.500%,
7/15/23........................................... 2,081,207
1,278,570 Government National Mortgage Association, 7.500%,
10/15/25.......................................... 1,266,180
1,000,000 Government National Mortgage Association, 7.500%,
12/29/29.......................................... 966,563
</TABLE>
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
FEDERAL AGENCIES--(CONTINUED)
$ 1,798,857 Government National Mortgage Association, 8.000%,
11/15/29.......................................... $ 1,816,846
812,462 Government National Mortgage Association, 8.500%,
with various maturities to 2022................... 839,889
100,552 Government National Mortgage Association, 9.000%,
10/15/16.......................................... 106,082
------------
19,781,206
------------
FINANCE & BANKING--17.5%
7,180,000 American General Financing Corp., 8.450%, 10/15/09. 7,553,924
960,000 Associates Corp of North America, 8.550%, 7/15/09.. 1,021,672
2,500,000 Associates Corp of North America, 7.950%, 2/15/10.. 2,560,654
3,700,000 Bank of America Corp., 5.875%, 2/15/09............. 3,301,126
2,500,000 Bank of America Corp., 6.625%, 6/15/04............. 2,444,150
2,500,000 BB&T Corp., 7.250%, 6/15/07........................ 2,446,627
5,945,000 BB&T Corp., 6.375%, 6/30/05........................ 5,600,294
4,500,000 Ford Motor Credit Co., 6.446%, 7/16/02(b).......... 4,508,435
7,450,000 Merita Bank, Ltd.,
7.500%, 12/29/49, 144A............................ 7,075,489
4,800,000 NCNB Corp., 9.375%, 9/15/09........................ 5,355,112
6,000,000 PDVSA Finance, Ltd.,
8.750%, 2/15/04, 144A............................. 5,854,610
1,800,000 Pitney Bowes Credit Corp., 8.550%, 9/15/09......... 1,938,520
------------
49,660,613
------------
FOREIGN--6.2%
3,600,000 Government of Canada, 7.250%, 6/1/07 (CAD)......... 2,637,589
9,225,000 Government of Canada, 7.500%, 12/1/03 (CAD)........ 6,668,713
1,100,000 Kappa Beheer BV, 10.625%, 7/20/09, 144A (EUR)...... 1,166,259
4,500,000 Province of British Columbia, 7.750%, 6/16/03
(CAD)............................................. 3,245,268
1,000,000 Province of Manitoba,
5.650%, 7/15/04 (CAD)............................. 672,698
4,875,000 World Bank, 5.500%, 5/14/03 (AUD).................. 3,075,621
------------
17,466,148
------------
INSURANCE--0.6%
1,550,000 Conseco, Inc., 9.000%, 10/15/06.................... 1,589,755
------------
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS BOND INCOME SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
BONDS & NOTES--(CONTINUED)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
MEDIA & ENTERTAINMENT--9.0%
$ 6,100,000 Continental Cablevision, Inc., 9.500%, 8/1/13...... $ 6,752,926
2,000,000 CSC Holdings, Inc., 7.875%, 12/15/07............... 1,976,149
2,000,000 CSC Holdings, Inc., 7.625%, 7/15/18................ 1,859,098
675,000 Metromedia Fiber Network, Inc., 10.000%, 12/15/09.. 695,250
1,800,000 News Amer Holdings, Inc., 7.750%, 2/1/24........... 1,695,611
6,000,000 TCI Communications, Inc., 8.750%, 8/1/15........... 6,530,935
500,000 Tele Communications, Inc., 9.800%, 2/1/12.......... 585,428
2,935,000 Tele Communications, Inc., 9.250%, 1/15/23......... 3,055,361
400,000 Tele Communications, Inc., 8.750%, 2/15/23......... 400,172
2,150,000 USA Networks, Inc., 6.750%, 11/15/05............... 2,056,765
------------
25,607,695
------------
OIL & GAS--1.1%
600,000 Gulf Canada Resources, Ltd., 8.350%, 8/1/06........ 582,909
2,400,000 Pioneer Natural Resources Co., 6.500%, 1/15/08..... 2,040,115
500,000 Union Pacific Resources Group, Inc., 7.300%,
4/15/09........................................... 477,921
------------
3,100,945
------------
PAPER--0.8%
1,500,000 Abitibi-Consolidated, Inc., 6.950%, 4/1/08......... 1,369,761
1,000,000 Pope and Talbot, Inc.,
8.375%, 6/1/13.................................... 875,957
------------
2,245,718
------------
RETAIL--0.5%
1,180,000 Rite Aid Corp., 7.125%, 1/15/07.................... 873,200
630,000 Rite Aid Corp., 7.700%, 2/15/27.................... 453,600
------------
1,326,800
------------
TELECOMMUNICATIONS--12.3%
4,300,000 AT & T Corp., 8.350%, 1/15/25...................... 4,264,164
5,000,000 AT & T Corp., 8.625%, 12/1/31...................... 5,051,124
1,000,000 Global Crossings Holdings, Ltd., 9.625%, 5/15/08... 997,500
1,200,000 GTE Corp., 7.510%, 4/1/09.......................... 1,201,373
4,800,000 GTE Corp., 7.900%, 2/1/27.......................... 4,633,770
1,000,000 GTE Corp., 9.100%, 6/1/03.......................... 1,055,753
</TABLE>
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
TELECOMMUNICATIONS--(CONTINUED)
$ 4,500,000 LCI International, Inc., 7.250%, 6/15/07........... $ 4,334,967
6,900,000 MCI Worldcom, Inc., 8.875%, 1/15/06................ 7,195,207
3,000,000 McLeodUSA, Inc., 8.125%, 2/15/09................... 2,805,000
1,186,000 Qwest Communications International, Inc., 10.875%,
4/1/07............................................ 1,316,460
2,000,000 Qwest Communications International, Inc., 7.500%,
11/1/08........................................... 1,948,290
------------
34,803,608
------------
U.S. GOVERNMENT--14.9%
7,000,000 U.S. Treasury Notes, 4.250%, 11/15/03.............. 6,504,884
14,500,000 U.S. Treasury Notes, 5.625%, 5/15/08............... 13,638,990
6,000,000 U.S. Treasury Notes, 5.750%, 4/30/03............... 5,893,011
3,000,000 U.S. Treasury Notes, 5.750%, 8/15/03............... 2,939,561
2,000,000 U.S. Treasury Notes, 6.625%, 3/31/02............... 2,015,201
8,400,000 U.S. Treasury Notes, 6.000%, 8/15/09............... 8,137,500
1,300,000 U.S. Treasury Bonds, 5.250%, 2/15/29............... 1,074,931
2,400,000 U.S. Treasury Bonds, 5.500%, 8/15/28............... 2,046,744
------------
42,250,822
------------
YANKEE--18.5%
1,100,000 Bridas Corp., 12.500%, 6/10/03..................... 1,171,500
3,800,000 Empresa Nacional De Chile, 8.500%, 4/1/09.......... 3,765,757
1,150,000 Endesa-Chile Overseas, 7.200%, 4/1/06.............. 1,083,174
5,600,000 Freeport Terminal Malta, Plc., 7.250%, 5/15/28,
144A.............................................. 4,837,454
8,000,000 Hydro Quebec, 8.050%, 7/7/24....................... 8,351,781
900,000 Kappa Beheer BV,
10.625%, 7/15/09, 144A............................ 941,625
615,000 Multicanal SA, 10.500%, 4/15/18.................... 485,850
3,700,000 Multicanal SA, 13.125%, 4/15/09.................... 3,663,000
3,300,000 Multicanal SA, 9.250%, 2/1/02...................... 3,085,500
2,500,000 Orange, Plc., 8.750%, 6/1/06....................... 2,665,625
2,200,000 Pemex Finance, Ltd., 8.020%, 5/15/07............... 2,112,000
1,500,000 Pemex Finance, Ltd., 9.150%, 11/15/18.............. 1,485,000
1,000,000 Pemex Finance, Ltd., 9.690%, 8/15/09............... 1,030,000
500,000 Pemex Petroleos Mexicanos, 8.625%, 12/1/23......... 437,500
1,200,000 Pemex Petroleos Mexicanos, 8.625%, 12/1/23, 144A... 1,050,000
1,000,000 Republic of Colombia, 7.250%, 2/23/04.............. 907,500
500,000 Republic of Colombia, 8.375%, 2/15/27.............. 386,875
930,000 Republic of Colombia,
8.660%, 10/7/16, 144A............................. 837,000
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS BOND INCOME SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
BONDS & NOTES--(CONTINUED)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
YANKEE--(CONTINUED)
$ 1,070,000 Republic of Colombia, 9.750%, 4/23/09............... $ 1,021,850
2,500,000 Republic of Korea, 8.8750%, 4/15/08................. 2,631,600
2,300,000 SK Telecom, Ltd., 7.750%, 4/29/04................... 2,259,331
3,100,000 Smurfit Capital Funding, Plc., 6.750%, 11/20/05..... 2,952,720
2,600,000 YPF Sociedad Anonima, 7.250%, 3/15/03............... 2,524,999
3,050,000 YPF Sociedad Anonima, 7.750%, 8/27/07............... 2,919,510
------------
52,607,151
------------
Total Bonds & Notes
(Identified Cost $289,975,297)..................... 277,406,629
------------
</TABLE>
SHORT-TERM INVESTMENT--1.7%
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
2,355,000 Household Finance Corp., 4.000%, 1/3/00............ 2,354,477
2,525,000 Household Finance Corp., 6.300%, 1/25/00........... 2,514,395
------------
Total Short-Term Investment
(Identified Cost $4,868,872)...................... 4,868,872
------------
Total Investments--99.4%
(Identified Cost $294,844,169)(a)................. 282,275,501
Other assets less liabilities...................... 1,580,291
------------
TOTAL NET ASSETS--100%............................. $283,855,792
============
(a) Federal Tax Information:
At December 31, 1999 the net unrealized depreciation on investments based on
cost of $295,044,819 for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost.............. $ 1,157,382
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value.............. (13,926,700)
------------
Net unrealized depreciation................................... $(12,769,318)
============
</TABLE>
For Federal income tax purposes, the Series has a capital loss carryforward
at December 31, 1999 of approximately $1,476,000 which will expire in 2007.
Accordingly, no capital gain distributions are expected to be paid to
shareholders until net gains have been realized in excess of such amount.
(b) Variable or floating rate security. Rate disclosed is as of December 31,
1999.
Key to Abbreviations:
AUD--Australian Dollar
CAD--Canadian Dollar
EUR--Euro Currency
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 $23,277,437 or 8.2% of
net assets.
See accompanying notes to financial statements.
12
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS BOND INCOME SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value................................ $282,275,501
Cash................................................ 2,312
Receivable for:
Fund shares sold.................................... 511,068
Accrued interest.................................... 5,123,163
------------
Total Assets....................................... 287,912,044
LIABILITIES
Payable for:
Fund shares redeemed................................ $ 370,890
Securities purchased................................ 3,514,563
Accrued expenses:
Management fees..................................... 96,639
Deferred trustees fees.............................. 44,169
Other expenses...................................... 29,991
----------
Total Liabilities.................................. 4,056,252
------------
NET ASSETS........................................... $283,855,792
============
Net assets consist of:
Capital paid in..................................... $298,658,730
Overdistributed net investment income............... (3,668)
Accumulated net realized gains (losses)............. (2,230,970)
Unrealized appreciation (depreciation) on
investments and foreign currency................... (12,568,300)
------------
NET ASSETS........................................... $283,855,792
============
Computation of offering price:
Net asset value and redemption price per share
($283,855,792 divided by 2,799,337 shares of
beneficial interest)................................ $ 101.40
============
Identified cost of investments....................... $294,844,169
============
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest......................................... $ 21,297,878
------------
EXPENSES
Management fees.................................. $ 1,121,515
Trustees' fees and expenses...................... 16,871
Custodian........................................ 94,409
Audit and tax services........................... 14,516
Legal............................................ 15,958
Printing......................................... 58,304
Insurance........................................ 6,219
Miscellaneous.................................... 4,235
------------
Total Expenses.................................. 1,332,027
------------
NET INVESTMENT INCOME............................. 19,965,851
------------
REALIZED AND UNREALIZED GAIN (LOSS)
Realized gain (loss) on:
Investments--net................................. (2,135,536)
Foreign currency transactions--net............... 156,830 (1,978,706)
------------
Unrealized appreciation (depreciation) on:
Investments--net................................. (19,271,112)
Foreign currency translation--net................ 368 (19,270,744)
------------ ------------
Net gain (loss)................................... (21,249,450)
------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS....................................... $ (1,283,599)
============
</TABLE>
See accompanying notes to financial statements.
13
<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,
1999 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................. $ 19,965,851 $ 15,272,855
Net realized gain (loss).......................... (1,978,706) 3,843,514
Unrealized appreciation (depreciation)............ (19,270,744) 978,516
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS. (1,283,599) 20,094,885
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income............................. (20,098,991) (14,982,245)
Net realized gain................................. (428,181) (3,901,599)
Distributions in excess of net realized gain...... (252,955) 0
------------ ------------
TOTAL DISTRIBUTIONS............................... (20,780,127) (18,883,844)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares...................... 111,246,990 107,261,482
Reinvestment of distributions..................... 20,780,127 18,883,844
Cost of shares redeemed........................... (93,898,120) (62,453,829)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS............................... 38,128,997 63,691,497
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS........... 16,065,271 64,902,538
NET ASSETS
Beginning of the year............................. 267,790,521 202,887,983
------------ ------------
End of the year................................... $283,855,792 $267,790,521
============ ============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT
INCOME
End of the year................................... $ (3,668) $ 122,796
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................... 1,020,882 947,129
Issued in reinvestment of distributions........... 204,310 172,542
Redeemed.......................................... (862,791) (552,385)
------------ ------------
Net Change........................................ 362,401 567,286
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year........................ $ 109.89 $ 108.52 $ 105.63 $ 108.67 $ 95.53
-------- -------- -------- -------- --------
Income From Investment
Operations
Net Investment Income....... 7.67 6.76 7.43 7.72 7.34
Net Realized and Unrealized
Gain (Loss) on Investments. (8.18) 3.00 4.05 (2.70) 12.85
-------- -------- -------- -------- --------
Total From Investment
operations................. (0.51) 9.76 11.48 5.02 20.19
-------- -------- -------- -------- --------
Less Distributions
Distributions From Net
Investment Income.......... (7.72) (6.64) (7.51) (7.74) (7.05)
Distributions From Net
Realized Capital Gains..... (0.16) (1.75) (1.08) (0.32) 0.00
In Excess of Net Realized
Gain....................... (0.10) 0.00 0.00 0.00 0.00
-------- -------- -------- -------- --------
Total Distributions......... (7.98) (8.39) (8.59) (8.06) (7.05)
-------- -------- -------- -------- --------
Net Asset Value, End of Year. $ 101.40 $ 109.89 $ 108.52 $ 105.63 $ 108.67
======== ======== ======== ======== ========
TOTAL RETURN (%)............. (0.5) 9.0 10.9 4.6 21.2
Ratio of Operating Expenses
to Average Net Assets (%)... 0.48 0.48 0.52 0.52 0.55
Ratio of Net Investment
Income to Average Net Assets
(%)......................... 7.12 6.66 6.97 7.22 7.22
Portfolio Turnover Rate (%).. 77 82 40 98 73
Net Assets, End of Year
(000)......................... $283,856 $267,791 $202,888 $180,359 $167,712
</TABLE>
See accompanying notes to financial statements.
14
<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 DURING THE PAST 12 MONTHS RELATIVE TO ITS INDEX
AND RELATIVE TO ITS PEERS?
A. The Salomon Brothers Strategic Bond Opportunities Series returned 1.4% for
the year ending December 31, 1999 versus the Lehman Brothers Aggregate Bond
Index,/2/ which returned -0.8%, and the Lipper Variable Product General Bond
Fund Average,/9/ which returned 0.8%.
Q. BRIEFLY DISCUSS THE INVESTMENT AND MARKET ENVIRONMENT DURING THE PAST 12
MONTHS.
A. The investment grade bond market started off 1999 strong, benefiting from
stable Treasury rates, declining volatility and a reduction in liquidity pre-
miums. Away from investment grade, performance for High Yield bonds and Emerg-
ing Market Debt had a stellar start, as the financial markets shrugged off
Brazil's currency problems. As the year progressed, however, the bond market
encountered some difficulties. Fears of an overheating economy coupled with
mounting investor fear of inflation and Y2K concerns conspired against the
fixed income sector. The mounting inflation concerns forced a proactive Fed-
eral Reserve to raise the federal funds rate three times from 4.75% to 5.50%.
Salomon Brothers Asset Management believes there is a very strong case for
further Fed tightening in the first half of 2000 given a continued tight labor
market and persistent strong consumer demand. This tightening will likely do
more to flatten the yield curve than move the overall bond market to signifi-
cantly higher levels. If the Fed is successful in offsetting rising inflation,
then long-term interest rates should start to fall toward the end of 2000 and
going into 2001. We remain optimistic on the outlook for emerging market debt
and high yield paper. Emerging Market Debt should perform well as the strength
in the global economy keeps commodity prices well supported in 2000. We expect
high yield bonds to benefit from declining default rates, strong merger and
acquisition activity, wide spreads, and solid growth coupled with low to mod-
erate inflation here in the States.
Q. GIVEN THIS INVESTMENT ENVIRONMENT, WHAT WAS YOUR INVESTMENT STRATEGY? WHAT
CHANGES DID YOU MAKE SINCE THE START OF THE YEAR?
A. Given the aforementioned 1999 fixed income backdrop, we focused on high
quality issues and remained overweight in spread products, though we have
trimmed our overall allocation in those areas. The portfolio is constantly un-
dergoing evaluation and making the appropriate changes to maintain our simul-
taneous focus on quality and opportunities in the market.
Q. WHAT WERE THE PRINCIPAL FACTORS AFFECTING YOUR PERFORMANCE DURING THE PAST
12 MONTHS?
A. The Salomon Brothers Strategic Bond Opportunities Series outperformed rela-
tive to the benchmark due to strong performance in the Emerging Market Debt,
the highest returning sector in the bond market. The Salomon Smith Barney
Brady Bond Index returned 4.8% for the fourth quarter bringing the return for
the entire year to 20.9%. The second largest contributor to the Series' per-
formance was its exposure to high yield bonds. The High Yield Market Index
posted a 1.7% return for the quarter bringing its return for the year to 1.7%.
Q. WHAT IS YOUR OUTLOOK FOR THE MARKET AND YOUR PORTFOLIO FOR THE NEXT 6
MONTHS? WHAT CHANGES, IF ANY WILL YOU MAKE TO THE WAY YOU MANAGE YOUR
PORTFOLIO?
A. In our judgement, the challenge remains for Fed policymakers to slow the
economy to a more sustainable pace of growth. We believe there is a case for
another 50 basis points of Fed tightening over the first part of 2000 given a
continued tight labor market. This tightening will likely do more to flatten
the yield curve than to move the overall bond market to higher levels. If the
Fed is successful in offsetting rising inflation, then long-term interest
rates should start to fall before year-end 2000 and into 2001. We will focus
on these ideas throughout the year in the management of the portfolio.
15
<PAGE>
A $10,000 Investment compared to the Lehman Brothers Aggregate Bond Index
since the Series' Inception
[GRAPH]
Salomon Brothers Strategic Lehman Aggregate
10/31/94 10,000 10,000
12/94 9,860 10,047
12/95 11,771 11,903
12/96 13,461 12,335
12/97 14,953 13,526
12/98 15,259 14,701
12/31/99 15,482 14,580
Average Annual Return
Lipper Variable
Strategic Bond Lehman General Bond
Opp. Series Aggregate Bond Fund Average
1 Year 1.4% -0.8% 0.8%
3 Years 4.8 5.7 4.9
5 Years 9.4 7.7 7.9
Since Inception 8.8 7.6 n/a
[checkmark] 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, 1999
MANAGERS: Peter Wilby and David Scott have co-managed the Series since its
inception in October 1994. Mr. Lavan began co-managing the Series in June 1998.
Mr. Wilby and Mr. Scott have also managed the Salomon Brothers Investment
Series--Strategic Bond Fund since March 1995 and the North American Strategic
Income Fund since March 1995. Mr. Wilby has also managed the Salomon Brothers
Investment Series--High Yield Bond Fund since March 1995. Mr. Lavan has also
managed the Salomon Brothers Investment Series--U.S. Government Income Fund and
North American U.S. Government Securities Fund since January 1992 and the
Salomon Brothers U.S. Government Series since 1994. He joined Salomon Brothers
in 1990.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts. If these charges were included, the returns shown would
be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
16
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
BONDS & NOTES--98.1% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
APPAREL & TEXTILES--0.3%
$ 250,000 Collins & Aikman Floorcovering, 10.000%, 1/15/07.. $ 245,625
------------
AUTOMOTIVE--1.0%
150,000 American Axle and Manufacturing, Inc., 9.750%,
3/1/09........................................... 151,875
250,000 Breed Technologies, Inc., 9.250%, 4/15/08,
144A(f).......................................... 7,500
250,000 Foamex L.P./Foamex Capital Corp., 9.875%, 6/15/07. 210,625
250,000 Hayes Lemmerz International, Inc., 8.250%,
12/15/08......................................... 230,000
250,000 Key Plastics, Inc., Series B 10.250%, 3/15/07..... 117,500
250,000 Lear Corp., 8.110%, 5/15/09, 144A................. 235,263
------------
952,763
------------
BANKS--3.1%
350,000 Bangkok Sentral NG, 8.600%, 6/15/27............... 268,590
325,000 Bankamerica Corp., 6.625%, 6/15/04................ 317,740
1,250,000 Commerzbank Overseas Finance N.V., 10.250%,
4/28/00 (AUD).................................... 830,886
1,500,000 Eurofima,
17.000%, 3/4/05 (PLN)............................ 429,323
300,000 European Investment Bank, 7.500%, 3/23/00 (CAD)... 208,562
1,000,000 International Finance Corp., 20.250%, 5/5/00
(PLN)............................................ 242,443
600,000 Nordiska Investeringsbanken, 17.750%, 4/15/02
(PLN)............................................ 154,462
3,100,000 Vnesheconombank, 6.906%, 12/15/15(c).............. 515,375
------------
2,967,381
------------
CABLE & OTHER MEDIA--2.6%
250,000 Adelphia Communications Corp., Series B, 10.500%,
7/15/04.......................................... 261,563
500,000 Avalon Cable, 0/11.125%, 12/01/08(b).............. 326,250
250,000 Capstar Broadcasting, 9.250%, 7/01/07............. 253,438
375,000 Century Communications Corp., Zero Coupon,
1/15/08.......................................... 166,875
500,000 Charter Communications Holdings Corp., 0/9.920%,
4/01/11(b)....................................... 295,000
150,000 CSC Holdings, Inc., 10.500%, 5/15/16.............. 167,250
150,000 Diamond Cable Communications, 0/11.750%,
12/15/05(b)...................................... 142,500
</TABLE>
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
$ 250,000 Falcon Holdings Group LP, Series B, 8.375%,
4/15/10........................................ $ 252,500
500,000 LIN Holdings Corp., 0/10.000%, 3/01/08(b)....... 341,250
250,000 Telewest Communication Plc., 0/11.000%,
10/01/07(b).................................... 234,375
------------
2,441,001
------------
CAPITAL GOODS/BUILDING PRODUCTS--2.4%
225,000 Alvey Systems, Inc., 11.375% 1/31/03............ 232,875
250,000 Cabot Safety Corp., 12.500%, 7/15/05............ 258,750
200,000 High Voltage Engineering Corp., 10.500%,
8/15/04........................................ 177,000
250,000 Jordan Industries, Inc., Series B, 0/11.750%,
4/01/09(b)..................................... 170,000
250,000 Motors & Gears, Inc., Series D, 10.750%,
11/15/06....................................... 240,313
250,000 Neenah Corp., Series D, 11.125%, 5/01/07........ 232,500
250,000 Packard Biosciences Co., Series B, 9.375%,
3/01/07........................................ 218,125
250,000 Panolam Industries International, 11.500%,
2/15/09........................................ 256,875
500,000 Praxair, Inc., 6.150%, 4/15/03.................. 477,849
------------
2,264,287
------------
CHEMICALS--0.4%
250,000 Lyondell Chemical Co., 9.875%, 5/1/07........... 256,250
125,000 Philipp Brothers Chemicals, Inc., 9.875%,
6/1/08......................................... 111,875
------------
368,125
------------
CONSUMER PRODUCTS--1.6%
250,000 American Safety Razor, Series B, 9.875%,
8/01/05........................................ 246,250
125,000 Anchor Advanced Products, Inc. 11.750%, 4/01/04. 107,500
250,000 Indesco International, Inc., 9.750%, 4/15/08.... 112,500
250,000 North Atlantic Trading, Inc., Series B, 11.000%,
6/15/04........................................ 228,750
100,000 Pierce Leahy Command Co., 8.125%, 5/15/08....... 92,500
50,000 Revlon Worldwide,
8.625%, 2/1/08................................. 24,500
250,000 Simmons Co.,
10.250%, 3/15/09............................... 242,500
375,000 United Industries Corp., 9.875%, 4/01/09........ 343,125
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
BONDS & NOTES--(CONTINUED)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
CONSUMER PRODUCTS--(CONTINUED)
$ 125,000 Windmere-Durable Holdings, Inc., 10.000%, 7/31/08. $ 123,750
------------
1,521,375
------------
CONTAINERS/PACKAGING--0.9%
250,000 Huntsman Corp.,
9.500%, 7/01/07 144A............................. 238,750
250,000 Huntsman Packaging Corp., 9.125%, 10/01/07........ 242,500
150,000 Norampac, Inc., 9.500%, 2/1/08.................... 153,375
200,000 Radnor Holdings Corp., 10.000%, 12/01/03.......... 200,500
------------
835,125
------------
DEFENSE & AEROSPACE--0.4%
250,000 Raytheon Co., 6.150%, 11/01/08.................... 221,381
250,000 Stellex Industries, Inc., 9.500%, 11/01/07........ 180,312
------------
401,693
------------
ELECTRONICS--0.3%
250,000 Amphenol Corp., 9.875%, 5/15/07................... 256,250
------------
ENERGY--1.2%
250,000 Belco Oil & Gas Corp., 8.875%, 9/15/07............ 234,375
250,000 Bellwether Exploration Co., 10.875%, 4/01/07...... 227,188
150,000 Benton Oil & Gas Co., 11.625%, 5/01/03............ 109,500
250,000 Continental Resources, Inc., 10.250%, 8/1/08...... 220,314
250,000 Frontier Oil Corp. 9.125%, 2/15/06................ 226,250
250,000 United Refining Co. Series B, 10.750%, 6/15/07.... 162,500
------------
1,180,127
------------
FINANCE--4.8%
750,000 Ford Motor Credit Co., 5.800%, 1/12/09............ 742,427
370,000 General Electric Capital Corp., 5.875%, 7/7/00
(AUD)............................................ 242,747
620,000 KFW International Finance, 16.300%, 6/24/03 (PLN). 162,684
141,000,000 KFW International Finance, 2.050%, 9/21/09 (JPY).. 1,423,801
310,000 Merrill Lynch & Co., Inc. 6.000%, 11/15/04........ 293,600
</TABLE>
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
$ 1,380,000 Merrill Lynch & Co., Inc., 5.970%, 9/11/00 (CAD).. $ 956,976
450,000 Paine Webber Group, Inc., 7.750%, 9/01/02......... 453,901
300,000 TPSA Finance BV,
7.750%, 12/10/08 144A............................ 280,238
------------
4,556,374
------------
FINANCIAL/LEASING--1.2%
250,000 Airplanes Pass Through Trust, 10.875%, 03/15/19... 216,404
250,000 ContiFinancial Corp. 8.125%, 4/01/08.............. 30,000
600,000 Countrywide Funding Corp., 6.250%, 4/15/09........ 541,542
250,000 Navistar International Corp. Series B, 8.000%,
2/01/08.......................................... 240,625
125,000 Williams Scotsman, Inc., 9.875%, 6/01/07.......... 120,938
------------
1,149,509
------------
FOOD & BEVERAGES--0.5%
250,000 Delta Beverage Group, Inc. 9.750%, 12/15/03....... 247,500
250,000 Imperial Holly Corp., 9.750%, 12/15/07............ 181,250
350,000 NEBCO Evans Holdings Co., 0/12.375%, 7/15/07(b)... 45,500
------------
474,250
------------
FOREIGN--1.8%
990,000 Algeria Tranche, 6.750%, 3/04/10 ................. 710,325
700,000 European Bank For Reconstruction & Development
10.500%, 1/25/01 (PLN)........................... 160,357
100,000 Morocco Loan Tranche 6.843%, 1/01/09.............. 90,250
655,953 Morocco Loan Tranche, 6.062%, 1/01/09............. 591,998
550,000 Sudwest Landes Bank, 17.500%, 5/05/03 (PLN)....... 147,243
------------
1,700,173
------------
FOREIGN GOVERNMENT--27.4%
1,667,000 Federal Republic of Brazil, 14.500%, 10/15/09..... 1,850,370
376,000 Federal Republic of Brazil, 6.937%, 4/15/06(c).... 331,554
3,221,073 Federal Republic of Brazil, 8.000%, 4/15/14(c).... 2,388,425
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
BONDS & NOTES--(CONTINUED)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
FOREIGN GOVERNMENT--(CONTINUED)
$ 470,000 Federal Republic of Germany, 4.000%, 6/16/00 (EUR). $ 474,531
700,000 Federal Republic of Germany, 5.625%, 1/4/28 (EUR).. 671,650
600,000 Federal Republic of Germany, 5.875%, 5/15/00 (EUR). 609,638
230,000 Government of Spain 6.000%, 1/31/08 (EUR).......... 239,220
270,000 Government of Spain 6.150%, 1/31/13 (EUR).......... 279,981
2,100,000 Ivory Coast, 2.000%, 3/29/18(c).................... 451,500
3,100,000 Kingdom of Sweden, 10.250%, 5/05/03 (SEK).......... 418,021
1,800,000 Ministry Finance of Russia, 12.750%, 6/24/28....... 1,209,690
175,000 Ministry Finance of Russia, 9.250%, 11/27/01....... 138,688
950,000 National Republic of Bulgaria, 2.750%, 7/28/12(c).. 684,000
750,000 National Republic of Bulgaria, 6.500%, 7/28/11(c).. 590,625
4,000,000 Norwegian Treasury Bills, 5.250%, 3/15/00 (NOK).... 499,007
1,600,000 Republic of Argentina 11.000%, 12/04/05............ 1,568,000
675,000 Republic of Argentina, 11.375%, 1/30/17............ 658,564
1,425,000 Republic of Colombia, 10.875%, 3/09/04............. 1,458,915
891,216 Republic of Croatia 6.456%, 7/31/06(c)............. 819,919
1,000,000 Republic of Ecuador 4.000%, 2/28/25(c)............. 342,500
82,900,000 Republic of Greece, 11.000%, 2/25/00 (GRD)(c)...... 256,137
206,000,000 Republic of Greece,
6.600%, 1/15/04 (GRD)............................. 631,641
101,000,000 Republic of Greece,
7.600%, 1/22/02 (GRD)............................. 312,524
496,400,000 Republic of Greece,
8.900%, 4/01/03 (GRD)............................. 1,617,806
140,000 Republic of Italy,
5.250%, 11/1/29 (EUR)............................. 125,784
1,050,000 Republic of Panama 4.250%, 7/17/14(c).............. 821,625
1,400,000 Republic of Peru, 4.500%, 3/07/17(c)............... 969,500
300,000 Republic of Philippines, 9.875%, 1/15/19........... 296,250
370,000 Republic of Slovenia, 5.375%, 5/27/05 (EUR)........ 368,135
</TABLE>
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
$ 380,951 Republic of Venezuela 7.000%, 12/18/07(c)......... $ 301,985
1,750,000 Republic of Venezuela, 13.625%, 8/15/18........... 1,557,500
175,000 Russian Federation, 11.750%, 6/10/03 144A......... 131,687
350,000 United Mexican States, 10.375%, 2/17/09........... 371,618
1,500,000 United Mexican States, 6.25%, 12/31/19............ 1,181,250
400,000 United Mexican States, 6.25%, 12/31/19............ 315,000
1,000,000 United Mexican States, 9.875%, 1/15/07............ 1,041,500
------------
25,984,740
------------
GOVERNMENT AGENCIES--19.5%
104,811 Federal Home Loan Mortgage, 10.000%, 05/15/20..... 111,993
1,459 Federal Home Loan Mortgage, 1156.500%,
06/15/21(d)...................................... 40,238
8,424,828 Federal National Mortgage Association, 0.531%,
10/17/36(d)...................................... 211,430
3,418,159 Federal National Mortgage Association, 0.580%,
03/17/20(d)...................................... 78,184
9,854,637 Federal National Mortgage Association, 1.044%,
06/25/38(d)...................................... 554,057
4,653,810 Federal National Mortgage Association, 1.670%,
02/25/35(d)...................................... 326,753
45,757 Federal National Mortgage Association, 10.400%,
04/25/19......................................... 47,629
10,656 Federal National Mortgage Association, 13.000%,
11/15/15......................................... 12,008
6,000,000 Federal National Mortgage Association, 6.000%,
TBA.............................................. 5,488,080
737,937 Federal National Mortgage Association, 6.500%,
3/1/26........................................... 699,889
87,830 Federal National Mortgage Association, 7.000%,
5/1/26........................................... 85,140
3,500,000 Federal National Mortgage Association, 7.000%,
TBA.............................................. 3,384,045
506,228 Federal National Mortgage Association, 7.387%,
08/17/03......................................... 507,531
7,000,000 Federal National Mortgage Association, 7.500%,
TBA.............................................. 6,921,250
------------
18,468,227
------------
HOTEL/LODGING--0.2%
250,000 HMH Properties, Inc. Series B, 7.875%, 8/01/08.... 223,750
------------
</TABLE>
See accompanying notes to financial statements.
19
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
BONDS & NOTES--(CONTINUED)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
HOUSING RELATED--0.2%
$ 250,000 CB Richards Ellis Services, Inc. 8.875%, 6/01/06.. $ 226,250
------------
LEISURE TIME--1.4%
250,000 Empress Entertainment, Inc. 8.125%, 7/01/06....... 248,438
250,000 Harrah's Operating Co., Inc. 7.875%, 12/15/05..... 241,250
250,000 Horseshoe Gaming 9.375%, 6/15/07.................. 250,000
150,000 Mohegan Tribal Gaming, 8.750%, 1/01/09............ 149,625
250,000 Sun International Hotels, 8.625%, 12/15/07........ 235,000
244,000 Waterford Gaming,
9.500%, 3/15/10 144A............................. 244,000
------------
1,368,313
------------
METALS/MINING/STEEL--0.5%
250,000 Murrin Murrin Holdings Property, Ltd. 9.375%,
8/31/07.......................................... 226,250
250,000 P&L Coal Holdings Corp., 9.625%, 5/15/08.......... 243,750
------------
470,000
------------
MORTGAGE--12.5%
1,800,000 Commercial Mortgage Asset Trust 7.350%, 08/17/13.. 1,675,539
900,000 ContiMortgage Home Equity Loans, 7.000%, 12/25/01. 673,313
897,923 Countrywide Mortgage Backed Securities Corp.,
7.750%, 06/25/24................................. 881,199
9,642,335 DLJ Commercial Mortgage Corp. 0.892%, 05/10/23(d). 397,746
8,897,075 DLJ Commercial Mortgage Corp. 1.068%, 11/12/31(d). 447,639
244,081 First Union Residential Securitization, 7.000%,
08/25/28......................................... 211,130
987,659 GE Capital Mortgage Services, Inc. 6.750%,
11/25/28......................................... 893,831
1,596,601 Green Tree Financial Corp., 7.070%, 01/15/29...... 1,545,702
1,250,000 LB Commercial Conduit Mortgage Trust, 6.780%,
4/15/09.......................................... 1,192,594
1,381,935 Mid State Trust VI, 7.340%, 07/01/35.............. 1,343,062
344,568 PNC Mortgage Securities Corp. 6.750%, 05/25/28.... 286,853
</TABLE>
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
$ 744,077 PNC Mortgage Securities Corp. 6.772%, 03/25/29.... $ 677,110
643,027 PNC Mortgage Securities Corp. 6.904%, 04/25/29.... 542,554
441,074 PNC Mortgage Securities Corp., 6.735%, 02/25/28... 370,502
467,354 PNC Mortgage Securities Corp., 6.838%, 05/25/28... 398,711
375,000 RG Receivables Co., 9.600%, 2/28/05............... 303,750
------------
11,841,235
------------
PAPER--0.3%
250,000 Repap New Brunswick, Inc., 10.625%, 4/15/05....... 232,500
------------
REAL ESTATE--0.1%
150,000 Spieker Properties LP, 7.250%, 5/1/09............. 139,716
------------
RETAIL--1.9%
400,000 Archibald Candy Corp. 10.250%, 7/01/04............ 389,000
250,000 Cole National Group, Inc. 9.875%, 12/31/06........ 190,000
250,000 Finlay Fine Jewelry Corp., 8.375%, 5/01/08........ 231,250
321,000 Guitar Center Management Co., Inc. 11.000%,
7/01/06.......................................... 318,191
250,000 Musicland Group, Inc. Series B, 9.875%, 3/15/08... 228,750
125,000 Pueblo Xtra International, 9.500%, 8/01/03........ 76,250
400,000 Staples, Inc., 7.125%, 8/15/07.................... 384,010
------------
1,817,451
------------
SERVICES--2.9%
125,000 Allied Waste North America, Inc. 10.000%, 8/1/09,
144A............................................. 111,563
450,000 Comdisco, Inc., 6.000%, 1/30/02................... 435,589
250,000 Integrated Electric Services, Inc., 9.375%,
2/01/09.......................................... 245,313
250,000 Intertek Finance Plc, Series B, 10.250%, 11/01/06. 233,750
250,000 Iron Mountain, Inc., 10.125%, 10/01/06............ 256,250
125,000 Iron Mountain, Inc., 8.750%, 9/30/09.............. 120,000
250,000 Loomis Fargo & Co., 10.000%, 1/15/04.............. 248,437
250,000 Marsulex, Inc., 9.625%, 7/01/08................... 240,000
</TABLE>
See accompanying notes to financial statements.
20
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
BONDS & NOTES--(CONTINUED)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
SERVICES--(CONTINUED)
$ 250,000 Primark Corp.,
9.250%, 12/15/08 144A............................ $ 234,063
225,000 Protection One Alarm, Inc., 8.125%, 1/15/09 144A.. 108,563
250,000 Safety Kleen Services, 9.250%, 6/01/08............ 248,124
400,000 Service Corporation International, 6.000%,
12/15/05......................................... 280,180
------------
2,761,832
------------
STEEL--0.2%
250,000 Algoma Steel, Inc. 12.375%, 7/15/05............... 236,250
------------
TELECOMMUNICATIONS--2.3%
250,000 Centennial Cellular Corp., 10.750%, 12/15/08...... 269,374
200,000 GTE Corp. 6.940%, 4/15/28......................... 180,658
275,000 ICG Holdings, Inc., 0/13.500%, 9/15/05(b)......... 237,875
175,000 Intermedia Communications, Inc., 8.600%, 6/01/08.. 161,875
350,000 International Cabletel, Inc., 0/11.500%,
2/01/06(b)....................................... 316,750
500,000 Nextel Communications, Inc., 0/9.950%, 2/15/08(b). 353,750
400,000 Sprint Capital Corp., 6.500%, 11/15/01............ 396,583
400,000 United International Holdings Series B, 0/10.750%,
2/15/08(b)....................................... 253,000
------------
2,169,865
------------
TRANSPORTATION--1.0%
250,000 Atlantic Express Transportation Corp. 10.75%,
2/01/04.......................................... 243,750
150,000 Enterprises Shipholding Corp. 8.875%, 5/01/08..... 90,000
200,000 Holt Group, Inc., 9.750%, 1/15/06................. 135,000
250,000 Stena AB, 10.500%, 12/15/05....................... 230,625
400,000 TFM, SA, 0/11.750%, 6/15/09(b).................... 258,000
------------
957,375
------------
U.S. GOVERNMENT--5.2%
2,000,000 United States Treasury Bonds, 5.250%, 11/15/28.... 1,649,094
1,000,000 United States Treasury Bonds, 5.250%, 2/15/29..... 826,870
910,000 United States Treasury Bonds, 5.500%, 8/15/28..... 776,762
200,000 United States Treasury Bonds, 6.125%, 11/15/27.... 186,264
</TABLE>
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
$ 1,500,000 United States Treasury
Notes, 5.25%, 5/31/01............................ $ 1,480,785
------------
4,919,775
------------
Total Bonds & Notes
(Identified Cost
$96,194,317)..................................... 93,131,337
------------
PREFERRED STOCKS--0.0%
<CAPTION>
SHARES
<C> <S> <C>
840 TCR Holdings, Class B ............................ 8
462 TCR Holdings, Class C............................. 6
1,219 TCR Holdings, Class D............................. 12
2,521 TCR Holdings, Class E............................. 25
------------
Total Preferred Stocks
(Identified Cost $300)........................... 51
------------
WARRANTS--0.1%
200 In Flight Phone Corp.(e).......................... --
554 United Mexico States.............................. 48,475
------------
Total Warrants
(Identified Cost
$19,016)......................................... 48,475
------------
OPTIONS--0.0%
130 Hong Kong Dollar Put/U.S.
Dollar Call 7.8165,
January 2000 .................................... --
65 Hong Kong Dollar Put/U.S.
Dollar Call 7.8025,
January 2000 .................................... --
------------
Total Options
(Identified Cost
$176,497)........................................ --
------------
SHORT-TERM INVESTMENTS--15.7%
<CAPTION>
FACE
AMOUNT
<C> <S> <C>
$ 3,000,000 Consolidated Coal Co.
6.520%, 1/19/00.................................. 2,990,220
3,000,000 GATX Capital Corp.,
6.470%, 1/19/00.................................. 2,990,295
3,000,000 Tennessee Gas Pipeline
Co., 6.400%, 1/19/00............................. 2,990,400
3,000,000 Tyco International, Inc.,
6.520%, 1/19/00.................................. 2,990,220
3,000,000 USEC, Inc., 6.520%,
1/19/00.......................................... 2,990,220
------------
Total Short-Term
Investments
(Identified Cost
$14,951,355)...................................... 14,951,355
------------
Total Investments--113.9%
(Identified Cost
$111,341,485)(a).................................. 108,131,218
Other assets less
liabilities...................................... (13,220,858)
------------
TOTAL NET ASSETS--100%............................. $ 94,910,360
============
</TABLE>
See accompanying notes to financial statements.
21
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
FORWARD CONTRACTS OUTSTANDING AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
LOCAL AGGREGATE UNREALIZED
CURRENCY DELIVERY CURRENCY FACE TOTAL APPRECIATION/
CONTRACT DATE AMOUNT VALUE VALUE (DEPRECIATION)
<S> <C> <C> <C> <C> <C>
Canadian Dollar
(bought) 1/28/2000 453,391 $ 308,986 $ 314,298 $ 5,312
Euro Currency
(bought) 1/18/2000 384,002 404,914 387,336 (17,578)
Euro Currency
(bought) 1/28/2000 2,531,722 2,688,778 2,555,588 (133,190)
Euro Currency
(sold) 1/28/2000 3,006,619 3,060,983 3,034,963 26,020
Pound Sterling
(bought) 1/18/2000 540,719 886,276 873,502 (12,774)
Pound Sterling
(bought) 1/28/2000 544,538 896,212 879,716 (16,496)
Pound Sterling
(sold) 1/28/2000 1,111,217 1,838,342 1,795,201 43,141
Greek Drachma
(sold) 1/28/2000 386,588,189 1,228,942 1,176,782 52,160
Greek Drachma
(bought) 1/28/2000 321,991,500 982,625 980,149 (2,476)
Japanese Yen (sold) 1/28/2000 143,135,954 1,393,051 1,407,554 (14,503)
Japanese Yen
(bought) 1/28/2000 94,203,000 902,674 926,363 23,689
Swedish Krona
(sold) 1/28/2000 7,400,000 901,525 871,300 30,225
Swedish Krona
(bought) 1/28/2000 4,772,582 568,097 561,939 (6,158)
---------
Net unrealized depreciation on Forward Currency contracts...... $ (22,628)
=========
</TABLE>
(a) Federal Tax Information:
At December 31, 1999 the net unrealized depreciation on investments based on
cost of $111,854,816 for federal income tax purposes was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost............... $ 2,450,389
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value............... (6,173,987)
-----------
Net unrealized depreciation.................................... $(3,723,598)
===========
</TABLE>
For Federal income tax purposes, the Series has a capital loss carryforward
at December 31, 1999 of approximately $5,762,000 which will expire in 2007.
Accordingly, no capital gain distributions are expected to be paid to
shareholders until net gains have been realized in excess of such amount.
(b) 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.
(c) Variable or floating rate security. Rate disclosed is as of December 31,
1999.
(d) Interest only certificate. This security receives monthly interest
payments but is not entitled to principal payments.
(e) Non-Income producing security.
(f) Non-Income producing; issuer filed petition under Chapter 11 of the
Federal Bankruptcy Code.
Key to abbreviations:
AUD--Australian Dollar
CAD--Canadian Dollar
EUR--Euro Currency
GRD--Greek Drachma
JPY--Japanese Yen
NOK--Norwegian Krone
PLN--Polish Zloty
SEK--Swedish Krona
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
$1,591,627 or 1.7% of net
assets.
See accompanying notes to financial statements.
22
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value............................... $108,131,218
Cash............................................... 840,575
Receivable for:
Fund shares sold................................... 187,144
Accrued interest................................... 2,091,006
Foreign taxes...................................... 324
Miscellaneous...................................... 8,441
------------
Total Assets...................................... 111,258,708
LIABILITIES
Payable for:
Fund shares redeemed............................... $ 156,476
Securities purchased............................... 16,075,069
Open forward currency
contracts--net.................................... 22,628
Withholding taxes.................................. 2,253
Due to subcustodian banks.......................... 2,234
Miscellaneous...................................... 157
Accrued expenses:
Management fees.................................... 52,198
Deferred trustees fees............................. 4,635
Other expenses..................................... 32,698
-----------
Total Liabilities................................. 16,348,348
------------
NET ASSETS.......................................... $ 94,910,360
============
Net assets consist of:
Capital paid in.................................... $104,495,187
Overdistributed net investment income.............. (62,769)
Accumulated net realized gains (losses)............ (6,275,333)
Unrealized appreciation (depreciation) on
investments and foreign currency.................. (3,246,725)
------------
NET ASSETS.......................................... $ 94,910,360
============
Computation of offering price:
Net asset value and redemption price per share
($94,910,360 divided by 8,897,436 shares of
beneficial interest)............................... $ 10.67
============
Identified cost of investments...................... $111,341,485
============
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest......................................... $ 8,522,109(a)
-----------
EXPENSES
Management fees.................................. $ 618,506
Deferred expense reimbursement................... 12,296
Trustees' fees and expenses...................... 11,279
Custodian........................................ 83,293
Audit and tax services........................... 18,778
Legal............................................ 4,825
Printing......................................... 14,791
Amortization of organization expense............. 1,678
Insurance........................................ 1,968
Miscellaneous.................................... 3,492
-----------
Total Expenses.................................. 770,906
-----------
NET INVESTMENT INCOME............................. 7,751,203
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
Realized gain (loss) on:
Investments--net................................. (3,714,519)
Foreign currency transactions--net............... (205,133) (3,919,652)
-----------
Unrealized appreciation (depreciation) on:
Investments--net................................. (2,425,932)
Foreign currency translation--net................ (38,571) (2,464,503)
----------- -----------
Net gain (loss)................................... (6,384,155)
-----------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS....................................... $ 1,367,048
===========
</TABLE>
(a) Net of foreign taxes of $15,197
See accompanying notes to financial statements.
23
<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,
1999 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................. $ 7,751,203 $ 6,207,055
Net realized gain (loss).......................... (3,919,652) (2,493,823)
Unrealized appreciation (depreciation)............ (2,464,503) (2,329,435)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS. 1,367,048 1,383,797
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income............................. (7,574,436) (6,162,469)
Net realized gain................................. 0 (87,409)
In excess of net realized gain.................... 0 (137,672)
------------ ------------
TOTAL DISTRIBUTIONS............................... (7,574,436) (6,387,550)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares...................... 29,507,364 48,659,454
Reinvestment of distributions..................... 7,574,436 6,387,550
Cost of shares redeemed........................... (31,413,923) (25,795,325)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS............................... 5,667,877 29,251,679
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS........... (539,511) 24,247,926
NET ASSETS
Beginning of the year............................. 95,449,871 71,201,945
------------ ------------
End of the year................................... $ 94,910,360 $ 95,449,871
============ ============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT
INCOME
End of the year................................... $ (62,769) $ (45,647)
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................... 2,585,620 3,992,202
Issued in reinvestment of distributions........... 709,882 558,777
Redeemed.......................................... (2,751,781) (2,123,814)
------------ ------------
Net Change........................................ 543,721 2,427,165
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year. $ 11.43 $ 12.01 $ 11.62 $ 10.85 $ 9.74
------- ------- ------- ------- ------
Income From Investment Operations
Net Investment Income............. 0.95 0.80 0.75 0.51 0.58
Net Realized and Unrealized Gain
(Loss) on Investments............ (0.78) (0.56) 0.54 1.05 1.30
------- ------- ------- ------- ------
Total From Investment operations.. 0.17 0.24 1.29 1.56 1.88
------- ------- ------- ------- ------
Less Distributions
Distributions From Net Investment
Income........................... (0.93) (0.79) (0.76) (0.60) (0.55)
Distributions From Net Realized
Capital Gains.................... 0.00 (0.02) (0.14) (0.19) (0.22)
Distributions in Excess of Net
Realized Capital Gains........... 0.00 (0.01) 0.00 0.00 0.00
------- ------- ------- ------- ------
Total Distributions............... (0.93) (0.82) (0.90) (0.79) (0.77)
------- ------- ------- ------- ------
Net Asset Value, End of Year....... $ 10.67 $ 11.43 $ 12.01 $ 11.62 $10.85
======= ======= ======= ======= ======
TOTAL RETURN (%)................... 1.4 2.0 11.1 14.4 19.4
Ratio of Operating Expenses to
Average Net Assets (%)............ 0.81 0.85 0.85 0.85 0.85
Ratio of Net Investment Income to
Average Net Assets (%)............ 8.15 7.20 7.32 7.79 8.39
Portfolio Turnover Rate (%)........ 224 283 258 176 202
Net Assets, End of Year (000) ..... $94,910 $95,450 $71,202 $35,808 $9,484
The Ratios of operating expenses to
average net assets without giving
effect to the voluntary expense
agreement described in Note 4 to
the Financial Statements would
have been (%)..................... -- -- 0.87 1.19 2.44
</TABLE>
See accompanying notes to financial statements.
24
<PAGE>
SALOMON BROTHERS U.S. GOVERNMENT SERIES
PORTFOLIO MANAGER: ROGER LAVAN SALOMON BROTHERS ASSET MANAGEMENT INC
[PHOTO APPEARS HERE]
Q. HOW DID THE SERIES PERFORM DURING THE PAST 12 MONTHS RELATIVE TO ITS INDEX
AND RELATIVE TO ITS PEERS?
A. The Salomon Brothers U.S. Government Series returned 0.2% for the year end-
ing December 31, 1999 versus 0.5% return of the Lehman Brothers Intermediate
Government Index/4/ and a 0.4% return of the Lipper Variable Product GNMA/US
Mortgage Fund Average./17/
Q. BRIEFLY DISCUSS THE INVESTMENT AND MARKET ENVIRONMENT DURING THE PAST 12
MONTHS.
A. The investment grade bond market started off 1999 strong, benefiting from
stable Treasury rates, declining volatility and a reduction in liquidity pre-
miums. Away from investment grade, performance for High Yield bonds and Emerg-
ing Market Debt had a stellar start, as the financial markets shrugged off
Brazil's currency problems. As the year progressed, however, the bond market
encountered some difficulties. Fears of an overheating economy coupled with
mounting investor fear of inflation and Y2K concerns conspired against the
fixed income sector. The mounting inflation concerns forced a proactive Fed-
eral Reserve to raise the federal funds rate three times from 4.75% to 5.50%.
Salomon Brothers Asset Management believes there is a very strong case for
further Fed tightening in the first half of 2000 given a continued tight labor
market and persistent strong consumer demand. This tightening will likely do
more to flatten the yield curve than move the overall bond market to signifi-
cantly higher levels. If the Fed is successful in offsetting rising inflation,
then long-term interest rates should start to fall toward the end of 2000 and
going into 2001. We remain optimistic on the outlook for emerging market debt
and high yield paper. Emerging Market Debt should perform well as the strength
in the global economy keeps commodity prices well supported in 2000. We expect
high yield bonds to benefit from declining default rates, strong merger and
acquisition activity, wide spreads, and solid growth coupled with low to mod-
erate inflation here in the States.
Q. GIVEN THIS INVESTMENT ENVIRONMENT, WHAT WAS YOUR INVESTMENT STRATEGY? WHAT
CHANGES DID YOU MAKE SINCE THE START OF THE YEAR?
A. Given the aforementioned 1999 fixed income backdrop, we focused on high
quality issues and remained overweight in spread products, though we have
trimmed our overall allocation in those areas. The portfolio is constantly un-
dergoing evaluation and making the appropriate changes to maintain our simul-
taneous focus on quality and opportunities in the market.
Q. WHAT WERE THE PRINCIPAL FACTORS AFFECTING YOUR PERFORMANCE DURING THE PAST
12 MONTHS?
A. The Series underperformed due to a slightly longer duration than its
benchmark.
Q. WHAT IS YOUR OUTLOOK FOR THE MARKET AND YOUR PORTFOLIO FOR THE NEXT 6
MONTHS? WHAT CHANGES, IF ANY, WILL YOU MAKE TO THE WAY YOU MANAGE YOUR
PORTFOLIO?
A. In our judgement, the challenge remains for Fed policymakers to slow the
economy to a more sustainable pace of growth. We believe there is a case for
another 50 basis points of Fed tightening over the first part of 2000 given a
continued tight labor market. This tightening will likely do more to flatten
the yield curve than move the overall bond market to higher levels. If the Fed
is successful in offsetting rising inflation, then long-term interest rates
should start to fall before year-end 2000 and into 2001. We will focus on
these ideas throughout the year in the management of the portfolio.
25
<PAGE>
A $10,00 investment compared to the Lehman Intermediate Government Index
since the Series' Inception
[GRAPH]
Salomon Brothers U.S. Lehman Intermediate
Government Securities Government Index
10/31/94 10,000 10,000
12/31/94 10,060 9,988
6/30/95 11,571 11,427
6/30/96 11,954 11,891
6/30/97 12,967 12,810
6/30/98 13,954 13,897
6/30/99 13,978 13,964
Average Annual Total Return
Lipper Variable
US Government Lehman Intermediate US Mortgage
Series US Government and GNMA
1 Year 0.2% 0.5% 0.4%
3 Years 5.4 5.5 5.5
5 Years 6.8 6.9 7.2
Since Inception 6.7 6.7 n/a
[checkmark] 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: $51 million as of December 31, 1999
MANAGERS: Roger Lavan has managed the Series since its inception in 1994. Mr.
Lavan has managed the Salomon Brothers Investment Series--U.S. Government
Income Fund and the North American U.S. Government Securities Fund since
January 1992. He joined Salomon Brothers Asset Management Inc in 1990. Mr.
Lavan has also co-managed the Strategic Bond Opportunities Series since June
1998.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts. If these charges were included, the returns shown would
be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
26
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS U.S. GOVERNMENT SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
BONDS & NOTES--83.1% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
FEDERAL AGENCY--76.2%
$ 300,000 Federal Home Loan Banks, 5.940%, 6/13/00............... $ 299,480
1,000,000 Federal Home Loan Banks, 5.800%, 9/02/08............... 921,690
11,006 Federal Home Loan Mortgage Corp., 6.000%, 10/1/10...... 10,463
1,266,134 Federal Home Loan Mortgage Corp., 6.000%, 10/1/28...... 1,158,906
1,069,676 Federal Home Loan Mortgage Corp., 6.000%, 11/1/28...... 979,086
900,000 Federal Home Loan Mortgage Corp., 6.247%, 3/25/21...... 855,563
410,632 Federal Home Loan Mortgage Corp., 6.500%, 8/1/13....... 398,313
194,709 Federal Home Loan Mortgage Corp., 6.500%, 3/1/26....... 183,756
48,615 Federal Home Loan Mortgage Corp., 6.500%, 5/1/26....... 45,881
44,111 Federal Home Loan Mortgage Corp., 6.500%, 6/1/26....... 41,629
659,912 Federal Home Loan Mortgage Corp., 6.500%, 7/1/26....... 622,791
233,194 Federal Home Loan Mortgage Corp., 7.000%, 7/1/11....... 230,790
162,786 Federal Home Loan Mortgage Corp., 7.000%, 4/15/21...... 162,176
146,312 Federal Home Loan Mortgage Corp., 7.500%, 5/1/07....... 147,467
208,596 Federal Home Loan Mortgage Corp., 8.000%, 12/1/19...... 210,747
517,651 Federal Home Loan Mortgage Corp., 8.000%, 7/1/20....... 521,047
141,484 Federal Home Loan Mortgage Corp., 8.250%, 4/1/17....... 144,880
103,358 Federal Home Loan Mortgage Corp., 9.000%, 10/1/17...... 107,156
497,803 Federal Home Loan Mortgage Corp., 10.000%, 3/1/16...... 530,031
219,338 Federal Home Loan Mortgage Corp., 10.500%, 6/1/20...... 234,347
44,379 Federal Home Loan Mortgage Corp., 11.750%, 1/1/12...... 50,052
2,000,000 Federal National Mortgage Association, 6.000%, TBA..... 1,829,360
150,549 Federal National Mortgage Association, 6.500%, 6/1/08.. 147,141
50,296 Federal National Mortgage Association, 6.500%, 12/1/10. 48,965
29,995 Federal National Mortgage Association, 6.500%, 4/1/13.. 29,095
144,658 Federal National Mortgage Association, 6.500%, 4/1/13.. 140,408
627,133 Federal National Mortgage Association, 6.500%, 4/1/13.. 608,319
</TABLE>
<TABLE>
<CAPTION>
FACE VALUE (NOTE
AMOUNT 1A)
<C> <S> <C>
$ 552,317 Federal National Mortgage Association, 6.500%,
7/1/13.............................................. $ 535,748
284,506 Federal National Mortgage Association, 6.500%,
3/1/26.............................................. 269,837
1,448,667 Federal National Mortgage Association, 6.500%,
4/1/29.............................................. 1,364,905
5,900,000 Federal National Mortgage Association, 6.500%, TBA... 5,558,862
1,255,000 Federal National Mortgage Association, 6.527%,
5/25/30............................................. 1,174,522
1,152,696 Federal National Mortgage Association, 6.654%,
12/28/28............................................ 1,118,115
125,418 Federal National Mortgage Association, 7.000%,
11/1/23............................................. 121,969
130,244 Federal National Mortgage Association, 7.000%,
7/1/26.............................................. 126,255
616,531 Federal National Mortgage Association, 7.000%,
2/1/28.............................................. 597,067
673,583 Federal National Mortgage Association, 7.000%,
10/1/28............................................. 651,268
468,619 Federal National Mortgage Association, 7.000%,
11/1/28............................................. 453,094
699,122 Federal National Mortgage Association, 7.000%,
2/1/29.............................................. 677,051
120,216 Federal National Mortgage Association, 7.000%,
2/1/29.............................................. 116,233
1,400,000 Federal National Mortgage Association, 7.000%, TBA... 1,383,802
6,000,000 Federal National Mortgage Association, 7.000%, TBA... 5,801,220
2,000,000 Federal National Mortgage Association, 7.500%, TBA... 1,977,500
11,590 Federal National Mortgage Association, 11.500%,
9/1/19.............................................. 12,785
346,124 Federal National Mortgage Association, 12.000%,
10/1/15............................................. 384,215
19,980 Federal National Mortgage Association, 12.000%,
1/1/16.............................................. 22,228
39,064 Federal National Mortgage Association, 12.500%,
9/1/15.............................................. 43,861
186,490 Federal National Mortgage Association, 12.500%,
1/1/16.............................................. 208,472
35,011 Federal National Mortgage Association, 13.000%,
11/1/14............................................. 39,456
12,117 Federal National Mortgage Association, 14.500%,
11/1/14............................................. 13,988
5,000,000 Government National Mortgage Association 7.500%, TBA. 4,943,750
109,180 Government National Mortgage Association 9.000%,
10/20/16............................................ 114,503
177,513 Government National Mortgage Association 9.000%,
12/15/16............................................ 185,455
300,000 Student Loan Marketing Association, 7.500%, 3/8/00... 300,688
-----------
38,856,388
-----------
</TABLE>
See accompanying notes to financial statements.
27
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS U.S. GOVERNMENT SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
BONDS & NOTES--(CONTINUED)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
U.S. GOVERNMENT--6.9%
$ 600,000 U. S. Treasury Notes,
4.750%, 2/15/04..................................... $ 565,968
1,500,000 U. S. Treasury Notes,
5.250%, 5/15/04..................................... 1,437,272
1,500,000 U. S. Treasury Notes,
5.500%, 5/15/09..................................... 1,397,580
100,000 U. S. Treasury Bonds,
6.375%, 8/15/27..................................... 96,047
-----------
3,496,867
-----------
Total Bonds & Notes (Identified Cost $43,614,937)...... 42,353,255
-----------
</TABLE>
SHORT-TERM INVESTMENTS--59.2%
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
$ 3,500,000 Consolidation Coal Co. 6.520%, 1/19/00............ $ 3,488,590
1,900,000 GATX Capital Corp., 6.470%, 1/19/00............... 1,893,854
2,100,000 Tennessee Gas Pipeline Co., 6.400%, 1/19/00....... 2,093,280
3,500,000 Tyco International, Inc., 6.520%, 1/19/00......... 3,488,590
3,500,000 USEC, Inc., 6.520%, 1/19/00....................... 3,488,590
11,000,000 Repurchase Agreement with J.P. Morgan & Co. dated
12/31/2000 at 2.9% to be repurchased at
$11,002,658 on 1/3/2000, collateralized by
$9,067,000 U.S. Treasury Bonds,9.000% due
11/15/2018 with a value of $11,219,959........... 11,000,000
4,740,000 Repurchase Agreement with State Street Corp. dated
12/31/1999 at 3.0% to be repurchased at
$4,741,185 on 1/3/2000, collateralized by
$3,890,000 U.S. Treasury Bonds, 8.875% due
8/15/17 with a value of $4,838,188............... 4,740,000
------------
Total Short-Term Investments (Identified Cost
$30,192,904)..................................... 30,192,904
------------
Total Investments--142.3%
(Identified Cost $73,807,841)(a)................. 72,546,159
Other assets less liabilities..................... (21,578,672)
------------
TOTAL NET ASSETS--100%............................ $ 50,967,487
============
</TABLE>
(a) Federal Tax Information:
At December 31, 1999 the net unrealized depreciation on investments based on
cost of $73,815,231 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............... $ 1,667
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value............... (1,270,739)
-----------
Net unrealized depreciation.................................... $(1,269,072)
===========
</TABLE>
For Federal income tax purposes, the Series has a capital loss carryforward
at December 31, 1999 of approximately $1,110,000 which will expire in 2007.
Accordingly, no capital gain distributions are expected to be paid to
shareholders until net gains have been realized in excess of such amount.
See accompanying notes to financial statements.
28
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS U.S. GOVERNMENT SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value................................. $56,806,159
Investments in repurchase agreements at cost......... 15,740,000
-----------
Total investments.................................... 72,546,159
Cash................................................. 625
Receivable for:
Fund shares sold..................................... 273,935
Accrued interest..................................... 270,248
-----------
Total Assets......................................... 73,090,967
LIABILITIES
Payable for:
Fund shares redeemed................................. $ 202,104
Securities purchased................................. 21,864,897
Accrued expenses:
Management fees...................................... 27,542
Deferred trustees fees............................... 4,108
Other expenses....................................... 24,829
-----------
Total Liabilities.................................... 22,123,480
-----------
NET ASSETS............................................ $50,967,487
===========
Net assets consist of:
Capital paid in...................................... $53,370,933
Overdistributed net investment income................ (2,294)
Accumulated net realized gains (losses).............. (1,139,470)
Unrealized appreciation (depreciation) on investments
and foreign currency................................ (1,261,682)
-----------
NET ASSETS............................................ $50,967,487
===========
Computation of offering price:
Net asset value and redemption price per share
($50,967,487 divided by 4,716,576 shares of
beneficial interest)................................. $ 10.81
-----------
Identified cost of investments....................... $73,807,841
===========
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest............................................... $ 3,241,603(a)
-----------
EXPENSES
Management fees........................................ $270,607
Trustees' fees and expenses............................ 9,613
Custodian.............................................. 39,405
Audit and tax services................................. 18,084
Legal.................................................. 2,606
Printing............................................... 5,545
Amortization of organization expense................... 1,678
Insurance.............................................. 1,018
Miscellaneous.......................................... 3,452
--------
Total expenses....................................... 352,008
Less expenses assumed by the investment adviser...... (7,595) 344,413
-------- -----------
NET INVESTMENT INCOME................................... 2,897,190
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
Realized gain (loss) on:
Investments--net....................................... (1,147,477)
Unrealized appreciation (depreciation) on:
Investments--net....................................... (1,664,506)
-----------
Net gain (loss)......................................... (2,811,983)
-----------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS... $ 85,207
===========
</TABLE>
(a) Net of interest expense of $6,150.
See accompanying notes to financial statements.
29
<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,
1999 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................... $ 2,897,190 $ 1,753,711
Net realized gain (loss)............................ (1,147,477) 273,855
Unrealized appreciation (depreciation).............. (1,664,506) 196,244
----------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS... 85,207 2,223,810
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income............................... (2,904,887) (1,671,941)
Net realized gain................................... (109,221) (240,092)
----------- -----------
TOTAL DISTRIBUTIONS................................. (3,014,108) (1,912,033)
----------- -----------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares........................ 25,884,708 35,229,571
Reinvestment of distributions....................... 3,014,108 1,912,033
Cost of shares redeemed............................. (20,808,995) (13,790,161)
----------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE
TRANSACTIONS....................................... 8,089,821 23,351,443
----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS............. 5,160,920 23,663,220
NET ASSETS
Beginning of the year............................... 45,806,567 22,143,347
----------- -----------
End of the year..................................... $50,967,487 $45,806,567
=========== ===========
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME
End of the year..................................... $ (2,294) $ 16,486
=========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares...................... 2,268,282 3,026,984
Issued in reinvestment of distributions............. 277,968 167,118
Redeemed............................................ (1,822,836) (1,189,557)
----------- -----------
Net Change.......................................... 723,414 2,004,545
=========== ===========
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year. $ 11.47 $ 11.14 $ 10.83 $ 11.04 $ 9.96
------- ------- ------- ------- ------
Income From Investment Operations
Net Investment Income............. 0.65 0.47 0.53 0.58 0.33
Net Realized and Unrealized Gain
(Loss) on Investments............ (0.62) 0.37 0.40 (0.21) 1.16
------- ------- ------- ------- ------
Total From Investment operations.. 0.03 0.84 0.93 0.37 1.49
------- ------- ------- ------- ------
Less Distributions
Distributions From Net Investment
Income........................... (0.66) (0.45) (0.53) (0.56) (0.33)
Distributions From Net Realized
Capital Gains.................... (0.03) (0.06) (0.05) (0.02) (0.08)
Distributions in Excess of Net
Realized Capital Gains........... 0.00 0.00 (0.04) 0.00 0.00
------- ------- ------- ------- ------
Total Distributions............... (0.69) (0.51) (0.62) (0.58) (0.41)
------- ------- ------- ------- ------
Net Asset Value, End of Year....... $ 10.81 $ 11.47 $ 11.14 $ 10.83 $11.04
======= ======= ======= ======= ======
TOTAL RETURN (%)................... 0.2 7.5 8.6 3.3 15.0
Ratio of Operating Expenses to
Average Net Assets (%)............ 0.70 0.70 0.70 0.70 0.70
Ratio of Net Investment Income to
Average Net Assets (%)............ 5.89 5.70 6.42 6.13 5.62
Portfolio Turnover Rate (%)........ 530 496 572 388 415
Net Assets, End of Year (000)...... $50,967 $45,807 $22,143 $13,211 $7,542
The ratios of operating expenses to
average net assets without giving
effect to the voluntary expense
agreement described in Note 4 to
the Financial Statements would
have been (%)..................... 0.72 0.77 0.98 1.37 2.90
</TABLE>
See accompanying notes to financial statements.
30
<PAGE>
BACK BAY ADVISORS MANAGED SERIES
PORTFOLIO MANAGER: PETER W. PALFREY, CFA BACK BAY ADVISORS, L.P.
[PHOTO OF PETER PALFREY APPEARS HERE]
Q. HOW DID THE SERIES PERFORM DURING THE PAST TWELVE MONTHS RELATIVE TO ITS
INDEX AND RELATIVE TO ITS PEERS?
A. The Series performed below its peer group average for the year ending Decem-
ber 31, 1999, returning 10.0% versus 12.0% for the Lipper Variable Product
Flexible Fund Average,/8/ placing the Series in the 55th percentile. The Series
also underperformed compared to an unmanaged index of 65% S&P 500 Index and 35%
Lehman Government/Corporate Bond Index,/3/ which returned 12.5%. This
underperformance reflected the significant underperformance of the stock por-
tion of the portfolio relative to the S&P 500 Index./25/ In particular, the low
P/E holdings, which comprise 20% of the stock portfolio, were only marginally
positive for the year, in marked contrast to the 20% plus returns recorded in
the broader market, as investors continued to shun "value" situations and favor
"growth" situations. However, the Series remains well ahead of its peers on a
3-year and 5-year basis, with annualized returns of 18.5% and 20.3%, respec-
tively, versus 15.3% and 17.1%, respectively, for its peer group.
Q. BRIEFLY DISCUSS THE INVESTMENT AND MARKET ENVIRONMENT DURING THE PAST TWELVE
MONTHS.
A. As liquidity returned to the fixed income and equity markets late in 1998,
the "flight to quality" dissipated, causing Treasury bond yields to rise
sharply through year-end 1998 and into 1999. Mitigating the negative effect of
this sharp rise in interest rates in the government market was a significant
shift in investor appetite back towards "riskier" assets, including equities
and fixed income spread products. This translated into robust equity returns
and a significant tightening of fixed income spread products during the first
five months of 1999.
However, market conditions subsequently deteriorated. As it became clear that
most overseas economies and the U.S. had weathered the Russian default-inspired
liquidity crisis of last fall (and were well on their way towards a sustainable
rebound), investor attention shifted to the threat of tighter Federal Reserve
monetary policy. Rising commodity prices, tight U.S. labor markets, sustained
consumer spending, and lofty equity market valuations subsequently prompted the
Federal Reserve to raise short-term interest rates on three separate occasions
in a preemptive bid to keep consumer prices in check. Equity markets corrected
sharply through mid-October, mirroring the precipitous decline in bond values.
As liquidity and Y2K concerns started to abate in late fall, investors rushed
back to U.S. (and global) equity markets, pushing the averages sharply higher
as it neared year-end. While fixed income spread markets managed to recover a
portion of the ground lost during the summer months, U.S. Treasury yields con-
tinued their ascent later in the year, as investors debated the likelihood of
additional Federal Reserve monetary tightening in response to the increased
threat of inflation.
Q. GIVEN THIS ENVIRONMENT, WHAT WAS YOUR INVESTMENT STRATEGY? WHAT CHANGES DID
YOU MAKE SINCE THE START OF THE YEAR?
A. The stock/bond allocation was managed within plus or minus 2% of the Series'
neutral allocation of 65% stocks/35% bonds throughout 1999. While stocks re-
mained "fully" valued by most historical measures, including P/E's versus pro-
jected earnings growth, price to book, and E/P to the 10-yr bond yield, funda-
mentals remained strong with year-over-year S&P 500 Index earnings growth esti-
mated above 15% for 2000 and 2001. Market technicals also remained strong, with
investors favoring equity assets over fixed income assets by significant mar-
gins--a trend precipitated by the last bond bear market in 1994. 80% of the
stock portfolio was managed to substantially replicate the S&P 500, with the
remaining 20% of the stock portfolio managed under a low P/E strategy.
The bond portfolio was managed with a heavy emphasis on spread product over
Treasuries, including corporates, Yankees, and non-dollar securities. In par-
ticular, the portfolio included significant allocations to sectors that would
benefit from a strong U.S. and global economy. Allocations to cable, telecom,
energy, and forest product companies, as well as to commodity-rich (more cycli-
cal) countries like Canada and Australia were central to the "global re-infla-
tion" theme of the fixed income strategy. This allowed the fixed income portfo-
lio to significantly outperform the broader bond market, despite being long du-
ration in a rising rate environment.
Q. WHAT WERE THE PRINCIPAL FACTORS AFFECTING YOUR PERFORMANCE (ON BOTH AN
ABSOLUTE AND RELATIVE BASIS) DURING THE TWELVE MONTHS? WHAT INVESTMENT
DECISIONS WERE MOST EFFECTIVE AND WHICH ONES WERE LEAST EFFECTIVE?
A. The portfolio's equity core holdings performed in line with the broader mar-
ket. However, the portfolio's low P/E holdings
31
<PAGE>
significantly underperformed the broader market, negatively impacting overall
performance. The Series 65% weighting to equities was a modest positive (ver-
sus the average balanced fund allocation of 60%) given the 10% outperformance
of the stock versus bond portfolio for the year. Within the fixed income port-
folio, the fund's non-dollar and emerging market holdings were a significant
boost to performance, turning in a strong relative and absolute performance
for the year. The bond portfolio's longer than Index duration was a positive,
despite upward trending U.S. Treasury rates, as other long duration spread
product held tightened more than benchmark Treasury rates increased.
Q. WHAT IS YOUR OUTLOOK FOR THE MARKET AND YOUR PORTFOLIO FOR THE NEXT SIX
MONTHS? WHAT CHANGES, IF ANY, WILL YOU MAKE TO THE WAY YOU MANAGE YOUR
PORTFOLIO?
A. We believe that economic activity in the U.S. will be stronger in the first
half of 2000 than in the second half. With the U.S. economy currently showing
no sign of moderating, and year-end/Y2K related concerns now behind us, the
Federal Reserve is likely to tighten policy in February and perhaps again in
March, as necessary, in its bid to rein in U.S. economic growth closer to its
long term potential of 3-3 1/2 percent. Because monetary tightening works with
a lagged effect, a sustainable slowdown in U.S. economic activity is likely to
take some time to manifest itself, becoming more evident later in the year of
2000.
During the first half of 2000, equity markets will likely play a tug of war
between strong earnings growth expectations, and the increasing threat of ad-
ditional Federal Reserve tightening and higher interest rates. We are main-
taining a neutral allocation to equities, but remain ready to decrease the al-
location to stocks, should signs of declining U.S. economic activity start to
materialize. Similarly, the bond portfolio will remain overweight to the
spread sector, but will increase Treasury and Mortgage exposure should the
U.S. economy come under significant downward economic pressure.
A $10,000 Investment Compared to the S&P 500 and Lehman Brothers
Government/Corporate Indices for the past 10 years
[GRAPH]
Managed Series Lehman Government Corp. S&P 500
12/31/89 10,000 10,000 10,000
12/90 10,322 10,828 9,682
12/91 12,404 12,575 12,642
12/92 13,236 13,528 13,614
12/93 14,647 15,020 14,974
12/94 14,485 14,493 15,166
12/95 19,017 17,282 20,851
12/96 21,875 17,784 25,663
12/97 27,681 19,519 34,191
12/98 33,128 21,368 44,021
12/31/99 36,426 20,909 53,256
Average Annual Total Returns
Lipper Variable
Lehman Flexible Portfolio
Managed Series S&P 500 Government/Corp. Fund Average
1 year 10.0% 21.0% -2.2% 12.0%
3 years 18.5 27.6 5.5 15.3
5 years 20.3 28.6 7.6 17.1
10 years 13.8 18.2 7.7 13.0
Since Inception 13.0 16.8 8.0 n/a
[checkmark] FUND FACTS
GOAL: A favorable total return through investment in a diversified portfolio.
The Series' portfolio is expected to include a mix of common stocks and fixed
income securities.
START DATE: March 30, 1987
SIZE: $219 million as of December 31, 1999
MANAGER: Peter Palfrey has managed the Series since January 1994 and joined
Back Bay Advisors in 1993. Mr. Palfrey also manages Bond Income Series and
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.
32
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--65.1% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
AEROSPACE--0.4%
11,276 Boeing Co. .............................................. $ 468,659
10,800 Lockheed Martin Corp. ................................... 236,250
1,900 Rockwell International Corp. ............................ 90,963
------------
795,872
------------
AIR TRANSPORTATION--0.3%
4,700 AMR Corp.(b)............................................. 314,900
10,400 FDX Corp.(b)............................................. 425,750
------------
740,650
------------
AUTOMOBILE & RELATED--1.0%
16,300 Cooper Tire & Rubber Co. ................................ 253,669
4,892 Delphi Automotive Systems Corp. ......................... 77,049
21,500 Ford Motor Co. .......................................... 1,148,906
7,000 General Motors Corp. .................................... 508,812
------------
1,988,436
------------
BANKS--4.8%
12,900 AmSouth Bancorporation................................... 249,131
25,589 Bank of America Corp. ................................... 1,284,248
15,100 Bank of New York Co., Inc. .............................. 604,000
12,440 Bank One Corp. .......................................... 398,858
9,000 Chase Manhattan Corp. ................................... 699,188
35,466 Citigroup, Inc. ......................................... 1,970,580
5,000 Comerica, Inc. .......................................... 233,437
10,500 First Union Corp. ....................................... 344,531
19,400 FleetBoston Financial Corp. ............................. 675,362
8,400 Golden West Financial Corp. ............................. 281,400
4,800 J.P. Morgan & Co., Inc. ................................. 607,800
8,500 KeyCorp.................................................. 188,062
16,000 National City Corp. ..................................... 379,000
5,500 PNC Bank Corp. .......................................... 244,750
5,000 Republic New York Corp. ................................. 360,000
7,100 Summit Bancorp........................................... 217,438
15,900 U.S. Bancorp............................................. 378,619
23,000 Washington Mutual, Inc. ................................. 598,000
17,200 Wells Fargo & Co. ....................................... 695,525
------------
10,409,929
------------
BUSINESS MACHINES--2.5%
26,838 Compaq Computer Corp. ................................... 726,303
31,000 Dell Computer Corp.(b)................................... 1,581,000
29,700 International Business Machines Corp..................... 3,207,600
------------
5,514,903
------------
BUSINESS SERVICES--0.9%
19,400 America Online, Inc.(b).................................. 1,463,488
9,200 Ceridian Corp.(b)........................................ 198,375
9,200 H & R Block, Inc. ....................................... 402,500
------------
2,064,363
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
CHEMICALS--1.2%
15,100 E.I. Du Pont de Nemours & Co. ........................... $ 994,712
5,500 Great Lakes Chemical Corp. .............................. 210,031
15,200 Pitney Bowes, Inc. ...................................... 734,350
11,600 Monsanto Co. ............................................ 413,250
5,100 Union Carbide Corp. ..................................... 340,425
------------
2,692,768
------------
COMMUNICATION--7.0%
42,076 AT&T Corp. .............................................. 2,135,357
22,424 Bell Atlantic Corp. ..................................... 1,380,478
18,800 BellSouth Corp. ......................................... 880,075
14,400 GTE Corp. ............................................... 1,016,100
32,550 MCI Worldcom, Inc.(b).................................... 1,727,184
32,960 SBC Communications, Inc. ................................ 1,606,800
8,600 Sprint Corp. ............................................ 578,888
7,100 U S West, Inc. .......................................... 511,200
35,336 Lucent Technologies, Inc. ............................... 2,643,575
13,200 Nortel Networks Corp. ................................... 1,333,200
8,800 Qualcomm, Inc.(b)........................................ 1,549,900
------------
15,362,757
------------
COMPUTERS & BUSINESS EQUIPMENT--2.8%
4,900 Adobe Systems, Inc. ..................................... 329,525
32,400 Cisco Systems, Inc.(b)................................... 3,470,850
10,600 EMC Corp.(b)............................................. 1,158,050
16,000 Sun Microsystems, Inc.(b)................................ 1,239,000
------------
6,197,425
------------
CONGLOMERATES--0.2%
6,200 Minnesota Mining & Manufactoring Co. .................... 606,825
------------
CONSTRUCTION--1.0%
27,000 Home Depot, Inc. ........................................ 1,851,187
10,900 Masco Corp. ............................................. 276,588
------------
2,127,775
------------
CONSUMER DURABLES--2.4%
30,800 General Electric Co. .................................... 4,766,300
6,900 Whirlpool Corp. ......................................... 448,931
------------
5,215,231
------------
CONTAINERS--0.1%
8,000 Bemis Co. ............................................... 279,000
------------
CONTAINERS & PACKAGING--0.0%
6,200 Pactiv Corp.(b).......................................... 65,875
------------
</TABLE>
See accompanying notes to financial statements.
33
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
DATA PROCESSING--5.3%
12,900 Automatic Data Processing, Inc........................... $ 694,988
39,900 Intel Corp. ............................................. 3,284,269
50,800 Microsoft Corp.(b)....................................... 5,930,900
15,525 Oracle Corp.(b).......................................... 1,739,770
------------
11,649,927
------------
DOMESTIC OIL--1.1%
4,300 Amerada Hess Corp. ...................................... 244,025
5,400 Atlantic Richfield Co. .................................. 467,100
10,300 Chevron Corp. ........................................... 892,238
7,200 Halliburton Co. ......................................... 289,800
15,600 Unocal Corp. ............................................ 523,575
------------
2,416,738
------------
DRUGS & MEDICINE--4.1%
17,600 Abbott Laboratories...................................... 639,100
16,100 American Home Products Corp. ............................ 634,944
12,800 Bausch & Lomb, Inc. ..................................... 876,000
7,600 Baxter International, Inc. .............................. 477,375
9,600 Becton, Dickinson & Co. ................................. 256,800
8,500 C.R. Bard, Inc. ......................................... 450,500
15,800 Eli Lilly & Co. ......................................... 1,050,700
27,400 Merck & Co., Inc ........................................ 1,837,513
41,400 Pfizer, Inc. ............................................ 1,342,913
18,400 Schering-Plough Corp. ................................... 776,250
8,700 Warner-Lambert Co. ...................................... 712,856
------------
9,054,951
------------
ELECTRONICS--3.6%
6,100 Applied Materials, Inc.(b)............................... 772,794
9,200 Emerson Electric Co. .................................... 527,850
15,600 Hewlett-Packard Co. ..................................... 1,777,425
4,500 Honeywell International, Inc. ........................... 259,594
8,000 Motorola, Inc. .......................................... 1,178,000
20,900 PerkinElmer, Inc. ....................................... 871,269
15,400 Raytheon Co., Class B.................................... 409,063
10,200 Scientific-Atlanta, Inc. ................................ 567,375
14,400 Tektronix, Inc. ......................................... 559,800
10,800 Texas Instruments, Inc. ................................. 1,046,250
------------
7,969,420
------------
ENERGY & UTILITIES--1.3%
11,700 Consolidated Edison, Inc. ............................... 403,650
19,200 Edison International..................................... 502,800
8,000 GPU, Inc. ............................................... 239,500
10,700 PECO Energy Co. ......................................... 371,825
22,000 PG&E Corp. .............................................. 451,000
7,700 Public Service Enterprise Group, Inc. ................... 268,056
8,900 Texas Utilities Co. ..................................... 316,506
10,600 Unicom Corp. ............................................ 355,100
------------
2,908,437
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
ENERGY RAW MATERIALS--0.3%
27,200 Occidental Petroleum Corp. .............................. $ 588,200
------------
FINANCE--2.2%
4,800 American Express Co. .................................... 798,000
6,405 Bear Stearns Companies, Inc. ............................ 273,814
13,600 Charles Schwab Corp. .................................... 521,900
6,900 Countrywide Credit Industries, Inc. ..................... 174,225
9,000 Federal Home Loan Mortgage Corp. ........................ 423,562
11,000 Federal National Mortgage Association.................... 686,812
4,700 Lehman Brothers Holdings, Inc. .......................... 398,031
6,500 Merrill Lynch & Co., Inc. ............................... 542,750
6,100 Morgan Stanley Dean Witter & Co. ........................ 870,775
6,300 SLM Holding Corp. ....................................... 266,175
------------
4,956,044
------------
FOOD & AGRICULTURE--2.1%
26,200 Coca-Cola Co. ........................................... 1,526,150
20,450 H.J. Heinz Co. .......................................... 814,166
15,600 PepsiCo, Inc. ........................................... 549,900
10,200 Ralston Purina Co. ...................................... 284,325
32,000 Sara Lee Corp. .......................................... 706,000
30,400 Supervalu, Inc. ......................................... 608,000
------------
4,488,541
------------
GAS UTILITIES--0.4%
7,100 Eastern Enterprises...................................... 407,806
14,500 Enron Corp. ............................................. 643,437
------------
1,051,243
------------
HEALTH CARE--0.2%
15,464 Tyco International, Ltd. ................................ 601,163
------------
HOTELS & RESTAURANTS--0.3%
18,200 Hilton Hotels Corp. ..................................... 175,175
14,200 McDonald's Corp. ........................................ 572,438
------------
747,613
------------
HOUSEHOLD PRODUCTS--0.1%
8,000 American Greetings Corp. ................................ 189,000
------------
INDUSTRIAL PARTS & MACHINERY--0.6%
11,100 Caterpillar, Inc. ....................................... 522,394
13,600 Crane Co. ............................................... 270,300
8,500 Deere & Co. ............................................. 368,687
8,800 National Service Industries, Inc. ....................... 259,600
------------
1,420,981
------------
</TABLE>
See accompanying notes to financial statements.
34
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
INSURANCE--2.0%
17,200 Allstate Corp. .......................................... $ 412,800
14,400 American General Corp. .................................. 1,092,600
18,191 American International Group, Inc. ...................... 1,966,902
8,100 CIGNA Corp. ............................................. 652,556
4,600 Loews Corp. ............................................. 279,162
------------
4,404,020
------------
INTERNATIONAL OIL--2.3%
40,857 Exxon Mobil Corp. ....................................... 3,291,542
22,800 Royal Dutch Petroleum Co. (ADR).......................... 1,377,975
9,600 Texaco, Inc. ............................................ 521,400
------------
5,190,917
------------
INTERNET SERVICES--0.4%
2,500 Yahoo!, Inc.(b).......................................... 1,081,719
------------
LEISURE--0.5%
22,200 Brunswick Corp. ......................................... 493,950
13,600 Carnival Corp. .......................................... 650,250
------------
1,144,200
------------
LIQUOR--0.2%
6,600 Anheuser-Busch Companies, Inc. .......................... 467,775
------------
MEDIA--1.7%
13,800 CBS Corp.(b)............................................. 882,338
6,000 Gannett Company, Inc. ................................... 489,375
9,700 MediaOne Group, Inc.(b).................................. 745,081
13,100 Time Warner, Inc. ....................................... 948,931
12,400 Viacom, Inc., Class B(b)................................. 749,425
------------
3,815,150
------------
MISCELLANEOUS--1.0%
20,000 IMS Health, Inc. ........................................ 543,750
10,600 Milacron, Inc. .......................................... 162,975
7,600 Nacco Industries, Inc. .................................. 422,275
------------
1,129,000
------------
NON-FERROUS METALS--1.0%
7,926 Newmont Mining Corp. .................................... 194,187
13,800 Alcoa, Inc. ............................................. 1,145,400
------------
1,339,587
------------
OFFICE EQUIPMENT--0.1%
16,800 Xerox Corp. ............................................. 381,150
------------
OPTICAL PHOTO EQUIPMENT--0.2%
7,600 Eastman Kodak Co. ....................................... 503,500
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
PAPER & FOREST PRODUCTS--1.0%
14,200 Georgia Pacific Corp. ................................... $ 720,650
9,100 Kimberly-Clark Corp. .................................... 593,775
8,400 Westvaco Corp. .......................................... 274,050
------------
1,588,475
------------
POLLUTION CONTROL--0.1%
6,887 Waste Management, Inc. .................................. 118,370
------------
PUBLISHING--0.1%
6,000 Knight-Ridder, Inc. ..................................... 357,000
------------
RAILROADS & SHIPPING--0.3%
9,900 Burlington Northern Santa Fe............................. 240,075
5,100 CSX Corp. ............................................... 160,012
13,500 Norfolk Southern Corp. .................................. 276,750
------------
676,837
------------
RETAIL--3.6%
19,000 Albertson's, Inc. ....................................... 612,750
12,100 Gap, Inc. ............................................... 556,600
12,200 J.C. Penney Co., Inc. ................................... 243,238
38,900 Kmart Corp. ............................................. 391,431
7,100 Limited, Inc. ........................................... 307,519
8,100 Longs Drug Stores Corp. ................................. 209,081
26,400 Mattel, Inc. ............................................ 346,500
26,900 May Department Stores Co. ............................... 867,525
15,900 Sears, Roebuck & Co. .................................... 483,956
30,000 Walgreen Co. ............................................ 877,500
44,300 Wal-Mart Stores, Inc. ................................... 3,062,238
------------
7,958,338
------------
SOAPS & COSMETICS--3.2%
20,100 Alberto-Culver Co., Class B.............................. 518,831
39,240 Bristol-Myers Squibb Co. ................................ 2,518,718
18,000 Gillete Co. ............................................. 741,375
6,600 International Flavours & Fragrances, Inc. ............... 249,150
16,500 Johnson & Johnson........................................ 1,536,562
14,100 Procter & Gamble Co. .................................... 1,544,831
------------
7,109,467
------------
STEEL--0.1%
11,520 USX-U.S. Steel Group..................................... 380,160
------------
TELECOMMUNICATIONS--0.5%
22,755 Global Crossing, Ltd.(b)................................. 1,137,750
------------
TOBACCO--0.4%
25,900 Philip Morris Companies, Inc. ........................... 600,557
10,000 UST, Inc. ............................................... 251,875
------------
852,432
------------
</TABLE>
See accompanying notes to financial statements.
35
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
TRAVEL & RECREATION--0.2%
21,805 The Walt Disney Co. ............................... $ 637,796
------------
Total Common Stocks
(Identified Cost $79,534,433)..................... 142,377,710
------------
BONDS & NOTES--33.7%
<CAPTION>
FACE
AMOUNT
<C> <S> <C>
AEROSPACE/DEFENSE--0.2%
$ 280,000 Lockheed Martin Corp., 8.200%, 12/1/09............. 279,403
220,000 Lockheed Martin Corp., 8.500%, 12/1/29............. 220,208
------------
499,611
------------
BUILDING MATERIALS--0.5%
1,000,000 Cemex SA, 9.625%, 10/1/09, 144A.................... 1,010,000
------------
ELECTRIC UTILITIES--0.1%
250,000 CE Generation, Llc., 7.416%, 12/15/18, 144A........ 230,382
------------
FEDERAL AGENCIES--0.2%
174,682 Government National Mortgage Association, 11.500%,
with various maturities to 2013................... 192,944
164,856 Government National Mortgage Association, 10.000%,
9/15/2018......................................... 177,643
------------
370,587
------------
FOREIGN--9.1%
6,000,000 European Investment Bank, 6.00%, 7/15/05 (AUD)..... 3,750,716
5,000,000 Government of Canada, Zero Coupon, 3/15/21 (CAD)... 894,008
15,000,000 Government of Canada, Zero Coupon, 6/1/25 (CAD).... 2,168,895
1,300,000 Kappa Beheer BV, 10.625%, 7/20/09 144A (EUR)....... 1,378,306
3,000,000 Province of Ontario, 8.100%, 9/8/23 (CAD).......... 2,405,528
30,000,000 Province of Ontario, Zero Coupon, 9/8/23 (CAD)..... 4,323,034
15,000,000 Province of Quebec Stripped, Zero Coupon, 1/16/23
(CAD)............................................. 2,129,927
3,600,000 Province of Quebec, 8.500%, 4/1/26 (CAD)........... 2,968,585
------------
20,018,999
------------
</TABLE>
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
MEDIA & ENTERTAINMENT--1.8%
$ 1,000,000 CSC Holdings, Inc., 7.875%, 12/15/07............... $ 988,074
2,000,000 CSC Holdings, Inc., 7.875%, 12/15/18............... 1,906,445
1,000,000 News America Holdings, Inc., 10.125%, 10/15/12..... 1,098,521
------------
3,993,040
------------
RETAIL--2.1%
4,285,000 Great Atlantic & Pacific Tea, Inc., 7.750%,
4/15/07........................................... 3,921,563
Rite Aid Corp.,
550,000 7.125%, 1/15/07................................... 407,000
Rite Aid Corp.,
300,000 7.700%, 2/15/27................................... 216,000
------------
4,544,563
------------
TELECOMMUNICATIONS--2.7%
1,000,000 KPNQwest BV,
7.125%, 6/1/09 (EUR).............................. 980,655
5,000,000 MCI Communications Corp., 7.125%, 6/15/27.......... 4,998,942
------------
5,979,597
------------
TRANSPORTATION--1.2%
2,750,000 Norfolk Southern Corp., 7.050%, 5/1/37............. 2,703,628
------------
U.S. GOVERNMENT--0.8%
2,000,000 U.S. Treasury Bonds,
5.25%, 2/15/29.................................... 1,653,740
------------
YANKEE--15.0%
2,000,000 Endesa SA,
8.500%, 4/1/09.................................... 1,981,978
1,700,000 Kappa Beheer BV, 10.625%, 7/15/09, 144A............ 1,778,625
3,000,000 Kimberly-Clark de Mexico, SA, 8.875%, 8/1/09, 144A. 3,056,645
2,000,000 Multicanal SA,
13.125%, 4/15/09.................................. 1,980,000
3,250,000 NatSteel Electronics, Ltd., 1.500%, 6/30/04, 144A.. 3,904,063
500,000 PDVSA Finance, Ltd., 6.650%, 2/15/06............... 425,101
1,250,000 PDVSA Finance, Ltd., 8.875%, 2/15/04, 144A......... 1,219,710
1,500,000 Pemex Finance, Ltd., 9.150%, 11/15/18.............. 1,485,000
2,000,000 Pemex Petroleos Mexicanos, 9.500%, 9/15/27......... 1,965,000
</TABLE>
See accompanying notes to financial statements.
36
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
BONDS & NOTES--(CONTINUED)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
YANKEE--(CONTINUED)
$ 925,000 Pindo Deli Finance Mauritius, Ltd., 10.750%,
10/1/07........................................... $ 675,250
2,000,000 Republic of Colombia, 9.750%, 4/23/09.............. 1,910,000
3,000,000 Republic of Korea,
8.875%, 4/15/08................................... 3,157,921
6,008,000 Republic of Panama, 8.875%, 9/30/27................ 5,076,760
500,000 Republic of Panama,
9.375%, 4/1/29.................................... 473,125
2,000,000 Total Access Communication Public,
8.375%, 11/4/06, 144A............................. 1,537,914
2,000,000 YPF Sociadad Anonima, 9.125%, 2/24/09.............. 2,068,970
------------
32,696,062
------------
Total Bonds & Notes (Identified Cost $73,676,225).. 73,700,209
------------
WARRANTS--0.0%
<CAPTION>
SHARES
<C> <S> <C>
RIGHTS/WARRANTS
5,500 Republic of Argentina.............................. $ 742
1,550 Republic of Argentina.............................. 21,118
------------
21,860
------------
Total Warrants (Identified Cost $166,344).......... 21,860
------------
</TABLE>
SHORT-TERM INVESTMENT--1.0%
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
$2,270,000 Household Finance Corp., 4.000%, 1/3/00............ $ 2,269,496
------------
Total Short-Term Investment
(Identified Cost $2,269,496)........................ 2,269,496
------------
Total Investments--99.8%
(Identified Cost $155,646,498)(a)................... 218,369,275
Other assets less liabilities...................... 511,470
------------
TOTAL NET ASSETS--100%............................. $218,880,745
============
(a) Federal Tax Information:
At December 31, 1999 the net unrealized appreciation on investments based on
cost of $155,646,498 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.......... $ 71,735,140
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value.......... (9,012,363)
------------
Net unrealized appreciation.................................. $ 62,722,777
============
</TABLE>
(b) Non-income producing security.
Key to Abbreviations:
AUD-- Australian Dollar
CAD-- Canadian Dollar
EUR-- Euro Currency
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 $14,115,645 or 6.4% of
net assets.
ADR/GDR--An American Depositary Receipt (ADR) or Global Depositary Receipt
(GDR) is a certificate issued by a Custodian Bank representing the
right to receive securities of the foreign issuer described. The
value of ADRs and GDRs are significantly influenced by trading on
exchanges not located in the United States or Canada.
See accompanying notes to financial statements.
37
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value................................ $218,369,275
Cash................................................ 964,146
Receivable for:
Fund shares sold.................................... 209,807
Dividends and interest.............................. 1,524,753
------------
Total Assets....................................... 221,067,981
LIABILITIES
Payable for:
Fund shares redeemed................................ $ 289,871
Securities purchased................................ 1,704,606
Withholding taxes................................... 10,627
Accrued expenses:
Management fees..................................... 91,468
Deferred trustees fees.............................. 61,478
Other expenses...................................... 29,186
----------
Total Liabilities.................................. 2,187,236
------------
NET ASSETS........................................... $218,880,745
============
Net assets consist of:
Capital paid in..................................... $151,674,503
Overdistributed net investment income............... (7,473)
Accumulated net realized gains (losses)............. 4,488,574
Unrealized appreciation (depreciation) on
investments and foreign currency................... 62,725,141
------------
NET ASSETS........................................... $218,880,745
============
Computation of offering price:
Net asset value and redemption price per share
($218,880,745 divided by 1,112,100 shares of
beneficial interest)................................ $ 196.82
============
Identified cost of investments....................... $155,646,498
============
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends...................................... $ 2,077,629(a)
Interest....................................... 6,028,695
------------
8,106,324
EXPENSES
Management fees................................ $ 1,083,736
Trustees' fees and expenses.................... 19,744
Custodian...................................... 92,612
Audit and tax services......................... 15,543
Legal.......................................... 12,507
Printing....................................... 34,098
Insurance...................................... 4,977
Miscellaneous.................................. 3,994
------------
Total Expenses................................ 1,267,211
------------
NET INVESTMENT INCOME........................... 6,839,113
------------
REALIZED AND UNREALIZED GAIN (LOSS)
Realized gain (loss) on:
Investments--net............................... 24,765,358
Foreign currency transactions--net............. (220,409) 24,544,949
------------
Unrealized appreciation (depreciation) on:
Investments--net............................... (10,965,559)
Foreign currency translation--net.............. 2,364 (10,963,195)
------------ ------------
Net gain (loss)................................. 13,581,754
------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS..................................... $ 20,420,867
============
</TABLE>
(a) Net of foreign taxes of $28,674
See accompanying notes to financial statements.
38
<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,
1999 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................. $ 6,839,113 $ 6,318,249
Net realized gain (loss).......................... 24,544,949 11,371,308
Unrealized appreciation (depreciation)............ (10,963,195) 18,240,693
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS. 20,420,867 35,930,250
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income............................. (6,667,691) (6,267,551)
Net realized gain................................. (24,078,071) (12,208,852)
------------ ------------
TOTAL DISTRIBUTIONS............................... (30,745,762) (18,476,403)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares...................... 35,751,814 28,307,821
Reinvestment of distributions..................... 30,745,762 18,476,403
Cost of shares redeemed........................... (50,931,129) (39,381,579)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS............................... 15,566,447 7,402,645
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS........... 5,241,552 24,856,492
NET ASSETS
Beginning of the year............................. 213,639,193 188,782,701
------------ ------------
End of the year................................... $218,880,745 $213,639,193
============ ============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT
INCOME
End of the year................................... $ (7,473) $ 9,035
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................... 165,739 137,877
Issued in reinvestment of distributions........... 155,035 88,585
Redeemed.......................................... (236,987) (192,507)
------------ ------------
Net Change........................................ 83,787 33,955
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year........................ $ 207.76 $ 189.85 $ 170.37 $ 163.52 $ 130.30
-------- -------- -------- -------- --------
Income From Investment
Operations
Net Investment Income....... 6.98 6.56 6.38 6.43 6.34
Net Realized and Unrealized
Gain (Loss) on Investments. 13.48 30.50 38.47 18.21 34.33
-------- -------- -------- -------- --------
Total From Investment
Operations................. 20.46 37.06 44.85 24.64 40.67
-------- -------- -------- -------- --------
Less Distributions
Distributions From Net
Investment Income.......... (6.83) (6.51) (6.42) (6.34) (6.34)
Distributions in Excess of
Net Investment Income...... 0.00 0.00 0.00 0.00 (0.23)
Distributions From Net
Realized Capital Gains..... (24.57) (12.64) (18.95) (11.45) (0.88)
-------- -------- -------- -------- --------
Total Distributions......... (31.40) (19.15) (25.37) (17.79) (7.45)
-------- -------- -------- -------- --------
Net Asset Value, End of Year. $ 196.82 $ 207.76 $ 189.85 $ 170.37 $ 163.52
======== ======== ======== ======== ========
TOTAL RETURN (%)............. 10.0 19.7 26.6 15.0 31.3
Ratio of Operating Expenses
to Average Net Assets (%)... 0.58 0.58 0.61 0.62 0.64
Ratio of Net Investment
Income to Average Net Assets
(%)......................... 3.16 3.15 3.20 3.64 4.06
Portfolio Turnover Rate (%).. 49 25 65 72 51
Net Assets, End of Year
(000)....................... $218,881 $213,639 $188,783 $160,888 $147,536
</TABLE>
See accompanying notes to financial statements.
39
<PAGE>
LOOMIS SAYLES BALANCED SERIES
PORTFOLIO MANAGERS: TRICIA H. MILLS, TOM KOLEFAS AND JOHN HYLL
LOOMIS, SAYLES & COMPANY, L.P.
(PHOTO OF TRICIA MILLS APPEARS HERE)
(PHOTO OF TOM KOLEFAS APPEARS HERE)
(PHOTO OF JOHN HYLL APPEARS HERE)
Q. HOW DID THE SERIES PERFORM DURING THE PAST TWELVE MONTHS RELATIVE TO ITS
INDEX AND RELATIVE TO ITS PEER GROUP?
The Loomis Sayles Balanced Series underperformed its peers and the fixed-income
and equity benchmarks for each of its components. This came in an environment
of overall weakness for the value style and the bond market. The Series
returned -5.1% for the year compared to the 8.7% average return of the Lipper
Variable Product Balanced Fund./7/
The equity portion of the Balanced Series had a total return of -5.0% in 1999,
versus a +7.35% return for the Russell 1000 Value Index. The median Growth and
Income equity fund in the Lipper universe was up 6.81% in this same time
period. The fixed income portion of the Series returned -2.9% and
underperformed the Lehman Brothers Government/Corporate Index/3/ return of -
2.2% and its peer group during the year. Our longer duration during the first
half of the year and bulleted yield curve structure hurt performance.
Q. BRIEFLY DISCUSS THE INVESTMENT AND MARKET ENVIRONMENT DURING THE PAST TWELVE
MONTHS?
A. Interest rates rose in 1999 as the Federal Reserve Open Market Committee in-
creased the Fed Funds rate three times in 25 basis point increments, taking
away all of the easing they initiated in 1998. However, despite the rate on the
30-year Treasury moving from just over 5% to nearly 6.5% during 1999, the eq-
uity market still moved sharply ahead, with the S&P 500 Index finishing the
year with a total return of 21%. An estimated average operating earnings gain
of 15% for companies in the Index helped propel it upward. Enthusiasm for tech-
nology stocks in the final quarter of 1999 and their substantial weighting in
the S&P 500 Index (currently 29%) was also a factor in the market's strong
showing.
Leadership in the equity markets remained very narrow in 1999 and could be
characterized as technology-related, rather than large-cap and/or growth-
related as was the case in 1998. For example, of the top ten contributors to
the S&P 500 Index returns for the year, only three were NOT technology stocks
(Wal-Mart, General Electric and Home Depot).
In distant second place, well off the blistering pace set by technology and
internet-related stocks, was the Basic Materials sector, which likely
outperformed due to strong U.S. economic activity and the revival of many Asian
economies, which tended to firm up the prices and supply of several
commodities. Energy, Communication Services, and Capital Goods round out the
sectors that showed relative strength in the year. Given that the combined
weight of these stronger sectors amounts to less that 50% of the S&P 500 Index,
it is clear that many well-diversified portfolios had a high probability of
underperforming the benchmark. In fact, the median company in the smallest 450
stocks in the index actually declined 1.9% for the year.
For fixed income securities the story was that not only did the yield on the 30
year U.S. Treasury rise to 6.48% on 12/31/99 from 5.09% on 12/31/98, but that
the 10 year U.S. Treasury performed even worse, rising in yield by 1.78%.
During the year corporate securities generally outperformed Treasury securities
and mortgage securities performed the best. Lower quality corporates generally
performed better than higher quality issues.
Q. GIVEN THIS INVESTMENT ENVIRONMENT, WHAT WAS YOUR INVESTMENT STRATEGY? WHAT
CHANGES DID YOU MAKE SINCE THE START OF THE YEAR?
A. The overall investment strategy of the Series remains little changed. We be-
lieve that value is present in both the fixed income markets and among specific
value stocks. Our equity investment strategy continues to focus on quality
value names where we believe the improving earnings outlook is not reflected in
the below-average valuation of the stock. Given evidence that the global econ-
omy had bottomed in the first quarter, earnings momentum for many of the Basic
Materials companies in our universe turned positive, while their stock prices
still appeared to reflect recessionary conditions. As a result, we added Dow
Chemical, Alcoa, International Paper, and Willamette to the Basic Materials ex-
posure in the Series; a similar rationale underlined our purchase of such Capi-
tal Goods stocks
40
<PAGE>
as Boeing, Emerson Electric, Caterpillar, and 3M. We took advantage of de-
pressed stock prices in the Energy area in the second quarter to add to the Se-
ries' weighting in anticipation of rising oil prices in an environment of ris-
ing global activity.
In the latter part of the year, the Series' commitment to Consumer Staples was
increased by the addition of Sara Lee, Kimberly Clark, and McDonald's to the
portfolio. It appeared to us that their stock prices failed to reflect their
likely near-term earnings improvement for company-specific reasons. In
addition, our confidence in their earnings growth outlook increased with the
mounting evidence of an economic recovery in Europe and Southeast Asia. We also
added Disney to the portfolio as the economics of their media properties
appeared to be improving with the current strength in national advertising
revenues.
Funds for increased exposure in the sectors just mentioned came predominantly
from the Consumer Cyclical sector. In light of rising interest rates and the
Federal Reserve Board's intention to slow the domestic economy, we believe
there is increased risk to the earnings outlook for 2000 for many of the
consumer companies in the portfolio. We pared back some holdings where the
valuations are still attractive though the upside has been reined in (e.g. Dana
Corp) and eliminated others (Masco, Dillards). Another source of funds was the
portfolio's insurance holdings where a combination of declining premium growth,
poor underwriting results, and rising interest rates has depressed the near-
term outlook for the industry. Here we eliminated Everest Re and reduced our
weighting in Ace Limited and Reliastar. There were also opportunistic sales
elsewhere in the portfolio where we believed the stock was at or close to fair
value (e.g. Kroger, AT & T), or where the fundamentals appeared to be
deteriorating (e.g. Raytheon).
For the year as a whole, there was little change in the Series' weighting in
Communication Services, Utilities, and Healthcare, which are in line with the
benchmark, or its overweighting in Technology.
On the fixed income portion of the portfolio, our intermediate focus in
maturity was not additive to performance. Our overweighing in corporates at
approximately 53% was mixed as some credits performed well and other had
difficulty, in particular the REIT sector. Mortgages, which was the best
performing sector, comprised approximately 18% of the portfolio. Since the
beginning of the year, we added to our corporate and mortgage holdings. In our
corporate securities holdings, we added holdings in the energy sector, which
performed well given the increase in oil prices. We continue to maintain a
bulleted maturity structure with approximately 61% of the portfolio positioned
in the 5-10 years area of the yield curve.
Q: WHAT WERE THE PRINCIPAL FACTORS AFFECTING OUR PERFORMANCE (ON BOTH AN
ABSOLUTE AND RELATIVE BASIS) DURING THE PAST TWELVE MONTHS? WHAT INVESTMENT
DECISIONS WERE MOST EFFECTIVE AND WHICH ONES WERE THE LEAST EFFECTIVE?
A: Relative to the Russell 1000 Value Index, the greatest positive contribution
to the Series' equity performance during the year came from its overweighting
in the Technology sector, the strongest sector by far in the Index (+52% on the
year). Most of the Series' holdings in this sector performed exceptionally
well: Apple Computer, First Data, Hewlett Packard, Intel, IBM, and Motorola.
However, earnings disappointments in Xerox (-63%) and Raytheon (-49%) detracted
substantially from the sector's overall contribution to the Series' perfor-
mance.
The Series' Energy holdings had the largest overall positive return, +11.7% in
the aggregate for the year. The Series was overweighted here relative to the
benchmark, which further enhanced the positive contribution from this sector.
However, as the overall results make plain, poor stock selection across the
portfolio was the principal factor negatively affecting the Series' performance
both on an absolute and relative basis. The dynamics of the value spectrum of
the market in 1999 posed a real challenge for value investors. We were
presented with a choice of buying either a higher Price to Earnings (P/E) value
stock with better fundamentals or a cheaper value stock with more modest
fundamentals. Like many other good value investors, we gravitated toward the
lower (P/E) stock. But, as the record now shows, even within the value category
higher P/E stocks ended up being the better choice. Upward earnings momentum
overwhelmed low valuation as an engine for price appreciation; conversely, loss
of earnings momentum often resulted in a severe price decline regardless of
valuation. Xerox is a case in point--it is now selling at a 50% discount to the
S&P 500, down from a 15% discount at the beginning of 1999.
Following a most challenging third quarter, we made some enhancements to our
investment process. We are using more sophisticated techniques in appraising
the level of expectations incorporated into the price of a particular security
and in determining its intrinsic value. We are also looking to strike a better
balance between valuation and the "cheapness" of a stock and its earnings
growth. These changes enhanced the Series' fourth quarter returns, and more
importantly positioned the portfolio for a solid 2000, in what is likely to be
a year that rewards the disciplined value investor.
41
<PAGE>
On the fixed-income side, the main factor affecting our performance during the
past year was our longer duration earlier in the year and bulleted yield curve
structure, which did not help performance. Our mortgage holdings were additive
both on an absolute and relative basis as was our purchase of U.S. Agency
debentures later in the year. The decision to underweight U.S. Treasuries was
also positive. Corporates were mixed as energy and cyclicals performed well.
Our REIT holdings as well as manufactured housing did not perform up to
expectation and hurt performance.
Q: WHAT IS YOUR OUTLOOK FOR THE MARKET AND YOUR PORTFOLIO FOR THE NEXT SIX
MONTHS? WHAT CHANGES, IF ANY, WILL YOU MAKE TO THE WAY YOU MANAGE THE
PORTFOLIO?
A: Looking out six months, our expectation is that an improving global economy
and rising inflation will sustain investor interest in traditional value sec-
tors such as Basic Materials and Capital Goods. Furthermore, we believe that
improving fundamentals and attractive valuations in many other non-technology
sectors are already sufficient catalysts to reward value investors in 2000.
However, we acknowledge that what has been most surprising about the perfor-
mance disparity between growth and value is its longevity. Thus we cannot pre-
dict when value stocks will regain favor, but we strongly believe it makes no
sense to abandon our quality-value approach now. In the last few weeks of 1999,
it appeared that most investors do not care about valuations. However, when the
herd cares the least, the wise shepherd cares the most.
On the fixed income side, we expect the Federal Reserve may raise interest
rates again one or two more times. Inflation continues to remain under control
and with significant productivity continuing in the economy, inflation should
remain contained. With rates continuing to rise into 2000, we may be getting
near the peak and we will be looking for a point to increase our duration. We
do not intend to make any major changes to the portfolio and will continue with
our emphasis in the corporate area as valuations continue to look attractive.
A $10,000 Investment compared to the S&P 500 and
Lehman Brothers Gov't/Corp. Indices
since the Serires Inception
[GRAPH]
Loomis Sayles
Balanced Series Lehman Government/Corp S&P 500
10/31/94 10,000 10,000 10,000
12/31/94 9,990 10,048 9,774
12/31/95 12,466 11,981 13,437
12/31/96 14,575 12,329 16,538
12/31/97 16,934 13,532 22,034
12/31/98 18,475 14,814 28,368
12/31/99 17,535 14,496 34,319
Average Annual Total Return
Lipper Variable
Balanced Lehman Balanced Fund
Series Government/Corp. S&P 500 Average
1 year -5.1% -2.2% 21.0% 8.7%
3 years 6.4 5.5 27.6 14.5
5 years 11.9 7.6 28.6 16.3
Since Inception 11.5 7.5 27.0 n/a
[checkmark] 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: $193 million as of December 31, 1999
MANAGERS: Tricia Mills, John Hyll and Tom Kolefas serve as portfolio managers
of Loomis Sayles Balanced Series. Ms. Mills, and Mr. Hyll have served as
portfolio managers since the Series inception. Mr. Kolefas joined the
management of the Series in September 1998.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts. If these charges were included, the returns shown would be
lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
42
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES BALANCED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--61.2% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
AEROSPACE/DEFENSE--0.6%
14,300 Boeing Co. .............................................. $ 594,344
11,900 Northrop Grumman Corp. .................................. 643,344
------------
1,237,688
------------
AIRLINES--0.3%
15,100 Continental Airlines, Inc.(b)............................ 670,063
------------
AUTO & RELATED--1.6%
21,900 Dana Corp. .............................................. 655,631
35,400 General Motors Corp. .................................... 2,573,137
------------
3,228,768
------------
BANKS & THRIFTS--8.7%
39,400 Chase Manhattan Corp. ................................... 3,060,888
61,550 Citigroup, Inc. ......................................... 3,419,872
43,200 Comerica, Inc. .......................................... 2,016,900
69,500 FleetBoston Financial Corp. ............................. 2,419,469
85,800 KeyCorp.................................................. 1,898,325
52,600 PNC Bank Corp. .......................................... 2,340,700
37,900 Wells Fargo & Co. ....................................... 1,532,581
------------
16,688,735
------------
BROADCAST--TV/RADIO/CABLE--0.7%
18,100 MediaOne Group, Inc.(b).................................. 1,390,306
------------
BUILDING & RELATED--0.9%
34,800 Black & Decker Corp. .................................... 1,818,300
------------
BUSINESS SERVICES--0.3%
21,100 The Dun & Bradstreet Corp. .............................. 622,450
------------
CHEMICALS--MAJOR--1.0%
13,100 Dow Chemical Co. ........................................ 1,750,488
------------
CHEMICALS--SPECIALTY--1.0%
15,100 Rohm and Haas Co. ....................................... 614,381
74,300 W.R. Grace & Co.(b)...................................... 1,030,912
------------
1,645,293
------------
COMMUNICATION SERVICES--1.8%
21,650 AT & T Corp. ............................................ 1,098,738
43,650 MCI WorldCom, Inc.(b).................................... 2,316,178
------------
3,414,916
------------
COMMUNICATIONS EQUIPMENT--1.0%
12,800 Motorola, Inc. .......................................... 1,884,800
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
COMPUTERS HARDWARE--2.9%
7,900 Apple Computer, Inc.(b)................................. $ 812,219
53,600 Compaq Computer Corp. .................................. 1,450,550
20,100 Hewlett-Packard Co. .................................... 2,290,144
9,900 International Business Machines Corp. .................. 1,069,200
------------
5,622,113
------------
CONTAINERS--METAL/GLASS--0.6%
45,200 Owens Illinois, Inc.(b)................................. 1,132,825
------------
ELECTRIC COMPANIES--2.4%
35,900 DQE, Inc. .............................................. 1,243,038
49,200 Texas Utilities Co. .................................... 1,749,675
49,900 Unicom Corp. ........................................... 1,671,650
------------
4,664,363
------------
ELECTRICAL EQUIPMENT--0.6%
21,300 Emerson Electric Co. ................................... 1,222,088
------------
ELECTRONICS--1.9%
14,600 Intel Corp. ............................................ 1,201,762
18,800 Koninklijke Philips Electronics N.V. (ADR).............. 2,538,000
------------
3,739,762
------------
ENTERTAINMENT--0.7%
45,900 The Walt Disney Co. .................................... 1,342,575
------------
FINANCIAL--CONSUMER DIVERSIFIED--2.9%
49,300 Associates First Capital Corp. ......................... 1,352,669
48,500 CIT Group, Inc. ........................................ 1,024,563
31,500 Federal National Mortgage Association................... 1,966,781
36,900 FINOVA Group, Inc. ..................................... 1,309,950
------------
5,653,963
------------
FOODS--0.9%
79,500 Sara Lee Corp. ......................................... 1,753,969
------------
FREIGHT TRANSPORTATION--0.5%
30,000 CNF Transportation, Inc. ............................... 1,035,000
------------
HEALTH CARE--DRUGS--1.1%
15,900 Bristol-Myers Squibb Co. ............................... 1,020,581
22,900 Pharmacia & Upjohn, Inc. ............................... 1,030,500
------------
2,051,081
------------
HEALTH CARE--SERVICES--1.2%
101,800 Tenet Healthcare Corp.(b)............................... 2,392,300
------------
</TABLE>
See accompanying notes to financial statements.
43
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES BALANCED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
HOUSEHOLD PRODUCTS--PERSONAL CARE--1.2%
34,100 Kimberly-Clark Corp. .................................... $ 2,225,025
------------
HOUSEWARES--0.3%
21,400 Newell Rubbermaid, Inc. ................................. 620,600
------------
INSURANCE--3.2%
82,500 ACE, Ltd. ............................................... 1,376,719
44,000 Allstate Corp. .......................................... 1,056,000
14,200 American International Group, Inc. ...................... 1,535,375
25,400 Aon, Corp. .............................................. 1,016,000
32,300 ReliaStar Financial Corp. ............................... 1,265,756
------------
6,249,850
------------
INVESTMENT BANKING/BROKER/
MANAGEMENT--1.6%
15,750 Bear Stearns Companies, Inc. ............................ 673,313
16,800 Morgan Stanley Dean Witter & Co. ........................ 2,398,200
------------
3,071,513
------------
LEISURE TIME--PRODUCTS--0.9%
86,150 Hasbro, Inc. ............................................ 1,642,234
------------
MACHINERY--0.3%
10,600 Caterpillar, Inc. ....................................... 498,863
------------
MANUFACTORING--DIVERSIFIED--1.4%
21,100 Eaton Corp. ............................................. 1,532,388
12,700 Minnesota Mining & Manufactoring Co. .................... 1,243,012
------------
2,775,400
------------
METALS & MINING--0.4%
10,200 Alcoa, Inc. ............................................. 846,600
------------
NATURAL GAS--1.1%
16,100 Columbia Energy Group.................................... 1,018,325
28,600 El Paso Energy Corp. .................................... 1,110,038
------------
2,128,363
------------
OIL & GAS--DRILLING & EQUIPMENT--1.2%
45,800 Baker Hughes, Inc. ...................................... 964,663
37,200 Transocean Sedco Forex, Inc. ............................ 1,253,175
------------
2,217,838
------------
OIL & GAS--MAJOR INTEGRATED--4.9%
46,700 Conoco, Inc. Class A..................................... 1,155,825
12,407 Conoco, Inc. Class B..................................... 308,624
56,800 Exxon Mobil Corp. ....................................... 4,575,950
37,500 Texaco, Inc. ............................................ 2,036,719
56,600 USX-Marathon Group....................................... 1,397,312
------------
9,474,430
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
PAPER/FOREST PRODUCTS--1.0%
28,600 Willamette Industries, Inc. ............................. $ 1,328,112
11,300 International Paper Co. ................................. 637,744
------------
1,965,856
------------
PUBLISHING--0.5%
19,000 The New York Times Company............................... 933,375
------------
RESTAURANTS--0.6%
28,300 McDonald's Corp. ........................................ 1,140,844
------------
RETAIL--FOOD CHAINS--0.4%
43,900 Kroger Co.(b)............................................ 828,612
------------
RETAIL--GENERAL MERCHANDISE--1.0%
38,200 Federated Department Stores, Inc.(b)..................... 1,931,488
------------
RETAIL--SPECIALTY--0.8%
72,800 TJX Companies, Inc. ..................................... 1,487,850
------------
SERVICES--COMPUTER/DATA
PROCESSING--0.7%
28,200 First Data Corp. ........................................ 1,390,612
------------
TELEPHONE--5.4%
75,500 BellSouth Corp. ......................................... 3,534,344
45,300 GTE Corp. ............................................... 3,196,481
73,696 SBC Communications, Inc. ................................ 3,592,680
------------
10,323,505
------------
TOBACCO--0.5%
38,000 Philip Morris Companies, Inc. ........................... 881,125
------------
WASTE MANAGEMENT--0.2%
19,100 Waste Management, Inc. .................................. 328,281
------------
Total Common Stocks
(Identified Cost $115,456,363).......................... 117,924,110
------------
</TABLE>
See accompanying notes to financial statements.
44
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES BALANCED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
MEDIUM & LONG TERM BONDS & NOTES--36.1%
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
BANKS--1.7%
$ 1,280,000 Mellon Bank N.A.
7.000%, 3/15/06................................... $ 1,255,411
50,000 Norwest Corp. 7.650%, 3/15/05...................... 50,723
2,100,000 Wells Fargo & Co.
6.625%, 7/15/04................................... 2,054,764
------------
3,360,898
------------
CONSUMER--3.0%
1,325,000 Amerco, Inc. 7.850%, 5/15/03....................... 1,264,209
1,995,000 Coca-Cola Enterprises, Inc. 6.750%, 1/15/38........ 1,722,682
880,000 Dell Computer Corp. 6.550%, 4/15/08................ 819,315
1,100,000 Dillard's, Inc. 6.430%, 8/1/04..................... 1,037,253
950,000 FMC Corp. 7.125%, 11/25/02......................... 934,062
------------
5,777,521
------------
ELECTRIC UTILITIES--1.1%
1,000,000 Calpine Corp. 7.625%, 4/15/06...................... 944,550
1,250,000 Occidental Petroleum Corp. 6.400%, 4/1/03.......... 1,210,918
------------
2,155,468
------------
ENERGY--2.0%
125,000 Coastal Corp. 8.125%, 9/15/02...................... 127,192
1,040,000 Kerr-McGee Corp.
6.625%, 10/15/07.................................. 971,922
940,000 Nabors Industries, Inc. 6.800%, 4/15/04............ 908,877
1,230,000 Tosco Corp. 7.625%, 5/15/06........................ 1,214,969
740,000 USX-Marathon Group
8.500%, 3/1/23.................................... 768,224
------------
3,991,184
------------
EQUIPMENT TRUST--0.0%
25,000 American Airlines
10.180%, 1/2/13................................... 27,808
------------
FEDERAL AGENCIES--12.3%
1,195,735 Federal Home Loan Mortgage
6.000%, 12/1/27................................... 1,097,458
1,883,343 Federal National Mortgage Association 5.500%,
1/1/14............................................ 1,747,366
5,280,000 Federal National Mortgage Association 5.625%,
5/14/04........................................... 5,045,674
620,000 Federal National Mortgage Association 6.000%,
2/25/24........................................... 555,608
1,075,331 Federal National Mortgage Association 6.000%,
3/1/28............................................ 983,584
2,073,267 Federal National Mortgage Association 6.000%,
4/1/28............................................ 1,896,376
</TABLE>
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
FEDERAL AGENCIES--(CONTINUED)
$ 6,130,000 Federal National Mortgage Association 6.375%,
6/15/09........................................... $ 5,851,784
7,013,864 Government National Mortgage
Association 6.500%, 4/15/29....................... 6,590,857
------------
23,768,707
------------
FINANCE--3.4%
225,000 Bankers Trust N.Y. Corp. 7.625%, 8/15/05........... 224,820
1,040,000 Bear Sterns Companies, Inc. 6.750%, 12/15/07....... 975,967
260,000 Dean Witter Discover & Co. 6.750%, 1/1/16.......... 236,457
200,000 Donaldson Lufkin & Jenrette, Inc. 6.875%, 11/1/05.. 193,332
1,180,000 Household Finance Corp. 6.500%, 11/15/08........... 1,092,810
200,000 Lehman Brothers Holdings, Inc.
7.360%, 12/15/03.................................. 198,016
440,000 National Health Investors, Inc.
7.300%, 7/16/07................................... 371,161
280,000 Oasis Residential, Inc. 7.000%, 11/15/03........... 267,170
840,000 Prologis Trust 7.050%, 7/15/06..................... 791,440
1,130,000 Provident Companies, Inc. 6.375%, 7/15/05.......... 1,071,296
480,000 Salomon, Inc. 7.000%, 3/15/04...................... 473,736
145,000 Salomon, Inc. 7.500%, 2/1/03....................... 146,132
520,000 Sears Roebuck Acceptance Corp. 6.950%, 5/15/02..... 512,496
------------
6,554,833
------------
LEISURE TIME--1.3%
1,100,000 Carnival Corp. 7.050%, 5/15/05..................... 1,071,532
960,000 Royal Caribbean Cruises, Ltd.
7.000%, 10/15/07.................................. 903,264
760,000 Royal Caribbean Cruises, Ltd.
7.500%, 10/15/27.................................. 681,059
------------
2,655,855
------------
MACHINERY--1.0%
1,400,000 Deere & Co. 6.550%, 7/15/04........................ 1,362,494
------------
MANUFACTURING--1.0%
260,000 Koninklijke Philips Electronics N.V. 7.250%,
8/15/13........................................... 242,164
1,370,000 Oakwood Homes Corp.
8.125%, 3/1/09.................................... 712,400
670,000 Raytheon Co. 6.300%, 3/15/05....................... 632,172
200,000 Tektronix, Inc. 7.625%, 8/15/02.................... 198,238
------------
1,784,974
------------
</TABLE>
See accompanying notes to financial statements.
45
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES BALANCED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
MEDIUM & LONG TERM BONDS & NOTES--(CONTINUED)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
REAL ESTATE--0.3%
$ 790,000 Liberty Property L.P.
6.950%, 12/1/06.................................... $ 708,116
------------
SERVICE--3.1%
2,000,000 Duke Capital Corp.
7.500%, 10/1/09.................................... 1,986,062
300,000 La Quinta Inns, Inc.
7.400%, 9/15/05.................................... 250,101
1,070,000 Nielsen Media Research, Inc.
7.600%, 6/15/09.................................... 1,022,952
100,000 Secured Finance, Inc. 9.050%, 12/15/04.............. 104,446
1,375,000 TransCanada Pipelines, Ltd. 7.150%, 6/15/06......... 1,338,404
1,500,000 Tricon Global Restaurants, Inc.
7.450%, 5/15/05.................................... 1,427,040
------------
6,129,005
------------
TELEPHONE--1.0%
950,000 Sprint Spectrum L.P., 0/12.500% 8/15/06(c)......... 888,231
680,000 U.S. West Capital Funding, Inc.
6.250%, 7/15/05.................................... 643,538
------------
1,531,769
------------
TRANSPORTATION--1.1%
100,000 AMR Corp.
10.290%, 3/8/21.................................... 116,787
1,261,619 Federal Express Corp. 7.020%, 1/15/16............... 1,132,404
460,000 Norfolk Southern Corp. 7.050%, 5/1/37............... 452,243
600,000 Northwest Airlines Corp. 8.375%, 4/3/15............. 567,564
------------
2,268,998
------------
U.S. GOVERNMENT--3.8%
3,200,000 United States Treasury Bonds
6.125%, 11/15/27................................... 2,977,984
500,000 United States Treasury Notes
5.625%, 2/15/06.................................... 478,360
3,000,000 United States Treasury Notes
6.500%, 10/15/06................................... 2,992,020
1,000,000 United States Treasury Notes
6.250%, 10/31/01................................... 1,000,160
------------
7,448,524
------------
Total Bonds & Notes
(Identified Cost $73,447,643)...................... 69,526,154
------------
</TABLE>
SHORT-TERM INVESTMENT--2.4%
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
$ 4,530,039 Associates First Capital Corp.
4.000%, 1/03/00................................... $ 4,530,039
------------
Total Short-Term Investment (Identified Cost
$4,530,039)....................................... 4,530,039
------------
Total Investments--99.7%
(Identified Cost $193,434,045)(a)................. 191,980,303
Other assets less liabilities...................... 686,022
------------
TOTAL NET ASSETS--100%............................. $192,666,325
============
</TABLE>
(a) Federal Tax Information: At December 31, 1999 the net unrealized
depreciation on investments based on cost of $193,434,045 for federal
income tax purposes was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost........ $ 12,767,918
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value........ (14,221,660)
--------------
Net unrealized depreciation................................ $ (1,453,742)
==============
</TABLE>
(b) Non-income producing security.
(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.
Key to Abbreviations:
ADR/GDR--An American Depositary Receipt (ADR) or Global Depositary Receipt
(GDR) is a certificate issued by a Custodian Bank representing the
right to receive securities of the foreign issuer described. The value
of ADRs and GDRs are significantly influenced by trading on exchanges
not located in the United States or Canada.
See accompanying notes to financial statements.
46
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES BALANCED SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value................................... $191,980,303
Receivable for:
Fund shares sold....................................... 594,517
Dividends and interest................................. 1,158,871
------------
Total Assets.......................................... 193,733,691
LIABILITIES
Payable for:
Fund shares redeemed................................... $384,609
Securities purchased................................... 531,855
Accrued expenses:
Management fees........................................ 114,719
Deferred trustees fees................................. 5,950
Other expenses......................................... 30,233
--------
Total Liabilities..................................... 1,067,366
------------
NET ASSETS.............................................. $192,666,325
============
Net assets consist of:
Capital paid in........................................ $196,551,619
Overdistributed net investment income.................. (3,654)
Accumulated net realized gains (losses)................ (2,427,898)
Unrealized appreciation (depreciation) on investments
and foreign currency.................................. (1,453,742)
------------
NET ASSETS.............................................. $192,666,325
============
Computation of offering price:
Net asset value and redemption price per share
($192,666,325 divided by 13,906,867 shares of
beneficial interest)................................... $ 13.85
============
Identified cost of investments.......................... $193,434,045
============
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends......................................... $ 2,233,647(a)
Interest.......................................... 4,907,986
------------
7,141,633
EXPENSES
Management fees................................... $1,386,037
Trustees' fees and expenses....................... 14,048
Custodian......................................... 58,482
Audit and tax services............................ 20,475
Legal............................................. 10,540
Printing.......................................... 32,882
Amortization of organization expense.............. 1,670
Insurance......................................... 4,428
Miscellaneous..................................... 4,148
----------
Total Expenses................................... 1,532,710
------------
NET INVESTMENT INCOME.............................. 5,608,923
------------
REALIZED AND UNREALIZED GAIN (LOSS)
Realized gain (loss) on:
Investments--net.................................. 2,710,748
Unrealized appreciation (depreciation) on:
Investments--net.................................. (18,598,573)
------------
Net gain (loss).................................... (15,887,825)
------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS........................................ $(10,278,902)
============
</TABLE>
(a) Net of foreign taxes of $18,177
See accompanying notes to financial statements.
47
<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,
1999 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................. $ 5,608,923 $ 4,446,775
Net realized gain (loss).......................... 2,710,748 3,801,920
Unrealized appreciation (depreciation)............ (18,598,573) 6,024,365
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS. (10,278,902) 14,273,060
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income............................. (5,625,861) (4,483,422)
Net realized gain................................. (3,435,942) (3,664,526)
In excess of net investment income................ (17,602) 0
In excess of net realized capital gains........... (2,415,620) 0
------------ ------------
TOTAL DISTRIBUTIONS............................... (11,495,025) (8,147,948)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares...................... 75,541,409 85,422,334
Reinvestment of distributions..................... 11,495,025 8,147,948
Cost of shares redeemed........................... (63,173,242) (46,561,460)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS............................... 23,863,192 47,008,822
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS........... 2,089,265 53,133,934
NET ASSETS
Beginning of the year............................. 190,577,060 137,443,126
------------ ------------
End of the year................................... $192,666,325 $190,577,060
============ ============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT
INCOME
End of the year................................... $ (3,654) $ 16,934
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................... 4,946,396 5,541,834
Issued in reinvestment of distributions........... 825,719 527,948
Redeemed.......................................... (4,152,208) (3,032,615)
------------ ------------
Net Change........................................ 1,619,907 3,037,176
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year......................... $ 15.51 $ 14.86 $ 13.55 $ 11.95 $ 9.94
-------- -------- -------- ------- -------
Income From Investment
Operations
Net Investment Income........ 0.43 0.38 0.28 0.27 0.26
Net Realized and Unrealized
Gain (Loss) on Investments.. (1.21) 0.97 1.90 1.73 2.20
-------- -------- -------- ------- -------
Total From Investment
Operations.................. (0.78) 1.35 2.18 2.00 2.46
-------- -------- -------- ------- -------
Less Distributions
Distributions From Net
Investment Income........... (0.43) (0.38) (0.27) (0.27) (0.26)
Distributions From Net
Realized Capital Gains...... (0.26) (0.32) (0.60) (0.13) (0.19)
Distributions in excess of
net realized capital gains.. (0.19) 0.00 0.00 0.00 0.00
-------- -------- -------- ------- -------
Total Distributions.......... (0.88) (0.70) (0.87) (0.40) (0.45)
-------- -------- -------- ------- -------
Net Asset Value, End of Year.. $ 13.85 $ 15.51 $ 14.86 $ 13.55 $ 11.95
======== ======== ======== ======= =======
TOTAL RETURN (%).............. (5.1) 9.1 16.2 16.9 24.8
Ratio of Operating Expenses to
Average Net Assets (%)....... 0.77 0.82 0.85 0.85 0.85
Ratio of Net Investment Income
to Average Net Assets (%).... 2.83 2.72 2.79 3.08 4.03
Portfolio Turnover Rate (%)... 63 72 60 59 72
Net Assets, End of Year (000.. $192,666 $190,577 $137,443 $58,525 $18,823
The ratios of operating
expenses to average net
assets without giving effect
to the voluntary expense
agreement described in Note 4
to the Financial Statements
would have been (%).......... -- -- 0.86 0.99 1.85
</TABLE>
See accompanying notes to financial statements.
48
<PAGE>
ALGER EQUITY GROWTH SERIES
PORTFOLIO MANAGERS: DAVID D. ALGER (PICTURED) AND RON TARTAROFRED ALGER
MANAGEMENT, INC.
[photo appears here]
Q: HOW DID THE SERIES PERFORM DURING THE PAST TWELVE MONTHS RELATIVE TO ITS
INDEX AND RELATIVE TO ITS PEERS?
A: For the year ending December 31, 1999, the S&P 500Index/25/ returned 21.0%
and the Lipper Variable Products Growth Fund Average/10/ returned 31.7%. Mean-
while, the Alger Equity Growth Series outperformed both benchmarks, posting an
annual return of 34.1%.
Q: BRIEFLY DISCUSS THE INVESTMENT AND MARKET ENVIRONMENT DURING THE PAST
TWELVE MONTHS.
A: 1999 was yet another very good year for most equity investors. During the
first half of the year, large-cap stocks marched forward with nary a setback,
while their smaller counterparts struggled mightily. Large inflows of overseas
capital sought refuge in the largest, most liquid corporate names. This, com-
bined with the growing popularity of S&P 500 index funds, allowed large-cap
stocks to see large gains and reach record valuation levels. All of the major
large-cap indices continuously set new highs, and the Dow Jones Industrial Av-
erage closed over 10,000 for the first time on March 29, 1999.
After a volatile April, May and June saw consolidation and profit-taking in
the equity markets. An ongoing fear of rising interest rates was realized on
June 30 when the Fed "took back" one of three previous interest rate cuts by
hiking the Fed Funds Rate to 5%. Nonetheless, the market shrugged off the rate
hike and took solace in the Fed's return to a "neutral bias." Large-cap stocks
continued to rally, and the S&P 500 reached an intra-day high of 1420.33 on
July 19. During the last stages of this surge, however, the breadth of the
rally narrowed considerably, as small cap and value stocks continued to
languish.
The following few months were marked by extreme market volatility, an overall
downward trend, and ultimately, a dramatic rebound. The market slipped stead-
ily downward from its mid-July peak before attempting to rally in August. The
rally failed, partially due to another Fed rate hike on August 24th. The S&P
500 struggled to find direction and failed to match its previous highs during
August and September. In October, mounting fears of rising interest rates, an
upward spike in the price of gold, and a series of dubious economic reports
forced the yield on the long bond to 6.4%. Equity markets reacted strongly.
The Dow Jones dropped more than 1,000 points in less than a month, briefly
dipping below the 10,000 level on October 18th. As is so often the case, how-
ever, the market recovered when it appeared to be at its weakest. As inflation
jitters and interest rate fears subsided with the release of benign economic
data, the final two weeks of October saw dramatic gains throughout both the
bond and equity markets. The long bond once again approached 6%, and the Dow
Jones neared 11,000.
The market's strength continued throughout November and December. When the Fed
raised both the Fed Funds and the discount rate 1/4 of a point on November
16th, the shift back to a "neutral" bias psychologically outweighed the actual
rate hike. While certain segments of the market struggled--most notably, value
stocks--most equity indices climbed steadily higher. Small cap growth stocks
were particularly strong, reversing an ongoing trend of small cap
underperformance. However, growth stocks and technology stocks across all mar-
ket capitalizations appreciated strongly at year-end. The Fed's December 21st
inaction matched market expectations and allowed nearly all major market indi-
ces to reach all-time highs during the final week of the year.
Q: GIVEN THIS INVESTMENT ENVIRONMENT, WHAT WAS YOUR INVESTMENT STRATEGY? WHAT
CHANGES DID YOU MAKE SINCE THE START OF THE YEAR?
A: The management of the Series remained unchanged: a research intensive, bot-
tom-up approach focusing on rapidly grow-
49
<PAGE>
ing stocks. Management's growth stock philosophy was of great benefit during a
year in which value style stocks severely underperformed growth style stocks.
Strong positive cash inflows for the year helped fuel investment opportunities
and precluded the selling of core holdings in order to satisfy redemptions.
Q: WHAT WERE THE PRINCIPAL FACTORS AFFECTING YOUR PERFORMANCE (ON BOTH AN
ABSOLUTE AND RELATIVE BASIS) DURING THE PAST TWELVE MONTHS? WHAT INVESTMENT
DECISIONS WERE MOST EFFECTIVE AND WHICH ONES WERE LEAST EFFECTIVE?
A: Fortunately, the Series was heavily weighted in technology companies
throughout the year. Technology stocks were the clear market leaders in 1999,
thus making the Series extremely well positioned for the strong bull market.
Stocks such as Yahoo!, Microsoft, and America Online fueled much of the gain of
the Series.
Maintaining an ongoing overweighting in technology-oriented growth stocks was
clearly management's most effective decision, as these stocks were largely re-
sponsible for the Series' superb performance. Management's least effective de-
cisions relate to company specific situations (i.e., Abercrombie & Fitch and
Tyco International), whereby certain holdings struggled for much of the year.
Q: WHAT IS YOUR OUTLOOK FOR THE MARKET AND YOUR PORTFOLIO FOR THE NEXT SIX
MONTHS? WHAT CHANGES, IF ANY, WILL YOU MAKE TO THE WAY YOU MANAGE YOUR
PORTFOLIO?
A: The economy of 2000 is likely to resemble the economy of 1999, but it will
not be growing as rapidly. This is an inevitable by-product of higher interest
rates. Despite this, there are factors that should keep the economy moving
along at a decent rate: a) low unemployment; b) good wage gains; and c) posi-
tive psychology. Inflation should remain subdued as a result of continually in-
creasing productivity and the slowing of economic growth. The flattening of oil
prices and the impact of the Internet on pricing should also help subdue infla-
tion. However, corporate earnings will probably not be as strong in 2000 as
they were in 1999. The top-down forecast for S&P earnings is an increase of
10%, which is lower than the 14% estimated for 1999. It would be logical to as-
sume that the market will rise less vigorously as well. As such, a target of
12,500-13,000 on the Dow might be appropriate.
Looking ahead, we will continue to seek out and invest in companies that we be-
lieve will grow their earnings rapidly and consistently. Regardless of market
conditions, we feel that the only way we are able to sustain superior long-term
performance is through an uncompromising commitment to a consistent approach.
50
<PAGE>
A $10,000 Investment compared to the S&P Index since the Series' Inception
[GRAPH]
Alger Equity Growth Series S&P 500
10/31/94 10,000 10,000
12/31/94 9,581 9,774
12/31/95 14,247 13,437
12/31/96 16,124 16,538
12/31/97 20,257 22,034
12/31/98 29,935 28,368
12/31/99 40,147 34,319
Average Annual Return
Equity Growth Lipper Variable Growth
Series S&P 500 Fund Average
1 year 34.1% 21.0% 31.7%
3 years 35.5 27.6 26.9
5 years 33.2 28.6 26.9
Since Inception 30.9 27.0 n/a
[checkmark] FUND FACTS
GOAL: Long-term capital appreciation.
START DATE: October 31, 1994
SIZE: $841 million as of December 31, 1999
MANAGERS: David D. Alger and Ron Tartaro have managed the Alger Equity Growth
Series since its inception in 1994. Mr. Alger is President and Chief Executive
Officer of Fred Alger Management, Inc., and has been portfolio manager of The
Alger Growth Portfolio since 1986, The Alger American Fund Growth Portfolio
since 1989 and the Alger Retirement Fund since 1993. Mr. Tartaro has been
employed by Alger since 1990 and has been a Senior Vice President since 1995.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts. If these charges were included, the returns shown would
be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
51
<PAGE>
NEW ENGLAND ZENITH FUND
(ALGER EQUITY GROWTH SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--90.0% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
AEROSPACE & DEFENSE--3.6%
241,200 Honeywell International, Inc. ........................... $13,914,225
248,800 United Technologies Corp. ............................... 16,172,000
-----------
30,086,225
-----------
AUTOMOTIVE--1.1%
142,400 Harley-Davidson, Inc. ................................... 9,122,500
-----------
BANKS--4.8%
281,180 Bank of America Corp. ................................... 14,111,721
440,700 Citigroup, Inc. ......................................... 24,486,394
98,277 Firstar Corp. ........................................... 2,076,101
-----------
40,674,216
-----------
BROADCASTING--1.9%
45,300 Clear Channel Communications, Inc.(b).................... 4,043,025
152,500 MediaOne Group, Inc.(b).................................. 11,713,906
-----------
15,756,931
-----------
BUSINESS SERVICE--0.5%
41,100 Omnicom Group, Inc. ..................................... 4,110,000
-----------
COMMUNICATIONS--2.0%
199,200 Comcast Corp. ........................................... 10,072,050
69,500 EchoStar Communications Corp.(b)......................... 6,776,250
-----------
16,848,300
-----------
COMPUTER RELATED & BUSINESS EQUIPMENT--11.0%
208,300 Altera Corp.(b).......................................... 10,323,869
301,150 Cisco Systems, Inc.(b)................................... 32,260,694
455,400 Dell Computer Corp.(b)................................... 23,225,400
196,100 Intel Corp. ............................................. 16,141,481
147,600 Linear Technology Corp. ................................. 10,562,625
-----------
92,514,069
-----------
COMPUTER SOFTWARE--5.5%
127,200 Intuit, Inc.(b).......................................... 7,624,050
331,100 Microsoft Corp.(b)....................................... 38,655,925
-----------
46,279,975
-----------
CONSUMER PRODUCTS--3.3%
194,500 Corning, Inc. ........................................... 25,078,344
99,600 Masco Corp. ............................................. 2,527,350
-----------
27,605,694
-----------
ELECTRONICS--4.0%
133,500 Motorola, Inc. .......................................... 19,657,875
153,000 Teradyne Inc.(b)......................................... 10,098,000
38,000 Texas Instruments, Inc. ................................. 3,681,250
-----------
33,437,125
-----------
FINANCIAL SERVICES--5.5%
33,500 American Express Co. .................................... 5,569,375
208,800 Household International, Inc. ........................... 7,777,800
47,200 Merrill Lynch & Co., Inc. ............................... 3,941,200
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
FINANCIAL SERVICES--(CONTINUED)
201,200 Morgan Stanley Dean Witter & Co. ........................ $28,721,300
-----------
46,009,675
-----------
HEALTH CARE--0.9%
293,000 IMS Health, Inc. ........................................ 7,965,937
-----------
INSURANCE--2.4%
188,075 American International Group, Inc. ...................... 20,335,609
-----------
INTERNET SERVICES--10.9%
426,400 America Online, Inc.(b).................................. 32,166,550
219,644 At Home Corp.(b)......................................... 9,417,237
167,900 eBay, Inc.(b)............................................ 21,018,981
67,182 Yahoo!, Inc. ............................................ 29,068,812
-----------
91,671,580
-----------
CASINOS & RESORTS--0.4%
76,500 Carnival Corp. .......................................... 3,657,656
-----------
OIL SERVICES--2.5%
523,350 Halliburton Co. ......................................... 21,064,837
-----------
PHARMACEUTICALS--9.5%
444,600 Amgen, Inc.(b)........................................... 26,703,788
39,600 Biogen, Inc.(b).......................................... 3,346,200
234,400 Bristol-Myers Squibb Co. ................................ 15,045,550
314,950 Pfizer, Inc. ............................................ 10,216,191
302,100 Warner-Lambert Co. ...................................... 24,753,319
-----------
80,065,048
-----------
RAILROADS--1.2%
132,200 Kansas City Southern Industries, Inc. ................... 9,865,425
-----------
RETAIL--7.6%
151,400 Amazon.com, Inc.(b)...................................... 11,525,325
135,200 Best Buy Co., Inc. ...................................... 6,785,350
74,800 Costco Wholesale Corp.(b)................................ 6,825,500
381,225 Home Depot, Inc. ........................................ 26,137,739
181,600 Wal-Mart Stores, Inc. ................................... 12,553,100
-----------
63,827,014
-----------
SEMI-CONDUCTORS--3.2%
215,400 Applied Materials, Inc.(b)............................... 27,288,488
-----------
TELECOM NETWORKS--5.7%
227,000 AT&T Corp................................................ 12,882,250
127,800 Cox Communications, Inc.(b).............................. 6,581,700
139,200 MCI Worldcom, Inc.(b).................................... 7,386,300
25,100 Nokia Corp. (ADR)........................................ 4,769,000
38,000 QUALCOMM, Inc.(b)........................................ 6,692,750
142,300 Sprint Corp. ............................................ 9,578,569
-----------
47,890,569
-----------
TRANSPORTATION SERVICES--2.5%
303,700 United Parcel Service, Inc.(b)............................. 20,955,300
-----------
Total Common Stocks
(Identified Cost $549,671,986)............................ 757,032,173
-----------
</TABLE>
See accompanying notes to financial statements.
52
<PAGE>
NEW ENGLAND ZENITH FUND
(ALGER EQUITY GROWTH SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
SHORT-TERM INVESTMENTS--11.4%
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
$10,000,000 AES Hawaii, Inc.,
6.600%, 1/12/00................................... $ 9,979,833
10,000,000 Bell Atlantic Network Funding,
6.280%, 1/05/00................................... 9,993,022
10,000,000 General Electric Capital Corp.,
6.390%, 1/14/00................................... 9,976,925
10,000,000 Household Finance Corp.,
6.400%, 1/07/00................................... 9,989,333
10,000,000 Merrill Lynch & Co., Inc.,
5.550%, 1/27/00................................... 9,959,917
8,000,000 Petrofina Delaware, Inc.,
6.250%, 1/10/00................................... 7,987,500
10,000,000 7-Eleven, Inc.,
6.500%, 1/14/00................................... 9,976,528
9,953,882 State Street Global Advisors, Money Market Fund.... 9,953,882
10,000,000 Standard Life Funding,
6.450%, 1/12/00................................... 9,980,292
8,000,000 Toronto Dominion Holdings,
5.940%, 1/27/00................................... 7,965,680
------------
Total Short-Term Investments
(Identified Cost $95,762,912)..................... 95,762,912
------------
Total Investments--101.4%
(Identified Cost $645,434,898)(a)................. 852,795,085
Other assets less liabilities...................... (11,742,159)
------------
TOTAL NET ASSETS--100%............................. $841,052,926
============
</TABLE>
(a) Federal Tax Information:
At December 31, 1999 the net unrealized appreciation on investments based on
cost of $645,434,898 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............................................... $226,931,841
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value.......... (19,571,654)
------------
Net unrealized appreciation.................................. $207,360,187
============
</TABLE>
(b) Non-income producing security.
Key to Abbreviations:
ADR/GDR--An American Depositary Receipt (ADR) or Global Depositary Receipt
(GDR) is a certificate issued by a Custodian Bank representing the
right to receive securities of the foreign issuer described. The
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.
53
<PAGE>
NEW ENGLAND ZENITH FUND
(ALGER EQUITY GROWTH SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value................................ $852,795,085
Receivable for:
Fund shares sold.................................... 1,950,197
Dividends and interest.............................. 128,243
Foreign taxes....................................... 1,708
------------
Total Assets........................................ 854,875,233
LIABILITIES
Payable for:
Fund shares redeemed................................ $ 625,776
Securities purchased................................ 12,644,577
Accrued expenses:
Management fees..................................... 503,918
Deferred trustees fees.............................. 13,630
Other expenses...................................... 34,406
-----------
Total Liabilities................................... 13,822,307
------------
NET ASSETS.......................................... $841,052,926
============
Net Assets consist of:
Capital paid in..................................... $625,729,342
Overdistributed net investment income............... (5,387)
Accumulated net realized gains (losses)............. 7,968,784
Unrealized appreciation (depreciation) on
investments........................................ 207,360,187
------------
NET ASSETS........................................... $841,052,926
============
Computation of offering price:
Net asset value and redemption price per share
($841,052,926 divided by 28,664,292 shares of
beneficial interest)................................ $ 29.34
============
Identified cost of investments....................... $645,434,898
============
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends......................................... $ 2,294,193(a)
Interest.......................................... 2,245,595
------------
4,539,788
EXPENSES
Management fees................................... $4,418,196
Trustees' fees and expenses....................... 27,584
Custodian......................................... 91,552
Audit and tax services............................ 17,031
Legal............................................. 36,368
Printing.......................................... 115,010
Amortization of organization expense.............. 1,670
Insurance......................................... 11,040
Miscellaneous..................................... 3,905
----------
Total expenses.................................... 4,722,356
------------
NET INVESTMENT LOSS................................ (182,568)
------------
REALIZED AND UNREALIZED GAIN (LOSS)
Realized gain (loss) on:
Investments--net.................................. 85,117,053
Unrealized appreciation (depreciation) on:
Investments--net.................................. 100,091,250
------------
Net gain (loss) ................................... 185,208,303
------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS........................................ $185,025,735
============
</TABLE>
(a)Net of foreign taxes of: $12,260
See accompanying notes to financial statements.
54
<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,
1999 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss)...................... $ (182,568) $ 547,361
Net realized gain (loss) ......................... 85,117,053 37,574,347
Unrealized appreciation (depreciation)............ 100,091,250 78,578,213
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS. 185,025,735 116,699,921
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income............................. (607) (608,527)
In excess of net investment income ............... (285,867) 0
Net realized gain................................. (100,705,836) (13,814,120)
------------ ------------
TOTAL DISTRIBUTIONS............................... (100,992,310) (14,422,647)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares...................... 383,773,208 151,770,313
Reinvestment of distributions..................... 100,992,310 14,422,647
Cost of shares redeemed........................... (138,471,646) (63,063,040)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS............................... 346,293,872 103,129,920
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS........... 430,327,297 205,407,194
NET ASSETS
Beginning of the year............................. 410,725,629 205,318,435
------------ ------------
End of the year................................... $841,052,926 $410,725,629
============ ============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT
INCOME
End of the year................................... $ (5,387) $ 607
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................... 13,791,435 7,106,627
Issued in reinvestment of distributions........... 3,524,303 576,135
Redeemed.......................................... (5,005,319) (2,982,315)
------------ ------------
Net change........................................ 12,310,419 4,700,447
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year........................ $ 25.11 $ 17.62 $ 15.58 $ 13.80 $ 9.56
-------- -------- -------- -------- -------
Income From Investment
Operations
Net Investment Income
(Loss)..................... (0.01) 0.04 0.02 0.04 0.01
Net Realized and Unrealized
Gain (Loss) on Investments. 8.34 8.37 3.92 1.78 4.65
-------- -------- -------- -------- -------
Total From Investment
Operations................. 8.33 8.41 3.94 1.82 4.66
-------- -------- -------- -------- -------
Less Distributions
Distributions From Net
Investment Income.......... 0.00 (0.04) (0.02) (0.04) (0.01)
Distributions in excess of
Net Investment Income ..... (0.01) 0.00 0.00 0.00 0.00
Distributions From Net
Realized Capital Gains..... (4.09) (0.88) (1.88) 0.00 (0.41)
-------- -------- -------- -------- -------
Total Distributions......... (4.10) (0.92) (1.90) (0.04) (0.42)
-------- -------- -------- -------- -------
Net Asset Value, End of Year. $ 29.34 $ 25.11 $ 17.62 $ 15.58 $ 13.80
======== ======== ======== ======== =======
TOTAL RETURN (%)............. 34.1 47.8 25.6 13.2 48.8
Ratio of Operating Expenses
to Average Net Assets (%)... 0.80 0.83 0.87 0.90 0.85
Ratio of Net Investment
Income to Average Net Assets
(%)......................... (0.03) 0.19 0.12 0.24 0.14
Portfolio Turnover Rate (%).. 128 119 137 78 107
Net Assets, End of Year
(000)....................... $841,053 $410,726 $205,318 $120,456 $46,386
The ratios of operating
expenses to average net
assets without giving effect
to the voluntary expense
agreement described in Note
4 to the Financial
Statements would have been
(%)......................... -- -- -- 0.90 2.45
</TABLE>
See accompanying notes to financial statements.
55
<PAGE>
CAPITAL GROWTH SERIES
PORTFOLIO MANAGER: G. KENNETH HEEBNER
CAPITAL GROWTH MANAGEMENT LIMITED PARTNERSHIP
[Photo of G. Kenneth Heebner]
Q. HOW DID THE CAPITAL GROWTH SERIES PERFORM DURING THE PAST TWELVE MONTHS
RELATIVE TO ITS INDEX AND RELATIVE TO ITS PEERS?
A. For the year ending December 31, 1999, the Series had a return of 15.7%,
which lagged the Lipper Variable Products Growth Fund Average/10/ return of
31.7% and the S&P 500/25/return of 21.0%.
Q. BRIEFLY DISCUSS THE INVESTMENT AND MARKET ENVIRONMENT DURING THE PAST
TWELVE MONTHS.
A. Throughout the year, economic growth in the U.S. was strong. Looking
abroad, we saw Asian economies rebound, led by South Korea and Japan. In Eu-
rope, economic growth strengthened during the year. This across-the-board
global economic expansion created an environment that was more conducive to
inflation than the backdrop we witnessed in 1998 when foreign economic weak-
ness helped suppress prices in the U.S. domestic economy. As a result, inter-
est rates rose in the U.S., prodded by the Federal Reserve Board, which raised
key short-term interest rates three times during 1999.
Q. GIVEN THIS INVESTMENT ENVIRONMENT, WHAT WAS YOUR INVESTMENT STRATEGY? WHAT
CHANGES DID YOU MAKE SINCE THE START OF THE YEAR?
A. We started the year with a portfolio that reflected our expectation of
minimal inflation, including substantial concentration in financial stocks
such as banks and insurance companies. As the year progressed, we saw evidence
that continuing economic strength, both inside and outside of the U.S., would
increase the risk of inflationary pressures. Therefore, we eliminated the
Series' positions in banks and insurance companies. Early in the year, we also
established a modest position in real estate investment trusts (REITs),
reflecting the strong fundamentals of the real estate industry and the
proclivity for real estate to benefit from a strong pricing environment.
To that end, upon liquidation of the finance position, we selected other in-
vestments that would benefit from an improved pricing backdrop, such as in the
steel and aluminum industries. Further, we believe the economic expansion in
the U.S. is much closer to maturity than in Europe, Asia, and Latin America.
Consequently, we sought to invest (through American Depositary Receipts or
ADRs) in companies located in countries where the duration of the business cy-
cle was much less of an issue. Two examples would be Telefonos de Mexico, the
Mexican telephone company, and Philips Electronics, an international conglom-
erate domiciled in the Netherlands. Finally, throughout the year we maintained
a major position in the technology sector, with an emphasis on companies with
global operations, such as Texas Instruments, Applied Materials, Teradyne, and
Computer Sciences.
Q. WHAT WERE THE PRINCIPAL FACTORS AFFECTING YOUR PERFORMANCE (ON BOTH AN
ABSOLUTE AND RELATIVE BASIS) DURING THE PAST TWELVE MONTHS? WHAT INVESTMENT
DECISIONS WERE THE MOST EFFECTIVE AND WHICH ONES WERE LEAST EFFECTIVE?
A. The Fund's best performing stocks were its technology holdings, with the
greatest gains coming from Texas Instruments, Nokia, Applied Materials,
Philips, and Teradyne. Several of these investments benefited from the explo-
sive growth in wireless communications. For example, Finnish company Nokia is
the global leader in wireless handsets and Texas Instruments is the leading
producer of specialized semiconductor chips, a key wireless handset component.
On the downside, Volkswagen, Unum, Philip Morris, McKesson, and HBOC all suf-
fered from company-specific problems. In addition, our investment in REITS was
disappointing, despite the fact that these companies enjoyed strong fundamen-
tals throughout the year. We continue to maintain this position in the expec-
tation investors will come to recognize the positive prospects this industry
offers.
56
<PAGE>
Q. WHAT IS YOUR OUTLOOK FOR THE MARKET AND YOUR PORTFOLIO FOR THE NEXT SIX
MONTHS? WHAT CHANGES, IF ANY, WILL YOU MAKE TO THE WAY YOU MANAGE YOUR
PORTFOLIO?
A. As we look out into the year 2000, we see continued growth around the
world. In the U.S., we think the Federal Reserve, which has already raised
rates three times in 1999, will continue to attempt to engineer a slowdown in
order to minimize any inflationary side effects emerging from the continued
growth of the domestic economy. For our part, we are focused on companies with
exposure to foreign and global markets that may experience better growth than
the U.S. In addition, we are seeking out companies that would benefit from any
trend toward rising prices that might emerge.
A $10,000 investment compared to the S&P 500 Index over the past 10 years.
[GRAPH]
Capital Growth Series S&P 500
12/31/89 10,000 10,000
12/31/90 9,653 9,682
12/31/91 14,866 12,642
12/31/92 13,968 13,614
12/31/93 16,059 14,974
12/31/94 14,925 15,166
12/31/95 20,602 20,851
12/31/96 24,942 25,663
12/31/97 30,798 34,191
12/31/98 41,292 44,021
12/31/99 47,771 53,256
Average Annual Total Returns
Capital Growth Lipper Variable Growth
Series S&P 500 Fund Average
1 year 15.7% 21.0% 31.7%
3 years 24.2 27.6 26.9
5 years 26.2 28.6 26.9
10 years 16.9 18.2 18.2
Since Inception 23.3 17.8 n/a
[checkmark] FUND FACTS
GOAL: Long-term growth of capital through investment primarily in equity
securities of companies whose earnings are expected to grow at a faster rate
than the United States economy.
START DATE: August 26, 1983
SIZE: $2.1 billion as of December 31, 1999
MANAGER: G. Kenneth Heebner has managed the Capital Growth Series since its
inception in 1983. He has also been portfolio manager of New England Growth Fund
since 1976; CGM Capital Development Fund since 1976; CGM Mutual Fund since 1981;
CGM Realty Fund since May 1994; CGM Fixed Income Fund since June 1993; CGM Focus
Fund since September 1997.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts. If these charges were included, the returns shown would
be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
57
<PAGE>
NEW ENGLAND ZENITH FUND
(CAPITAL GROWTH SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--99.7% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
ALUMINUM--8.3%
850,000 Alcan Aluminium, Ltd................................ $ 35,009,375
1,630,000 Alcoa, Inc.......................................... 135,290,000
--------------
170,299,375
--------------
BEVERAGES--4.9%
1,437,000 Anheuser-Busch Companies, Inc....................... 101,847,375
--------------
COMPUTER SOFTWARE & SERVICES--2.9%
645,000 Computer Sciences Corp.(b).......................... 61,033,125
--------------
ELECTRONIC COMPONENTS--15.2%
1,039,044 Koninklijke Philips Electronics N.V. (ADR).......... 140,270,940
1,520,000 Micron Technology, Inc.(b).......................... 118,180,000
570,000 Texas Instruments, Inc.............................. 55,218,750
--------------
313,669,690
--------------
ELECTRONICS & COMMUNICATION EQUIPMENT--4.4%
475,000 Nokia Corp. (ADR)................................... 90,250,000
--------------
HOTELS & RESTAURANTS--6.2%
840,000 McDonald's Corp..................................... 33,862,500
2,460,000 Tricon Global Restaurants, Inc.(b).................. 95,017,500
--------------
128,880,000
--------------
INSURANCE--4.3%
1,870,000 Aflac, Inc. ........................................ 88,240,625
--------------
LEISURE--3.6%
4,890,000 Mirage Resorts, Inc.(b)............................. 74,878,125
--------------
LIGHT CAPITAL GOODS--7.3%
735,000 Applied Materials, Inc.(b).......................... 93,115,313
860,000 Teradyne, Inc.(b)................................... 56,760,000
--------------
149,875,313
--------------
MACHINERY--2.4%
1,140,000 Deere & Co.......................................... 49,447,500
--------------
METALS & MINING--4.9% ..............................
4,320,000 Inco, Ltd.(b)....................................... 101,520,000
--------------
MICROCOMPUTERS--5.5% ...............................
1,110,000 Apple Computer, Inc.(b)............................. 114,121,875
--------------
OIL--MAJOR INTEGRATED--2.0% ........................
590,000 TotalFina S.A. (ADR)................................ 40,857,500
--------------
REAL ESTATE INVESTMENT TRUSTS--8.9%
1,202,500 Apartment Investment and Management Co. ............ 47,874,531
1,465,000 Boston Properties, Inc. ............................ 45,598,125
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
REAL ESTATE INVESTMENT TRUSTS--(CONTINUED)
1,765,000 General Growth Properties, Inc. ................... $ 49,420,000
1,245,000 Vornado Realty Trust............................... 40,462,500
--------------
183,355,156
--------------
RETAIL--3.6%
1,840,000 CVS Corp. ......................................... 73,485,000
--------------
RETAIL--FOOD--2.6%
1,118,000 Hershey Foods Corp. ............................... 53,105,000
--------------
STEEL--5.0%
2,970,900 Pohang Iron & Steel Company, Ltd. (ADR)............ 103,981,500
--------------
TELEPHONE--7.7%
363,000 Telecomunicacoes Brasileiras S.A. (ADR)............ 46,645,500
1,000,000 Telefonos de Mexico, S.A. (ADR).................... 112,500,000
--------------
159,145,500
--------------
Total Common Stocks
(Identified Cost $1,731,996,326).................. 2,057,992,659
--------------
</TABLE>
SHORT-TERM INVESTMENT--0.5%
<TABLE>
<CAPTION>
FACE
AMOUNT
<C> <S> <C>
$10,705,000 American Express Credit Corp., 4.25%, 1/03/00.... 10,705,000
--------------
Total Short-Term Investments (Identified Cost
$10,705,000).................................... 10,705,000
--------------
Total Investments--100.2% (Identified Cost
$1,742,701,326)(a).............................. 2,068,697,659
Other assets less liabilities.................... (4,681,644)
--------------
TOTAL NET ASSETS--100%........................... $2,064,016,015
==============
</TABLE>
(a) Federal Tax Information:
At December 31, 1999 the net unrealized appreciation on investments based on
cost of $1,756,258,820 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......... $ 370,407,264
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value......... (57,968,425)
-------------
Net unrealized appreciation................................. $ 312,438,839
=============
</TABLE>
(b) Non-income producing security.
Key to abbreviations:
ADR/GDR--An American Depositary Receipt (ADR) or Global Depositary Receipt
(GDR) is a certificate issued by a Custodian Bank representing the right
to receive securities of the foreign issuer described. The value of ADRs
and GDRs are significantly influenced by trading on exchanges not
located in the United States or Canada.
See accompanying notes to financial statements.
58
<PAGE>
NEW ENGLAND ZENITH FUND
(CAPITAL GROWTH SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value............................... $2,068,697,659
Cash............................................... 3,442
Receivable for:
Securities sold.................................... 55,122,737
Fund shares sold................................... 491,568
Dividends and interest............................. 1,806,768
--------------
Total Assets...................................... 2,126,122,174
--------------
LIABILITIES
Payable for:
Fund shares redeemed............................... $1,076,935
Securities purchased............................... 59,690,215
Withholding taxes.................................. 148,293
Accrued expenses:
Management fees.................................... 1,029,676
Deferred trustees fees............................. 115,648
Other expenses..................................... 45,392
----------
Total Liabilities.................................. 62,106,159
--------------
NET ASSETS.......................................... $2,064,016,015
==============
Net assets consist of:
Capital paid in.................................... $1,740,166,685
Undistributed net investment income................ 120,155
Accumulated net realized gains (losses)............ (2,267,158)
Unrealized appreciation (depreciation) on
investments....................................... 325,996,333
--------------
NET ASSETS.......................................... $2,064,016,015
==============
Computation of offering price:
Net asset value and redemption price per share
($2,064,016,015 divided by 4,747,697 shares of
beneficial interest)............................... $ 434.74
==============
Identified cost of investments...................... $1,742,701,326
==============
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends........................................ $ 25,055,247(a)
Interest......................................... 452,544
------------
25,507,791
EXPENSES
Management fees.................................. $11,792,608
Trustees' fees and expenses...................... 83,029
Custodian........................................ 230,348
Audit and tax services........................... 15,743
Legal............................................ 99,059
Printing......................................... 397,286
Insurance........................................ 44,529
Miscellaneous.................................... 14,210
-----------
Total Expenses................................... 12,676,812
------------
NET INVESTMENT INCOME............................. 12,830,979
REALIZED AND UNREALIZED GAIN (LOSS)
Realized gain (loss) on:
Investments--net................................. 387,005,362
Unrealized appreciation (depreciation) on:
Investments--net................................. (115,634,353)
------------
Net gain (loss)................................... 271,371,009
------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS....................................... $284,201,988
============
</TABLE>
(a)Net of foreign taxes of $404,037.
See accompanying notes to financial statements.
59
<PAGE>
NEW ENGLAND ZENITH FUND
(CAPITAL GROWTH SERIES)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
-------------- --------------
<S> <C> <C>
FROM OPERATIONS
Net investment income......................... $ 12,830,979 $ 19,464,166
Net realized gain (loss)...................... 387,005,362 169,787,977
Unrealized appreciation (depreciation)........ (115,634,353) 294,106,307
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS................................... 284,201,988 483,358,450
-------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income......................... (12,714,702) (19,530,694)
Net realized gain............................. (387,005,362) (224,364,814)
In excess of net realized gain................ (1,467,043) (800,115)
-------------- --------------
TOTAL DISTRIBUTIONS........................... (401,187,107) (244,695,623)
-------------- --------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares.................. 300,316,607 326,247,422
Reinvestment of distributions................. 401,187,107 244,695,623
Cost of shares redeemed....................... (416,251,052) (339,576,488)
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS........................... 285,252,662 231,366,557
-------------- --------------
TOTAL INCREASE (DECREASE) IN NET ASSETS....... 168,267,543 470,029,384
NET ASSETS
Beginning of the year......................... 1,895,748,472 1,425,719,088
-------------- --------------
End of the year............................... $2,064,016,015 $1,895,748,472
============== ==============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT
INCOME
End of the year............................... $ 120,155 $ 3,878
============== ==============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares................ 625,092 711,259
Issued in reinvestment of distributions....... 938,111 512,754
Redeemed...................................... (865,998) (741,374)
-------------- --------------
Net Change.................................... 697,205 482,639
============== ==============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Begin-
ning of Year........... $ 468.03 $ 399.60 $ 427.08 $ 374.62 $ 312.30
---------- ---------- ---------- ---------- --------
Income From Investment
Operations
Net Investment Income.. 3.35 5.29 2.52 3.08 3.47
Net Realized and
Unrealized Gain (Loss)
on Investments........ 68.25 130.40 95.67 74.80 114.91
---------- ---------- ---------- ---------- --------
Total From Investment
operations............ 71.60 135.69 98.19 77.88 118.38
---------- ---------- ---------- ---------- --------
Less Distributions
Distributions From Net
Investment Income..... (3.33) (5.31) (2.52) (3.08) (3.48)
Distributions From Net
Realized Capital
Gains................. (101.18) (61.73) (123.15) (22.34) (52.58)
Distributions in Excess
of Net Realized
Capital Gains......... (0.38) (0.22) 0.00 0.00 0.00
---------- ---------- ---------- ---------- --------
Total Distributions.... (104.89) (67.26) (125.67) (25.42) (56.06)
---------- ---------- ---------- ---------- --------
Net Asset Value, End of
Year................... $ 434.74 $ 468.03 $ 399.60 $ 427.08 $ 374.62
========== ========== ========== ========== ========
TOTAL RETURN (%)........ 15.7 34.1 23.5 21.1 38.0
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.66 0.66 0.67 0.69 0.71
Ratio of Net Investment
Income to Average Net
Assets (%)............. 0.67 1.18 0.52 0.79 0.92
Portfolio Turnover Rate
(%).................... 206 204 214 207 242
Net Assets, End of Year
(000) ................. $2,064,016 $1,895,748 $1,425,719 $1,142,660 $921,444
</TABLE>
See accompanying notes to financial statements.
60
<PAGE>
DAVIS VENTURE VALUE SERIES
PORTFOLIO MANAGERS: CHRISTOPHER C. DAVIS AND KENNETH C. FEINBERG
DAVIS SELECTED ADVISERS, L.P.
[Photo appear here]
Q. HOW DID THE SERIES PERFORM DURING THE PAST TWELVE MONTHS RELATIVE TO ITS
INDEX AND RELATIVE TO ITS PEERS?
A. The Davis Venture Value Series returned 17.5% for the year ending December
31, 1999. The S&P 500 Index/25/, now dominated by a handful of high-multiple,
ultra-cap stocks, finished the year with a return of 21.0%. The average return
of funds within the Lipper Variable Products Growth Fund/10/ universe was
31.7%. However, our discipline of buying growing companies at value prices
succeeded in outperforming the 7.4% return of the Russell 1000 Value Index.
Q. BRIEFLY DISCUSS THE INVESTMENT AND MARKET ENVIRONMENT DURING THE PAST TWELVE
MONTHS?
A. The U.S. stock market continued to be led by a select group of large tech-
nology companies in 1999, including Microsoft, Lucent Technologies, Cisco Sys-
tems, and America Online. This is because investor exuberance and optimism re-
mained strong for the future prospects of these companies, despite what some
may consider excessive valuations on each of these stocks. Many of these market
leaders are currently "priced to perfection," which we believe indicates a high
degree of investment risk. In contrast, notable and important industries such
as financial services companies and banks had a very mediocre year. Only the
highest quality firms, many of which we own in our portfolio, posted strong re-
turns.
The economic environment for the U.S. remains robust, with a strong pace of
Gross Domestic Product (GDP) growth, continued consumer confidence and
spending, and very low levels of inflation and unemployment. However, the
Federal Reserve Board moved to proactively curb economic growth several times
over the past year by raising short-term interest rates. As yields increased,
the U.S. moved from a liquidity driven market, marked by broad and rapid
expansion of price-to-earnings ratios, to more of a "growth" driven market in
which investors are highly focused on recent quarterly earnings performance of
companies.
Q. GIVEN THIS INVESTMENT ENVIRONMENT, WHAT WAS YOUR INVESTMENT STRATEGY? WHAT
CHANGES DID YOU MAKE SINCE THE START OF THE YEAR?
A. Our investment strategy remains consistent throughout any market environ-
ment. We actively seek out high quality, well-managed companies with strong
growth prospects, but we attempt to buy them at value prices. Our research team
spends a great deal of time getting to know company management and investigat-
ing company fundamentals. Once we feel we have found an attractive business,
and can purchase an investment in this company, we will hold for the long-term
(5-7 years on average). We will never change our investment discipline out of
reaction to market momentum or investor "fads," as we strongly believe our
method is the best way to achieve long-term growth and preservation of wealth.
Q. WHAT WERE THE PRINCIPAL FACTORS AFFECTING YOUR PERFORMANCE (ON BOTH AN
ABSOLUTE AND RELATIVE BASIS) DURING THE PAST TWELVE MONTHS? WHAT INVESTMENT
DECISIONS WERE MOST EFFECTIVE AND WHICH ONES WERE LEAST EFFECTIVE?
A. Our price discipline prevented us from buying high multiple, high growth
stocks that led the S&P 500 Index to another year of 20%+ returns. On the other
hand, our performance above our peers in the value category was due to our de-
cision to avoid "traditional" value plays such as cyclical stocks, high divi-
dend stocks, and low price-to-book value stocks. Such companies normally carry
limited future growth prospects.
On an absolute basis, our solid performance for the year was due to stock
selection. Although investments in the broad financial sector rendered mediocre
results for the year, our top positions of American Express, Citigroup, and
Morgan Stanley Dean Witter performed strongly. This was because investors were
"paid" to invest in quality throughout 1999. We did have some notable
disappointments during the year, including an investment in insurance companies
like Progressive, Allstate, and Chubb. Changing economics in this industry has
caused their earnings to disappoint Wall Street. Thankfully, we properly scaled
our investments in these situations and did not carry major positions in these
companies.
Q. WHAT IS YOUR OUTLOOK FOR THE MARKET AND YOUR PORTFOLIO FOR THE NEXT SIX
MONTHS? WHAT CHANGES, IF ANY, WILL YOU MAKE TO THE WAY YOU MANAGE YOUR
PORTFOLIO?
A. The U.S. economy continues to grow at an impressive pace today with little
inflationary pressures and low unemployment.
61
<PAGE>
Many market pundits continue to forecast strong returns among U.S. stocks in
the coming years. Indeed, many positive forces continue to benefit U.S.
businesses. First, U.S. companies have a strong lead on their European and
Japanese peers in terms of restructuring. Many foreign firms are only now
beginning the long and painful process of streamlining their operations and
investing for future growth. In the past five years, U.S. firms have emerged
as global leaders in industries where they could not compete only a decade
ago, such as semi-conductor manufacturing, and investment banking.
Furthermore, the U.S. has taken an important lead on Internet development. Not
only has this revolutionized U.S. companies in recent years, but it has also
lent an important level of experience to U.S. professionals that will become a
highly valuable resource as the next era of global "e-competition" develops.
However, investors should carefully consider how and where they invest their
money today. The twenty-first century is beginning at a high level of stock
market valuations. The Federal Reserve Board proactively moved to curb
liquidity and slow the pace of economic growth by raising short-term interest
rates several times during 1999. If the economy continues to rapidly expand,
the Fed may remain biased to tighten credit, which would dampen the potential
for continued expansion of company valuations. Additionally, earnings growth
is becoming harder and harder for companies to achieve. Increased investor
focus on quarterly earnings performance may cause the aggregate quality of
earnings to erode as company management struggles to meet Wall Street analyst
expectations. Renowned investor Warren Buffett recently reminded investors
that it is unrealistic to expect the long-term performance of the stock market
to exceed the long-term rate of growth of corporate profits. Unless investors
expect corporate earnings to grow at double-digit returns in the coming years,
they may have to temper their expectations for continued double-digit returns
in the stock market.
A $10,000 Investment compared to the S&P 500
since the Series' Inception
Davis Venture Value S&P 500
10/31/94 10,000 10,000
12/31/94 9,650 9,774
12/31/95 13,441 13,437
12/31/96 16,914 16,538
12/31/97 22,580 22,034
12/31/98 25,839 28,368
12/31/99 30,366 34,319
Average Annual Total Return
Venture Value Lipper Variable
Series S&P 500 Growth Fund Average
1 year 17.5% 21.0% 31.7%
3 years 21.5 27.6 26.9
5 years 25.8 28.6 26.9
Since Inception 24.0 27.0 n/a
FUND FACTS
GOAL: Growth of capital.
START DATE: October 31, 1994
SIZE: $656 million as of December 31, 1999
MANAGER: Christopher C. Davis has been the manager of the Series since
February 1997. Previously, he co-managed the Series with Shelby M.C. Davis
from October 1995 to February 1997.
Kenneth C. Feinberg has co-managed the Series since April 1999. Mr. Feinberg
has co-managed other equity funds for Davis Selected since May 1998.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts. If these charges were included, the returns shown would
be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
62
<PAGE>
NEW ENGLAND ZENITH FUND
(DAVIS VENTURE VALUE SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--92.5% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
BANKS AND SAVINGS & LOAN--10.9%
859 Bank of America Corp.................................... $ 43,111
513,880 Citigroup, Inc. ........................................ 28,552,458
1,000 First Union Corp........................................ 32,813
248,000 Golden West Financial Corp. ............................ 8,308,000
31,400 State Street Corp....................................... 2,294,162
169,100 U.S. Bancorp............................................ 4,026,694
705,300 Wells Fargo & Co. ...................................... 28,520,569
------------
71,777,807
------------
BUILDING MATERIALS--4.4%
142,700 Martin Marietta Materials, Inc.......................... 5,850,700
422,500 Masco Corp.............................................. 10,720,938
314,200 Tyco International, Ltd................................. 12,214,525
------------
28,786,163
------------
BUSINESS SERVICES--0.1%
33 ACNielson Corp.(b)...................................... 813
100 Dun & Bradstreet Corp. ................................. 2,950
26 Gartner Group, Inc. Class B............................. 359
6,800 WPP Group, Plc. (ADR)................................... 565,250
------------
569,372
------------
CHEMICALS--1.3%
200 Dow Chemical Co. ....................................... 26,725
44,100 Monsanto Co. ........................................... 1,571,063
176,500 Vulcan Materials Co..................................... 7,048,969
------------
8,646,757
------------
COMMUNICATIONS--2.6%
118,200 MediaOne Group, Inc.(b)................................. 9,079,238
205,100 Novell, Inc.(b)......................................... 8,191,181
------------
17,270,419
------------
COMPUTERS & PERIPHERALS--16.9%
344,000 Hewlett-Packard Co. .................................... 39,194,500
180,600 Intel Corp.............................................. 14,865,638
220,000 International Business Machines Corp.................... 23,760,000
101,700 Lexmark International Group, Inc.(b).................... 9,203,850
139,400 Oracle Corp.(b)......................................... 15,621,513
137,200 SAP AG (ADR)............................................ 7,142,975
37,000 Unisys Corp.(b)......................................... 1,181,688
------------
110,970,164
------------
CONSUMER PRODUCTS & SERVICES--1.8%
3,200 Coca-Cola Co............................................ 186,400
42,500 Colgate-Palmolive Co. .................................. 2,762,500
900 Fortune Brands, Inc..................................... 29,756
900 Gallaher Group, Plc. (ADR).............................. 13,838
3,100 General Electric Co. ................................... 479,725
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
63,100 Gillette Co. ........................................... $ 2,598,931
800 Maytag Corp. ........................................... 38,400
240,800 Philip Morris Companies, Inc. .......................... 5,583,550
------------
11,693,100
------------
DIVERSIFIED FINANCIAL SERVICES--13.2%
263,900 American Express Co. ................................... 43,873,375
12,400 Boardwalk Equities, Inc. (CAD).......................... 106,519
123,900 Donaldson, Lufkin & Jenrette, Inc....................... 5,993,663
107,100 Federal Home Loan Mortgage Corp......................... 5,040,394
537,100 Household International, Inc............................ 20,006,975
129,400 Providian Financial Corp................................ 11,783,487
------------
86,804,413
------------
DRILLING--0.1%
10,400 Transocean Sedco Forex, Inc. ........................... 350,350
------------
ELECTRONICS--6.6%
15,800 Agilent Technologies, Inc.(b)........................... 1,221,537
20,300 Koninklijke Philips Electronics NV (ADR)................ 2,740,500
92,387 Molex, Inc. ............................................ 5,237,188
353,100 Texas Instruments, Inc. ................................ 34,206,562
------------
43,405,787
------------
ENERGY--1.1%
400 Amerada Hess Corp....................................... 22,700
1,000 Atlantic Richfield Co................................... 86,500
200 Burlington Resources, Inc............................... 6,613
2,000 Chevron Corp............................................ 173,250
95,558 Devon Energy Corp. ..................................... 3,141,469
500 El Paso Energy Corp. ................................... 19,406
6,992 Exxon Mobil Corp. ...................................... 563,293
52,000 Schlumberger, Ltd. ..................................... 2,925,000
100 Sempra Energy........................................... 1,738
------------
6,939,969
------------
HOTELS & RESTAURANTS--4.4%
159,400 Marriott International, Inc............................. 5,031,063
589,900 McDonald's Corp......................................... 23,780,344
------------
28,811,407
------------
INDUSTRIAL PARTS & EQUIPMENT--1.0%
148,300 Dover Corp. ............................................ 6,729,113
------------
INVESTMENT FIRMS--2.9%
800 J.P. Morgan & Co., Inc.................................. 101,300
131,555 Morgan Stanley Dean Witter & Co. ....................... 18,779,476
------------
18,880,776
------------
</TABLE>
See accompanying notes to financial statements.
63
<PAGE>
NEW ENGLAND ZENITH FUND
(DAVIS VENTURE VALUE SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
PACKAGING--1.2%
146,800 Sealed Air Corp.(b)....................................... $7,606,075
----------
PAPER PRODUCTS--0.0%
894 International Paper Co.................................... 50,455
----------
PHARMACEUTICALS & HEALTH CARE--4.6%
314,900 American Home Products Corp............................... 12,418,869
92,400 Bristol-Myers Squibb Co................................... 5,930,925
200 IMS Health, Inc........................................... 5,438
1,500 Johnson & Johnson......................................... 139,688
35,500 Merck & Co., Inc.......................................... 2,380,719
36,300 Pfizer, Inc............................................... 1,177,481
128,500 Smithkline Beecham, Plc. (ADR)............................ 8,280,219
----------
30,333,339
----------
PROPERTY & CASUALTY INSURANCE--8.9%
137,838 American International Group, Inc......................... 14,903,734
328 Berkshire Hathaway, Inc. Class A(b)....................... 18,400,800
27 Berkshire Hathaway, Inc. Class B(b)....................... 49,410
64,500 Chubb Corp................................................ 3,632,156
98,000 Progressive Corp.......................................... 7,166,250
132,150 Transatlantic Holdings, Inc............................... 10,315,959
130,231 UnumProvident Corp........................................ 4,175,531
----------
58,643,840
----------
PUBLISHING--1.7%
29,900 Dow Jones & Company, Inc.................................. 2,033,200
65,000 Gannett Company, Inc...................................... 5,301,562
20 R.H. Donnelley Corp....................................... 377
62,900 Tribune Co................................................ 3,463,431
----------
10,798,570
----------
REAL ESTATE INVESTMENT TRUSTS--1.3%
14,200 Centerpoint Properties Trust.............................. 509,425
112,700 Crescent Real Estate Equities Co.......................... 2,070,862
20,600 Equity Residential Properties Trust....................... 879,362
92,400 General Growth Properties, Inc............................ 2,587,200
30,500 Mack-Cali Realty Corp..................................... 794,906
5,400 Public Storage, Inc....................................... 122,512
42,200 Vornado Realty Trust...................................... 1,371,500
----------
8,335,767
----------
RETAIL--0.3%
32,900 Harcourt General, Inc..................................... 1,324,225
33,293 Neiman Marcus Group, Inc.(b).............................. 896,830
----------
2,221,055
----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
SEMICONDUCTORS--2.8%
146,200 Applied Materials, Inc.(b)............................. $ 18,521,712
------------
TELECOMMUNICATIONS--3.9%
16,500 AT & T Corp............................................ 837,375
117,704 Globalstar Telecommunications, Ltd.(b)................. 5,178,976
221,000 Loral Space & Communications, Ltd.(b).................. 5,373,062
97,000 Motorola, Inc.......................................... 14,283,250
600 SBC Communications, Inc................................ 29,250
------------
25,701,913
------------
UTILITIES--ELECTRIC--0.0%
300 Carolina Power & Light Co.............................. 9,131
300 Duke Energy Corp....................................... 15,037
200 Edison International................................... 5,237
200 New England Electric System............................ 10,350
600 Southern Co............................................ 14,100
200 Wisconsin Energy Corp.................................. 3,850
------------
57,705
------------
WASTE MANAGEMENT--0.5%
172,390 Waste Management, Inc.................................. 2,962,953
------------
Total Common Stocks (Identified Cost $433,034,017)..... 606,868,981
------------
PREFERRED STOCKS--0.3%
79,900 General Growth Properties, 7.25%....................... 1,598,000
5,100 Rouse Co. Series B, $3.00.............................. 166,387
2,000 Vornado Realty Trust, 6.50%............................ 93,250
------------
Total Preferred Stocks (Identified Cost $2,336,107).... 1,857,637
------------
</TABLE>
See accompanying notes to financial statements.
64
<PAGE>
NEW ENGLAND ZENITH FUND
(DAVIS VENTURE VALUE SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
SHORT TERM INVESTMENT--7.2%
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
$47,127,000 Repurchase Agreement with State Street Corp. dated
12/31/1999 at 2.75% to be repurchased at
$47,137,800 on 1/3/2000, collateralized by
$48,665,000 Federal National Mortgage
Association, 5.00% due 1/18/2000 with a value of
$48,533,605...................................... $ 47,127,000
------------
Total Short-Term Investments (Identified Cost
$47,127,000)..................................... 47,127,000
------------
Total Investments--100.0% (Identified Cost
$482,497,124)(a)................................. 655,853,618
Other assets less liabilities..................... (254,303)
------------
TOTAL NET ASSETS--100%............................ $655,599,315
============
</TABLE>
(a) Federal Tax Information:
At December 31, 1999 the net unrealized appreciation on investments based on
cost of $482,712,858 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 $199,734,727
Aggregate gross unrealized depreciation for all
investments in which there is an excess of
tax cost over value.......................................... (26,593,967)
------------
Net unrealized appreciation................................... $173,140,760
============
</TABLE>
(b) Non-income producing security.
Key to Abbreviations:
ADR/GDR--An American Depositary Receipt (ADR) or Global Depositary Receipt
(GDR) is a certificate issued by a Custodian Bank representing the
right to receive securities of the foreign issuer described. The value
of ADRs and GDRs are significantly influenced by trading on exchanges
not located in the United States or Canada.
CAD-- Security is denominated in Canadian Dollars.
See accompanying notes to financial statements.
65
<PAGE>
NEW ENGLAND ZENITH FUND
(DAVIS VENTURE VALUE SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value................................... $655,853,618
Cash................................................... 1,995
Receivable for:
Fund shares sold....................................... 1,468,035
Dividends and interest................................. 416,230
Foreign taxes.......................................... 361
------------
Total Assets.......................................... 657,740,239
LIABILITIES
Payable for:
Fund shares redeemed................................... $697,453
Securities purchased................................... 997,237
Withholding taxes...................................... 3,214
Accrued expenses:
Management fees........................................ 399,154
Deferred trustees fees................................. 11,031
Other expenses......................................... 32,835
--------
Total Liabilities...................................... 2,140,924
------------
NET ASSETS.............................................. $655,599,315
============
Net assets consist of:
Capital paid in........................................ $484,193,489
Undistributed net investment income.................... 141,370
Accumulated net realized gains (losses)................ (2,092,058)
Unrealized appreciation (depreciation) on investments
and foreign currency.................................. 173,356,514
------------
NET ASSETS.............................................. $655,599,315
============
Computation of offering price:
Net asset value and redemption price per share
($655,599,315 divided by 24,585,395 shares of
beneficial interest)................................... $ 26.67
------------
Identified cost of investments.......................... $482,497,124
============
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends......................................... $ 5,942,479(a)
Interest.......................................... 1,334,159
-----------
7,276,638
EXPENSES
Management fees................................... $4,032,970
Trustees' fees and expenses....................... 25,192
Custodian......................................... 90,535
Audit and tax services............................ 18,003
Legal............................................. 31,041
Printing.......................................... 119,689
Amortization of organization expense.............. 1,670
Insurance......................................... 10,852
Miscellaneous..................................... 10,115
----------
Total Expenses.................................... 4,340,067
-----------
NET INVESTMENT INCOME.............................. 2,936,571
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
Realized gain (loss) on:
Investments--net.................................. 4,916,013
Foreign currency transactions--net................ (23) 4,915,990
----------
Unrealized appreciation (depreciation) on:
Investments--net.................................. 78,394,742
Foreign currency translation--net................. (58) 78,394,684
---------- -----------
Net gain (loss).................................... 83,310,674
-----------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS........................................ $86,247,245
===========
</TABLE>
(a) Net of foreign taxes of $34,700.
See accompanying notes to financial statements.
66
<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,
1999 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................. $ 2,936,571 $ 2,965,810
Net realized gain (loss).......................... 4,915,990 11,066,435
Unrealized appreciation (depreciation)............ 78,394,684 35,305,436
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS. 86,247,245 49,337,681
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income............................. (2,768,802) (2,955,699)
Net realized gain................................. (7,489,451) (8,942,796)
In excess of realized gain ....................... (2,132,319) 0
------------ ------------
TOTAL DISTRIBUTIONS............................... (12,390,572) (11,898,495)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares...................... 256,605,757 198,875,194
Reinvestment of distributions..................... 12,390,572 11,898,495
Cost of shares redeemed........................... (127,604,594) (88,310,045)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS............................... 141,391,735 122,463,644
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS........... 215,248,408 159,902,830
NET ASSETS
Beginning of the year............................. 440,350,907 280,448,077
------------ ------------
End of the year................................... $655,599,315 $440,350,907
============ ============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT
INCOME
End of the year................................... $ 141,370 $ 12,192
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................... 10,192,408 9,098,582
Issued in reinvestment of distributions........... 471,756 515,015
Redeemed.......................................... (5,101,465) (4,074,457)
------------ ------------
Net Change........................................ 5,562,699 5,539,140
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year........................ $ 23.15 $ 20.80 $ 16.09 $ 13.10 $ 9.62
-------- -------- -------- -------- -------
Income From Investment
Operations
Net Investment Income....... 0.12 0.16 0.18 0.13 0.10
Net Realized and Unrealized
Gain (Loss) on Investments. 3.93 2.84 5.20 3.26 3.68
-------- -------- -------- -------- -------
Total From Investment
operations................. 4.05 3.00 5.38 3.39 3.78
-------- -------- -------- -------- -------
Less Distributions
Distributions From Net
Investment Income.......... (0.12) (0.16) (0.14) (0.13) (0.10)
Distributions From Net
Realized Capital Gains..... (0.32) (0.49) (0.53) (0.27) (0.20)
Distribution in excess of
Net Realized Capital Gain . (0.09) 0.00 0.00 0.00 0.00
-------- -------- -------- -------- -------
Total Distributions......... (0.53) (0.65) (0.67) (0.40) (0.30)
-------- -------- -------- -------- -------
Net Asset Value, End of Year. $ 26.67 $ 23.15 $ 20.80 $ 16.09 $ 13.10
======== ======== ======== ======== =======
TOTAL RETURN (%)............. 17.5 14.4 33.5 25.8 39.3
Ratio of Operating Expenses
to Average Net Assets (%)... 0.81 0.83 0.90 0.90 0.90
Ratio of Net Investment
Income to Average Net Assets
(%)......................... 0.55 0.82 0.94 1.25 1.39
Portfolio Turnover Rate (%).. 22 25 17 18 20
Net Assets, End of Year
(000)....................... $655,599 $440,351 $280,448 $108,189 $35,045
The Ratios of operating
expenses to average net
assets without giving effect
to the voluntary expense
agreement described in Note
4 to the Financial
Statements would have been
(%)......................... -- -- 0.90 0.96 1.51
</TABLE>
See accompanying notes to financial statements.
67
<PAGE>
GOLDMAN SACHS MIDCAP VALUE SERIES
PORTFOLIO MANAGERS: EILEEN ROMINGER; EILEEN A. APTMAN; MATTHEW B. MCLENNON &
KARMA WILSON
GOLDMAN SACHS ASSET MANAGEMENT
Q: HOW DID THE SERIES PERFORM DURING THE PAST TWELVE MONTHS RELATIVE TO ITS
INDEX AND RELATIVE TO ITS PEERS?
A. For the year ending December 31, 1999, the Goldman Sachs Midcap Value Series
("Series") returned 0.3%, under-performing the Russell Midcap Index/22/ return
of 18.2% over the same time period, but outperforming the Russell Midcap Value
Index return of -0.1%. The average return of all funds within the Lipper Vari-
able Products Midcap Fund/14/ universe was 44.5%.
Q. BRIEFLY DISCUSS THE INVESTMENT AND MARKET ENVIRONMENT DURING THE PAST TWELVE
MONTHS?
A. 1999 ended on a positive note, as interest rate concerns dissipated and Y2K-
related liquidity fears proved unsubstantiated and the marketplace evaded any
actual trading volume declines or grand-scale increases in cash levels. During
the year, restrained inflation, solid growth in corporate profits, and gains by
a few lead sectors drove U.S. indexes to record levels; the S&P 500 Index, Rus-
sell Midcap Index and Russell 2000 Index gained 21.0%, 18.2% and 21.3%, respec-
tively. These gains, while substantial, were primarily driven by a narrow band
of technology and telecommunications stocks.
Across all capitalization ranges, the disparity between growth and value in-
vestment styles continued to be extremely wide, with the Russell Midcap Value
Index underperforming the Russell Midcap Growth Index by 51.4% for the year (-
0.1% versus +51.3%).
Q: WHAT CHANGES DID YOU MAKE SINCE THE START OF THE YEAR?
A: Effective December 1 and going forward, we have implemented a benchmark
change for the Series, and we will be reporting and evaluating our risk profile
against the Russell Midcap Value Index. We believe that over a complete busi-
ness cycle, either a growth or value style will offer competitive returns
within the mid-cap market. Over shorter time periods, however, we believe it is
important to view our performance versus a value benchmark such as the Russell
Midcap Value Index, for it more accurately captures our style of investing and
the universe in which we search for investment ideas.
Q. WHAT WERE THE PRINCIPAL FACTORS AFFECTING YOUR PERFORMANCE (ON BOTH AN
ABSOLUTE AND RELATIVE BASIS) DURING THE PAST TWELVE MONTHS? WHAT INVESTMENT
DECISIONS WERE MOST EFFECTIVE AND WHICH ONES WERE LEAST EFFECTIVE?
A. Positive stock selection helped performance among electric utilities, steel,
electric equipment and banks. Specifically, within the utilities industry, CMP
Group Inc. (1.6% of the total Series) sold its generation assets, boasted at-
tractive cash reserves and became the acquisition target of Energy East Corp.
Steel producer Ispat International (1.3% of the total Series) also drove posi-
tive performance. Ispat International is an extremely well-managed steel com-
pany that has grown primarily through acquisitions of poorly managed assets at
discounted prices over time. As it revamps these facilities and assets, Ispat
International takes its place at the low end of the cost curve and earns a
strong return on equity. In electric equipment, Vishay Intertechnology, Inc.
(1.3% of the total Series) was the biggest contributor to positive performance.
Electronic component maker Vishay benefited from improved supply and demand dy-
namics for the semiconductor equipment industry. Finally, among banks, Republic
New York Corp. (2.1% of the total Series), acquisition target of HSBC and
Unionbancal Corp. (1.2% of the total Series) were our top performers, leading
our investments to outperform the benchmark bank holdings.
On an industry level, detractors from performance included our tobacco posi-
tion, which suffered due to litigation concerns. We have reduced this over-
weight. On a relative basis, our underweights in highly valued industries such
as wireless communications and computer software hurt the portfolio, as these
industry groups both rose more than one hundred percent in the year. Several
specific stocks also detracted from performance; fundamental deterioration led
us to sell apparel company Fruit of The Loom, Inc., auto parts supplier Feder-
al- Mogul Corp., and InaCom Corp., which was hampered by poor management deci-
sions after its acquisition of Vanstar. We also sold our position in
Healthsouth Corp. While some of our health care and hospital holdings suffered
due to concerns over reimbursement policies, several holdings benefited. For
example, Health Management Associates was one of our best performers for the
year; HMA rebounded as investor focus shifted from reimbursement concerns to
the company's solid management track record and growth prospects.) We remain
68
<PAGE>
invested in Bergen Brunswig Corp. (1.1% of the total Series), which fell due
to challenges integrating recently acquired operations; the company is re-
structuring management and working to reduce costs associated with the acqui-
sition. In addition, its core drug distribution business is experiencing
strong revenue growth. The company has rebounded in early 2000.
Q. WHAT IS YOUR OUTLOOK FOR THE MARKET AND YOUR PORTFOLIO FOR THE NEXT SIX
MONTHS? WHAT CHANGES, IF ANY, WILL YOU MAKE TO THE WAY YOU MANAGE YOUR
PORTFOLIO?
A. Over the last four months, under new management, we have taken additional
steps in terms of personnel, investment strategy, and portfolio construction
to position the products appropriately relative to shareholder expectations.
We have implemented a more robust, quality-oriented value investment
philosophy. The basic tenets of this philosophy are that 1) quality of
business is the first criterion for selecting investments; 2) low cost alone
seems an inadequate investment thesis; 3) we must acknowledge long-term
changes in our economy driven by technology and information-based tools; and
4) a long-term approach to value will help us meet client objectives.
A $10,000 Investment Compared to the S&P 500 and Russell Midcap Index
Since the Series' Inception
[GRAPH]
Midcap Value Russell Midcap S&P 500
4/30/93 10,000 10,000 10,000
12/31/93 11,474 11,136 10,812
12/31/94 11,437 10,903 10,951
12/31/95 14,909 14,659 15,056
12/31/96 17,534 17,444 18,531
12/31/97 20,571 22,505 24,689
12/31/98 19,447 24,777 31,787
12/31/99 19,515 29,294 38,455
Average Annual Total Return
Lipper Variable
Russell Midcap Fund
Midcap Value Midcap S&P 500 Average
1 year 0.3% 18.2% 21.0% 44.5%
3 years 3.6 18.9 27.6 27.4
5 years 11.3 21.9 28.6 23.0
Since Inception 10.6 17.5 22.4 n/a
[checkmark] FUND FACTS
GOAL: Long-term capital appreciation.
START DATE: April 30, 1993
SIZE: $109 million as of December 31, 1999
MANAGERS: Eileen Rominger, Eileen A. Aptman, Matthew B. McLennan and Karma
Wilson. Msses. Aptman and Wilson and Mr. McLennan are Vice Presidents of Goldman
Sachs and have managed the Goldman Sachs Midcap Value Series since September
1998. Ms. Rominger has managed the Series since November 1999.
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.
69
<PAGE>
NEW ENGLAND ZENITH FUND
(GOLDMAN SACHS MIDCAP VALUE SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--96.8% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
AEROSPACE & DEFENSE--1.6%
31,700 Northrop Grumman Corp................................... $ 1,713,781
------------
AUTO SUPPLIERS--1.2%
39,700 AutoZone, Inc.(b)....................................... 1,282,806
------------
BANKS--9.5%
26,900 Comerica, Inc........................................... 1,255,894
46,100 GreenPoint Financial Corp............................... 1,097,756
167,300 Pacific Century Financial Corp.......................... 3,126,419
31,700 Republic New York Corp.................................. 2,282,400
181,100 Sovereign Bancorp, Inc.................................. 1,349,761
32,100 UnionBanCal Corp........................................ 1,265,944
------------
10,378,174
------------
BUSINESS SERVICES--0.5%
17,500 Dun & Bradstreet Corp................................... 516,250
------------
COMMERCIAL PRODUCTS--2.2%
44,700 Herman Miller, Inc...................................... 1,028,100
106,800 UNOVA, Inc.(b).......................................... 1,388,400
------------
2,416,500
------------
COMMERCIAL SERVICES--0.9%
71,600 Modis Professional Services, Inc.(b).................... 1,020,300
------------
COMMODITY CHEMICALS--4.4%
76,000 IMC Global, Inc. ....................................... 1,244,500
107,300 Millennium Chemicals, Inc............................... 2,119,175
30,600 Potash Corporation of Saskatchewan, 1,474,538
Inc. .................................................
------------
4,838,213
------------
COMPUTER SOFTWARE & SERVICES--1.0%
86,500 Mentor Graphics Corp.(b)................................ 1,140,719
------------
DEPARTMENT STORES--2.1%
49,700 Dillard's, Inc. ........................................ 1,003,319
24,600 Federated Department Stores, Inc.(b).................... 1,243,838
------------
2,247,157
------------
ELECTRIC UTILITIES--11.2%
61,900 CMP Group, Inc. ........................................ 1,706,119
39,800 DTE Energy Co. ......................................... 1,248,725
48,900 Entergy Corp. .......................................... 1,259,175
13,200 FPL Group, Inc. ........................................ 565,125
46,400 LG&E Energy Corp. ...................................... 809,100
98,700 Northeast Utilities..................................... 2,029,519
126,100 Public Service Company of New Mexico.................... 2,049,125
64,000 SCANA Corp.............................................. 1,720,000
26,600 Unicom Corp. ........................................... 891,100
------------
12,277,988
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
ENERGY--2.4%
47,100 Tosco Corp.............................................. $ 1,280,531
67,100 Valero Energy Corp...................................... 1,333,612
------------
2,614,143
------------
ENVIRONMENTAL SERVICES--1.3%
97,300 Republic Services, Inc.(b).............................. 1,398,687
------------
FOOD & BEVERAGES--2.5%
114,770 Archer Daniels Midland Co............................... 1,398,759
46,300 International Home Foods, Inc.(b)....................... 804,462
44,600 Nabisco Group Holdings Corp............................. 473,875
------------
2,677,096
------------
FOREST PRODUCTS--0.9%
40,800 Georgia-Pacific Corp.(b)................................ 1,004,700
------------
HEALTHCARE MANAGEMENT--8.0%
39,200 Aetna, Inc. ............................................ 2,187,850
125,100 HCR Manor Care, Inc.(b)................................. 2,001,600
143,500 Health Management Associates, Inc.(b)................... 1,919,313
32,300 Quest Diagnostics, Inc.(b).............................. 987,169
69,000 Tenet Healthcare Corp.(b)............................... 1,621,500
------------
8,717,432
------------
INDUSTRIAL PARTS & MACHINERY--1.5%
125,400 AGCO Corp. ............................................. 1,685,063
------------
INSURANCE BROKERS & OTHER
INSURANCE--4.7%
20,400 Loews Corp.............................................. 1,238,025
119,100 Old Republic International Corp......................... 1,622,738
18,900 Radian Group, Inc....................................... 902,475
26,000 XL Capital, Ltd. ....................................... 1,348,750
------------
5,111,988
------------
INVESTMENT BROKERS &
MANAGERS--3.3%
49,070 Bear Stearns Companies, Inc............................. 2,097,743
59,434 Waddell & Reed Financial, Inc........................... 1,493,279
------------
3,591,022
------------
MEDIA CONTENT--3.8%
61,800 A.H. Belo Corp.......................................... 1,178,063
36,800 Media General, Inc...................................... 1,913,600
16,600 Times Mirror Co. ....................................... 1,112,200
------------
4,203,863
------------
METALS & MINING--1.5%
12,000 Parker Hannifin Corp.................................... 615,750
14,900 Phelps Dodge Corp....................................... 1,000,163
------------
1,615,913
------------
</TABLE>
See accompanying notes to financial statements.
70
<PAGE>
NEW ENGLAND ZENITH FUND
(GOLDMAN SACHS MIDCAP VALUE SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
OIL & GAS--0.7%
11,000 Helmerich & Payne, Inc.................................. $ 239,937
44,400 Union Pacific Resources Group, Inc...................... 566,100
------------
806,037
------------
PHARMACEUTICALS--1.1%
144,200 Bergen Brunswig Corp.................................... 1,198,663
------------
PRINTING--0.7%
31,000 R.R. Donnelley & Sons Co................................ 769,188
------------
PROPERTY & CASUALTY INSURANCE--1.7%
81,000 Everest Reinsurance Holdings, Inc....................... 1,807,313
------------
RAILROADS--1.1%
58,100 Canadian Pacific, Ltd................................... 1,252,781
------------
REAL ESTATE--1.3%
82,300 TrizecHahn Corp......................................... 1,388,812
------------
REAL ESTATE INVESTMENT TRUSTS--3.8%
14,400 AvalonBay Communities, Inc.............................. 494,100
39,900 Equity Office Properties Trust.......................... 982,537
22,600 Equity Residential Properties Trust..................... 964,737
28,700 Public Storage, Inc..................................... 651,131
29,300 Spieker Properties, Inc................................. 1,067,619
------------
4,160,124
------------
RESTAURANTS & HOTELS--3.1%
129,300 CBRL Group, Inc......................................... 1,254,614
91,700 Starwood Hotels & Resorts Worldwide, Inc................ 2,154,950
------------
3,409,564
------------
RETAIL--3.5%
104,300 Ingram Micro, Inc.(b)................................... 1,368,937
93,400 Reebok International, Ltd.(b)........................... 764,712
93,100 Ross Stores, Inc........................................ 1,669,981
------------
3,803,630
------------
SEMICONDUCTORS--5.1%
42,500 Avnet, Inc. ............................................ 2,571,250
58,000 Tech Data Corp.(b)...................................... 1,573,250
45,156 Vishay Intertechnology, Inc.(b)......................... 1,428,058
------------
5,572,558
------------
STEEL--4.9%
62,984 AK Steel Holding Corp................................... 1,188,823
86,300 Ispat International N.V................................. 1,391,587
156,100 UCAR International, Inc.(b)............................. 2,780,531
------------
5,360,941
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
SUPERMARKETS--1.2%
132,400 Fleming Companies, Inc... $ 1,357,100
------------
TOBACCO--2.3%
51,466 R.J. Reynolds Tobacco
Holdings, Inc........... 907,088
64,100 UST, Inc................. 1,614,519
------------
2,521,607
------------
TRANSPORTATION--
AIRFREIGHT,
TRUCK & OTHER--1.8%
23,200 CNF Transportation, Inc.. 800,400
34,500 Ryder System, Inc........ 843,094
8,700 Tidewater, Inc........... 313,200
------------
1,956,694
------------
Total Common Stocks
(Identified Cost
$111,460,168)........... 105,816,807
------------
SHORT-TERM INVESTMENT--1.7%
<CAPTION>
FACE
AMOUNT
<C> <S> <C>
$1,881,000 Repurchase Agreement with
State Street Corp. dated
12/31/1999 at 2.8% to be
repurchased at
$1,881,439 on 1/3/2000,
collateralized by
$2,045,000 U.S. Treasury
Bonds, 6.000% due
2/15/26 with a value of
$1,919,744.............. 1,881,000
------------
Total Short-Term
Investments
(Identified Cost
$1,881,000)............... 1,881,000
------------
Total Investments--98.5%
(Identified Cost
$113,341,168)(a).......... 107,697,807
Other assets less
liabilities............... 1,582,101
------------
TOTAL NET ASSETS--100%..... $109,279,908
============
</TABLE>
(a) Federal Tax Information:
At December 31, 1999 the net unrealized depreciation on investments based on
cost of $113,938,198 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.................. $ 5,955,899
Aggregate gross unrealized
depreciation for all investments
in which there is an excess of
tax cost over value.................. (12,196,290)
------------
Net unrealized depreciation........... $ (6,240,391)
============
</TABLE>
For Federal income tax purposes, the Series has a capital loss carryforward
at December 31, 1999 of approximately $4,979,000 which will expire in 2007.
Accordingly, no capital gain distributions are expected to be paid to
shareholders until net gains have been realized in excess of such amount.
(b) Non-income producing security.
See accompanying notes to financial statements.
71
<PAGE>
NEW ENGLAND ZENITH FUND
(GOLDMAN SACHS MIDCAP VALUE SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value................................. $107,697,807
Cash................................................. 77
Receivable for:
Securities sold...................................... 5,718,065
Fund shares sold..................................... 290,020
Dividends and interest............................... 201,767
Foreign taxes........................................ 1,691
------------
113,909,427
LIABILITIES
Payable for:
Fund shares redeemed................................. $ 259,590
Securities purchased................................. 4,274,061
Withholding taxes.................................... 825
Accrued expenses:
Management fees...................................... 68,196
Deferred trustees fees............................... 6,015
Other expenses....................................... 20,832
----------
4,629,519
------------
NET ASSETS............................................ $109,279,908
============
Net Assets consist of:
Capital paid in...................................... $123,022,642
Overdistributed net investment income................ (2,588)
Accumulated net realized gains (losses).............. (8,096,785)
Unrealized appreciation (depreciation) on
investments......................................... (5,643,361)
------------
NET ASSETS............................................ $109,279,908
============
Computation of offering price:
Net asset value and redemption price per share
($109,279,908 divided by 897,879 shares of beneficial
interest)............................................ $ 121.71
============
Identified cost of investments........................ $113,341,168
============
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends......................................... $1,700,319(a)
Interest.......................................... 485,960
----------
2,186,279
EXPENSES
Management fees................................... $ 834,843
Deferred expense reimbursement.................... 4,535
Trustees' fees and expenses....................... 11,571
Custodian......................................... 60,822
Audit and tax services............................ 11,177
Legal............................................. 6,817
Printing.......................................... 44,904
Insurance......................................... 2,467
Miscellaneous..................................... 3,315
-----------
Total expenses................................... 980,451
----------
NET INVESTMENT INCOME.............................. 1,205,828
----------
REALIZED AND UNREALIZED GAIN (LOSS)
Realized gain (loss) on:
Investments--net.................................. (8,040,878)
Options--net...................................... 122,746 (7,918,132)
-----------
Unrealized appreciation (depreciation) on:
Investments--net.................................. 6,689,577
----------
Net gain (loss).................................... (1,228,555)
----------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS........................................ ($22,727)
==========
</TABLE>
(a)Net of foreign taxes of $10,172
See accompanying notes to financial statements.
72
<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,
1999 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income.............................. $ 1,205,828 $ 773,045
Net realized gain (loss)........................... (7,918,132) 24,005,683
Unrealized appreciation (depreciation)............. 6,689,577 (31,637,944)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS.. (22,727) (6,859,216)
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income.............................. (1,205,828) (774,037)
In excess of net investment income................. (155,136) 0
Net realized gain.................................. 0 (25,623,971)
In excess of net realized gain..................... 0 (178,608)
------------ ------------
TOTAL DISTRIBUTIONS................................ (1,360,964) (26,576,616)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares....................... 40,923,689 39,367,155
Reinvestment of distributions...................... 1,360,964 26,576,616
Cost of shares redeemed............................ (44,618,082) (34,127,490)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS................................ (2,333,429) 31,816,281
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS............ (3,717,120) (1,619,551)
NET ASSETS
Beginning of the year.............................. 112,997,028 114,616,579
------------ ------------
End of the year.................................... $109,279,908 $112,997,028
============ ============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT
INCOME
End of the year.................................... $ (2,588) $ (992)
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares..................... 322,118 235,104
Issued in reinvestment of distributions............ 11,333 219,133
Redeemed........................................... (355,388) (206,302)
------------ ------------
Net Change......................................... (21,937) 247,935
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year.......................... $ 122.85 $ 170.59 $ 157.88 $142.44 $112.77
-------- -------- -------- ------- -------
Income From Investment
Operations
Net Investment Income......... 1.36 1.09 0.00 0.11 0.42
Net Realized and Unrealized
Gain (Loss) on Investments... (0.97) (11.41) 27.12 24.88 33.80
-------- -------- -------- ------- -------
Total From Investment
operations................... 0.39 (10.32) 27.12 24.99 34.22
-------- -------- -------- ------- -------
Less Distributions
Distributions From Net
Investment Income............ (1.36) (1.09) 0.00 (0.13) (0.40)
Distributions in excess of
net investment income........ (0.17) 0.00 0.00 0.00 0.00
Distributions From Net
Realized Capital Gains....... 0.00 (36.08) (14.41) (9.42) (4.15)
Distributions in Excess of
Net Realized Capital Gains... 0.00 (0.25) 0.00 0.00 0.00
-------- -------- -------- ------- -------
Total Distributions........... (1.53) (37.42) (14.41) (9.55) (4.55)
-------- -------- -------- ------- -------
Net Asset Value, End of Year... $ 121.71 $ 122.85 $ 170.59 $157.88 $142.44
======== ======== ======== ======= =======
Total Return (%)............... 0.3 (5.5) 17.4 17.6 30.4
Ratio of Operating Expenses to
Average Net Assets (%)........ 0.88 0.88 0.85 0.85 0.85
Ratio of Net Investment Income
to Average Net Assets (%)..... 1.08 0.66 (0.16) 0.08 0.37
Portfolio Turnover Rate (%).... 119 171 49 65 58
Net Assets, End of Year (000).. $109,280 $112,997 $114,617 $82,667 $48,832
The Ratios of operating
expenses to average net
assets without giving effect
to the voluntary expense
agreement described in Note 4
to the Financial Statements
would have been (%)........... -- 0.90 0.86 0.92 1.06
</TABLE>
See accompanying notes to financial statements.
73
<PAGE>
LOOMIS SAYLES SMALL CAP SERIES
LEAD PORTFOLIO MANAGERS (PICTURED): CHRIS R. ELY AND JEFFREY C. PETHERICK
PORTFOLIO MANAGERS: MARY C. CHAMPAGNE, PHILIP C. FINE AND DAVID L. SMITH
LOOMIS, SAYLES & COMPANY, L.P. (A)
(photos of Jeffrey Petherick and Chris Ely appear here)
Q. HOW DID THE SERIES PERFORM DURING THE PAST TWELVE MONTHS RELATIVE TO ITS
INDEX AND RELATIVE TO ITS PEERS?
A. In May 1999, the Loomis Sayles Small Cap Series changed its investment
strategy to include both a growth and value investing style. The Series bene-
fited from this shift as growth stocks exhibited strong performance, particu-
larly in the 4th quarter.
For the 4th quarter, both sides performed well compared to their style
benchmarks leading to a 29.2% quarterly return for the overall fund. For the
full year ending December 31, 1999, the fund was up 31.8%, which compares
favorably to the Russell 2000 Small Cap Index/23/ return of 21.3%. The 38.4%
average return of the Lipper Variable Products Small Cap Fund/15/ was skewed
higher because of a few technology laden funds with very high returns. The
Median return for the same group was only 28.0%.
Q. BRIEFLY DISCUSS THE INVESTMENT AND MARKET ENVIRONMENT DURING THE PAST TWELVE
MONTHS.
A. The 4th quarter provided a fitting finale to an unusual 1999 in which major
market indexes posted double digit returns, while on the New York Stock ex-
change there were nearly twice as many losing issues as gainers for the year.
Perhaps more remarkable is that a strategy of buying the 200 companies in the
Russell 2000 index with the highest reported losses would have out-performed
the index by a wide margin. It was also a year in which growth out-performed
value in the small cap arena by more than 40 percentage points. The market sus-
tained this overwhelming preference for growth despite developments that his-
torically have suggested better relative performance by many of the value sec-
tors and industries. These included a sequence of three discount rate hikes by
the Federal Reserve, accelerating economic growth on a global basis, an up-tick
in inflation, and the resumption of solid earnings comparisons in the second
half. Nonetheless, investors discounted or ignored these factors, instead fo-
cusing on the low absolute rate of inflation and a belief that the burgeoning
Internet, Telecommunications, and Biotechnology markets afforded several years
of earnings hyper-growth. In sum, the market in 1999 was unprecedented both for
the spectacular returns afforded certain sectors, its departure from historical
valuation norms, and the narrowness of its breadth.
Q. GIVEN THIS INVESTMENT ENVIRONMENT, WHAT WAS YOUR INVESTMENT STRATEGY? WHAT
CHANGES DID YOU MAKE SINCE THE START OF THE YEAR?
A. In a difficult environment for the value portion of the Series, we did not
change our investment strategy but did attempt to recognize the dynamic forces
in the economy and the market that have resulted in the unusual results noted
above. While maintaining our discipline of focusing on key value attributes and
the catalysts necessary for superior share price performance, we identified
ways to participate in broader market trends that were consistent with our in-
vestment process. In particular, we were able to enjoy some success in the
software and computer services industry, semiconductors and electronic compo-
nents, certain basic materials stocks, and in the energy sector.
In 1999's strong environment for growth stocks, the growth portion of the Se-
ries maintained significant investments in a variety of technology issues in-
cluding telecommunications equipment, electronics, and software. This over-
weight position has been maintained since the growth portion was introduced on
May 1, 1999.
Q. WHAT WERE THE PRINCIPAL FACTORS AFFECTING YOUR PERFORMANCE (ON BOTH AN
ABSOLUTE AND RELATIVE BASIS) DURING THE PAST TWELVE MONTHS? WHAT INVESTMENT
DECISIONS WERE MOST EFFECTIVE AND WHICH ONES WERE LEAST EFFECTIVE?
A. The value portion of the Series lagged the Russell 2000 Index due to a his-
toric disparity in the performance of growth sectors and industries compared to
value sectors and industries. In the 4th quarter alone, the Russell 2000 Growth
Index appreciated 33.4%, more than 30 full percentage points better than the
value index. A major a driver of returns in 1999 was technology, which in the
Russell 2000 Index was up more than 100% for the year. However, the tech or
"new economy" phenomenon also impacted returns in other Russell sectors. For
example, both utilities and producer durables generated strong returns in 1999,
virtually entirely on the strength of Competitive Local Exchange Carriers
(CLECs) and wireless stocks in the first case, and semiconductor equipment in
the latter. The technology exposure within the value segment was up more than
90%. It was its best performing sector for the year on an absolute basis, fol-
lowed by energy and materials and processing materials and
74
<PAGE>
processing was the best performing sector in the value segment for the year on
a relative basis. The worst absolute performance on the value side came in
consumer staples and health care, while on a relative basis the poorest per-
forming sectors were health care and producer durables. Among the most effec-
tive investment decisions for the value segment was stock selection in the ma-
terials and processing sector, maintaining a modestly over-weight position in
energy, and increasing exposure to computer software and services late in the
year. Hurting performance, our stock selection process discipline resulted in
under-weight positions in strong performing groups such as Internet-related
companies and telecommunications equipment and components. Otherwise, perfor-
mance was also hurt by an over-weight position in consumer staples and health
care.
For the growth portion, its overweight position in technology issues was the
principal factor for its strong performance in 1999. Despite some significant
volatility, particularly in the second and third quarters, our focus on a
broad array of high quality, small cap tech issues proved to be an effective
strategy. The growth portion's performance was also aided by the addition of
several biotech stocks, which began to capture investor interest as the year
drew to a close. The poorest performing sectors included financial services,
due in large measure to rising interest rates, and retail, a surprise to us
given the strong economy and high levels of employment.
Q. WHAT IS YOUR OUTLOOK FOR THE MARKET AND YOUR PORTFOLIO FOR THE NEXT SIX
MONTHS? WHAT CHANGES, IF ANY, WILL YOU MAKE TO WAY YOU MANAGE YOUR PORTFOLIO?
A. On the value side, we anticipate no changes to our overall investment
strategy or to our stock selection process. We continue to believe that atten-
tion to fundamental business analysis and attractive valuation metrics is the
best way to deliver superior results. In 1999, the market sustained an over-
whelming preference for growth despite developments, such as rising interest
rates, an up-tick in inflation, and accelerating economic activity that have
historically suggested better performance by value sectors and industries. The
new year begins with that environment intact, and with valuations for the
growth sectors that are less attractive than a year ago. Over the next six
months, we expect a gradual adjustment in market valuations that will be more
favorable to a value-oriented investment style and stock selection process.
On the growth side, given the strong finish to 1999 and the uncertainties sur-
rounding Fed policy, the pace of economic growth, the outcome of the Presiden-
tial election, and unprecedented valuation levels, we would expect to experi-
ence volatility in small cap growth stock returns. While we recognize these
risks, we also believe this volatility will create opportunities to add to po-
sitions of rapidly growing companies at attractive prices. We also believe
that there will be a better balance between growth and value stocks in 2000. A
broadening of the small cap stock market would be a welcome and healthy event,
allowing small cap stocks to continue to outperform large cap issues in 2000.
75
<PAGE>
A $10,000 Investment compared to the Russell 2000 Index
since the Series' Inception
[CHART]
Loomis Sayles
Small Cap Series Russell 2000
5/2/94 10,000 10,000
12/31/94 9,676 10,027
12/31/95 12,467 12,879
12/31/96 16,292 15,004
12/31/97 20,342 18,359
12/31/98 19,995 17,892
12/31/99 26,347 21,695
Average Annual Return
Small Cap Lipper Variable Small
Series Russell 2000 Company Fund Average
1 year 31.8% 21.3% 38.4%
3 years 17.4 13.1 18.9
5 years 22.2 16.7 21.1
Since Inception 18.6 14.7 n/a
[CHECKMARK] FUND FACTS
GOAL: Long-term capital growth from investment in common stocks or their
equivalents.
START DATE: May 2, 1994
SIZE: $322 million as of December 31, 1999
MANAGERS: Chris Ely, Jeffrey Petherick, Mary Champagne, Philip Fine and David
Smith. Mr. Petherick has managed the Series since its inception in May 1994.
Ms. Champagne joined the management of the Fund in July 1995. Mr. Petherick has
also managed the Loomis Sayles portion of the New England Star Advisers Fund
since July 1, 1994. Ms. Champagne has co-managed the Loomis Sayles portion of
the New England Star Advisers Fund since July 1995. They also manage the Loomis
Sayles Small Cap Fund and the Maxim Series--Small Cap Fund. Mr. Petherick
joined Loomis Sayles in 1990. Ms. Champagne joined Loomis Sayles in 1993. Mr.
Ely, Mr. Fine, and Mr. Smith began co-managing The Series in April 1999. Mr.
Ely has also managed the Loomis Sayles portion of the New England Star Small
Cap Fund since December 1996. He also manages the Loomis Sayles Aggressive Fund
and the Loomis Sayles Small Cap Growth Fund, series of the Loomis Sayles Funds,
and the Loomis Sayles Small Company Growth Fund, a series of Loomis Sayles
investment Trust. Mr. Ely joined Loomis Sayles in 1996.
Performance numbers are net of all Series expenses but do not include any in-
surance, sales or administrative charges of variable annuity or life insurance
contracts. If these charges were included, the returns shown would be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
(a) Joseph R. Gatz has replaced Jeffrey C. Petherick as a lead Portfolio Man-
ager of the Series and Dawn Alston Paige has replaced Mary C. Champagne as a
Portfolio Manager of the Series.
Mr. Gatz, Vice President of Loomis Sayles, joined Loomis Sayles as a Portfolio
Manager in 1999. From 1993 until he joined Loomis Sayles, Mr. Gatz was a Port-
folio Manager at Banc One Investment Advisers Corporation and certain of its
corporate predecessors.
Ms. Paige has been a Portfolio Manager at Loomis Sayles since 1998. She has
been employed by Loomis Sayles since 1992.
76
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES SMALL CAP SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--95.0% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
AEROSPACE/DEFENSE--0.5%
12,500 Alliant Techsystems, Inc.(b)............................... $ 778,906
29,300 Newport News Shipbuilding, Inc............................. 805,750
----------
1,584,656
----------
AUTO & RELATED--0.3%
21,800 Oshkosh Truck Corp......................................... 639,012
27,900 Tower Automotive, Inc.(b).................................. 430,706
----------
1,069,718
----------
BANKS & THRIFTS--2.6%
36,600 Bay View Capital Corp...................................... 519,263
24,000 Chittenden Corp............................................ 711,000
28,000 City National Corp. ....................................... 922,250
46,900 Colonial BancGroup, Inc.................................... 486,588
11,900 Commerce Bancorp, Inc...................................... 481,206
39,012 Commercial Federal Corp.................................... 694,901
35,500 Community First Bankshares, Inc............................ 559,125
14,100 First Midwest Bancorp, Inc................................. 373,650
26,900 FirstMerit Corp............................................ 618,700
36,290 Hudson United Bancorp...................................... 927,663
47,100 Local Financial Corp.(b)................................... 488,662
70,400 Staten Island Bancorp, Inc................................. 1,267,200
7,200 Wilmington Trust Corp...................................... 347,400
----------
8,397,608
----------
BEVERAGES--0.2%
33,900 The Pepsi Bottling Group, Inc.............................. 561,469
----------
BROADCAST--T.V./RADIO/CABLE--6.1%
38,700 ACME Communications, Inc.(b)............................... 1,286,775
56,200 Citadel Communications Corp.(b)............................ 3,645,975
72,900 Cumulus Media, Inc.(b)..................................... 3,699,675
42,700 Entercom Communications Corp.(b)........................... 2,818,200
25,800 Radio One, Inc.(b)......................................... 2,373,600
50,800 Radio Unica Communications Corp.(b)........................ 1,466,850
59,200 Westwood One, Inc.(b)...................................... 4,499,200
----------
19,790,275
----------
BUILDING & RELATED--0.3%
39,600 Furniture Brands International, Inc.(b).................... 871,200
----------
CHEMICALS--SPECIALTY--1.6%
31,900 CUNO, Inc.(b).............................................. 660,430
33,700 Cytec Industries, Inc.(b).................................. 779,313
14,200 Dexter Corp................................................ 564,450
28,100 Ferro Corp................................................. 618,200
12,800 Great Lakes Chemical Corp.................................. 488,800
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
CHEMICALS--SPECIALTY--(CONTINUED)
26,600 Olin Corp................................................. $ 527,012
24,900 OM Group, Inc............................................. 857,494
12,100 The Scotts Co.(b)......................................... 487,025
----------
4,982,724
----------
COMMUNICATIONS EQUIPMENT--11.8%
14,100 Ditech Communications Corp.(b)............................ 1,318,350
14,700 DSL.net, Inc.(b).......................................... 212,231
17,700 Finisar Corp.(b).......................................... 1,590,788
6,600 Foundry Networks(TM), Inc.(b)............................. 1,991,138
40,500 Inter-Tel, Inc............................................ 1,012,500
21,500 Optical Coating Laboratory, Inc........................... 6,364,000
34,800 Packeteer, Inc.(b)........................................ 2,470,800
83,800 PairGain Technologies, Inc.(b)............................ 1,188,912
106,300 P-Com Inc.(b)............................................. 940,091
59,600 Polycom(R) Inc.(b)........................................ 3,795,775
39,400 Powerwave Technologies, Inc.(b)........................... 2,299,975
66,400 Sawtek, Inc.(b)........................................... 4,419,750
31,050 SDL, Inc.(b).............................................. 6,768,900
38,900 Tekelec(b)................................................ 875,250
14,800 VeriSign, Inc.(b)......................................... 2,825,875
----------
38,074,335
----------
COMPUTERS--HARDWARE--0.6%
12,500 CacheFlow(R), Inc.(b)..................................... 1,633,594
20,100 Hutchinson Technology, Inc.(b)............................ 427,125
----------
2,060,719
----------
COMPUTERS--SOFTWARE/SERVICES--11.6%
55,100 Acclaim Entertainment, Inc.(b)............................ 282,388
11,000 Ask Jeeves, Inc.(b)....................................... 1,242,313
27,600 Breakaway Solutions, Inc.(b).............................. 2,014,800
24,350 Clarify, Inc.(b).......................................... 3,068,100
23,400 Complete Busines Solutions, Inc.(b)....................... 587,925
23,100 Computer Horizons Corp.(b)................................ 373,931
22,100 Cysive, Inc.(b)........................................... 1,592,581
28,200 Davox Corp.(b)............................................ 553,425
117,875 Dendrite International, Inc.(b)........................... 3,993,016
9,300 E.piphany, Inc.(b)........................................ 2,075,063
42,500 FileNET Corp.(b).......................................... 1,083,750
34,500 Hyperion Solutions Corp.(b)............................... 1,500,750
77,800 Informix(R) Corp.(b)...................................... 889,838
29,600 J.D. Edwards & Company(b)................................. 884,300
50,300 Macromedia, Inc.(b)....................................... 3,678,187
8,400 Manugistics Group, Inc.(b)................................ 271,425
47,600 Mercury Interactive Corp.(b).............................. 5,137,825
35,200 Netegrity, Inc.(b)........................................ 2,004,200
38,900 NOVA Corp.(b)............................................. 1,227,781
16,400 Policy Management Systems Corp.(b)........................ 419,225
37,300 Sanchez Computer Associates, Inc.(b)...................... 1,536,294
7,900 Segue Software, Inc.(b)................................... 197,500
</TABLE>
See accompanying notes to financial statements.
77
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES SMALL CAP SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
COMPUTERS--SOFTWARE/SERVICES--(CONTINUED)
16,400 Silknet Software, Inc.(b)............................ $ 2,718,300
10,400 The 3DO Company...................................... 94,575
-----------
37,427,492
-----------
CONSUMER--JEWERLY/NOVELTIES/GIFTS--0.1%
10,300 Jostens, Inc......................................... 250,419
-----------
DISTRIBUTORS--FOOD/HEALTH--0.3%
44,800 Supervalu, Inc....................................... 896,000
-----------
ELECTRIC COMPANIES--0.3%
22,900 NSTAR................................................ 927,450
-----------
ELECTRICAL EQUIPMENT--1.1%
11,400 Applied Power, Inc................................... 418,950
19,200 Etec Systems, Inc.(b)................................ 861,600
13,500 Hadco Corp.(b)....................................... 688,500
8,900 SCI Systems, Inc.(b)................................. 731,469
21,700 Sensormatic Electronics Corp.(b)..................... 378,394
18,350 Vishay Intertechnology, Inc.(b)...................... 580,319
-----------
3,659,232
-----------
ELECTRONICS--12.6%
46,200 Actel Corp.(b)....................................... 1,108,800
78,600 Advanced Energy Industries, Inc.(b).................. 3,871,050
35,400 Applied Micro Circuits Corp.(b)...................... 4,504,650
20,200 Beckman Coulter, Inc................................. 1,027,675
10,600 C-COR.net Corp.(b)................................... 812,225
44,000 Credence Systems Corp.(b)............................ 3,806,000
57,000 Cree Research, Inc.(b)............................... 4,866,375
9,500 DuPont Photomasks, Inc.(b)........................... 458,375
51,600 Emulex Corp.(b)...................................... 5,805,000
25,800 International Rectifier Corp.(b)..................... 670,800
23,700 Litton Industries, Inc.(b)........................... 1,182,037
66,600 Power Integrations, Inc.(b).......................... 3,192,637
62,200 PRI Automation, Inc.(b).............................. 4,175,175
29,500 REMEC, Inc.(b)....................................... 752,250
14,600 Tektronix, Inc....................................... 567,575
32,700 TranSwitch Corp.(b).................................. 2,372,794
39,200 UNOVA, Inc.(b)....................................... 509,600
31,600 Varian Medical Systems, Inc.......................... 942,075
-----------
40,625,093
-----------
ENTERTAINMENT--0.8%
37,750 Sportsline.com, Inc.(b).............................. 1,892,219
26,750 CEC Entertainment, Inc.(b)........................... 759,031
-----------
2,651,250
-----------
FINANCIAL--CONSUMER/DIVERSIFIED--2.4%
22,700 AmeriCredit Corp.(b)................................. 419,950
100,300 Anthracite Capital, Inc.............................. 639,413
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
FINANCIAL--CONSUMER/DIVERSIFIED (CONTINUED)
45,000 Brandywine Realty Trust............................... $ 736,875
66,200 Capital Automotive REIT............................... 806,812
22,700 GATX Corp............................................. 766,125
56,599 Healthcare Realty Trust, Inc.......................... 884,359
132,000 Imperial Credit Industries, Inc.(b)................... 825,000
36,200 Liberty Property Trust................................ 877,850
41,100 Pacific Gulf Properties, Inc.......................... 832,275
24,800 Sun Communities, Inc.................................. 798,250
----------
7,586,909
----------
FOODS--1.0%
21,800 Corn Products International, Inc...................... 713,950
47,000 International Multifoods Corp......................... 622,750
58,400 Michael Foods, Inc.................................... 1,438,100
19,900 The Earthgrains Co.................................... 320,888
----------
3,095,688
----------
FREIGHT TRANSPORTATION--0.4%
24,400 CNF Transportation, Inc............................... 841,800
22,200 Wisconsin Central Transportation Corp.(b)............. 298,312
----------
1,140,112
----------
HEALTH CARE--BIOTECHNOLOGY--5.7%
26,150 Abgenix, Inc.(b)...................................... 3,464,875
45,300 Alkermes, Inc.(b)..................................... 2,225,363
38,000 Enzon, Inc.(b)........................................ 1,648,250
23,400 ICOS Corp.(b)......................................... 684,450
51,000 IDEC Pharmaceuticals Corp.(b)......................... 5,010,750
27,000 Medicis Pharmaceutical Corp.(b)....................... 1,149,187
16,700 MedImmune, Inc.(b).................................... 2,770,112
31,950 Pharmacyclics, Inc.(b)................................ 1,317,937
----------
18,270,924
----------
HEALTH CARE--DRUGS--0.8%
34,100 Covance, Inc.(b)...................................... 368,706
17,900 Dura Pharmaceuticals, Inc.(b)......................... 249,481
23,300 PAREXEL International Corp.(b)........................ 275,231
54,850 Tularik, Inc.(b)...................................... 1,775,769
----------
2,669,187
----------
HEALTH CARE--MEDICAL PRODUCT/SUPPLY--2.3%
36,950 Arthrocare Corp.(b)................................... 2,253,950
49,100 CONMED Corp.(b)....................................... 1,270,463
30,400 DVI, Inc.(b).......................................... 461,700
91,200 Endosonics Corp.(b)................................... 410,400
20,800 IDEXX Laboratories, Inc.(b)........................... 335,400
63,700 Respironics, Inc.(b).................................. 507,609
54,300 Theragenics Corp.(b).................................. 492,094
27,600 Invitrogen Corp.(b)................................... 1,656,000
----------
7,387,616
----------
</TABLE>
See accompanying notes to financial statements.
78
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES SMALL CAP SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
HEALTH CARE--SERVICES--1.0%
20,600 First Health Group Corp.(b)................................ $ 553,625
62,800 Health Management Associates, Inc.(b)...................... 839,950
39,900 Lincare Holdings, Inc.(b).................................. 1,384,031
39,100 Per-Se Technologies, Inc.(b)............................... 328,684
----------
3,106,290
----------
HOUSEHOLD PRODUCTS--PERSONAL--0.3%
33,600 Dial Corp.................................................. 816,900
----------
INSURANCE--2.4%
20,800 AmerUs Life Holdings, Inc.................................. 478,400
58,000 Annuity And Life Re Holdings, Ltd.(b)...................... 1,515,250
9,400 Arthur J. Gallagher & Co................................... 608,650
66,100 CNA Surety Corp............................................ 859,300
18,300 Liberty Financial Companies, Inc........................... 419,756
27,100 Protective Life Corp....................................... 862,119
13,300 Radian Group, Inc.......................................... 635,075
29,000 Reinsurance Group of America, Inc.......................... 804,750
29,700 StanCorp Financial Group, Inc.............................. 748,069
24,700 Trigon Healthcare, Inc.(b)................................. 728,650
----------
7,660,019
----------
INVESTMENT BANKING/BROKER/
MANAGEMENT--0.4%
41,200 Federated Investors, Inc................................... 826,575
10,100 Investment Technology Group, Inc.(b)....................... 290,375
7,600 Affiliated Managers Group, Inc.(b)......................... 307,325
----------
1,424,275
----------
LEISURE TIME--PRODUCTS--0.4%
24,800 Harman International Industries, Inc....................... 1,391,900
----------
LODGING/HOTELS--0.2%
46,485 MeriStar Hospitality Corp.................................. 743,760
----------
MACHINERY--0.2%
47,300 Milacron, Inc.............................................. 727,237
----------
MANUFACTURING--DIVERSIFIED--1.1%
17,050 A.O. Smith Corp............................................ 372,969
22,300 Cordant Technologies, Inc.................................. 735,900
19,400 Crane Co................................................... 385,575
24,000 National Service Industries, Inc........................... 708,000
24,100 Pentair, Inc............................................... 927,850
4,900 SPX Corp.(b)............................................... 395,981
----------
3,526,275
----------
MANUFACTURING--SPECIALIZED--0.5%
20,200 Diebold, Inc............................................... 474,700
34,400 Federal Signal Corp........................................ 552,550
21,400 Hussmann International, Inc................................ 322,338
16,900 Regal-Beloit Corp.(b)...................................... 348,562
----------
1,698,150
----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
METALS & MINING--0.6%
29,500 Harsco Corp............................................... $ 936,625
54,300 Worthington Industries, Inc............................... 899,344
----------
1,835,969
----------
NATURAL GAS--0.9%
18,100 AGL Resources, Inc........................................ 307,700
19,300 MCN Energy Group, Inc..................................... 458,375
12,600 New Jersey Resources Corp................................. 492,187
33,400 Public Service Company of North Carolina, Inc............. 1,079,237
23,800 Washington Gas Light Co................................... 654,500
----------
2,991,999
----------
OFFICE EQUIPMENT & SUPPLIES--0.3%
23,100 Hon Industries, Inc....................................... 506,756
9,600 National Computer Systems, Inc............................ 361,200
----------
867,956
----------
OIL & GAS--DRILLING & EQUIPMENT--2.9%
59,900 Atwood Oceanics, Inc.(b).................................. 2,313,638
14,700 Cooper Cameron Corp.(b)................................... 719,381
173,600 Marine Drilling Companies, Inc.(b)........................ 3,895,150
19,000 Maverick Tube Corp.(b).................................... 469,062
57,400 Patterson Energy, Inc.(b)................................. 746,200
24,000 Santa Fe International Corp............................... 621,000
12,300 Tidewater, Inc............................................ 442,800
----------
9,207,231
----------
OIL & GAS--EXPLORATION/
PRODUCTION--0.5%
39,200 Newfield Exploration Co.(b)............................... 1,048,600
41,700 Plains Resources, Inc.(b)................................. 521,250
----------
1,569,850
----------
OIL & GAS--REFINING & MARKETING--0.2%
27,400 Valero Energy Corp........................................ 544,575
----------
PAPER/FOREST PRODUCTS--0.3%
8,000 Chesapeake Corp........................................... 244,000
26,700 Consolidated Papers, Inc.................................. 849,394
----------
1,093,394
----------
PUBLISHING--0.2%
16,500 Houghton Mifflin Company.................................. 696,094
----------
RESTAURANTS--0.6%
26,500 Brinker International, Inc.(b)............................ 636,000
42,800 Ruby Tuesday, Inc......................................... 778,425
28,600 Wendy's International, Inc................................ 589,875
----------
2,004,300
----------
RETAIL--DRUG STORES--0.2%
20,300 Sonic Corp.(b)............................................ 578,550
----------
</TABLE>
See accompanying notes to financial statements.
79
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES SMALL CAP SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
RETAIL--FOOD CHAINS--0.1%
5,100 Hannaford Bros. Co....................................... $ 353,494
-----------
RETAIL--GENERAL MERCHANDISE--0.6%
9,000 Ames Department Stores, Inc.(b).......................... 259,313
44,000 Family Dollar Stores, Inc................................ 717,750
27,100 Saks, Inc.(b)............................................ 421,744
31,000 ShopNow.com, Inc.(b)..................................... 587,062
-----------
1,985,869
-----------
RETAIL--SPECIALTY--4.6%
79,200 Ann Taylor Stores Corp.(b)............................... 2,727,450
22,000 Barnes & Noble, Inc.(b).................................. 453,750
42,000 Burlington Coat Factory Warehouse Corp................... 582,750
75,700 Charming Shoppes, Inc.(b)................................ 501,513
46,500 CompUSA, Inc.(b)......................................... 238,313
88,950 Cost Plus, Inc.(b)....................................... 3,168,844
80,350 Linens N Things, Inc.(b)................................. 2,380,369
15,000 Michaels Stores, Inc.(b)................................. 427,500
104,250 Pacific Sunwear Of California, Inc.(b)................... 3,322,969
33,900 The Men's Wearhouse, Inc.(b)............................. 995,812
-----------
14,799,270
-----------
SERVICES--8.9%
48,700 ACNielson Corp.(b)....................................... 1,199,238
19,400 ADVO, Inc.(b)............................................ 460,750
45,400 Burns International Services Corp.(b).................... 490,888
35,300 Cheap Tickets, Inc.(b)................................... 483,169
48,100 Concentric Network Corp.(b).............................. 1,482,081
43,600 Daisytek International Corp.(b).......................... 1,016,425
48,900 Diamond Technology Partners, Inc.(b)..................... 4,202,344
9,685 DoubleClick, Inc.(b)..................................... 2,450,910
44,800 HotJobs.com, Ltd.(b)..................................... 1,957,200
66,100 Information Resources, Inc.(b)........................... 611,425
15,000 Interim Services, Inc.(b)................................ 371,250
51,800 Macrovision Corp.(b)..................................... 3,833,200
18,500 Manpower, Inc.(b)........................................ 696,062
30,600 Modis Professional Services, Inc.(b)..................... 436,050
5,400 NetRatings, Inc.(b)...................................... 259,875
16,300 OneMain.com, Inc.(b)..................................... 244,500
45,800 Proxicom, Inc.(b)........................................ 5,693,512
81,600 R.H. Donnelley Corp...................................... 1,540,200
13,400 United Stationers, Inc................................... 382,737
32,500 Viad Corp................................................ 905,937
-----------
28,717,753
-----------
SERVICES--COMPUTER/DATA
PROCESSING--1.3%
29,300 CIBER, Inc.(b)........................................... 805,750
30,000 S1 Corp.(b).............................................. 2,343,750
41,200 SunGard Data Systems, Inc.(b)............................ 978,500
-----------
4,128,000
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
SERVICES--FACILITIES/ENVIRONMENT--0.5%
23,100 American States Water Co.................................. $ 831,600
43,875 Tetra Tech, Inc.(b)....................................... 674,578
-----------
1,506,178
-----------
SPECIAL PRINTING--0.2%
21,500 Deluxe Corp............................................... 589,906
-----------
TELECOM/LONG DISTANCE--0.9%
51,700 Adelphia Business Solutions, Inc.(b)...................... 2,481,600
28,100 Talk.com, Inc.(b)......................................... 498,775
-----------
2,980,375
-----------
TELEPHONE--0.5%
66,900 ITC DeltaCom, Inc.(b)..................................... 1,848,113
-----------
TEXTILES/APPAREL--0.6%
28,600 Liz Claiborne, Inc........................................ 1,076,075
77,900 Burlington Industries, Inc.(b)............................ 311,600
9,100 Russell Corp. ............................................ 152,425
14,800 Springs Industries, Inc. ................................. 591,075
-----------
2,131,175
-----------
WASTE MANAGEMENT--0.2%
35,300 Republic Sevices, Inc.(b)................................. 507,437
25,100 Safety-Kleen Corp.(b)..................................... 283,944
-----------
791,381
-----------
Total Common Stocks (Identified Cost $222,972,811)........ 306,296,314
-----------
</TABLE>
See accompanying notes to financial statements.
80
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES SMALL CAP SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
SHORT-TERM INVESTMENTS--5.3%
<TABLE>
<CAPTION>
VALUE
FACE AMOUNT (NOTE 1A)
<C> <S> <C>
$15,143,994 Associates First Capital Corp., 4.000%, 1/3/00..... $ 15,143,994
2,000,000 Chevron Corp. 3.500%, 1/3/00....................... 2,000,000
------------
Total Short-Term Investment
(Identified Cost $17,143,994)..................... 17,143,994
------------
Total Investments--100.3%
(Identified Cost $240,116,805)(a)................. 323,440,308
Other assets less liabilities...................... (1,122,380)
------------
TOTAL NET ASSETS--100%............................. $322,317,928
============
</TABLE>
<TABLE>
<C> <S> <C>
(a)Federal Tax Information:
At December, 31 1999 the net unrealized appreciation on
investments based on cost of $240,698,938 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...................................................... $ 95,699,860
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost over
value..................................................... (12,958,490)
------------
Net unrealized appreciation............................... $ 82,741,370
============
</TABLE>
(b)Non-income producing security.
See accompanying notes to financial statements.
81
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES SMALL CAP SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value................................. $323,440,308
Receivable for:
Securities sold...................................... 460,399
Fund shares sold..................................... 671,248
Dividends and interest............................... 191,826
------------
Total Assets......................................... 324,763,781
LIABILITIES
Payable for:
Fund shares redeemed................................. $ 300,075
Securities purchased................................. 1,871,985
Accrued expenses:
Management fees...................................... 236,623
Deferred trustees fees............................... 8,488
Other expenses....................................... 28,682
----------
Total Liabilities.................................... 2,445,853
------------
NET ASSETS............................................ $322,317,928
============
Net Assets consist of:
Capital paid in...................................... $237,792,266
Undistributed net investment income.................. 3,259
Accumulated net realized gains (losses).............. 1,198,900
Unrealized appreciation (depreciation) on
investments......................................... 83,323,503
------------
NET ASSETS............................................ $322,317,928
============
Computation of offering price:
Net asset value and redemption price per share
($322,317,928 divided by 1,597,793 shares of
beneficial interest)................................. $ 201.73
============
Identified cost of investments........................ $240,116,805
============
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends............................................. $ 2,422,435
Interest.............................................. 758,186
-----------
3,180,621
EXPENSES
Management fees....................................... $2,368,856
Trustees' fees and expenses........................... 17,296
Custodian............................................. 112,816
Audit and tax services................................ 11,891
Legal................................................. 13,484
Printing.............................................. 80,027
Insurance............................................. 5,266
Miscellaneous......................................... 5,436
----------
Total expenses........................................ 2,615,072
Less expenses assumed by the investment adviser....... (246,217) 2,368,855
---------- -----------
NET INVESTMENT INCOME.................................. 811,766
REALIZED AND UNREALIZED GAIN (LOSS)
Realized gain (loss) on:
Investments--net...................................... 8,092,335
Unrealized appreciation
(depreciation) on:
Investments--net...................................... 66,235,876
-----------
Net gain (loss)........................................ 74,328,211
-----------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS.. $75,139,977
===========
</TABLE>
See accompanying notes to financial statements.
82
<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,
1999 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................. $ 811,766 $ 1,909,702
Net realized gain (loss) ......................... 8,092,335 (6,792,530)
Unrealized appreciation (depreciation) ........... 66,235,876 899,887
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS....................................... 75,139,977 (3,982,941)
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income............................. (839,651) (1,908,277)
Net realized gain ................................ 0 (1,896,046)
In excess of net realized gain ................... 0 (106,613)
------------ ------------
TOTAL DISTRIBUTIONS............................... (839,651) (3,910,936)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares...................... 93,092,709 108,988,919
Reinvestment of distributions..................... 839,651 3,910,936
Cost of shares redeemed........................... (84,504,213) (66,521,977)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS............................... 9,428,147 46,377,878
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS........... 83,728,473 38,484,001
NET ASSETS
Beginning of the year............................. 238,589,455 200,105,454
------------ ------------
End of the year................................... $322,317,928 $238,589,455
============ ============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT
INCOME
End of the year................................... $ 3,259 $ 31,144
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................... 599,062 707,174
Issued in reinvestment of distributions........... 4,296 25,977
Redeemed.......................................... (559,646) (438,200)
------------ ------------
Net Change........................................ 43,712 294,951
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Year.................. $ 153.52 $ 158.92 $ 144.29 $118.80 $ 96.61
-------- -------- -------- ------- -------
Income From Investment Op-
erations
Net Investment Income.... 0.51 1.24 1.22 1.05 0.85
Net Realized and
Unrealized Gain (Loss)
on Investments.......... 48.23 (4.01) 34.11 35.03 26.93
-------- -------- -------- ------- -------
Total From Investment
operations.............. 48.74 (2.77) 35.33 36.08 27.78
-------- -------- -------- ------- -------
Less Distributions
Distributions From Net
Investment Income....... (0.53) (1.24) (1.21) (1.03) (0.78)
Distributions From Net
Realized Capital Gains.. 0.00 (1.32) (19.49) (9.56) (4.81)
Distributions in Excess
of Net Realized Capital
Gains................... 0.00 (0.07) 0.00 0.00 0.00
-------- -------- -------- ------- -------
Total Distributions...... (0.53) (2.63) (20.70) (10.59) (5.59)
-------- -------- -------- ------- -------
Net Asset Value, End of
Year..................... $ 201.73 $ 153.52 $ 158.92 $144.29 $118.80
======== ======== ======== ======= =======
TOTAL RETURN (%).......... 31.8 (1.7) 24.9 30.7 28.9
Ratio of Operating
Expenses to Average Net
Assets (%)............... 1.00 1.00 1.00 1.00 1.00
Ratio of Net Investment
Income to Average Net
Assets (%)............... 0.34 0.88 0.97 1.15 1.26
Portfolio Turnover Rate
(%)...................... 146 111 87 62 98
Net Assets End of Year
(000).................... $322,318 $238,589 $200,105 $89,194 $27,741
The ratios of operating
expenses to average net
assets without giving
effect to the voluntary
expense agreement
described in Note 4 to
the Financial Statements
would have
been (%)................. 1.10 1.10 1.14 1.29 1.91
</TABLE>
See accompanying notes to financial statements.
83
<PAGE>
MFS INVESTORS SERIES
PORTFOLIO MANAGERS: JOHN D. LAUPHEIMER AND MITCHELL D. DYNAN
MASSACHUSETTS FINANCIAL SERVICES COMPANY
(Photo of John Laupheimer Appears Here)
(Photo of Mitch Dynan Appears Here)
Q. HOW DID THE SERIES PERFORM DURING THE PAST TWELVE MONTHS RELATIVE TO ITS
INDEX AND RELATIVE TO ITS PEERS?
A. From the inception of the Series on April 30, 1999 through December 31,
1999, the MFS Investors Series provided a total return of 2.9%. This compares
to an 11.1% return for the Standard & Poor's 500 Composite Index/25/ (the S&P
500).
Q. WHAT WERE THE PRINCIPAL FACTORS AFFECTING YOUR PERFORMANCE (ON BOTH AN
ABSOLUTE AND RELATIVE BASIS) DURING THE PAST TWELVE MONTHS? WHAT INVESTMENT
DECISIONS WERE MOST EFFECTIVE AND WHICH ONES WERE LEAST EFFECTIVE?
A. The Series lagged the index primarily due to its underweighting in
technology stocks, which drove the narrow strength of the market. If we look at
the performance of the S&P 500, the top-25 performers accounted for most of the
total return of the index over the past year. In an extremely narrow market
like we've just experienced, it is very difficult for a diversified growth and
income Series with a lower risk profile than its index to outperform its
benchmark over the short term.
Q. BRIEFLY DISCUSS THE INVESTMENT AND MARKET ENVIRONMENT DURING THE PAST TWELVE
MONTHS. GIVEN THIS INVESTMENT ENVIRONMENT, WHAT WAS YOUR INVESTMENT STRATEGY?
WHAT CHANGES DID YOU MAKE SINCE THE START OF THE YEAR?
A. While we increased the Series' exposure to technology stocks during the
period, we did not abandon our focus on blue-chip companies with strong, long-
term fundamentals and reasonable valuations. As a result, the Series remained
underweighted in technology stocks versus the S&P 500 because they looked very
expensive and risky relative to their long-term earnings prospects. On the
other hand, as the index's weighting in technology increased with the
appreciation of these stocks, we made the decision to look more closely at the
Series' relative risk versus its absolute risk compared to the market. As a
result, we decided it was prudent to gradually increase the Series' weighting
in technology and telecommunications, while at the same time keeping a close
eye on relative valuations and the fundamental business outlooks for these
companies.
Some of the technology names that met our investment criteria and provided a
strong boost to performance were companies such as Intel, Oracle, Cisco and
Motorola. In telecommunica- tions, the Series benefited from a major position
in Mannesmann, the German wireless telecommunication provider. Sprint, Bell
Atlantic, and Nippon Telephone & Telegraph also produced strong results due to
the huge growth in Internet usage and demand for data and voice services. Other
stocks that worked well for the Series and benefited from the rapid
acceleration of advertising spending by Internet companies were media holdings
such as Tribune, the New York Times, and General Electric, which owns NBC.
While investors remained focused on technology and telecommunications stocks,
the Series managed to locate strong performers from a wide range of industries,
including energy, industrial goods & services, consumer staples, retailing, and
financial services. Stocks such as BP Amoco, United Technologies, Procter &
Gamble, Wal-Mart, and American International Group produced solid gains for the
Series. The success of these stocks and the broadly diversified structure of
the Series highlights precisely what this growth with income portfolio is
trying to accomplish--to provide growth of capital, with less risk or price
volatility than the S&P 500 index.
On the negative side, there were a few holdings that hurt the Series' relative
performance. Some detractors that stand out are Service Corp., Xerox, Kroger,
and Safeway. We maintained our positions in supermarket operators Kroger and
Safeway because we believe they possess strong business prospects and favorable
growth and earnings outlooks. We sold off our positions in Service Corp. and
Xerox because the long-term outlooks for these companies deteriorated. Service
Corp. looked like it had the potential to continue its run of accelerating
growth, but it ran into financial problems due to rapid expansion and the
holding hurt performance. Xerox looked like a classic turnaround story, but as
competition increased, its business plan stumbled and investors ran for the
exits.
On a more positive note, we continue to believe the Series is well positioned
to take advantage of a number of opportunities in the market. Our well-balanced
exposure to market leaders in technology, telecommunications, financial
services, retailing and industrial goods provides diversification in the Series
and could help the Series outperform if market strength continues to broaden.
84
<PAGE>
Q. WHAT IS YOUR OUTLOOK FOR THE MARKET AND YOUR PORTFOLIO FOR THE NEXT SIX
MONTHS? WHAT CHANGES, IF ANY, WILL YOU MAKE TO THE WAY YOU MANAGE YOUR
PORTFOLIO?
A. We'll continue to look for opportunities in areas such as pharmaceutical
companies, and drugstore operators such as CVS, which have been beaten down
due to concerns over Medicare reform and potential government price controls.
While the risks remain high in this area during an election year, at some
point stock valuations may become very compelling. Many pharmaceutical
companies and drugstore chains demonstrate promising long-term growth
prospects and reliable cash flow.
[GRAPH]
MFS Investors Series S&P 500
4/30/99 10,000 10,000
12/31/99 10,285 11,106
Average Annual Total Returns
Investors
Series S&P 500
Since Inception 2.9% 11.1%
[CHECKMARK] FUND FACTS
GOAL: Reasonable current income and long-term growth of capital and income.
START DATE: April 30, 1999
SIZE: $7 million as of December 31, 1999
MANAGER: John Laupheimer and Mitchell Dynan. Mr. Laupheimer and Mr. Dynan have
managed the Series since its inception.
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.
85
<PAGE>
NEW ENGLAND ZENITH FUND
(MFS INVESTORS SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--93.5% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
AEROSPACE & DEFENSE--3.6%
290 Boeing Co. ................................................. $ 12,053
840 General Dynamics Corp....................................... 44,310
690 Honeywell International, Inc................................ 39,804
380 TRW, Inc. .................................................. 19,736
2,020 United Technologies Corp.................................... 131,300
---------
247,203
---------
AUTOMOTIVE--0.5%
340 Federal Mogul Corp. ........................................ 6,843
480 Ford Motor Co. ............................................. 25,650
---------
32,493
---------
BANKS & CREDIT COMPANIES--4.8%
890 Bank America Corp. ......................................... 44,667
2,850 Bank Of Ireland (EUR)....................................... 22,680
800 Bank One Corp............................................... 25,650
230 Capital One Financial Corp.................................. 11,083
110 Chase Manhattan Corp........................................ 8,546
250 Comerica, Inc............................................... 11,672
1,000 Northern Trust Corp. ....................................... 53,000
250 Providian Financial Corp.................................... 22,766
1,860 U.S. Bancorp................................................ 44,291
2,150 Wells Fargo & Co. .......................................... 86,941
---------
331,296
---------
BIOTECHNOLOGY--0.3%
380 Guidant Corp.(b)............................................ 17,860
---------
BUSINESS MACHINES--7.7%
500 Computer Sciences Corp.(b).................................. 47,312
110 Dell Computer Corp.(b)...................................... 5,610
390 DST Systems, Inc.(b)........................................ 29,762
1,140 First Data Corp............................................. 56,216
840 Hewlett Packard Co. ........................................ 95,708
870 International Business Machines Corp........................ 93,960
860 Motorola, Inc............................................... 126,635
1,000 Sun Microsystems, Inc.(b)................................... 77,438
---------
532,641
---------
CELLULAR PHONES--0.5%
360 Sprint Corp.(b)............................................. 36,900
---------
CHEMICALS--0.8%
460 Akzo Nobel N.V. (EUR)....................................... 23,076
130 E.I. Du Pont de Nemours & Co................................ 8,564
230 Rohm & Haas Co.............................................. 9,358
110 The Dow Chemical Company.................................... 14,699
---------
55,697
---------
COMMUNICATIONS SERVICES--7.2%
460 ALLTEL Corp. ............................................... 38,036
800 AT&T Corp................................................... 40,600
1,890 Bell Atlantic Corp.......................................... 116,353
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
COMMUNICATIONS SERVICES--(CONTINUED)
380 BellSouth Corp.............................................. $ 17,789
680 Broadwing, Inc.............................................. 25,075
1,515 MCI Worldcom, Inc.(b)....................................... 80,390
2,083 SBC Communications, Inc..................................... 101,546
1,150 Sprint Corp................................................. 77,409
---------
497,198
---------
COMPUTER SOFTWARE--PC--4.6%
2,710 Microsoft Corp.(b).......................................... 316,393
---------
COMPUTER SOFTWARE--SYSTEMS--2.6%
250 BMC Software, Inc.(b)....................................... 19,984
1,020 Computer Associates International, Inc. .................... 71,336
790 Oracle Corp.(b)............................................. 88,529
---------
179,849
---------
CONGLOMERATES--0.9%
1,520 Tyco International, Ltd..................................... 59,090
---------
CONSUMER GOODS & SERVICES--2.4%
390 Clorox Co. ................................................. 19,646
680 Colgate-Palmolive Co. ...................................... 44,200
180 Gillette Co. ............................................... 7,414
890 Procter & Gamble Co......................................... 97,511
---------
168,771
---------
ELECTRICAL EQUIPMENT--4.9%
630 Emerson Electric Co. ....................................... 36,146
1,720 General Electric Co......................................... 266,170
600 National Semiconductor Corp.(b)............................. 25,688
250 W.W. Grainger, Inc.......................................... 11,953
---------
339,957
---------
ELECTRONICS--3.1%
110 Agilent Technologies, Inc.(b)............................... 8,504
2,000 Hitachi, Ltd. (JPY)......................................... 32,103
1,870 Intel Corp.................................................. 153,924
130 STMicroelectronics N.V. (ADR)............................... 19,687
---------
214,218
---------
ENTERTAINMENT--1.5%
250 Carnival Corp............................................... 11,953
1,270 Time Warner, Inc............................................ 91,996
---------
103,949
---------
FINANCIAL INSTITUTIONS--3.0%
250 American Express Co. ....................................... 41,562
310 Associates First Capital Corp. ............................. 8,506
760 Citigroup, Inc. ............................................ 42,227
1,020 Federal Home Loan Mortgage Corp............................. 48,004
890 State Street Corp........................................... 65,026
---------
205,325
---------
</TABLE>
See accompanying notes to financial statements.
86
<PAGE>
NEW ENGLAND ZENITH FUND
(MFS INVESTORS SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
FOOD & BEVERAGES--2.2%
840 Anheuser-Busch Companies, Inc............................... $ 59,535
460 Bestfoods................................................... 24,179
50 Coca-Cola Co................................................ 2,912
500 Nabisco Holdings Corp....................................... 15,813
250 PepsiCo, Inc................................................ 8,813
630 Quaker Oats Co.............................................. 41,344
---------
152,596
---------
FOREST & PAPER PRODUCTS--0.1%
120 Weyerhaeuser Company........................................ 8,618
---------
INSURANCE--4.6%
630 American International Group, Inc........................... 68,119
130 Axa (EUR)................................................... 18,124
500 Axa Financial, Inc.......................................... 16,937
350 CIGNA Corp.................................................. 28,197
1,890 Hartford Financial Services Group........................... 89,539
1,020 Lincoln National Corp., Inc ................................ 40,800
250 Marsh & Mclennan Companies, Inc............................. 23,922
260 MBIA, Inc................................................... 13,731
400 Torchmark Corp.............................................. 11,625
---------
310,994
---------
MACHINERY--1.5%
230 Ingersoll-Rand Co........................................... 12,664
380 Mannesmann AG (EUR)......................................... 91,679
---------
104,343
---------
MEDICAL & HEALTH PRODUCTS--5.1%
800 American Home Products Corp................................. 31,550
500 AstraZeneca PLC (GBP)....................................... 20,773
250 Bausch & Lomb, Inc.......................................... 17,109
1,270 Bristol-Myers Squibb Co. ................................... 81,518
380 Johnson & Johnson........................................... 35,388
1,710 Pfizer, Inc................................................. 55,468
1,140 Pharmacia & Upjohn, Inc..................................... 51,300
640 Schering-Plough Corp........................................ 27,000
380 Warner-Lambert Co. ......................................... 31,136
---------
351,242
---------
MEDICAL & HEALTH TECHNOLOGY &
SERVICES--1.7%
2,420 Medtronic, Inc.............................................. 88,179
570 United Healthcare Corp...................................... 30,281
---------
118,460
---------
NON-FERROUS METALS--0.0%
20 Alcoa, Inc. ................................................ 1,660
---------
OILS--5.8%
2,020 Bp Amoco, Plc.(ADR)......................................... 119,811
250 Chevron Corp................................................ 21,656
760 Coastal Corp. .............................................. 26,932
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
OILS--(CONTINUED)
1,640 Conoco, Inc. ............................................... $ 40,795
1,966 Exxon Mobil Corp. .......................................... 158,386
340 Halliburton Co.............................................. 13,685
500 Unocal Corp................................................. 16,781
20 USX-Marathon Group.......................................... 494
---------
398,540
---------
PRINTING & PUBLISHING--4.2%
950 Gannett Company, Inc........................................ 77,484
680 Infinity Broadcasting Corp.(b).............................. 24,608
1,210 New York Times Co........................................... 59,441
250 Reuters Group, Plc.(ADR).................................... 20,203
1,870 Tribune Co.................................................. 102,967
---------
284,703
---------
SPECIAL PRODUCTS & SERVICES--1.0%
380 Cintas Corp. ............................................... 20,188
120 Illinois Tool Works, Inc. .................................. 8,108
940 McDonalds Corp.............................................. 37,894
---------
66,190
---------
STORES--5.2%
110 Costco Whosale Corp.(b)..................................... 10,038
1,280 CVS Corp.................................................... 51,120
750 Dayton Hudson Corp. ........................................ 55,078
765 Home Depot, Inc............................................. 52,450
230 Lowe's Companies, Inc. ..................................... 13,743
1,740 TJX Companies, Inc.......................................... 35,561
2,020 Wal-Mart Stores, Inc........................................ 139,633
---------
357,623
---------
SUPERMARKETS--2.3%
3,410 Kroger Co.(b)............................................... 64,364
2,550 Safeway, Inc.(b)............................................ 90,684
---------
155,048
---------
TELECOMMUNICATIONS--8.0%
1,320 Cisco Systems, Inc.(b)...................................... 141,405
810 Corning, Inc................................................ 104,439
230 General Instrument Corp.(b)................................. 19,550
340 Koninklijke KPN N.V.(EUR)................................... 33,188
820 Lucent Technologies, Inc.................................... 61,346
405 Nippon Telephone & Telegraph Corp. (ADR).................... 34,881
230 Nokia Corp.(ADR)............................................ 43,700
740 Nortel Networks Corp........................................ 74,740
---------
513,249
---------
TRANSPORTATION--0.6%
1,258 Canadian National Railway Co................................ 33,101
140 United Parcel Service, Inc.(b).............................. 9,660
---------
42,761
---------
</TABLE>
See accompanying notes to financial statements.
87
<PAGE>
NEW ENGLAND ZENITH FUND
(MFS INVESTORS SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--CONTINUED
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
UTILITIES--ELECTRIC--2.3%
460 CMS Energy Corp............................................ $ 14,346
640 Duke Energy Corp........................................... 32,080
760 NiSource, Inc.............................................. 13,585
1,140 PECO Energy Co............................................. 39,615
290 Pinnacle West Capital Corp................................. 8,863
1,160 Texas Utilities Co......................................... 41,253
230 Unicom Corp................................................ 7,705
----------
157,447
----------
UTILITIES--GAS--0.5%
230 Enron Corp................................................. 10,206
630 FirstEnergy Corp........................................... 14,293
340 The Williams Companies, Inc................................ 10,391
----------
34,890
----------
Total Common Stocks
(Identified Cost $5,964,540).............................. 6,397,204
</TABLE>
BONDS & NOTES--0.5%
<TABLE>
<CAPTION>
FACE
AMOUNT
<C> <S> <C>
CONVERTIBLE BOND--0.5%
$ 8,000 Bell Atlantic Financial Services, Inc.
4.250%, 9/15/05 144A..................................... 9,840
22,000 NTL, Inc., 5.750%, 12/15/09 144A.......................... 23,568
----------
33,408
----------
Total Bonds & Notes
(Identified Cost $31,132)................................ 33,408
----------
</TABLE>
SHORT TERM INVESTMENT--5.6%
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
$380,000 Federal Home Loan Mortgage Corp.,
1.500%, 1/03/00......................................... $ 379,968
----------
Total Short-Term Investment
(Identified Cost $379,968).............................. 379,968
----------
Total Investments--99.6%
(Identified Cost $6,375,640)(a)......................... 6,810,580
Other assets less liabilities............................ 30,651
----------
TOTAL NET ASSETS--100%................................... $6,841,231
==========
</TABLE>
<TABLE>
<S> <C>
(a)Federal Tax Information:
At December 31, 1999 the net unrealized appreciation on
investments based on cost of $6,375,640 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.......... $ 765,435
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value.......... (330,495)
----------
Net unrealized appreciation................................. $ 434,940
==========
</TABLE>
For Federal income tax purposes, the Series has a capital loss carryforward
at December 31, 1999 of approximately $168,000 which will expire in 2007.
Accordingly, no capital gain distributions are expected to be paid to
shareholders until net gains have been realized in excess of such amount.
(b) Non-income producing security.
Key to Abbreviations:
EUR--Euro Currency
GBP--Pound Sterling
JPY--Japanese Yen
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.
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 $33,408 or 0.5% of net
assets.
See accompanying notes to financial statements.
88
<PAGE>
NEW ENGLAND ZENITH FUND
(MFS INVESTORS SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value...................................... $6,810,580
Foreign cash at value
(Identified cost $17,832)................................ 17,849
Receivable for:
Fund shares sold.......................................... 33,674
Dividends and interest.................................... 4,347
Due from Investment Adviser............................... 7,571
----------
Total Assets............................................. 6,874,021
LIABILITIES
Payable for:
Fund shares redeemed...................................... $ 2,370
Securities purchased...................................... 6,469
Due to custodian bank..................................... 6,861
Accrued expenses:
Management fees........................................... 2,100
Deferred trustees' fees................................... 321
Other expenses............................................ 14,669
-------
Total Liabilities........................................ 32,790
----------
NET ASSETS................................................. $6,841,231
==========
Net assets consist of:
Capital paid in........................................... $6,652,503
Overdistributed net investment income..................... (1,934)
Accumulated net realized gains (losses)................... (244,295)
Unrealized appreciation (depreciation) on investments and
foreign currency......................................... 434,957
----------
NET ASSETS................................................. $6,841,231
==========
Computation of offering price:
Net asset value and redemption price, per share ($6,841,231
divided by 667,006 shares of beneficial interest)......... $ 10.26
==========
Identified cost of investments............................. $6,375,640
==========
</TABLE>
STATEMENT OF OPERATIONS
FOR THE PERIOD APRIL 30, 1999 (A)
THROUGH DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends........................................... $ 39,744 (b)
Interest............................................ 6,905
---------
46,649
EXPENSES
Management fees..................................... $ 25,852
Trustees' fees and expenses......................... 2,711
Custodian........................................... 29,308
Audit and tax services.............................. 6,000
Legal............................................... 5,168
Printing............................................ 70
Miscellaneous....................................... 866
---------
Total expenses..................................... 69,975
Less expenses assumed by the investment adviser.... (38,953) 31,022
--------- ---------
NET INVESTMENT INCOME................................ 15,627
---------
REALIZED AND UNREALIZED GAIN (LOSS)
Realized gain (loss) on:
Investments--net.................................... (244,294)
Foreign currency transactions--net.................. (1,234) (245,528)
---------
Unrealized appreciation (depreciation) on:
Investments--net.................................... 434,940
Foreign currency translation--net................... 17 434,957
--------- ---------
Net gain (loss)..................................... 189,429
---------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS.......................................... $ 205,056
=========
</TABLE>
(a)Commencement of operations.
(b)Net of foreign taxes of $279.
See accompanying notes to financial statements.
89
<PAGE>
NEW ENGLAND ZENITH FUND
(MFS INVESTORS SERIES)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
APRIL 30, 1999(A)
THROUGH
DECEMBER 31,
1999
-----------------
<S> <C>
FROM OPERATIONS
Net investment income ...................................... $ 15,627
Net realized gain (loss) ................................... (245,528)
Unrealized appreciation (depreciation) ..................... 434,957
-----------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS........... 205,056
-----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income....................................... (16,328)
-----------
Total distributions......................................... (16,328)
-----------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares................................ 12,577,724
Reinvestment of distributions............................... 16,328
Cost of shares redeemed..................................... (5,941,549)
-----------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE
TRANSACTIONS............................................... 6,652,503
-----------
TOTAL INCREASE (DECREASE) IN NET ASSETS..................... 6,841,231
NET ASSETS
Beginning of the period..................................... 0
-----------
End of the period........................................... $ 6,841,231
===========
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME
End of the period........................................... $ (1,934)
===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.............................. 1,274,088
Issued in reinvestment of distributions..................... 1,602
Redeemed.................................................... (608,684)
-----------
Net Change.................................................. 667,006
===========
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
APRIL 30, 1999(A)
THROUGH
DECEMBER 31,
1999
-----------------
<S> <C>
Net Asset Value, Beginning of Period......................... $10.00
------
Income From Investment
Operations
Net Investment Income....................................... 0.02
Net Realized and Unrealized Gain (Loss)
on Investments............................................. 0.26
------
Total From Investment operations............................ 0.28
------
Less Distributions
Distributions From Net Investment Income.................... (0.02)
------
Total Distributions......................................... (0.02)
------
Net Asset Value, End of Period............................... $10.26
======
TOTAL RETURN (%)............................................. 2.9 (b)
Ratio of Operating Expenses to Average Net
Assets (%).................................................. 0.90 (c)
Ratio of Net Investment Income to Average Net
Assets (%).................................................. 0.45 (c)
Portfolio Turnover Rate (%).................................. 60
Net Assets, End of Period
(000)....................................................... $6,841
The Ratios of operating expenses to average net assets
without giving ef-fect to the voluntary expense agreement
described in Note 4 to the Financial Statements would have
been (%).................................................... 2.03 (c)
</TABLE>
(a)Commencement of operations.
(b)Not computed on an annualized basis.
(c)Computed on an annualized basis.
See accompanying notes to financial statements.
90
<PAGE>
MFS RESEARCH MANAGERS SERIES
PORTFOLIO MANAGERS: MANAGED BY A COMMITTEE OF MFS EQUITY RESEARCH ANALYSTS
OVERSEEN BY ALEC MURRAY, ASSOCIATE DIRECTOR OF EQUITY RESEARCH (PICTURED)
MASSACHUSETTS FINANCIAL SERVICES COMPANY
(Photo of Alec Murray Appears Here)
Q. HOW DID THE SERIES PERFORM DURING THE PAST TWELVE MONTHS RELATIVE TO ITS
INDEX AND RELATIVE TO ITS PEERS?
A. From the inception of the Series on April 30, 1999 through December 31,
1999, the MFS Research Managers Series provided a total return of 19.8%. This
compares to an 11.1% return for the Standard & Poor's 500 Composite Index/25/
(the S&P 500).
Q. BRIEFLY DISCUSS THE INVESTMENT AND MARKET ENVIRONMENT DURING THE PAST TWELVE
MONTHS.
A. During the past year, the equity market has been extremely narrow with only
twenty-five large-cap growth stocks outperforming the rest of the stocks in the
S&P 500. While market leadership has started to show signs of broadening, which
has helped the performance of this Series, we believe the long-term
opportunities for small- and mid-cap stocks are attractive primarily because
they are selling at much cheaper prices relative to earnings and expected
growth rates compared to large-cap growth stocks. In addition, we believe our
exposure to stocks with lower prices relative to earnings should make the
Series less vulnerable to negative events such as earnings disappointments or a
broad market downturn.
The current bull market is one of the most unusual in recent memory. There are
widespread indications of immense speculation and entrenched optimism toward
equities. Yet, if we exclude technology and communications, the equity market
has been in a downtrend since April of 1999. As a result, we expect market
strength to broaden into other sectors of the market, which could create
opportunities for the Series. Of course, much of the bull market's fate rests
on corporate earnings and the performance of the economy. While opinions range
from total conviction in a new era of trouble free prosperity, to a view that
inflation is just around the corner and the market is in a classic asset bubble
waiting to burst, the truth most likely lies somewhere in the middle. Given
this uncertain environment, however, we continue to focus our energy on finding
what we believe are top-quality companies that should provide favorable long-
term performance regardless of short-term market volatility.
Q. GIVEN THIS INVESTMENT ENVIRONMENT, WHAT WAS YOUR INVESTMENT STRATEGY? WHAT
CHANGES DID YOU MAKE SINCE THE START OF THE YEAR?
A. The Series maintained significant exposure to large-cap telecommunications
and technology stocks, which added considerably to total return. Despite our
overweighting in technology stocks we avoided Internet companies with expensive
valuations, weak business models, or unproven track records. At the same time,
we recognized early on that the growth in Internet services and data traffic is
likely to continue for some time. Consequently, we invested in a number of
technology and communications stocks in the networking and telecommunications
equipment industries. Some examples that met our strict investment criteria
include, Cisco, Nortel, Ericsson and Motorola. These companies represent the
nuts and bolts of Internet and telecommunications infrastructure and helped the
Series outpace its benchmark.
The Series also maintained considerable exposure to software stocks, such as
Microsoft, Oracle and Veritas. Our software holdings hurt performance in the
first quarter of this past year, but we stuck to our guns and held on to these
positions. Over the past six months they've come roaring back to provide a
significant boost to performance due to increased demand for data storage and
software products.
Q. WHAT WERE THE PRINCIPAL FACTORS AFFECTING YOUR PERFORMANCE (ON BOTH AN
ABSOLUTE AND RELATIVE BASIS) DURING THE PAST TWELVE MONTHS? WHAT INVESTMENT
DECISIONS WERE MOST EFFECTIVE AND WHICH ONES WERE LEAST EFFECTIVE?
A. Leading contributors to performance included semiconductor companies, such
as LSI Logic and Analog Devices. The semiconductor industry was hurt in 1998 by
the Asian economic slowdown and by a build up in supply in some market
segments, which lowered prices. Now, demand is beginning to catch up with
supply as a result of economic strength in the U.S. and the Asian recovery. If
this scenario persists, we believe semiconductor stocks should continue to
benefit.
Outside the technology and telecommunications sectors, the Series benefited
from a number of stocks in the financial services, media and energy sectors.
Gains in financial services
91
<PAGE>
came primarily from brokerage and investment banking stocks, such as Citigroup
and Morgan Stanley Dean Witter, both of which are well managed industry
leaders. Media holdings such as Infinity Broadcasting, Echostar Communications
and CBS benefited from the tremendous growth in advertising spending due to
the highly competitive business environment, especially among Internet
companies.
While the Series maintained a slightly underweighted position in health care
stocks versus the index, in general this group hurt performance. Nursing
homes, hospitals, HMOs, and pharmaceutical companies all were hurt by fears of
Medicare reform and potential government price controls. Despite this
generally negative environment, we found good opportunities in the medical
device area. While our medical device holdings produced mixed results, in our
view, companies such as Guidant and Medtronic have a number of new products in
their pipelines that could drive revenues and earnings growth higher.
Other detractors to performance included Nabisco, Safeway, and CVS. Despite
solid fundamental business and growth
A $10,000 Investment compared to the S&P 500 Since the Series' Inception
[GRAPH]
MFS Research Managers Series S&P 500
4/30/99 10,000 10,000
12/31/99 11,981 11,106
Average Annual Total Return
Research Managers
Series S&P 500
Since Inception 19.8% 11.1%
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.
prospects, these companies suffered from generally downbeat industry outlooks
and weak investor sentiment. In the consumer goods and services sector,
electronics equipment conglomerate Tyco International was a major
disappointment for the Series. Despite no evidence of irregular accounting
methods, its shares plunged during the period after an analyst raised
suspicions regarding the company's accounting of recent acquisitions. We've
met with management a number of times and we continue to believe that its
business fundamentals are strong. As a result, we decided to maintain our
holding in the Series.
[CHECKMARK] FUND FACTS
GOAL: Long-term growth of capital.
START DATE: April 30, 1999
SIZE: $7 million as of December 31, 1999
MANAGER: A committee of MFS equity research analysts overseen by Alec Murray.
Mr. Murray is the Associate Director of MFS Equity Research. The committee has
managed the Series since its inception.
92
<PAGE>
NEW ENGLAND ZENITH FUND
(MFS RESEARCH MANAGERS SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--92.0% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
AEROSPACE & DEFENSE--1.7%
980 General Dynamics Corp.................................... $ 51,695
980 United Technologies Corp................................. 63,700
------------
115,395
------------
AUTOMOTIVE--0.3%
980 Federal-Mogul Corp....................................... 19,723
------------
BANKS & CREDIT COMPANIES--3.7%
650 Bank America Corp........................................ 32,622
5,310 Bank Of Ireland (EUR).................................... 42,257
760 Bank One Corp............................................ 24,368
650 Capital One Financial Corp............................... 31,322
430 Chase Manhattan Corp..................................... 33,406
430 Providian Financial Corp................................. 39,157
1,180 U.S. Bancorp............................................. 28,099
540 Wells Fargo & Co......................................... 21,836
------------
253,067
------------
BIOTECHNOLOGY--0.7%
1,080 Guidant Corp.(b)......................................... 50,760
------------
BUSINESS MACHINES--6.2%
330 Hewlett Packard Co....................................... 37,599
550 International Business Machines Corp..................... 59,400
980 Motorola, Inc. .......................................... 144,305
2,380 Sun Microsystems, Inc.(b)................................ 184,301
------------
425,605
------------
BUSINESS SERVICES--0.9%
210 Cendant Corp.(b)......................................... 5,578
650 First Data Corp.......................................... 32,053
450 VISX, Inc.(b)............................................ 23,287
------------
60,918
------------
CELLULAR PHONES--2.2%
1,500 Sprint Corp.(b).......................................... 153,750
------------
CHEMICALS--0.9%
1,080 AstraZeneca PLC (GBP).................................... 44,869
550 Cambrex Corp. ........................................... 18,941
------------
63,810
------------
COMMUNICATIONS SERVICES--4.8%
50 Ancor Communications, Inc.(b)............................ 3,394
1,630 Bell Atlantic Corp. ..................................... 100,347
220 GTE Corp. ............................................... 15,524
2,115 MCI Worldcom, Inc.(b).................................... 112,227
860 SBC Communications, Inc. ................................ 41,925
860 Sprint Corp. ............................................ 57,889
------------
331,306
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
COMPUTER SOFTWARE--1.3%
1,410 Compuware Corp.(b)....................................... $ 52,523
100 Liberate Technologies, Inc.(b)........................... 25,700
245 Trintech Group Plc.(b) (ADR)............................. 12,127
------------
90,350
------------
COMPUTER SOFTWARE--PC--3.2%
100 Macromedia, Inc.(b)...................................... 7,312
1,840 Microsoft Corp.(b)....................................... 214,820
------------
222,132
------------
COMPUTER SOFTWARE--SYSTEMS--7.9%
100 Bea Systems, Inc.(b)..................................... 6,994
100 BMC Software, Inc.(b).................................... 7,994
330 Citrix Systems, Inc.(b).................................. 40,590
550 Computer Associates International, Inc................... 38,466
970 EMC Corp.(b)............................................. 105,973
1,520 Oracle Corp.(b).......................................... 170,335
860 Seagate Technology, Inc.(b).............................. 40,044
110 Synopsys, Inc.(b)........................................ 7,342
887 Veritas Software Corp.(b)................................ 126,952
------------
544,690
------------
COMSUMER GOODS & SERVICES--3.1%
1,080 Clorox Co................................................ 54,405
1,080 Colgate-Palmolive Co..................................... 70,200
1,630 Dial Corp. .............................................. 39,629
430 Procter & Gamble Co...................................... 47,112
------------
211,346
------------
CONGLOMERATES--1.8%
3,240 Tyco International, Ltd.................................. 125,955
------------
CONTAINERS--0.5%
1,300 Owens Illinois, Inc.(b).................................. 32,581
------------
ELECTRICAL EQUIPMENT--0.8%
330 General Electric Co...................................... 51,068
------------
ELECTRONICS--7.8%
1,960 Analog Devices, Inc.(b).................................. 182,280
20 Digimarc Corp.(b)........................................ 1,000
860 Flextronics International, Ltd.(b)....................... 39,560
3,000 Hitachi, Ltd. (JPY)...................................... 48,155
330 Intel Corp. ............................................. 27,163
2,160 LSI Logic Corp.(b)....................................... 145,800
330 Micron Technology, Inc.(b)............................... 25,657
430 Oak Industries, Inc.(b).................................. 45,634
100 SCI Systems, Inc.(b)..................................... 8,219
220 The Dii Group, Inc.(b)................................... 15,613
------------
539,081
------------
</TABLE>
See accompanying notes to financial statements.
93
<PAGE>
NEW ENGLAND ZENITH FUND
(MFS RESEARCH MANAGERS SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
ENTERTAINMENT--4.1%
760 Carnival Corp. .......................................... $ 36,337
760 Comcast Corp.(b) ........................................ 38,428
1,680 Infinity Broadcasting Corp.(b)........................... 60,795
1,300 Time Warner, Inc. ....................................... 94,169
760 CBS Corp.(b)............................................. 48,592
------------
278,321
------------
FINANCIAL INSTITUTIONS--3.4%
1,100 Associates First Capital Corp............................ 30,181
1,300 Citigroup, Inc........................................... 72,231
860 Federal Home Loan Mortgage Corp. ........................ 40,474
210 Merrill Lynch & Co., Inc................................. 17,535
330 Morgan Stanley Dean Witter & Co.......................... 47,107
100 Orix Corp. (JPY)......................................... 22,531
------------
230,059
------------
FOOD & BEVERAGE PRODUCTS--2.0%
1,080 Anheuser-Busch Companies, Inc............................ 76,545
550 Nabisco Holdings Corp. .................................. 17,394
650 Quaker Oats Co........................................... 42,656
------------
136,595
------------
FOREST & PAPER PRODUCTS--0.5%
550 Bowater, Inc............................................. 29,872
------------
INSURANCE--5.0%
702 American International Group, Inc. ...................... 75,904
230 Aon Corp. ............................................... 9,200
1,390 Axa Financial, Inc....................................... 47,086
925 CIGNA Corp............................................... 74,520
860 Hartford Financial Services Group........................ 40,742
1,080 Lincoln National Corp., Inc.............................. 43,200
230 Marsh & Mclennan Companies, Inc. ........................ 22,008
760 ReliaStar Financial Corp................................. 29,782
------------
342,442
------------
INTERNET SERVICES--0.7%
430 America Online, Inc.(b).................................. 32,438
100 Ariba, Inc.(b)........................................... 17,738
------------
50,176
------------
MACHINERY--1.7%
760 Danaher Corp. ........................................... 36,670
310 Deere & Co............................................... 13,446
110 Ingersoll-Rand Co. ...................................... 6,057
220 Mannesmann AG (EUR)...................................... 53,077
100 SPX Corp.(b)............................................. 8,081
------------
117,331
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
MEDICAL & HEALTH PRODUCTS--4.3%
2,280 American Home Products Corp......................... $ 89,918
980 Boston Scientific Corp.(b).......................... 21,437
1,080 Bristol-Myers Squibb Co. ........................... 69,322
1,510 Pharmacia & Upjohn, Inc............................. 67,950
1,190 Sanofi-Synthelabo S.A. (EUR)........................ 49,556
------------
298,183
------------
MEDICAL & HEALTH TECHNOLOGY & SERVICES--0.6%
110 McKesson HBOC, Inc.................................. 2,482
220 Medtronic, Inc...................................... 8,016
540 United Healthcare Corp.............................. 28,687
------------
39,185
------------
OIL SERVICES--0.2%
330 Cooper Cameron Corp.(b)............................. 16,149
------------
OILS--5.4%
220 Atlantic Richfield Co............................... 19,030
870 Bp Amoco, Plc.(ADR)................................. 51,602
3,020 Conoco, Inc......................................... 75,123
220 Devon Energy Corp. ................................. 7,233
860 EOG Resources, Inc.................................. 15,104
1,324 Exxon Mobil Corp.................................... 106,665
650 Noble Drilling Corp.(b)............................. 21,287
100 Total Fina S.A. (ADR)............................... 6,925
330 Total Fina S.A. (EUR)............................... 44,046
750 Transocean Sedco Forex, Inc. ....................... 25,266
------------
372,281
------------
PHOTOGRAPHIC PRODUCTS--0.2%
650 Polaroid Corp....................................... 12,228
------------
PRINTING & PUBLISHING--0.8%
980 Tribune Co.......................................... 53,961
------------
SPECIAL PRODUCTS & SERVICES--1.4%
530 Abitibi-Consolidated, Inc........................... 6,294
470 VeriSign, Inc.(b)................................... 89,741
------------
96,035
------------
STORES--4.4%
430 Costco Wholesale Corp.(b)........................... 39,238
1,630 CVS Corp. .......................................... 65,098
530 Gap, Inc. .......................................... 24,380
2,050 Office Depot, Inc.(b)............................... 22,422
320 Tandy Corp. ........................................ 15,740
1,080 TJX Companies, Inc. ................................ 22,072
1,680 Wal-Mart Stores, Inc. .............................. 116,130
------------
305,080
------------
</TABLE>
See accompanying notes to financial statements.
94
<PAGE>
NEW ENGLAND ZENITH FUND
(MFS RESEARCH MANAGERS SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
SUPERMARKETS--1.6%
1,570 Kroger Co.(b)............................................ $ 29,634
2,280 Safeway, Inc.(b)......................................... 81,082
------------
110,716
------------
TELECOMMUNICATIONS--6.6%
1,950 Cisco Systems, Inc.(b)................................... 208,894
330 Corning, Inc............................................. 42,549
220 EchoStar Communications Corp.(b)......................... 21,450
100 General Instrument Corp.(b).............................. 8,500
540 LM Ericsson Telephone Co.(SEK)........................... 34,714
3 Nippon Telephone & Telegraph Corp. (JPY)................. 51,385
860 Nortel Networks Corp. ................................... 86,860
------------
454,352
------------
UTILITIES--ELECTRIC--1.0%
650 CMS Energy Corp.......................................... 20,272
650 Texas Utilities Co....................................... 23,116
330 The AES Corp.(b)......................................... 24,668
------------
68,056
------------
UTILITIES--GAS--0.3%
330 Columbia Energy Group.................................... 20,873
------------
Total Common Stocks
(Identified Cost $5,267,483)............................ 6,323,432
------------
</TABLE>
SHORT-TERM INVESTMENT--6.9%
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
$475,000 Federal Home Loan Mortgage Discount Notes, 1.500%,
1/03/00.............................................. $ 474,960
------------
Total Short-Term Investment
(Identified Cost $474,960)........................... 474,960
------------
Total Investments--98.9%
(Identified Cost $5,742,443)(a)...................... 6,798,392
Other assets less liabilities......................... 73,660
------------
TOTAL NET ASSETS--100%................................ $ 6,872,052
============
</TABLE>
(a) Federal Tax Information:
At December 31, 1999 the net unrealized appreciation on investments based on
cost of $5,742,443 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....................................................... $1,397,965
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value............. (342,016)
----------
Net unrealized appreciation..................................... $1,055,949
==========
</TABLE>
For Federal income tax purposes, the Series has a capital loss carryforward
at December 31, 1999 of approximately $16,000 which will expire in 2007.
Accordingly, no capital gain distributions are expected to be paid to
shareholders until net gains have been realized in excess of such amount.
(b) Non-income producing security.
Key to Abbreviations:
EUR-- Euro Currency
GBP-- Pound Sterling
JPY-- Japanese Yen
SEK-- Swedish Krona
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.
95
<PAGE>
NEW ENGLAND ZENITH FUND
(MFS RESEARCH MANAGERS SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value...................................... $6,798,392
Cash...................................................... 2,652
Receivable for:
Securities sold........................................... 34,978
Fund shares sold.......................................... 82,955
Dividends and interest.................................... 2,582
Due from Investment Adviser............................... 7,077
----------
Total Assets.............................................. 6,928,636
LIABILITIES
Payable for:
Fund shares redeemed...................................... $ 3,508
Securities purchased...................................... 31,561
Due to subcustodian banks................................. 4,855
Accrued expenses:
Management fees........................................... 2,017
Deferred trustees fees.................................... 339
Other expenses............................................ 14,304
-------
Total Liabilities......................................... 56,584
----------
NET ASSETS................................................. $6,872,052
==========
Net assets consist of:
Capital paid in........................................... $5,845,517
Accumulated net investment loss........................... (5,988)
Accumulated net realized gains (losses)................... (23,419)
Unrealized appreciation (depreciation) on investments and
foreign currency......................................... 1,055,942
----------
NET ASSETS................................................. $6,872,052
==========
Computation of offering price:
Net asset value and redemption price per share ($6,872,052
divided by 573,730 shares of beneficial interest)........ $ 11.98
==========
Identified cost of investments............................ $5,742,443
==========
</TABLE>
STATEMENT OF OPERATIONS
FOR THE PERIOD APRIL 30, 1999(A)
THROUGH DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends........................................... $ 25,606(b)
Interest............................................ 3,919
----------
29,525
EXPENSES
Management fees..................................... 26,299
Trustees' fees and expenses......................... 2,731
Custodian........................................... 30,121
Audit and tax services.............................. 6,000
Legal............................................... 5,172
Printing............................................ 76
Miscellaneous....................................... 866
---------
Total expenses..................................... 71,265
Less expenses assumed by the investment adviser.... (39,708) 31,557
--------- ----------
NET INVESTMENT INCOME................................ (2,032)
----------
REALIZED AND UNREALIZED GAIN (LOSS)
Realized gain (loss) on:
Investments--net................................... (23,419)
Foreign currency transactions--net................. (3,956) (27,375)
---------
Unrealized appreciation (depreciation) on:
Investments--net 1,055,950
Foreign currency translation--net.................. (8) 1,055,942
--------- ----------
Net gain (loss)..................................... 1,028,567
----------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS.......................................... $1,026,535
==========
</TABLE>
(a)Commencement of operations.
(b)Net of foreign taxes of $268
See accompanying notes to financial statements.
96
<PAGE>
NEW ENGLAND ZENITH FUND
(MFS RESEARCH MANAGERS SERIES)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
APRIL 30, 1999(A)
THROUGH
DECEMBER 31,
1999
-----------------
<S> <C>
FROM OPERATIONS
Net investment income (loss) ............................... $ (2,032)
Net realized gain (loss).................................... (27,375)
Unrealized appreciation (depreciation)...................... 1,055,942
----------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS........... 1,026,535
----------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares................................ 11,362,688
Cost of shares redeemed..................................... (5,517,171)
----------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE
TRANSACTIONS............................................... 5,845,517
----------
TOTAL INCREASE (DECREASE) IN NET ASSETS..................... 6,872,052
NET ASSETS
Beginning of the period..................................... 0
----------
End of the period........................................... $6,872,052
==========
UNDISTRIBUTED NET INVESTMENT LOSS
End of the period........................................... $ (5,988)
==========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.............................. 1,103,624
Redeemed.................................................... (529,894)
----------
Net Change.................................................. 573,730
==========
</TABLE>
(a)Commencement of operations.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
APRIL 30, 1999(A)
THROUGH
DECEMBER 31,
1999
-----------------
<S> <C>
Net Asset Value, Beginning of Period......................... $10.00
------
Income From Investment Operations
Net Investment Income....................................... 0.00
Net Realized and Unrealized Gain (Loss) on Investments...... 1.98
------
Total From Investment operations............................ 1.98
------
Net Asset Value, End of Period............................... $11.98
======
TOTAL RETURN (%)............................................. 19.8 (b)
Ratio of Operating Expenses to Average Net Assets (%)........ 0.90 (c)
Ratio of Net Investment Income to Average Net Assets (%)..... (0.06)(c)
Portfolio Turnover Rate (%).................................. 84
Net Assets, End of Period (000).............................. $6,872
The Ratios of operating expenses to average net assets
without giving effect to the voluntary expense agreement
described in Note 4 to the Financial Statements would have
been (%).................................................... 2.03 (c)
</TABLE>
(a)Commencement of operations.
(b)Not computed on an annualized basis.
(c)Computed on an annualized basis.
See accompanying notes to financial statements.
97
<PAGE>
WESTPEAK GROWTH AND INCOME
PORTFOLIO MANAGER: GERALD H. SCRIVER AND PHILIP J. COOPER WESTPEAK INVESTMENT
ADVISORS, L.P.
[Photos appear here]
Q. HOW DID THE SERIES PERFORM DURING THE PAST TWELVE MONTHS RELATIVE TO ITS
INDEX AND RELATIVE TO ITS PEERS?
A. The Westpeak Growth and Income Series returned 9.4% for the year ending
December 31, 1999 versus a return of 21.0% for the Standard & Poor's 500
Index./25/ The Lipper Variable Products Growth and Income Fund Average/11/
returned 14.8% over the same time period.
Q. BRIEFLY DISCUSS THE INVESTMENT AND MARKET ENVIRONMENT DURING THE PAST TWELVE
MONTHS.
A. There was no clear leader last year in terms of market capitalization. The
core Russell 1000 Index, Russell Midcap Index and Russell 2000 Index all posted
returns in the 18.0% to 21.0% range. A large disparity did occur, however, be-
tween the growth and value components of each index. The spread between the two
styles' annual return averaged 40.6% across each index. Although it appears
that "growth" drove performance in 1999, our research reveals that a relatively
small group of stocks exhibiting high volatility actually led the market. Half
of last year's gain in the S&P 500 can be attributed to just eight technology
stocks. Coincidentally, these same highly volatile stocks also embody growth
attributes, explaining why growth indices outperformed. Many reasonably priced,
stable growth companies did not participate in the astronomical performance of
this narrow group, but are poised to perform well in the coming months.
Q. GIVEN THIS INVESTMENT ENVIRONMENT, WHAT WAS YOUR INVESTMENT STRATEGY? WHAT
CHANGES DID YOU MAKE SINCE THE START OF THE YEAR?
A. The portfolio continues to maintain a bias toward attractively priced stocks
with strong earnings growth rates. The Series' 23.4 Price to Earnings (PE) ra-
tio compares favorably to the S&P 500's 34.2. In addition, a Price to Book ra-
tio of 3.7 versus 5.8 for the S&P 500 also reflects our value orientation. The
portfolio's earnings are growing at a rate of 16.7%, almost equal to the S&P
500's 17.0% pace. Our P/E to Growth ratio of 1.4 versus 2.0 for the S&P con-
firms that we are not over-paying for growth. There were no material changes in
the Series over the course of the year.
Q. WHAT WERE THE PRINCIPAL FACTORS AFFECTING YOUR PERFORMANCE (ON BOTH AN
ABSOLUTE AND RELATIVE BASIS) DURING THE PAST TWELVE MONTHS? WHAT INVESTMENT
DECISIONS WERE MOST EFFECTIVE AND WHICH ONES WERE LEAST EFFECTIVE?
A. A value slant was added to the portfolio in 1999 through our moderate under-
exposure to growth characteristics. When observing widely recognized style av-
erages like the Russell Growth and Value indexes, it appears that growth domi-
nated in 1999. We have found that it was actually other characteristics of com-
panies classified as growth that drove performance in 1999; namely, volatility,
momentum, and liquidity. Performance was penalized for owning companies with an
average market capitalization less than the benchmark. A predominance of low
P/E stocks also resulted in a drag on our 1999 relative return. An
underweighted posture in Consumer Staples made it the largest sector contribu-
tor to our relative performance. Sectors that detracted from relative perfor-
mance included an underweight in Technology and an overweight in Financials.
Securities that contributed most to relative performance during the past two
quarters were overweights in US Cellular, Lehman Brothers, Wal-Mart, Alcoa, and
Lexmark Int'l. The largest penalties to performance came from underweighting
General Electric, Oracle, and Cisco Systems and overweights in Nabisco and
Litton Industries.
Q. WHAT IS YOUR OUTLOOK FOR THE MARKET AND YOUR PORTFOLIO FOR THE NEXT SIX
MONTHS? WHAT CHANGES, IF ANY, WILL YOU MAKE TO THE WAY YOU MANAGE YOUR
PORTFOLIO?
A. The decade of the 1990s ended on a very positive note for both the economy
and the equity market. However, as we enter the new year, there are no signs
that the economy is slowing. The economy is reaching an over-extended phase and
the Technology/Internet stocks are approaching a classic bubble. While Technol-
ogy will continue to be an important part of the world economy, the group's re-
cent move has created an opportunity for those, like Westpeak, who remain com-
mitted to an investment philosophy emphasizing traditional measures of funda-
mental value. Inflationary forces will incite the Fed to raise interest rates
in 2000, spurring a correction primarily in technology and Internet companies.
Stocks with below average P/Es, above-average growth, and the potential for
positive earnings surprises will likely be the new market leaders as we enter
the year 2000. We do not anticipate significant changes in the management of
the portfolio over the next several quarters.
98
<PAGE>
A $10,000 Investment Compared to the S&P 500 Index
since the Series' Inception
[GRAPH]
Westpeak Growth
and Income Series S&P 500
4/30/93 10,000 10,000
12/31/93 11,424 10,812
12/31/94 11,310 10,951
12/31/95 15,435 15,056
12/31/96 18,229 18,531
12/31/97 24,327 24,689
12/31/98 30,276 31,787
12/31/99 33,102 38,455
Average Annual Returns
Growth & Lipper Variable Products Growth
Income Series S&P 500 and Income Average
1 year 9.4% 21.0% 14.8%
3 years 22.0 27.6 19.3
5 years 24.0 28.6 22.2
Since Inception 19.7 22.4 n/a
[checkmark] FUND FACTS
GOAL: Long-term total return through investment in equity securities.
START DATE: April 30, 1993
SIZE: $418 million as of December 31, 1999
MANAGERS: Gerald Scriver and Philip Cooper. Mr. Scriver and Mr. Cooper have
managed the Series from its inception in 1993; they also have managed Westpeak
Stock Index Series since August 1993, New England Growth and Income Fund since
May 1995 and New England Capital Growth Fund since February 1998. Mr. Scriver
joined Westpeak in July 1991 and Mr. Cooper joined Westpeak in December 1991.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts. If these charges were included, the returns shown would
be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
99
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK GROWTH AND INCOME SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--98.0% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
AEROSPACE & DEFENSE--2.5%
57,100 General Dynamics Corp................................... $ 3,012,025
46,000 Litton Industries, Inc.(b).............................. 2,294,250
81,400 Northrop Grumman Corp................................... 4,400,687
18,800 Rockwell International Corp.(b)......................... 900,050
------------
10,607,012
------------
AIRLINES--0.6%
47,500 Delta Air Lines, Inc.................................... 2,366,094
------------
AUTOMOTIVE--2.0%
80,300 Ford Motor Co........................................... 4,291,031
57,200 General Motors Corp..................................... 4,157,725
------------
8,448,756
------------
BANKS--8.1%
87,900 BB&T Corp............................................... 2,406,263
93,500 Chase Manhattan Corp.................................... 7,263,781
133,700 Citigroup, Inc.......................................... 7,428,706
64,000 FleetBoston Financial Corp.............................. 2,228,000
28,500 J.P. Morgan & Company, Inc. ............................ 3,608,812
36,200 SouthTrust Corp......................................... 1,368,812
35,500 SunTrust Banks, Inc..................................... 2,442,844
156,400 UnionBanCal Corp........................................ 6,168,025
33,400 Washington Mutual, Inc.................................. 868,400
------------
33,783,643
------------
BUSINESS SERVICES--1.5%
65,400 Electronic Data Systems Corp............................ 4,377,713
13,800 SABRE Group Holdings, Inc.(b)........................... 707,250
21,100 Zebra Technologies Corp.(b)............................. 1,234,350
------------
6,319,313
------------
CABLE & OTHER MEDIA--0.9%
76,400 Cox Communications, Inc.(b)............................. 3,934,600
------------
CHEMICALS--1.7%
54,400 Dow Chemical Co. ....................................... 7,269,200
------------
COMPUTER SOFTWARE & SERVICES--8.3%
35,300 Adobe Systems, Inc...................................... 2,373,925
52,900 America Online, Inc.(b)................................. 3,990,644
105,300 Computer Associates International, Inc.................. 7,364,419
7,500 Comverse Technology, Inc.(b)............................ 1,085,625
21,000 Eletronics for Imaging, Inc.(b)......................... 1,220,625
144,700 Microsoft Corp.(b)...................................... 16,893,725
45,400 National Instruments Corp.(b)........................... 1,736,550
------------
34,665,513
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
COMPUTERS & BUSINESS EQUIPMENT--6.7%
31,400 Adaptec, Inc.(b)........................................ $ 1,566,075
189,100 Cisco Systems, Inc.(b).................................. 20,257,338
18,000 Gateway, Inc.(b)........................................ 1,297,125
25,400 Lexmark International Group, Inc.(b).................... 2,298,700
57,800 Pitney Bowes, Inc....................................... 2,792,462
------------
28,211,700
------------
CONSTRUCTION--0.9%
38,700 Lafarge Corp............................................ 1,069,087
61,600 USG Corp. .............................................. 2,902,900
------------
3,971,987
------------
CONSUMER GOODS & SERVICES--0.7%
28,600 Minnesota Mining & Manufactoring Co..................... 2,799,225
------------
DRUGS--6.7%
56,100 Allergan, Inc........................................... 2,790,975
166,800 Bristol-Myers Squibb Co................................. 10,706,475
30,800 Forest Laboratories, Inc.(b)............................ 1,892,275
40,500 IVAX Corp.(b)........................................... 1,042,875
359,400 Pfizer, Inc............................................. 11,658,037
------------
28,090,637
------------
ELECTRIC UTILITIES--4.1%
115,800 DTE Energy Co. ......................................... 3,633,225
73,800 Energy East Corp........................................ 1,535,963
116,700 Entergy Corp............................................ 3,005,025
57,300 GPU, Inc. .............................................. 1,715,419
204,100 Public Service Enterprise Group, Inc.................... 7,105,231
------------
16,994,863
------------
ELECTRONICS--2.2%
81,500 Lucent Technologies, Inc................................ 6,097,219
57,300 Vishay Intertechnology, Inc.(b)......................... 1,812,112
24,000 Xilinx, Inc.(b)......................................... 1,091,250
------------
9,000,581
------------
ENERGY RESERVES--5.1%
25,700 Chevron Corp............................................ 2,226,263
33,400 Coastal Corp............................................ 1,183,613
66,500 Exxon Mobil Corp. ...................................... 5,357,406
44,800 Phillips Petroleum Co................................... 2,105,600
100,500 Royal Dutch Petroleum Co.(ADR).......................... 6,073,969
61,400 Texaco, Inc............................................. 3,334,787
20,500 Vastar Resources, Inc................................... 1,209,500
------------
21,491,138
------------
</TABLE>
See accompanying notes to financial statements.
100
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK GROWTH AND INCOME SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
FINANCIAL SERVICES--2.5%
49,300 Federal Home Loan Mortgage Corp......................... $ 2,320,181
67,300 Federal National Mortgage Association................... 4,202,044
41,800 Marsh & McLennan Companies, Inc......................... 3,999,737
------------
10,521,962
------------
FOOD & BEVERAGES--3.4%
20,700 Hormel Foods Corp....................................... 840,938
234,500 IBP, Inc................................................ 4,221,000
214,300 Nabisco Group Holdings Corp............................. 2,276,937
33,900 Quaker Oats Co. ........................................ 2,224,688
225,700 Supervalu, Inc.......................................... 4,514,000
------------
14,077,563
------------
GAS & PIPELINE UTILITIES--0.5%
51,700 El Paso Energy Corp..................................... 2,006,606
------------
HEALTH CARE--PRODUCTS--5.0%
68,100 Abbott Laboratories..................................... 2,472,881
164,800 Tyco International, Ltd................................. 6,406,600
129,700 Johnson & Johnson....................................... 12,078,313
------------
20,957,794
------------
HEALTH CARE--SERVICES--0.6%
17,300 PacifiCare Health Systems, Inc.......................... 916,900
29,900 United Healthcare Corp.................................. 1,588,437
------------
2,505,337
------------
HOUSEHOLD PRODUCTS--1.1%
54,800 Kimberly-Clark Corp..................................... 3,575,700
16,300 Whirlpool Corp.......................................... 1,060,519
------------
4,636,219
------------
INDUSTRIAL PARTS & MACHINERY--2.0%
28,900 Cummins Engine, Inc..................................... 1,396,231
33,700 Dover Corp.............................................. 1,529,138
18,200 Eaton Corp.............................................. 1,321,775
45,400 Ingersoll-Rand Co....................................... 2,499,838
34,500 Parker Hannifin Corp.................................... 1,770,281
------------
8,517,263
------------
INSURANCE--OTHER--0.9%
70,900 Ambac Financial Group, Inc.............................. 3,700,094
------------
LIFE INSURANCE--1.4%
29,800 Aetna, Inc.............................................. 1,663,213
99,600 Lincoln National Corp., Inc............................. 3,984,000
------------
5,647,213
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
MEDIA & ENTERTAINMENT--0.7%
24,600 AT&T Corp. - Liberty Media Group........................ $ 1,396,050
27,100 Tribune Co.............................................. 1,492,194
------------
2,888,244
------------
METALS & MINING--1.0%
73,100 Alcan Aluminium, Ltd.................................... 3,010,806
14,400 Alcoa, Inc.............................................. 1,195,200
------------
4,206,006
------------
PAPER & FOREST PRODUCTS--0.7%
44,900 Temple-Inland, Inc...................................... 2,960,594
------------
PROPERTY & CASUALTY INSURANCE--1.4%
70,000 Allmerica Financial Corp................................ 3,893,750
59,800 St. Paul Companies, Inc................................. 2,014,512
------------
5,908,262
------------
PUBLISHING--1.9%
64,700 Gannett Company, Inc. .................................. 5,277,094
4,500 Washington Post Co...................................... 2,501,437
------------
7,778,531
------------
RAILROADS & EQUIPMENT--0.7%
67,600 Union Pacific Corp...................................... 2,949,050
------------
RETAIL--DEPARTMENT STORE--3.6%
21,500 Dayton Hudson Corp...................................... 1,578,906
44,300 Federated Department Stores, Inc.(b).................... 2,239,919
161,800 Wal-Mart Stores, Inc.................................... 11,184,425
------------
15,003,250
------------
RETAIL--SPECIALTY--0.5%
27,750 Home Depot, Inc. ....................................... 1,902,609
------------
SECURITIES & ASSET MANAGEMENT--2.9%
130,371 Bear Stearns Companies, Inc. ........................... 5,573,360
19,900 Lehman Brothers Holdings, Inc........................... 1,685,281
14,200 Morgan Stanley Dean Witter & Co......................... 2,027,050
72,700 PaineWebber Group, Inc.................................. 2,821,669
------------
12,107,360
------------
SEMICONDUCTORS--4.4%
46,200 Applied Materials, Inc.(b).............................. 5,852,963
15,900 LSI Logic Corp.(b)...................................... 1,073,250
12,100 STMicroelectronics N.V. (ADR)........................... 1,832,394
97,100 Texas Instruments, Inc. ................................ 9,406,562
------------
18,165,169
------------
TELECOMMUNICATION--10.1%
20,600 ALLTEL Corp. ........................................... 1,703,363
157,500 AT & T Corp............................................. 7,993,125
</TABLE>
See accompanying notes to financial statements.
101
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK GROWTH AND INCOME SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
TELECOMMUNICATION--(CONTINUED)
215,300 BellSouth Corp.......................................... 10,078,731
112,050 MCI Worldcom, Inc.(b)................................... 5,945,653
47,400 Motorola, Inc........................................... 6,979,650
11,800 Nortel Networks Corp.................................... 1,191,800
98,036 SBC Communications, Inc................................. 4,779,255
32,400 United States Cellular Corp.(b)......................... 3,270,375
------------
41,941,952
------------
THRIFTS--0.7%
89,200 Golden West Financial Corp.............................. 2,988,200
------------
Total Common Stocks
(Identified Cost $386,762,611)......................... 409,323,540
------------
</TABLE>
SHORT-TERM INVESTMENT--1.9%
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
$7,738,000 Repurchase Agreement with State Street Corp. dated
12/31/1999 at 2.5% to be repurchased at $7,739,612
on 1/3/2000, collateralized by $7,655,000 U.S.
Treasury Bonds, 6.750% due 8/15/2026 with a value
of $7,894,219...................................... $ 7,738,000
------------
Total Short-Term Investments
(Identified Cost $7,738,000)....................... 7,738,000
------------
Total Investments--99.9%
(Identified Cost $394,500,611)(a).................. 417,061,540
Other assets less liabilities....................... 478,261
------------
TOTAL NET ASSETS--100%.............................. $417,539,801
============
</TABLE>
(a) Federal Tax Information:
At December 31, 1999 the net unrealized appreciation on investments based on
cost of $394,531,073 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............... $48,633,714
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value............... (26,103,247)
------------
Net unrealized appreciation.................................... $ 22,530,467
============
</TABLE>
(b) Non-income producing security.
Key to abbreviations:
ADR/GDR--An American Depositary Receipt (ADR) or Global Depositary Receipt
(GDR) is a certificate issued by a Custodian Bank representing the right
to receive securities of the foreign issuer described. The value of ADRs
and GDRs are significantly influenced by trading on exchanges not
located in the United States or Canada.
See accompanying notes to financial statements.
102
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK GROWTH AND INCOME SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value.................................... $417,061,540
Cash.................................................... 828
Receivable for:
Fund shares sold........................................ 850,958
Dividends and interest.................................. 412,963
------------
Total Assets............................................ 418,326,289
LIABILITIES
Payable for:
Fund shares redeemed.................................... $521,020
Accrued expenses:
Management fees......................................... 231,576
Deferred trustees fees.................................. 9,747
Other expenses.......................................... 24,145
--------
Total Liabilities....................................... 786,488
------------
NET ASSETS............................................... $417,539,801
============
Net assets consist of:
Capital paid in......................................... $385,651,488
Undistributed net investment income..................... 6,957
Accumulated net realized gains (losses)................. 9,320,427
Unrealized appreciation (depreciation) on investments
and foreign currency................................... 22,560,929
------------
NET ASSETS............................................... $417,539,801
============
Computation of offering price:
Net asset value and redemption price per share
($417,539,801 divided by 2,103,612 shares of beneficial
interest)............................................... $ 198.49
============
Identified cost of investments........................... $394,500,611
============
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends.......................................... $ 5,547,321(a)
Interest........................................... 410,900
-----------
5,958,221
-----------
EXPENSES
Management fees.................................... $2,410,327
Trustees' fees and expenses........................ 19,116
Custodian.......................................... 77,936
Audit and tax services............................. 11,891
Legal.............................................. 22,588
Printing........................................... 74,088
Insurance.......................................... 7,186
Miscellaneous...................................... 5,355
----------
Total Expenses..................................... 2,628,487
-----------
NET INVESTMENT INCOME............................... 3,329,734
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
Realized gain (loss) on:
Investments--net................................... 52,016,715
Unrealized appreciation
(depreciation) on:
Investments--net................................... (24,538,317)
-----------
Net gain (loss)..................................... 27,478,398
-----------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS......................................... $30,808,132
===========
</TABLE>
(a) Net of foreign taxes of $104,037
See accompanying notes to financial statements.
103
<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,
1999 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................. $ 3,329,734 $ 1,668,044
Net realized gain (loss).......................... 52,016,715 19,998,285
Unrealized appreciation (depreciation)............ (24,538,317) 24,191,543
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS....................................... 30,808,132 45,857,872
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income............................. (3,333,829) (1,671,571)
Net realized gain................................. (50,277,567) (17,136,182)
------------ ------------
Total distributions............................... (53,611,396) (18,807,753)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares...................... 186,369,857 131,989,323
Reinvestment of distributions..................... 53,611,396 18,807,753
Cost of shares redeemed........................... (81,195,387) (49,028,374)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS............................... 158,785,866 101,768,702
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS........... 135,982,602 128,818,821
NET ASSETS
Beginning of the year............................. 281,557,199 152,738,378
------------ ------------
End of the year................................... $417,539,801 $281,557,199
============ ============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT
INCOME
End of the year................................... $ 6,957 $ 11,052
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................... 860,143 660,083
Issued in reinvestment of distributions........... 267,460 90,448
Redeemed.......................................... (375,398) (247,768)
------------ ------------
Net Change........................................ 752,205 502,763
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year.......................... $ 208.34 $ 179.98 $ 151.77 $141.31 $109.03
-------- -------- -------- ------- -------
Income From Investment
Operations
Net Investment Income.......... 1.78 1.30 1.37 1.78 1.77
Net Realized and Unrealized
Gain (Loss) on Investments.... 17.51 42.44 48.76 23.69 37.91
-------- -------- -------- ------- -------
Total From Investment
operations.................... 19.29 43.74 50.13 25.47 39.68
-------- -------- -------- ------- -------
Less Distributions
Distributions From Net
Investment Income............ (1.78) (1.31) (1.35) (1.82) (1.71)
Distributions From Net
Realized Capital Gains....... (27.36) (14.07) (20.57) (13.19) (5.69)
-------- -------- -------- ------- -------
Total Distributions............ (29.14) (15.38) (21.92) (15.01) (7.40)
-------- -------- -------- ------- -------
Net Asset Value, End of Year... $ 198.49 $ 208.34 $ 179.98 $151.77 $141.31
======== ======== ======== ======= =======
TOTAL RETURN (%)............... 9.4 24.4 33.5 18.1 36.5
Ratio of Operating Expenses to
Average Net Assets (%)........ 0.74 0.78 0.82 0.85 0.85
Ratio of Net Investment Income
to Average Net Assets (%)..... 0.94 0.80 0.91 1.40 1.63
Portfolio Turnover Rate (%).... 115 100 93 104 92
Net Assets, End of Year (000) $417,540 $281,557 $152,738 $82,330 $48,129
The Ratios of operating
expenses to average net assets
without giving effect to a
voluntary expense agreement
would have been (%)........... -- -- -- 0.91 1.06
</TABLE>
See accompanying notes to financial statements.
104
<PAGE>
WESTPEAK STOCK INDEX SERIES
PORTFOLIO MANAGERS: GERALD H. SCRIVER AND PHILIP J. COOPER
WESTPEAK INVESTMENT ADVISORS, L.P.
[PHOTO APPEARS HERE]
[PHOTO APPEARS HERE]
Q. HOW DID THE SERIES PERFORM DURING THE PAST TWELVE MONTHS RELATIVE TO ITS
INDEX AND RELATIVE TO ITS PEERS?
A. The Westpeak Stock Index Series returned 20.4% for the year ending December
31, 1999 versus a return of 21.0% for the Standard & Poor's 500 Index/25/. The
Series remained fully invested in stocks that make up the S&P 500 Index. It is
our strategy to weight the allocation of the Series virtually in the same pro-
portion as the S&P 500 Index as a means to duplicate the performance of the In-
dex.
Q. BRIEFLY DISCUSS THE INVESTMENT AND MARKET ENVIRONMENT DURING THE PAST TWELVE
MONTHS.
A. There was no clear leader last year in terms of market capitalization. The
core Russell 1000 Index, Russell Midcap Index and Russell 2000 Index all posted
returns in the 18.0% to 21.0% range. A large disparity did occur, however, be-
tween the growth and value components of each index. The spread between the two
styles' annual return averaged 40.6% across each index. Although it appears
that "growth" drove performance in 1999, our research reveals that a relatively
small group of stocks exhibiting high volatility actually led the market. Half
of last year's gain in the S&P 500 can be attributed to just eight technology
stocks. Coincidentally, these same highly volatile stocks also embody growth
attributes, explaining why growth indices outperformed. Many reasonably priced,
stable growth companies did not participate in the astronomical performance of
this narrow group, but are poised to perform well in the coming months.
Q. WHAT IS YOUR OUTLOOK FOR THE MARKET AND YOUR PORTFOLIO FOR THE NEXT SIX
MONTHS? WHAT CHANGES, IF ANY, WILL YOU MAKE TO THE WAY YOU MANAGE YOUR
PORTFOLIO?
A. The decade of the 1990s ended on a very positive note for both the economy
and the equity market. However, as we enter the new year, there are no signs
that the economy is slowing. The economy is reaching an over-extended phase and
the Technology/Internet stocks are approaching a classic bubble. While Technol-
ogy will continue to be an important part of the world economy, the group's re-
cent move has created an opportunity for those, like Westpeak, who remain com-
mitted to an investment philosophy emphasizing traditional measures of funda-
mental value. Inflationary forces will incite the Fed to raise interest rates
in 2000, spurring a correction primarily in technology and Internet companies.
Stocks with below average P/Es, above-average growth, and the potential for
positive earnings surprises will likely be the new market leaders as we enter
the year 2000. We do not anticipate significant changes in the management of
the portfolio over the next several quarters.
105
<PAGE>
A $10,000 Investment Compared to the S&P 500 Index
over the past 10 years
[GRAPH]
Westpeak Stock
Index Series S&P 500
12/31/89 10,000 10,000
12/31/90 9,587 9,682
12/31/91 12,504 12,642
12/31/92 13,418 13,614
12/31/93 14,720 14,974
12/31/94 14,885 15,166
12/31/95 20,377 20,851
12/31/96 24,959 25,663
12/31/97 33,072 34,191
12/31/98 42,305 44,021
12/31/99 50,937 53,256
Average Annual Returns
Stock Index Lipper Variable Products
Series S&P 500 S&P 500 Fund Index Average
1 year 20.4% 21.0% 20.5%
3 years 26.8 27.6 27.1
5 years 27.9 28.6 28.1
10 years 17.7 18.2 17.7
Since Inception 16.3 16.8 n/a
[CHECKMARK] 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: $270 million as of December 31, 1999
MANAGERS: Gerald H. Scriver and Philip J. Cooper. Mr. Scriver and Mr. Cooper
have managed the Series since 1993; they have also managed Westpeak Growth and
Income Series since August 1993, New England Growth and Income Fund since May
1995 and New England Capital Growth Fund since February 1998. Mr. Scriver
joined Westpeak in July 1991 and Mr. Cooper joined Westpeak in December 1991.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts. If these charges were included, the returns shown would
be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
106
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--98.1% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
AEROSPACE & DEFENSE--1.0%
2,200 B.F. Goodrich Co. ....................................... $ 60,500
20,754 Boeing Co................................................ 862,588
4,300 General Dynamics Corp.................................... 226,825
8,630 Lockheed Martin Corp..................................... 188,781
1,400 Northrop Grumman Corp. .................................. 75,687
1,000 PerkinElmer, Inc......................................... 41,687
7,200 Raytheon Co., Class B.................................... 191,250
3,300 Textron, Inc. ........................................... 253,069
2,500 TRW, Inc................................................. 129,844
10,400 United Technologies Corp. ............................... 676,000
------------
2,706,231
------------
AIRLINES--0.2%
3,300 AMR Corp.(b)............................................. 221,100
2,900 Delta Air Lines, Inc. ................................... 144,456
10,700 Southwest Airlines Co.................................... 173,206
1,500 U.S. Airways Group, Inc.(b).............................. 48,094
------------
586,856
------------
APPAREL & TEXTILES--0.2%
1,200 Liz Claiborne, Inc....................................... 45,150
6,000 NIKE, Inc., Class B...................................... 297,375
1,100 Reebok International, Ltd.(b)............................ 9,006
600 Russell Corp............................................. 10,050
300 Springs Industries, Inc.................................. 11,981
2,500 VF Corp.................................................. 75,000
------------
448,562
------------
AUTOMOTIVE--1.1%
1,600 Cooper Tire & Rubber Co.................................. 24,900
3,422 Dana Corp................................................ 102,446
12,125 Delphi Automotive Systems Corp........................... 190,969
26,200 Ford Motor Co. .......................................... 1,400,063
13,900 General Motors Corp...................................... 1,010,356
3,400 Goodyear Tire & Rubber Co. .............................. 95,838
1,900 ITT Industries, Inc...................................... 63,531
1,320 Navistar International Corp., Inc.(b).................... 62,535
1,590 PACCAR, Inc. ............................................ 70,457
------------
3,021,095
------------
BANKS--5.3%
8,350 AmSouth Bancorporation................................... 161,259
37,424 Bank of America Corp. ................................... 1,878,217
6,900 BB&T Corp................................................ 188,888
18,040 Chase Manhattan Corp..................................... 1,401,483
73,179 Citigroup, Inc........................................... 4,066,008
3,400 Comerica, Inc............................................ 158,738
6,500 Fifth Third Bancorp...................................... 476,938
20,570 First Union Corp. ....................................... 674,953
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
19,985 FleetBoston Financial Corp............................... $ 695,728
4,974 Huntington Bancshares, Inc. ............................. 118,754
3,800 J.P. Morgan & Co., Inc................................... 481,175
9,500 KeyCorp.................................................. 210,188
11,000 Mellon Financial Corp. .................................. 374,687
13,400 National City Corp. ..................................... 317,412
2,600 Old Kent Financial Corp.................................. 91,975
6,600 PNC Bank Corp. .......................................... 293,700
4,800 Regions Financial Corp................................... 120,600
3,600 SouthTrust Corp.......................................... 136,125
3,800 Summit Bancorp........................................... 116,375
7,000 Sun Trust Banks, Inc..................................... 481,687
5,750 Synovus Financial Corp................................... 114,281
3,000 Union Planters Corp...................................... 118,313
4,400 Wachovia Corp. .......................................... 299,200
35,730 Wells Fargo & Co......................................... 1,444,832
------------
14,421,516
------------
BANKS & THRIFTS--1.0%
15,800 Bank of New York Co., Inc................................ 632,000
25,392 Bank One Corp............................................ 814,131
21,209 Firstar Corp. ........................................... 448,040
4,800 Northern Trust Corp...................................... 254,400
3,500 State Street Corp........................................ 255,719
15,808 U.S. Bancorp............................................. 376,428
------------
2,780,718
------------
BROADCASTING--0.7%
16,100 Comcast Corp.(b)......................................... 814,056
13,100 MediaOne Group, Inc.(b).................................. 1,006,244
------------
1,820,300
------------
BUSINESS SERVICES--1.2%
13,300 Automatic Data Processing, Inc........................... 716,538
3,100 Ceridian Corp.(b)........................................ 66,844
3,500 Computer Sciences Corp.(b)............................... 331,188
10,700 Electronic Data Systems Corp............................. 716,231
6,740 IMS Health, Inc.......................................... 183,244
3,200 Network Appliance, Inc.(b)............................... 265,800
3,800 Omnicom Group, Inc....................................... 380,000
5,300 Paychex, Inc............................................. 212,000
2,500 Quintiles Transnational Corp.(b)......................... 46,719
500 Shared Medical Systems Corp.............................. 25,469
6,200 The Interpublic Group of Companies, Inc.................. 357,663
------------
3,301,696
------------
CHEMICALS--2.0%
5,000 Air Products & Chemicals, Inc............................ 167,813
1,600 Ashland, Inc............................................. 52,700
2,500 Avery Dennison Corp...................................... 182,188
</TABLE>
See accompanying notes to financial statements.
107
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
CHEMICALS--(CONTINUED)
4,750 Dow Chemical Co. ....................................... $ 634,719
22,077 E.I. Du Pont de Nemours & Co............................ 1,454,323
1,600 Eastman Chemical Co..................................... 76,300
2,800 Ecolab, Inc............................................. 109,550
2,925 Engelhard Corp.......................................... 55,209
1,200 Great Lakes Chemical Corp............................... 45,825
2,100 Hercules, Inc........................................... 58,538
8,700 Minnesota Mining & Manufactoring Co. ................... 851,512
13,700 Monsanto Co. ........................................... 488,063
7,400 Occidental Petroleum Corp............................... 160,025
3,800 PPG Industries, Inc..................................... 237,737
3,400 Praxair, Inc............................................ 171,062
4,685 Rohm & Haas Co.......................................... 190,621
1,696 Sealed Air Corp.(b)..................................... 87,874
3,700 Sherwin-Williams Co..................................... 77,700
2,900 Union Carbide Corp...................................... 193,575
2,100 Vulcan Materials Co..................................... 83,869
1,400 W.R. Grace & Co.(b)..................................... 19,425
2,075 Westvaco Corp........................................... 67,697
------------
5,466,325
------------
COMPUTER HARDWARE--1.1%
3,700 Analog Devices, Inc.(b)................................. 344,100
33,600 Sun Microsystems, Inc.(b)............................... 2,601,900
------------
2,946,000
------------
COMPUTER SOFTWARE & SERVICES--9.7%
2,600 Adobe Systems, Inc. .................................... 174,850
48,000 America Online, Inc.(b)................................. 3,621,000
1,100 Autodesk, Inc. ......................................... 37,125
5,200 BMC Software, Inc.(b)................................... 415,675
15,648 Cendant Corp.(b)........................................ 415,650
11,600 Computer Associates International, Inc. ................ 811,275
7,700 Compuware Corp.(b)...................................... 286,825
1,500 Comverse Technology, Inc.(b)............................ 217,125
9,300 First Data Corp. ....................................... 458,606
110,500 Microsoft Corp.(b)...................................... 12,900,875
7,500 Novell, Inc.(b)......................................... 299,531
31,205 Oracle Corp.(b)......................................... 3,496,910
5,800 Parametric Technology Corp.(b).......................... 156,962
5,200 Peoplesoft, Inc.(b)..................................... 110,825
6,600 Unisys Corp.(b)......................................... 210,787
5,720 Yahoo!, Inc.(b)......................................... 2,474,973
------------
26,088,994
------------
COMPUTERS & BUSINESS EQUIPMENT--8.6%
7,700 3Com Corp.(b)........................................... 361,900
2,200 Adaptec, Inc............................................ 109,725
3,500 Apple Computer, Inc.(b)................................. 359,844
3,800 Cabletron Systems, Inc.(b).............................. 98,800
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
70,350 Cisco Systems, Inc.(b)................................... $ 7,536,244
1,900 Citrix Systems, Inc.(b).................................. 233,700
36,847 Compaq Computer Corp..................................... 997,172
55,000 Dell Computer Corp....................................... 2,805,000
21,981 EMC Corp.(b)............................................. 2,401,424
6,800 Gateway, Inc.(b)......................................... 490,025
21,900 Hewlett-Packard Co. ..................................... 2,495,231
2,800 IKON Office Solutions, Inc. ............................. 19,075
39,200 International Business Machines Corp. ................... 4,233,600
2,800 Lexmark International Group, Inc.(b)..................... 253,400
5,800 Pitney Bowes, Inc. ...................................... 280,212
4,500 Seagate Technology, Inc.(b).............................. 209,531
3,500 Silicon Graphics, Inc.(b)................................ 34,344
14,300 Xerox Corp. ............................................. 324,431
------------
23,243,658
------------
CONSTRUCTION--0.2%
800 Armstrong World Industries, Inc. ........................ 26,700
1,100 Centex Corp. ............................................ 27,156
700 Fleetwood Enterprises, Inc............................... 14,438
1,500 Fluor Corp............................................... 68,813
311 Huttig Building Products, Inc.(b)........................ 1,536
900 Kaufman & Broad Home Corp................................ 21,769
9,500 Masco Corp............................................... 241,063
1,000 Owens Corning............................................ 19,312
800 Pulte Corp............................................... 18,000
------------
438,787
------------
CONSUMER GOODS & SERVICES--0.2%
1,800 Black & Decker Corp...................................... 94,050
1,800 Maytag Corp.............................................. 86,400
5,923 McKesson HBOC, Inc....................................... 133,638
1,600 Whirlpool Corp........................................... 104,100
------------
418,188
------------
DRUGS--5.7%
2,800 Allergan, Inc. .......................................... 139,300
2,100 ALZA Corp.(b)............................................ 72,713
28,300 American Home Products Corp.............................. 1,116,081
22,000 Amgen, Inc.(b)........................................... 1,321,375
42,960 Bristol-Myers Squibb Co. ................................ 2,757,495
5,800 Cardinal Health, Inc..................................... 277,675
23,700 Eli Lilly & Co. ......................................... 1,576,050
50,800 Merck & Co., Inc. ....................................... 3,406,775
83,900 Pfizer, Inc. ............................................ 2,721,506
10,980 Pharmacia & Upjohn, Inc. ................................ 494,100
31,800 Schering-Plough Corp..................................... 1,341,562
2,000 Sigma-Aldrich Corp....................................... 60,125
2,100 Watson Pharmaceuticals, Inc.(b).......................... 75,206
------------
15,359,963
------------
</TABLE>
See accompanying notes to financial statements.
108
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
ELECTRIC UTILITIES--1.6%
4,500 AES Corp.(b)............................................. $ 336,375
2,900 Ameren Corp.............................................. 94,975
4,200 American Electric Power, Inc. .......................... 134,925
3,400 Carolina Power & Light Co................................ 103,488
4,400 Central & South West Corp................................ 88,000
3,411 Cinergy Corp............................................. 82,290
2,600 CMS Energy Corp.......................................... 81,088
4,700 Consolidated Edison, Inc................................. 162,150
3,100 Constellation Energy Group............................... 89,900
4,050 Dominion Resources, Inc.................................. 158,963
3,100 DTE Energy Co............................................ 97,263
7,827 Duke Energy Co........................................... 392,328
7,500 Edison International..................................... 196,406
5,300 Entergy Corp............................................. 136,475
5,100 FirstEnergy Corp......................................... 115,706
2,000 Florida Progress Corp.................................... 84,625
3,900 FPL Group, Inc. ........................................ 166,969
2,700 GPU, Inc................................................. 80,831
2,500 New Century Energies, Inc................................ 75,937
4,000 Niagara Mohawk Holdings, Inc.(b)......................... 55,750
3,100 Northern States Power Co................................. 60,450
4,000 PECO Energy Co........................................... 139,000
8,400 PG&E Corp. .............................................. 172,200
1,800 Pinnacle West Capital Corp............................... 55,012
3,400 PP&L Resources, Inc...................................... 77,775
4,700 Public Service Enterprise Group, Inc..................... 163,619
6,548 Reliant Energy, Inc...................................... 149,785
14,800 Southern Co.............................................. 347,800
6,025 Texas Utilities Co....................................... 214,264
4,700 Unicom Corp. ........................................... 157,450
------------
4,271,799
------------
ELECTRONICS--3.8%
1,530 Andrew Corp.............................................. 28,974
2,000 Cooper Industries, Inc................................... 80,875
5,300 Corning, Inc............................................. 683,369
1,600 Eaton Corp............................................... 116,200
9,400 Emerson Electric Co...................................... 539,325
800 Foster Wheeler Corp. .................................... 7,100
3,800 General Instrument Corp.(b).............................. 323,000
11,900 Honeywell International, Inc............................. 686,481
1,800 Johnson Controls, Inc.................................... 102,375
66,384 Lucent Technologies, Inc. ............................... 4,966,353
1,000 Millipore Corp........................................... 38,625
3,300 Molex, Inc............................................... 187,069
2,200 PE Corp.................................................. 264,687
4,100 Rockwell Intl Corp New................................... 196,287
1,600 Scientific-Atlanta, Inc.................................. 89,000
5,800 Solectron Corp.(b)....................................... 551,725
950 Tektronix, Inc. ......................................... 36,931
8,500 Tellabs, Inc.(b)......................................... 545,594
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
3,700 Teradyne, Inc.(b)........................................ $ 244,200
3,100 Thermo Electron Corp.(b)................................. 46,500
1,200 Thomas & Betts Corp. .................................... 38,250
1,900 W.W.Grainger, Inc........................................ 90,844
6,800 Xilinx, Inc.(b).......................................... 309,187
------------
10,172,951
------------
ENERGY RESERVES--4.8%
2,000 Amerada Hess Corp........................................ 113,500
2,800 Anadarko Petroleum Corp.................................. 95,550
2,400 Apache Corp.............................................. 88,650
7,000 Atlantic Richfield Co. .................................. 605,500
3,862 Burlington Resources, Inc................................ 127,687
14,200 Chevron Corp............................................. 1,230,075
4,500 Coastal Corp. ........................................... 159,469
13,400 Conoco, Inc., Class B.................................... 333,325
75,042 Exxon Mobil Corp......................................... 6,045,571
5,400 Phillips Petroleum Co. .................................. 253,800
46,400 Royal Dutch Petroleum Co.(ADR)........................... 2,804,300
12,000 Texaco, Inc.............................................. 651,750
4,580 Transocean Sedco Forex, Inc.............................. 154,289
5,164 Union Pacific Resources Group, Inc....................... 65,841
5,200 Unocal Corp.............................................. 174,525
------------
12,903,832
------------
ENVIRONMENTAL SERVICES--0.1%
3,900 Allied Waste Industries, Inc.(b)......................... 34,369
13,300 Waste Management, Inc.................................... 228,594
------------
262,963
------------
FINANCIAL SERVICES--6.6%
9,700 American Express Co...................................... 1,612,625
5,500 Aon Corp................................................. 220,000
15,702 Associates First Capital Corp............................ 430,824
4,200 Capital One Financial Corp............................... 202,388
2,300 Countrywide Credit Industries, Inc....................... 58,075
3,320 Dun & Bradstreet Corp.................................... 97,940
2,900 Equifax, Inc. ........................................... 68,331
15,100 Federal Home Loan Mortgage Corp.......................... 710,644
22,200 Federal National Mortgage Association.................... 1,386,113
71,000 General Electric Co...................................... 10,987,250
2,000 H & R Block, Inc......................................... 87,500
10,253 Household International, Inc............................. 381,924
5,700 Marsh & McLennan Companies, Inc.......................... 545,419
17,270 MBNA Corp................................................ 470,608
3,050 Providian Financial Corp................................. 277,740
3,500 SLM Holding Corp......................................... 147,875
------------
17,685,256
------------
</TABLE>
See accompanying notes to financial statements.
109
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
FOOD & BEVERAGES--3.1%
13,765 Archer-Daniels-Midland Co................................ $ 167,761
5,900 Bestfoods................................................ 310,119
9,300 Campbell Soup Co......................................... 359,794
9,100 Coca Cola Enterprises, Inc............................... 183,138
53,500 Coca-Cola Co............................................. 3,116,375
10,400 ConAgra, Inc............................................. 234,650
6,600 General Mills, Inc....................................... 235,950
7,700 H. J. Heinz Co........................................... 306,556
2,900 Hershey Foods Corp....................................... 137,750
8,800 Kellogg Co............................................... 271,150
6,700 Nabisco Group Holdings Corp.............................. 71,188
31,700 PepsiCo, Inc............................................. 1,117,425
2,900 Quaker Oats Co........................................... 190,312
19,600 Sara Lee Corp............................................ 432,425
2,900 Supervalu, Inc........................................... 58,000
7,200 Sysco Corp............................................... 284,850
12,328 Unilever N.V.(ADR)....................................... 671,105
2,500 William Wrigley Jr. Co................................... 207,343
------------
8,355,891
------------
FREIGHT TRANSPORTATION--0.1%
6,360 FDX Corp.(b)............................................. 260,363
------------
GAS & PIPELINE UTILITIES--0.2%
1,800 Columbia Energy Group.................................... 113,850
2,100 Consolidated Natural Gas Co.............................. 136,369
4,800 El Paso Energy Corp...................................... 186,300
900 Nicor, Inc............................................... 29,250
600 ONEOK, Inc............................................... 15,075
800 Peoples Energy Corp. .................................... 26,800
4,855 Sempra Energy............................................ 84,355
------------
591,999
------------
HEALTH CARE--PRODUCTS--3.4%
32,900 Abbott Laboratories...................................... 1,194,681
1,100 Bausch & Lomb, Inc....................................... 75,281
6,300 Baxter International, Inc................................ 395,719
5,300 Becton, Dickinson & Co................................... 141,775
2,400 Biomet, Inc.............................................. 96,000
8,900 Boston Scientific Corp.(b)............................... 194,688
1,000 C.R. Bard, Inc........................................... 53,000
6,500 Guidant Corp.(b)......................................... 305,500
29,100 Johnson & Johnson........................................ 2,709,938
1,500 Mallinckrodt, Inc........................................ 47,719
25,400 Medtronic, Inc........................................... 925,512
1,600 St. Jude Medical, Inc.(b)................................ 49,100
36,256 Tyco International, Ltd.................................. 1,409,452
18,500 Warner-Lambert Co........................................ 1,515,843
------------
9,114,208
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
HEALTH CARE--SERVICES--0.4%
12,086 Columbia/HCA Healthcare Corp............................. $ 354,271
2,200 HCR Manor Care, Inc.(b).................................. 35,200
8,700 HEALTHSOUTH Corp.(b)..................................... 46,763
3,100 Humana, Inc.(b).......................................... 25,381
5,500 Service Corporation International........................ 38,156
6,700 Tenet Healthcare Corp.(b)................................ 157,450
3,800 United Healthcare Corp................................... 201,875
1,400 WellPoint Health Networks, Inc.(b)....................... 92,312
------------
951,408
------------
HOTELS & RESTAURANTS--0.6%
2,600 Darden Restaurants, Inc.................................. 47,125
2,750 Harrah's Entertainment, Inc.(b).......................... 72,703
5,000 Hilton Hotels Corp....................................... 48,125
5,300 Marriott International, Inc.............................. 167,281
29,300 McDonald's Corp.......................................... 1,181,156
4,000 Mirage Resorts, Inc.(b).................................. 61,250
3,320 Tricon Global Restaurants, Inc.(b)....................... 128,235
2,600 Wendy's International, Inc............................... 53,625
------------
1,759,500
------------
HOUSEHOLD PRODUCTS--2.6%
1,200 Alberto-Culver Co., Class B.............................. 30,975
1,300 American Greetings Corp. ................................ 30,713
5,600 Avon Products, Inc....................................... 184,800
1,500 Brown-Forman Corp., Class B.............................. 85,875
23,500 Gillette Co.............................................. 967,906
2,200 International Flavours & Fragrances, Inc................. 83,050
11,512 Kimberly-Clark Corp...................................... 751,158
4,200 Leggett & Platt, Inc..................................... 90,038
5,000 Clorox Co................................................ 251,875
12,500 Colgate-Palmolive Co..................................... 812,500
3,600 Fortune Brands, Inc...................................... 119,025
600 Jostens, Inc............................................. 14,588
6,007 Newell Rubbermaid, Inc. ................................. 174,203
28,720 Procter & Gamble Co...................................... 3,146,635
6,900 Ralston Purina Co........................................ 192,337
1,100 Tupperware Corp.......................................... 18,631
------------
6,954,309
------------
INDUSTRIAL PARTS & MACHINERY--0.7%
500 Briggs & Stratton Corp................................... 26,813
7,600 Caterpillar, Inc......................................... 357,675
1,400 Crane Co................................................. 27,825
900 Cummins Engine, Inc. .................................... 43,481
3,100 Danaher Corp............................................. 149,575
5,100 Deere & Co............................................... 221,213
4,500 Dover Corp. ............................................. 204,188
3,700 Genuine Parts Co......................................... 91,806
5,400 Illinois Tool Works, Inc................................. 364,838
</TABLE>
See accompanying notes to financial statements.
110
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
INDUSTRIAL PARTS & MACHINERY--(CONTINUED)
3,600 Ingersoll-Rand Co. ...................................... $ 198,225
1,100 McDermott International, Inc. ........................... 9,969
700 Milacron, Inc. .......................................... 10,762
200 Nacco Industries, Inc. .................................. 11,112
800 National Service Industries, Inc......................... 23,600
2,700 Pall Corp................................................ 58,219
2,250 Parker Hannifin Corp..................................... 115,453
1,350 Snap-On, Inc. ........................................... 35,859
1,800 Stanley Works............................................ 54,225
1,100 Timken Co................................................ 22,481
------------
2,027,319
------------
INDUSTRIAL SERVICES--0.0%
1,400 Ryder Systems, Inc....................................... 34,213
------------
LEISURE--0.5%
1,800 Brunswick Corp........................................... 40,050
13,300 Carnival Corp............................................ 635,906
6,850 Eastman Kodak Co. ....................................... 453,813
4,175 Hasbro, Inc. ............................................ 79,586
8,850 Mattel, Inc.............................................. 116,156
800 Polaroid Corp............................................ 15,050
------------
1,340,561
------------
LIFE INSURANCE--0.6%
3,283 Aetna, Inc. ............................................. 183,232
5,700 Aflac Inc. .............................................. 268,969
5,398 American General Corp. .................................. 409,573
4,000 CIGNA Corp. ............................................. 322,250
7,307 Conseco, Inc............................................. 130,613
2,237 Jefferson-Pilot Corp..................................... 152,675
4,200 Lincoln National Corp., Inc. ............................ 168,000
2,800 Torchmark Corp........................................... 81,375
------------
1,716,687
------------
LIQUOR--0.4%
800 Adolph Coors Co., Class B................................ 42,000
10,100 Anheuser-Busch Companies, Inc............................ 715,838
9,300 Seagram Company, Ltd..................................... 417,919
------------
1,175,757
------------
MEDIA & ENTERTAINMENT--2.3%
16,415 CBS Corp.(b)............................................. 1,049,534
7,300 Clear Channel Communications(b).......................... 651,525
44,694 The Walt Disney Co....................................... 1,307,300
28,000 Time Warner, Inc......................................... 2,028,250
5,000 Tribune Co............................................... 275,312
15,014 Viacom, Inc. Class B(b).................................. 907,408
------------
6,219,329
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
METALS & MINING--0.6%
4,800 Alcan Aluminum, Ltd...................................... $ 197,700
7,900 Alcoa, Inc .............................................. 655,700
1,966 Allegheny Technologies, Inc. ............................ 44,112
600 Ball Corp. .............................................. 23,625
2,400 Bethlehem Steel Corp.(b)................................. 20,100
2,500 Crown Cork & Seal Company, Inc. ......................... 55,938
4,100 Inco, Ltd. .............................................. 96,350
1,800 Nucor Corp. ............................................. 98,662
1,647 Phelps Dodge Corp. ...................................... 110,555
1,400 Reynolds Metals Co. ..................................... 107,275
1,820 USX-U.S. Steel Group..................................... 60,060
1,700 Worthington Industries, Inc. ............................ 28,156
------------
1,498,233
------------
NATURAL GAS--0.0%
600 Eastern Enterprises...................................... 34,463
------------
OIL SERVICES--0.5%
7,000 Baker Hughes, Inc. ...................................... 147,438
700 FMC Corp.(b)............................................. 40,119
9,600 Halliburton Co. ......................................... 386,400
1,600 Rowan Companies, Inc.(b)................................. 34,700
11,900 Schlumberger, Ltd. ...................................... 669,375
------------
1,278,032
------------
OIL--FOREIGN--0.0%
1,838 Kerr-Mcgee Corp. ........................................ 113,956
------------
OIL--REFINING & DISTRIBUTION--0.5%
15,500 Enron Corp. ............................................. 687,813
1,900 Sunoco, Inc. ............................................ 44,650
3,200 Tosco Corp. ............................................. 87,000
6,600 USX-Marathon Group....................................... 162,937
9,400 Williams Companies, Inc. ................................ 287,287
------------
1,269,687
------------
PACKAGING--0.0%
3,400 Owens-Illinois, Inc.(b).................................. 85,212
3,500 Pactiv Corp.(b).......................................... 37,187
------------
122,399
------------
PAPER & FOREST PRODUCTS--0.6%
1,000 Bemis Co. ............................................... 34,875
1,233 Boise Cascade Corp. ..................................... 49,937
2,100 Champion International Corp. ............................ 130,069
8,989 International Paper Co. ................................. 507,317
2,100 Mead Corp. .............................................. 91,219
1,200 Temple-Inland, Inc. ..................................... 79,125
4,800 Fort James Corp. ........................................ 131,400
</TABLE>
See accompanying notes to financial statements.
111
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
PAPER & FOREST PRODUCTS--(CONTINUED)
3,600 Georgia-Pacific Corp. ................................... $ 182,700
2,000 Louisiana-Pacific Corp. ................................. 28,500
600 Potlatch Corp. .......................................... 26,775
5,100 Weyerhaeuser Co. ........................................ 366,244
2,400 Willamette Industries, Inc. ............................. 111,450
------------
1,739,611
------------
PRECIOUS METAL--0.2%
3,300 Freeport McMoran Copper & Gold, Class B.................. 69,713
3,641 Newmont Mining Corp. .................................... 89,204
8,400 Barrick Gold Corp. ...................................... 148,575
5,300 Homestake Mining Co. .................................... 41,406
6,700 Placer Dome, Inc. ....................................... 72,025
------------
420,923
------------
PROPERTY & CASUALTY INSURANCE--2.0%
17,172 Allstate Corp. .......................................... 412,128
33,482 American International Group, Inc........................ 3,620,241
3,700 Chubb Corp............................................... 208,356
3,500 Cincinnati Financial Corp................................ 109,156
4,800 Hartford Financial Services Group........................ 227,400
2,300 Loews Corp. ............................................. 139,581
2,200 MBIA, Inc................................................ 116,188
2,300 MGIC Investment Corp..................................... 138,431
1,600 Progressive Corp......................................... 117,000
2,800 Safeco Corp.............................................. 69,650
4,770 St. Paul Companies, Inc.................................. 160,689
5,171 UnumProvident Corp....................................... 165,795
------------
5,484,615
------------
PUBLISHING--0.5%
1,500 Deluxe Corp.............................................. 41,156
1,500 Harcourt General, Inc.................................... 60,375
2,700 R.R. Donnelley & Sons Co................................. 66,994
2,000 Dow Jones & Company, Inc................................. 136,000
6,100 Gannett Company, Inc..................................... 497,531
1,800 Knight-Ridder, Inc....................................... 107,100
4,300 McGraw Hill Companies, Inc............................... 264,987
1,000 Meredith Corp............................................ 41,687
3,700 New York Times Co........................................ 181,762
1,300 Times Mirror Co.......................................... 87,100
------------
1,484,692
------------
RAILROADS & EQUIPMENT--0.4%
10,166 Burlington Northern Santa Fe............................. 246,526
4,800 CSX Corp................................................. 150,600
2,400 Kansas City Southern Industries, Inc..................... 179,100
8,100 Norfolk Southern Corp.................................... 166,050
5,300 Union Pacific Corp....................................... 231,212
------------
973,488
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
RETAIL--CLOTHING--0.5%
18,612 Gap, Inc................................................. $ 856,152
4,558 Limited, Inc............................................. 197,418
2,800 Nordstrom, Inc. ......................................... 73,325
6,900 TJX Companies, Inc. ..................................... 141,018
------------
1,267,913
------------
RETAIL--DEPARTMENT STORE--3.3%
4,739 Costco Companies, Inc.(b)................................ 432,434
9,600 Dayton Hudson Corp....................................... 705,000
2,100 Dillard's, Inc........................................... 42,394
4,500 Federated Department Stores, Inc.(b)..................... 227,531
5,600 J.C. Penney Co., Inc..................................... 111,650
10,500 Kmart Corp............................................... 105,656
3,500 Kohl's Corp.(b).......................................... 252,656
7,200 May Department Stores Co. ............................... 232,200
8,100 Sears, Roebuck & Co...................................... 246,544
96,400 Wal-Mart Stores, Inc..................................... 6,663,650
------------
9,019,715
------------
RETAIL--FOOD & DRUG--0.4%
9,028 Albertson's, Inc......................................... 291,153
700 Great Atlantic & Pacific Tea Co. ........................ 19,513
18,000 Kroger Co.(b)............................................ 339,750
11,000 Safeway, Inc.(b)......................................... 391,187
3,000 Winn-Dixie Stores, Inc................................... 71,813
------------
1,113,416
------------
RETAIL--SPECIALTY--2.3%
3,000 Autozone, Inc.(b)........................................ 96,938
2,900 Bed Bath & Beyond, Inc................................... 100,775
4,400 Best Buy Co., Inc.(b).................................... 220,825
4,400 Circuit City Stores, Inc................................. 198,275
2,200 Consolidated Stores Corp.(b)............................. 35,750
8,500 CVS Corp................................................. 339,469
4,812 Dollar General Corp...................................... 109,473
48,219 Home Depot, Inc.......................................... 3,306,015
700 Longs Drug Stores Corp................................... 18,069
8,200 Lowe's Companies, Inc.................................... 489,950
8,100 Office Depot, Inc.(b).................................... 88,594
1,200 Pep Boys-Manny, Moe & Jack............................... 10,950
5,300 Rite Aid Corp............................................ 59,294
10,050 Staples, Inc.(b)......................................... 208,537
4,200 Tandy Corp. ............................................. 206,587
451 The Neiman Marcus Group, Inc.(b)......................... 12,149
5,075 Toys 'R' Us, Inc.(b)..................................... 72,636
21,600 Walgreen Co.............................................. 631,800
------------
6,206,086
------------
</TABLE>
See accompanying notes to financial statements.
112
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
SECURITIES & ASSET MANAGEMENT--1.4%
2,630 Bear Stearns Companies, Inc.............................. $ 112,433
17,750 Charles Schwab Corp...................................... 681,156
5,400 Franklin Resources, Inc.................................. 173,138
2,600 Lehman Brothers Holdings, Inc. .......................... 220,188
8,000 Merrill Lynch & Co., Inc................................. 668,000
12,399 Morgan Stanley Dean Witter & Co.......................... 1,769,957
3,100 Paine Webber Group, Inc.................................. 120,319
2,600 T. Rowe Price Associates, Inc............................ 96,037
------------
3,841,228
------------
SEMI-CONDUCTORS--4.3%
3,000 Advanced Micro Devices, Inc.(b).......................... 86,813
8,100 Applied Materials, Inc.(b)............................... 1,026,169
71,600 Intel Corp............................................... 5,893,575
1,900 KLA-Tencor Corp.(b)...................................... 211,613
3,200 LSI Logic Corp.(b)....................................... 216,000
5,400 Micron Technology, Inc.(b)............................... 419,850
13,100 Motorola, Inc. .......................................... 1,928,975
3,600 National Semiconductor Corp.(b).......................... 154,125
17,000 Texas Instruments, Inc................................... 1,646,875
------------
11,583,995
------------
TELECOMMUNICATION--9.9%
3,200 ADC Telecommunications, Inc.(b).......................... 232,200
6,600 ALLTEL Corp.............................................. 545,738
69,153 AT & T Corp.............................................. 3,509,515
33,652 Bell Atlantic Corp....................................... 2,071,701
40,800 BellSouth Corp........................................... 1,909,950
3,000 Centurytel, Inc.......................................... 142,125
16,685 Global Crossing, Ltd..................................... 834,250
21,200 GTE Corp................................................. 1,495,925
60,855 MCI Worldcom, Inc.(b).................................... 3,229,118
7,800 Nextel Communications, Inc.(b)........................... 804,375
28,700 Nortel Networks Corp..................................... 2,898,700
14,000 QUALCOMM, Inc.(b)........................................ 2,465,750
73,973 SBC Communications, Inc. ................................ 3,606,184
18,800 Sprint Corp.............................................. 1,265,475
9,500 Sprint Corp.(b).......................................... 973,750
10,892 U S West, Inc............................................ 784,224
------------
26,768,980
------------
THRIFTS--0.2%
3,600 Golden West Financial Corp............................... 120,600
12,413 Washington Mutual, Inc................................... 322,738
------------
443,338
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
TOBACCO--0.5%
51,800 Philip Morris Companies, Inc........................ $ 1,201,112
3,800 UST, Inc............................................ 95,712
------------
1,296,824
------------
Total Common Stocks (Identified Cost $139,468,003).. 264,808,828
------------
SHORT-TERM INVESTMENT--1.8%
<CAPTION>
FACE
AMOUNT
<C> <S> <C>
$4,753,000 Repurchase Agreement with State Street Corp. dated
12/31/1999 at 2.5% to be repurchased at $4,753,990
on 1/3/2000, collateralized by $4,705,000 U.S.
Treasury Bonds, 6.750% due 8/15/2026 with a value
of $4,852,031...................................... 4,753,000
------------
Total Short-Term Investments (Identified Cost
$4,753,000)........................................ 4,753,000
------------
Total Investments--99.9%
(Identified Cost $144,221,003)(a).................. 269,561,828
Other assets less liabilities....................... 189,463
------------
TOTAL NET ASSETS--100%.............................. $269,751,291
============
</TABLE>
(a) Federal Tax Information:
At December 31, 1999 the net unrealized appreciation on investments based on
cost of $144,364,225 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.............. $131,176,723
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value.............. (5,979,120)
------------
Net unrealized appreciation................................... $125,197,603
============
</TABLE>
(b) Non-income producing security.
Key to abbreviations:
ADR/GDR--An American Depositary Receipt (ADR) or Global Depositary Receipt
(GDR) is a certificate issued by a Custodian Bank representing the
right to receive securities of the foreign issuer described. The
value of ADRs and GDRs are significantly influenced by trading on
exchanges not located in the United States or Canada.
See accompanying notes to financial statements.
113
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value................................... $269,561,828
Cash................................................... 166,763
Receivable for:
Fund shares sold....................................... 481,105
Dividends and interest................................. 236,698
Foreign taxes.......................................... 289
------------
Total Assets.......................................... 270,446,683
LIABILITIES
Payable for:
Fund shares redeemed................................... $529,188
Accrued expenses:
Management fees........................................ 55,178
Deferred trustees fees................................. 84,994
Other expenses......................................... 26,032
--------
Total Liabilities..................................... 695,392
------------
NET ASSETS.............................................. $269,751,291
============
Net assets consist of:
Capital paid in........................................ $144,359,940
Overdistributed net investment
income................................................ (9,886)
Accumulated net realized gains (losses)................ 60,412
Unrealized appreciation (depreciation) on investments
and foreign currency.................................. 125,340,825
------------
NET ASSETS.............................................. $269,751,291
============
Computation of offering price:
Net asset value and redemption price per share
($269,751,291 divided by 1,168,540 shares of beneficial
interest).............................................. $ 230.84
============
Identified cost of investments.......................... $144,221,003
============
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends............................................. $ 2,847,940(a)
Interest.............................................. 147,696
-----------
2,995,636
EXPENSES
Management fees....................................... $560,987
Trustees' fees and expenses........................... 28,853
Custodian............................................. 105,104
Audit and tax services................................ 11,891
Legal................................................. 14,106
Printing.............................................. 54,760
Insurance............................................. 4,670
Miscellaneous......................................... 3,861
--------
Total Expenses....................................... 784,232
-----------
NET INVESTMENT INCOME ................................ 2,211,404
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
Realized gain (loss) on:
Investments--net...................................... 3,248,314
Unrealized appreciation (depreciation) on:
Investments--net...................................... 37,018,278
-----------
Net gain (loss)........................................ 40,266,592
-----------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS.. $42,477,996
===========
</TABLE>
(a)Net of foreign taxes of $27,869
See accompanying notes to financial statements.
114
<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,
1999 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................. $ 2,211,404 $ 1,772,323
Net realized gain (loss).......................... 3,248,314 1,822,491
Unrealized appreciation (depreciation)............ 37,018,278 34,683,663
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS. 42,477,996 38,278,477
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income............................. (2,211,406) (1,781,029)
In excess of net investment income................ (16,846) 0
Net realized gain................................. (3,918,766) (965,891)
------------ ------------
Total distributions............................... (6,147,018) (2,746,920)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares...................... 98,861,454 63,090,085
Reinvestment of distributions..................... 6,147,018 2,746,920
Cost of shares redeemed........................... (57,866,390) (41,673,859)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS............................... 47,142,082 24,163,146
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS........... 83,473,060 59,694,703
NET ASSETS
Beginning of the year............................. 186,278,231 126,583,528
------------ ------------
End of the year................................... $269,751,291 $186,278,231
============ ============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT
INCOME
End of the year................................... ($9,886) ($1,334)
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................... 465,233 362,065
Issued in reinvestment of distributions........... 27,019 13,886
Redeemed.......................................... (272,517) (239,835)
------------ ------------
Net Change........................................ 219,735 136,116
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year.......................... $ 196.33 $ 155.76 $ 119.62 $100.09 $ 75.35
-------- -------- -------- ------- -------
Income From Investment
Operations
Net Investment Income......... 1.94 1.92 1.86 1.91 1.88
Net Realized and Unrealized
Gain (Loss) on Investments... 38.00 41.60 36.95 20.58 25.89
-------- -------- -------- ------- -------
Total From Investment
operations................... 39.94 43.52 38.81 22.49 27.77
-------- -------- -------- ------- -------
Less Distributions
Distributions From Net
Investment Income............ (1.94) (1.91) (1.86) (1.93) (1.85)
Distributions in excess of net
investment income............ (0.01) 0.00 0.00 0.00 0.00
Distributions From Net
Realized Capital Gains....... (3.48) (1.04) (0.67) (1.03) (1.18)
Distributions in Excess of Net
Realized Capital Gains....... 0.00 0.00 (0.14) 0.00 0.00
-------- -------- -------- ------- -------
Total Distributions........... (5.43) (2.95) (2.67) (2.96) (3.03)
-------- -------- -------- ------- -------
Net Asset Value, End of Year... $ 230.84 $ 196.33 $ 155.76 $119.62 $100.09
======== ======== ======== ======= =======
TOTAL RETURN (%)............... 20.4 27.9 32.5 22.5 36.9
Ratio of Operating Expenses to
Average Net Assets (%)........ 0.35 0.37 0.40 0.40 0.40
Ratio of Net Investment Income
to Average Net Assets (%)..... 0.99 1.16 1.41 1.84 2.20
Portfolio Turnover Rate (%).... 3 3 3 4 5
Net Assets, End of Year (000) . $269,751 $186,278 $126,584 $80,764 $58,671
The Ratios of operating
expenses to average net assets
without giving effect to a
voluntary expense agreement
would have been (%)........... -- -- 0.43 0.50 0.54
</TABLE>
See accompanying notes to financial statements.
115
<PAGE>
MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES
PORTFOLIO MANAGER: FRANCINE J. BOVICH MORGAN STANLEY ASSET MANAGEMENT
Q. HOW DID THE SERIES PERFORM DURING THE PAST TWELVE MONTHS RELATIVE TO ITS
INDEX AND RELATIVE TO ITS PEERS?
[Photo appears here]
A. For the year ending December 31, 1999 the International Magnum Equity Series
returned 24.6% compared to the benchmark MSCI EAFE Index/18/ return of 27.0%.
The Lipper Variable Products International Fund Average,/12/ which unlike the
Series includes funds that invest in non-EAFE emerging market countries, re-
turned 43.2% over the same time period.
Q. BRIEFLY DISCUSS THE INVESTMENT AND MARKET CONDITIONS DURING THE PAST TWELVE
MONTHS:
A. The theme for 1999 was global recovery, with the fourth quarter being the
main driver of performance for EAFE markets as 2/3 of EAFE's 27% appreciation
was gained during that period. However, the strong returns of the 4th quarter
came from a narrow market with "new economy" companies in the technology and
telecommunications sectors enjoying superior returns while traditional cyclical
and defensive names languished. The commencement of global economic healing
after a turbulent 1998, as well as numerous interest rate cuts, helped to boost
most international developed markets in the first half of the year. Although
central banks reversed policy, taking back these decreases in response to
faster than expected growth during the second half; this did not have an
appreciable effect on markets. International markets surpassed the results of
the US market for the first time since 1994 as strong global growth propelled
these markets, which are earlier in their economic cycles relative to the U.S.
Japan enjoyed spectacular performance during the year thanks to continued
economic recovery, corporate restructuring and supportive fiscal policies. The
market saw record buying by foreign as well as domestic retail investors,
particularly during the fourth quarter. The release of 2nd quarter GDP (up
0.9%) in September after an impressive first quarter rise of 8.0% was an
important catalyst for many international investors to deploy assets into the
region as underweight Japan global accounts scrambled to increase their
positions given the increasing momentum in the economy. Much of 1999 was the
year of the exporter with companies such as Sony, Nintendo and Hitachi enjoying
record appreciation. The exporters were seemingly invulnerable, rising in the
face of the yen's 14% appreciation relative to the U.S. dollar during the year.
The fourth quarter saw the market's narrow focus on technology/telecom/Internet
in lockstep with the global phenomenon. Seldom have so many mega-cap stocks
produced such outsized gains as they have during most of 1999.
For European markets the year proved to be one of extremes with the first and
fourth quarters dominated by the strength of large cap growth names, while the
middle of the year saw value's reemergence. Europe's newly introduced single
currency, the euro, weakened 15%, reaching a level below parity before
finishing the year at 1.01 to the U.S. dollar. All of the gains seen in Europe
during 1999 took place during the fourth quarter as the surge of telecoms and
technology gave way to a narrow market driven by companies such as Nokia,
Ericsson, Vodafone and Mannesmann. Despite a strong 4th quarter, Europe lagged
all other developed market regions for the year as the core economies in that
region struggled with sluggish growth, unemployment, and weakening currencies
relative to the U.S. dollar. The less-than-dramatic European recovery witnessed
during the first half of the year gave way to stronger results during the
second half as supportive fiscal policies, continued global healing and
accelerated export growth, driven by a falling Euro helped Europe enjoy
stronger earnings growth. The continuation of Mergers and Acquisition (M&A)
activity in 1999 added fuel to markets as deals reached an unprecedented level,
surpassing the $1 trillion mark.
The markets of non-Japan Asia enjoyed solid returns for the year fuelled by
economic revival, plentiful liquidity, positive current account balances, and
low interest rates. Hong Kong and Singapore benefited from an increase in
exports due to competitive currencies vis-a-vis the Japanese yen, while the
rise of oil prices benefited Australia and New Zealand. The MSCI Pacific ex-
Japan Index appreciated 42.6% in U.S. dollar terms (+38.7% in local currency
terms) during 1999.
Q: GIVEN THIS INVESTMENT ENVIRONMENT, WHAT WAS YOUR INVESTMENT STRATEGY? WHAT
CHANGES DID YOU MAKE SINCE THE START OF THE YEAR?
A. The International Magnum portfolio began the year underweight versus the in-
dex in all regions: (Europe 71% vs. 73%, Japan 19% vs. 21%, Asia 4% vs. 6%).
Early in the year we steadily increased our allocation to Japan from under-
weight to neutral and then to overweight, while decreasing our exposure to
116
<PAGE>
Europe. We also increased exposure to Asia ex-Japan beginning in the second
quarter to put the portfolio in a neutral stance, and again in the fourth
quarter to be overweight relative to the index. As of year-end we maintained
the following positions: Europe 58.5% vs. 66.6%, Japan 29.3% vs. 27.4%, Asia
6.9% vs. 6.0%. These strategies proved to be successful as Japan and Asia were
the relative outperformers, gaining 61.5% and 42.6% respectively, while Europe
underperformed, appreciating 15.9% as compared to the MSCI EAFE Index rise of
27.0%.
Q. WHAT WERE THE PRINCIPAL FACTORS AFFECTING YOUR PERFORMANCE (ON BOTH AN
ABSOLUTE AND RELATIVE BASIS) DURING THE PAST TWELVE MONTHS? WHAT INVESTMENT
DECISIONS WERE MOST EFFECTIVE AND WHICH ONES WERE LEAST EFFECTIVE?
A. During the first three quarters of the year, European stock selection was
strong. Our overweight to the consumer goods and capital equipment industries,
both of which surged on signs of economic recovery, contributed to portfolio
results. However, this strategy negatively impacted the portfolio during the
fourth quarter when growth stocks rose at the expense of value stocks. The
portfolio's underperformance is attributable primarily to results seen during
the fourth quarter, which was characterized by a narrow market favoring the
technology and telecom sectors, especially within Europe. Our attention to
valuation caused us to be underweight in these sectors. Not owning "new econo-
my" companies such as telecom giants Nokia, Ericsson, and Siemens, which had
extraordinary appreciation, significantly impacted results. Simultaneously,
the portfolio's overweight to Beverages & Tobacco, as well as Food & Household
products, also detracted from returns. Specific consumer staples that de-
tracted from results included Great Universal Stores, which suffered due to
the trend toward internet shopping as well as difficulty in competing with
discount stores, and Nestle and Diageo, which suffered from disappointing
earnings.
Additionally, our avoidance of Japanese bank stocks impacted overall results
as this sector surged in response to several merger announcements in October.
Since the Series' inception, we have not held Japanese banks given their high
level of non-performing loans. We have, however, seen signs of recovery in
this sector and will begin selectively adding Japanese banks to the portfolio.
Factors contributing to performance during the year included the portfolio's
overweight to global franchise Blue Chip Japanese exporters such as Sony,
Kyocera, and Fujitsu, which benefited first from the yen's weakness, and later
from the rise of technology-oriented companies. Additionally, UK media
oriented companies (WPP, Capital Radio) benefited from the continued growth of
the internet, adding to performance, while our telecom names (British Telecom,
Deutsche Telekom, Telefonica) rode the wave of the telecommunication mania.
Q. WHAT IS YOUR OUTLOOK FOR THE MARKET AND YOUR PORTFOLIO FOR THE NEXT SIX
MONTHS? WHAT CHANGES, IF ANY, WILL YOU MAKE TO THE WAY YOU MANAGE YOUR
PORTFOLIO?
A. We believe that international equities will continue the trend seen in the
fourth quarter, and will outperform the U.S. during the next six months. Econ-
omies within the EAFE universe should continue to strengthen and earnings
growth is expected to accelerate as these markets are behind the U.S. in their
economic cycle. In the long term, we look to Japan to lead international mar-
kets, as the cyclical recovery seen during 1999 seems to be turning into a
secular recovery for 2000. Europe looks poised to benefit from the continua-
tion of supportive fiscal policies, the M&A trend as well as a broadening of
the market. Asia ex-Japan should see a transition from the liquidity driven
rally seen over the past year, into an earnings-driven phase as corporate re-
structuring and government reform continue and the consumer begins to play an
increasingly active role thanks to hefty stock market gains from the past
year, falling unemployment and low inflation and interest rates.
In 2000 Europe looks poised to post the sixth consecutive year of double-digit
returns, with growth surpassing the U.S., which is later in the economic
cycle. Interest rates in Europe, though expected to rise, should remain
supportive. Drivers of European GDP growth include deregulation, declining tax
rates, and increased capital investment. The European macro backdrop is
favorable to value-style investing as core economies are firmly in a recovery,
and restructuring continues due to global competition. Managements' desire to
steer companies in a global direction should drive the M&A trend. This should
be further aided by the entrenchment of a single European market with barriers
such as governments' defense of local companies from outside predators
decreasing. As these obstacles disappear, cross border deals will likely
increase aided by the move toward a pan-European stock exchange. Additionally,
as the European equity culture evolves, corporate leaders are forced to
respond to shareholder demands of higher returns by aggressively pursuing
mergers, downsizing, and restructuring in an attempt to gain profitability
through core competencies.
We expect to see a broadening of market leadership beyond the technology and
telecom sectors in 2000. Valuations have become extended to an unprecedented
level, and the companies in these sectors would have to deliver exceptional
revenue growth to justify their current valuations. We recognize that
technological innovations and their impact on economies are not passing
trends, and plan to capitalize on their growth. We are exploring opportunities
in reasonably valued companies that will benefit from the continued prominence
of technology industries. These include media companies engaged in Internet
advertising, infrastructure companies, ISPs and e-commerce enablers.
117
<PAGE>
We expect Japan to outperform other EAFE regions in the coming year. During
the last six months, evidence of a secular recovery in the Japanese economy
has begun to mount, with low inventory levels and improvement in retail sales.
An additional supplementary budget amounting to 3% of GDP was announced in
November and will take effect in April, further boosting the economy.
Continued recovery in Asia will benefit Japan as over 40% of its exports go to
Asia. We are finding remarkable value in leading Japanese companies which have
been restructured, have highly focused management and where real earnings
momentum is beginning to show significant promise on a sustainable basis.
While most of 1999's recovery was based on a cyclical upturn, we believe our
assumptions of a secular recovery will likely reward domestic and economic
sensitive stocks, which are at highly attractive valuations relative to the
"new economy" companies. If this forecast is correct, the current portfolio is
highly geared to perform, particularly if the appreciation of the yen
subsides.
The Japanese market should benefit from over $400 billion in bonds maturing
over the next 12-15 months that will be available for reinvestment. The
consumer will play an increasingly important economic role in 2000 as
stabilizing unemployment, improving consumer spending (which accounts for 60%
of GDP) and a high savings rate help drive domestic investors into the market.
Foreign buyers should also continue to enter Japan thanks to cheap valuations
relative to other developed markets. Japan is poised to benefit from the
digital revolution with companies like Sony and Nintendo enjoying market
leadership in the DVD and digital Internet connectivity industries.
We remain optimistic about developed Asian markets as we begin the new
millennium. The liquidity driven rally seen in 1999 should transition into an
earnings-driven phase of the bull market. Asia's earnings revision and
industrial activity growth seem to be mapping to a "V" shaped recovery, with
top line growth increasing while restructuring activity continues. Moreover,
positive current account balances are providing some measure of defense
against rising U.S. rates, and in turn, rising local rates. The baton of
growth should now pass to consumers who have been fattened by hefty stock
market gains, a high savings rate, falling unemployment, and low inflation and
interest rates. In fact, there have already been signs that locals have begun
to drive the market with the MSCI Singapore index returning 99% versus the
Singapore Free index (securities open to foreign investors) rising 60% for the
year. Export sectors should also benefit from global healing as well as from
more competitive currencies vis-a-vis the yen, increased intra-Asian trade,
and the rise of global electronics demand.
A $10,000 Investment compared to the MSCI EAFE Index
since the Series' Inception
[GRAPH]
International Magnum
Equity Series EAFE
10/31/94 10,000 10,000
12/31/94 10,260 9,579
12/31/95 10,899 10,653
12/31/96 11,626 11,297
12/31/97 11,476 11,498
12/31/98 12,309 13,797
12/31/99 15,340 17,517
Average Annual Returns
International Magnum Lipper Variable Products
Equity Series MSCI EAFE International Funds Average
1 year 24.6% 27.0% 43.2%
3 years 9.7 15.7 19.4
5 years 8.4 12.8 17.7
Since Inception 8.6 11.5 n/a
[CHECKMARK] FUND FACTS
GOAL: long-term capital appreciation through investment primarily in
international equity securities.
START DATE: October 31, 1994
SIZE: $99 million as of December 31, 1999
MANAGER: Francine Bovich has managed the Morgan Stanley International Magnum
Equity Series since May 1997. Ms. Bovich is also a Managing Director of Morgan
Stanley Dean Witter Investment Management Inc.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts. If these charges were included, the returns shown would
be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
118
<PAGE>
NEW ENGLAND ZENITH FUND
(MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--86.9% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
AUSTRALIA--2.1%
5,100 AMP Limited............................................. $ 56,349
3,000 Brambles Industries, Ltd................................ 82,961
13,350 Broken Hill Proprietary Company, Ltd.................... 175,294
16,850 Coca-Cola Amatil, Ltd................................... 46,018
11,950 Commonwealth Bank Of Australia.......................... 205,779
48,000 Fosters Brewing Group, Ltd.............................. 137,708
6,741 Lend Lease Corporation, Ltd............................. 94,440
58,000 Macquarie Corporate Telecommunications Holdings,
Ltd.(b)................................................ 94,431
14,550 National Australia Bank, Ltd............................ 222,564
23,250 News Corporation, Ltd. ................................. 225,749
137,500 Normandy Mining, Ltd. .................................. 97,490
25,500 Qantas Airways, Ltd..................................... 63,615
10,800 Rio Tinto, Ltd.......................................... 231,998
44,100 Telstra Corporation, Ltd................................ 239,720
23,200 Westpac Banking Corporation, Ltd........................ 160,030
-----------
2,134,146
-----------
DENMARK--0.3%
2,430 Novo Nordisk A/S, "B' shares............................ 322,294
-----------
FINLAND--1.5%
7,350 Kone OYJ, 'B' shares.................................... 362,057
5,876 KCI Konecranes International, Plc....................... 225,995
70,090 Merita OYJ, Ltd......................................... 412,334
13,510 Sampo Insurance Co., Ltd. .............................. 472,242
-----------
1,472,628
-----------
FRANCE--8.8%
2,010 Alcatel................................................. 461,648
23,706 Aventis SA.............................................. 1,377,871
3,980 Axa SA.................................................. 554,881
4,020 Banque Nationale de Paris............................... 370,938
27,191 CNP Assurances.......................................... 1,001,409
1,551 Compagnie de Saint Gobain............................... 291,700
5,310 France Telecom SA....................................... 702,327
2,080 Groupe Danone SA........................................ 490,297
10,830 Michelin CGDE, 'B' shares............................... 425,474
9,260 Pernod Ricard........................................... 529,834
10,340 Schneider Electric SA................................... 811,927
13,120 Total Fina SA........................................... 1,751,177
-----------
8,769,483
-----------
GERMANY--5.5%
4,800 Adidas-Salomon AG....................................... 360,228
11,435 BASF AG................................................. 587,471
4,520 Bayerische HypoVereinsbank.............................. 308,708
14,310 Deutsche Telekom AG..................................... 1,019,153
4,977 Fresenius Medical Care AG, Preferred.................... 912,472
12,471 Henkel KGaA, Preferred.................................. 822,854
2,330 Mannesmann AG........................................... 562,136
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
4,330 Schering AG................................................. $ 523,419
6,220 Volkswagen AG............................................... 350,567
---------
5,447,008
---------
HONG KONG--1.6%
25,000 Asia Satellite Telecommunications Holdings, Ltd............. 78,954
52,800 Cable & Wireless HKT........................................ 152,487
39,100 Cathay Pacific Airways, Ltd................................. 69,664
17,800 Cheung Kong Holdings, Ltd................................... 225,549
30,100 China Telecom............................................... 187,798
54,000 HongKong and China Gas Company, Ltd......................... 73,982
5,300 HSBC Holdings, Plc.......................................... 74,317
24,000 Hutchison Whampoa, Ltd...................................... 348,878
30,600 Li and Fung, Ltd. .......................................... 76,761
9,600 Smartone Telecommunications Holding, Ltd. .................. 46,311
15,200 Sun Hung Kai Properties, Ltd................................ 158,384
6,800 Swire Pacific, Ltd.......................................... 40,152
10,100 Television Broadcasts, Ltd.................................. 68,862
---------
1,602,099
---------
ITALY--3.8%
33,605 Banca Popolare di Bergamo Credito
Varesino Scrl.............................................. 777,242
33,900 Enel Spa.................................................... 142,060
40,550 Marzotto & Figli Spa........................................ 290,021
67,550 Mediaset Spa................................................ 1,050,637
44,510 Telecom Italia Mobile Spa................................... 497,244
47,970 Telecom Italia Spa.......................................... 676,516
65,400 Unicredito Italiano Spa..................................... 321,498
---------
3,755,218
---------
JAPAN--27.2%
8,900 Aiwa Co., Ltd............................................... 184,673
29,000 Amada Co., Ltd. ............................................ 158,667
9,000 Bank of Tokyo-Mitsubishi, Ltd............................... 125,438
23,000 Canon, Inc.................................................. 913,967
33,000 Casio Computer Co., Ltd..................................... 274,542
21,000 Dai Nippon Printng Co., Ltd. ............................... 335,030
57,000 Daicel Chemical Industries, Ltd............................. 159,000
39,000 Daifuku Co., Ltd............................................ 225,213
37,000 Daikin Industries, Ltd...................................... 503,377
6,600 FamilyMart Co., Ltd. ....................................... 439,268
10,900 Fuji Machine Manufacturing Co., Ltd......................... 879,084
18,000 Fuji Photo Film Co., Ltd.................................... 657,140
22,000 Fujitec Co., Ltd............................................ 220,711
29,000 Fujitsu, Ltd................................................ 1,322,697
28,000 Furukawa Electric Co., Ltd.................................. 424,782
20,000 Hitachi Credit Corp......................................... 406,186
57,000 Hitachi, Ltd. .............................................. 914,946
5,000 House Foods Corp............................................ 75,854
44,000 Kaneka Corp................................................. 562,866
14,000 Kurita Water Industries, Ltd................................ 222,531
</TABLE>
See accompanying notes to financial statements.
119
<PAGE>
NEW ENGLAND ZENITH FUND
(MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
JAPAN--(CONTINUED)
5,300 Kyocera Corp............................................. $ 1,374,670
17,000 Kyudenko Corp............................................ 59,900
20,000 Lintec Corp.............................................. 217,285
33,000 Matsushita Electric Industrial Co., Ltd.................. 914,065
25,000 Minebea Co., Ltd. ....................................... 428,942
48,000 Mitsubishi Chemical Corp................................. 169,130
25,000 Mitsubishi Estate Co., Ltd. ............................. 243,956
99,000 Mitsubishi Heavy Industries, Ltd......................... 330,420
4,000 Mitsubishi Logistics Corp................................ 25,526
22,000 Mitsumi Electric Co., Ltd................................ 689,048
49,000 NEC Corp................................................. 1,167,809
21,000 Nifco Inc................................................ 250,759
5,900 Nintendo Co., Ltd........................................ 980,542
4,000 Nippon Meat Packers, Inc................................. 51,874
89,000 Nissan Motor Co., Ltd.(b)................................ 350,181
10,000 Nissei Sangyo Co., Ltd................................... 138,005
15,000 Nissha Printing Co., Ltd. ............................... 89,557
63 NTT Corp. ............................................... 1,079,084
12,000 Ono Pharmaceutical Co., Ltd.............................. 321,816
51,000 Ricoh Co., Ltd........................................... 961,398
7,600 Rinnai Corp.............................................. 141,333
2,000 Rohm Co., Ltd............................................ 822,159
10,000 Ryosan Co., Ltd. ........................................ 248,605
6,000 Sangetsu Co., Ltd. ...................................... 126,260
24,000 Sankyo Co., Ltd. ........................................ 493,295
45,000 Sanwa Shutter Corp....................................... 167,368
48,000 Sekisui Chemical Co., Ltd................................ 212,822
34,000 Sekisui House, Ltd....................................... 301,165
37,000 Shin-Etsu Polymer Co., Ltd............................... 217,285
6,200 Sony Corp................................................ 1,838,700
24,000 Suzuki Motor Corp........................................ 350,240
6,000 TDK Corp. ............................................... 828,619
10,000 Tokyo Electric Power Company............................. 268,180
89,000 Toshiba Corp............................................. 679,456
13,000 Toyota Motor Corp. ...................................... 629,832
44,000 Tsubakimoto Chain Company................................ 161,496
26,000 Yamaha Corp.............................................. 168,973
15,000 Yamanouchi Pharmaceutical Co., Ltd....................... 524,126
------------
27,029,853
------------
NETHERLANDS--3.6%
18,940 Akzo Nobel NV............................................ 950,144
15,108 Ing Groep NV............................................. 912,229
3,655 Koninklijke KPN NV....................................... 356,773
5,704 Koninklijke Philips Electronics NV....................... 775,700
30,780 Laurus NV................................................ 555,011
------------
3,549,857
------------
NEW ZEALAND--0.1%
18,500 Telecom Corporation Of New Zealand, Ltd.................. 86,996
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
<C> <S> <C>
PORTUGAL--1.5%
57,000 Banco Commercial Portugues SA............................ $ 316,378
41,900 Electricidade de Portugal SA............................. 731,465
28,270 Telecel Comunicacoes Pessoais, SA........................ 492,950
-----------
1,540,793
-----------
SINGAPORE--2.0%
6,000 Chartered Semiconductor Manufacturing, Ltd.(b)........... 32,783
18,000 City Developments, Ltd................................... 105,374
25,586 DBS Group Holdings....................................... 419,392
37,000 Natsteel Electronics, Ltd................................ 195,497
56,000 Neptune Orient Lines, Ltd.(b)............................ 74,980
17,850 Overseas Chinese Banking Corp., Ltd...................... 163,978
12,562 Overseas Union Bank, Ltd................................. 73,539
18,000 Sembcorp Logistics, Ltd.................................. 72,951
17,000 Singapore Airlines, Ltd. ................................ 192,915
10,000 Singapore Press Holdings, Ltd............................ 216,752
64,000 Singapore Telecommunications, Ltd. ...................... 132,188
17,952 United Overseas Bank, Ltd................................ 158,448
16,000 Venture Manufacturing, Ltd............................... 183,488
-----------
2,022,285
-----------
SPAIN--2.3%
4,750 Banco Popular Espanol SA................................. 309,823
30,550 Banco Santander Central Hispano SA....................... 345,906
31,880 Endesa SA................................................ 632,973
40,694 Telefonica SA............................................ 1,016,628
-----------
2,305,330
-----------
SWEDEN--2.9%
18,400 Autoliv, Inc............................................. 538,442
40,920 ForeningsSparbanken AB................................... 601,128
33,880 Nordbanken Holding AB.................................... 199,083
12,410 Scandic Hotels AB........................................ 115,218
28,330 Svedala Industries AB.................................... 519,389
9,200 Svenska Cellulosa AB, 'B' shares......................... 272,464
53,070 Svenska Handelsbanken AB................................. 667,352
-----------
2,913,076
-----------
SWITZERLAND--5.9%
543 Compagnie Financiere Richemont AG........................ 1,295,861
518 Holderbank Financiere Glarus AG.......................... 709,188
1,190 Nestle S.A............................................... 2,180,011
595 Novartis AG.............................................. 873,648
210 Schindler Holding AG..................................... 336,306
1,614 UBS AG................................................... 435,860
-----------
5,830,874
-----------
UNITED KINGDOM--17.8%
121,800 Allied Domecq, Plc....................................... 602,035
51,500 Allied Zurich, Plc....................................... 607,272
15,115 Astrazeneca, Plc......................................... 627,961
</TABLE>
See accompanying notes to financial statements.
120
<PAGE>
NEW ENGLAND ZENITH FUND
(MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
VALUE
(NOTE 1A)
SHARES
<C> <S> <C>
UNITED KINGDOM--(CONTINUED)
29,800 BAA, Plc. ............................................... $ 207,947
77,142 Bank of Ireland.......................................... 613,897
55,078 Bank of Scotland......................................... 639,676
15,730 Barclays, Plc............................................ 452,020
84,629 BG Group, Plc............................................ 546,461
71,100 Blue Circle Industries, Plc.............................. 415,749
28,529 BOC Group, Plc........................................... 615,207
49,700 British Telecom, Plc..................................... 1,204,206
18,695 Burmah Castrol, Plc...................................... 330,367
86,600 Cadbury Schweppes, Plc................................... 521,771
27,850 Capital Radio............................................ 674,792
88,640 Centrica, Plc............................................ 257,366
71,700 Diageo, Plc.............................................. 572,136
9,200 Glaxo Wellcome, Plc...................................... 260,658
46,000 Granada Group, Plc....................................... 464,399
106,160 Great Universal Stores, Plc.............................. 617,329
172,600 Halma, Plc............................................... 326,197
53,100 Imperial Tobacco Group................................... 437,439
64,600 J Sainsbury, Plc......................................... 364,958
37,960 Lloyds TSB Group, Plc.................................... 471,526
13,800 National Westminster Bank................................ 296,472
48,619 Prudential Corp., Plc.................................... 948,694
132,988 Reckitt Benckiser, Plc................................... 1,258,819
82,700 Scottish & Southern Energy, Plc.......................... 657,908
120,045 Shell Transport & Trading Co............................. 997,660
36,700 Smith & Nephew, Plc...................................... 123,306
48,180 SSL International, Plc................................... 610,344
60,500 WPP Group, Plc........................................... 947,939
-----------
17,672,511
-----------
UNITED STATES--0.0%
300 Chartered Semiconductor
Manufacturing, Ltd. (ADR)(b)........................... 21,900
-----------
Total Common Stocks
(Identified Cost $68,762,925)........................... 86,476,351
-----------
</TABLE>
BONDS & NOTES--0.1%
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1A)
<C> <S> <C>
$ 12,000 BG Transco Holdings,
7.000%, 12/16/2024(GBP).............................. $ 18,833
12,000 BG Transco Holdings,
4.187%,
12/14/2022(GBP)(c)................................... 19,335
12,000 BG Transco Holdings,
7.057%,
12/14/2009(GBP)(c)................................... 19,503
-----------
57,671
-----------
Total Bonds and Notes
(Identified Cost
$58,124)............................................. 57,671
-----------
SHORT-TERM INVESTMENT--6.6%
6,586,000 Repurchase Agreement with
State Street Corp. dated
12/31/1999 at 2.5% to be
repurchased at
$6,587,372 on 1/3/2000,
collateralized by
$5,145,000 U.S. Treasury
Bonds, 9.875% due
11/15/2015 with a value
of $6,720,656.......................................... 6,586,000
-----------
Total Short-Term
Investment
(Identified Cost
$6,586,000) 6,586,000
-----------
Total Investments--93.6%
(Identified Cost
$75,407,049)(a)......................................... 93,120,022
Other assets less
liabilities............................................. 6,340,273
-----------
TOTAL NET ASSETS--100% $99,460,295
===========
</TABLE>
FUTURES CONTRACTS-LONG(D)
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION UNREALIZED APPRECIATION/
CONTRACTS DATE (DEPRECIATION)
- --------- ---------- ------------------------
<S> <C> <C> <C>
12 CAC-40 10 Euro Index Futures(EUR) March 31, 2000 $ 81,635
5 DAX Index Futures(EUR) March 17, 2000 110,668
2 MIB 30 Index Futures(EUR) March 17, 2000 62,440
13 FTSE 100 Index Futures(GBP) March 17, 2000 46,711
8 Hang Seng Stock Index Futures(HKD) January 28, 2000 30,393
9 Topix Index Futures(JPY) March 9, 2000 79,386
--------
Net Unrealized appreciation of futures contracts............. $411,233
========
</TABLE>
See accompanying notes to financial statements.
121
<PAGE>
NEW ENGLAND ZENITH FUND
(MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES)
INVESTMENTS AS OF DECEMBER 31, 1999
FORWARD CONTRACTS OUTSTANDING AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
LOCAL AGGREGATE UNREALIZED
CURRENCY DELIVERY CURRENCY FACE TOTAL APPRECIATION/
CONTRACT DATE AMOUNT VALUE VALUE (DEPRECIATION)
<S> <C> <C> <C> <C> <C>
Euro Currency
(Bought).......... 2/16/2000 1,702,000 $1,760,317 $1,720,652 $(39,665)
Pound Sterling
(Bought).......... 2/16/2000 842,500 1,365,842 1,360,985 (4,857)
Japanese Yen
(Bought).......... 2/16/2000 143,320,000 1,396,561 1,413,604 17,043
--------
Net Unrealized depreciation of forward currency contracts...... $(27,479)
========
</TABLE>
TEN LARGEST INDUSTRY HOLDINGS AT DECEMBER 31, 1999 (UNAUDITED)
<TABLE>
<C> <S> <C>
1 Banking 10.6%
2 Telecommunications 10.0%
3 Health & Personal Care 8.1%
4 Electronic Components 5.3%
5 Machinery & Engineering 5.2%
6 Electrical 4.7%
Food & Household
7 Products 4.7%
8 Chemicals 4.5%
9 Household Durables 4.5%
10 Insurance 4.1%
</TABLE>
(a) Federal Tax Information:
At December 31,1999 the net unrealized appreciation on investments based on
cost of $75,845,936 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........ $21,204,522
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value........ (3,930,436)
-----------
Net unrealized appreciation................................ $17,274,086
===========
</TABLE>
(b) Non-income producing security.
(c) Variable or floating rate security. Rate disclosed is as of December 31,
1999.
(d) The Series used international stock index futures in conjunction with
currency forwards to replicate the exposure one would achieve by investing
in equities. As of December 31, 1999, 5.9% of total net assets was
invested in stock index futures. See Note E in Notes to Financial
Statements.
See accompanying notes to financial statements.
122
<PAGE>
NEW ENGLAND ZENITH FUND
(MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value.................................... $93,120,022
Cash.................................................... 5,239,488
Foreign cash at value (Identified cost $58,717)......... 58,831
Receivable for:
Fund shares sold........................................ 467,398
Dividends and interest.................................. 102,271
Foreign taxes........................................... 82,399
Futures margin.......................................... 780,758
-----------
Total Assets............................................ 99,851,167
LIABILITIES
Payable for:
Fund shares redeemed.................................... $189,604
Open forward currencey contracts--net................... 27,479
Withholding taxes....................................... 11,259
Accrued expenses:
Management fees......................................... 88,398
Deferred trustees fees.................................. 7,860
Other expenses.......................................... 66,272
--------
Total Liabilities....................................... 390,872
-----------
NET ASSETS............................................... $99,460,295
===========
Net assets consist of:
Capital paid in......................................... $80,259,710
Overdistributed net investment income................... (167,353)
Accumulated net realized gains (losses)................. 1,274,588
Unrealized appreciation (depreciation) on investments
and foreign currency................................... 18,093,350
-----------
NET ASSETS............................................... $99,460,295
===========
Computation of offering price:
Net asset value and redemption price per share
($99,460,295 divided by 7,030,701 shares of beneficial
interest)............................................... $ 14.15
===========
Identified cost of investments........................... $75,407,049
===========
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends......................................... $ 1,394,100(a)
Interest.......................................... 250,767
-----------
1,644,867
EXPENSES
Management fees................................... $ 691,945
Trustees' fees and expenses....................... 11,911
Custodian......................................... 240,527
Audit and tax services............................ 21,248
Legal............................................. 4,275
Printing.......................................... 23,630
Amortization of organization expense.............. 1,664
Insurance......................................... 1,453
Miscellaneous..................................... 3,724
----------
Total expenses.................................... 1,000,377
Less expenses assumed by the investment adviser... (901) 999,476
---------- -----------
NET INVESTMENT INCOME.............................. 645,391
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
Realized gain (loss) on:
Investments--net.................................. 1,342,104
Futures contracts--net............................ 377,159
Foreign currency transactions--net................ (409,550) 1,309,713
----------
Unrealized appreciation (depreciation) on:
Investments--net.................................. 15,774,693
Futures contracts--net............................ 411,233
Foreign currency translation--net................. 180,268 16,366,194
---------- -----------
Net gain (loss).................................... 17,675,907
-----------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS........................................ $18,321,298
===========
</TABLE>
(a) Net of foreign taxes of $185,162
See accompanying notes to financial statements.
123
<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,
1999 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................... $ 645,391 $ 674,909
Net realized gain (loss)............................ 1,309,713 698,188
Unrealized appreciation (depreciation).............. 16,366,194 1,803,620
----------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS... 18,321,298 3,176,717
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income............................... (321,404) (674,909)
Net realized gain................................... 0 (658,590)
In excess of net investment income.................. 0 (146,749)
----------- -----------
Total distributions................................. (321,404) (1,480,248)
----------- -----------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares........................ 36,063,101 31,156,503
Reinvestment of distributions....................... 321,404 1,480,248
Cost of shares redeemed............................. (23,092,748) (19,199,129)
----------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE
TRANSACTIONS....................................... 13,291,757 13,437,622
----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS............. 31,291,651 15,134,091
NET ASSETS
Beginning of the year............................... 68,168,644 53,034,553
----------- -----------
End of the year..................................... $99,460,295 $68,168,644
=========== ===========
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME
End of the year..................................... $ (167,353) $ (179,114)
=========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares...................... 2,934,750 2,622,460
Issued in reinvestment of distributions............. 25,290 125,847
Redeemed............................................ (1,907,495) (1,655,274)
----------- -----------
Net Change.......................................... 1,052,545 1,093,033
=========== ===========
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year............................ $ 11.40 $ 10.86 $ 11.29 $ 10.73 $ 10.23
------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Income........... 0.10 0.14 0.08 0.06 0.09
Net Realized and Unrealized Gain
(Loss) on Investments.......... 2.70 0.66 (0.23) 0.68 0.53
------- ------- ------- ------- -------
Total From Investment
operations..................... 2.80 0.80 (0.15) 0.74 0.62
------- ------- ------- ------- -------
Less Distributions
Distributions From Net
Investment Income.............. (0.05) (0.12) (0.09) (0.02) (0.09)
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 (0.11) (0.08) (0.16) 0.00
Distributions in Excess of Net
Realized Capital Gains......... 0.00 0.00 (0.11) 0.00 0.00
------- ------- ------- ------- -------
Total Distributions............. (0.05) (0.26) (0.28) (0.18) (0.12)
------- ------- ------- ------- -------
Net Asset Value, End of Year..... $ 14.15 $ 11.40 $ 10.86 $ 11.29 $ 10.73
======= ======= ======= ======= =======
TOTAL RETURN (%)................. 24.6 7.3 (1.3) 6.9 6.0
Ratio of Operating Expenses to
Average Net Assets (%).......... 1.30 1.30 1.30 1.30 1.30
Ratio of Net Investment Income to
Average Net Assets (%).......... 0.84 1.07 0.96 0.67 1.29
Portfolio Turnover Rate (%)...... 59 40 115 64 89
Net Assets, End of Year (000).... $99,460 $68,169 $53,035 $39,392 $16,268
The Ratios of operating expenses
to average net assets without
giving effect to the voluntary
expense agreement described in
Note 4 to the Financial
Statements would have been (%).. 1.30 1.40 1.59 1.66 3.12
</TABLE>
See accompanying notes to financial statements.
124
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1999
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 subject to 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 selected by the relevant adviser
or subadviser pursuant to authorization of 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 traded on a national securities exchange or exchanges or the
NASDAQ National Market System are valued at their last sale price on the
principal trading market. Equity securities traded on a national securities
exchange or exchanges or on the NASDAQ National Market System for which
there is no reported sale during the day, and equity securities not so
traded are valued at the last reported bid price. Equity securities traded
over-the-counter are valued at the last reported bid price or at the
average of the last reported bid and asked price, according to the
subadviser's valuation policies. Other equity securities for which current
market quotations are not readily available (including restricted
securities, if any) and all other assets are valued at fair value as
determined in good faith by the Series' adviser or subadviser acting under
the supervision of the Board of Trustees, although the actual calculations
may be made by a pricing service selected by the Series' adviser or
subadviser and approved by the Board. Such valuations are determined by
using methods based on market transactions for comparable securities and on
various relationships between securities that are generally recognized by
institutional traders.
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'
125
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1999--(CONTINUED)
subadviser under the direction of the adviser. The adviser or subadviser
may value the security in good faith, acting under the supervision of the
Board, although the actual calculations may be made by a pricing service
selected by the relevant adviser or subadviser and approved by the Board.
B. FOREIGN CURRENCY TRANSLATION--The books and records of the Fund are
maintained in U.S. dollars. The values of securities, currencies and other
assets and liabilities denominated in currencies other than U.S. dollars
are translated into U.S. dollars based upon foreign exchange rates
prevailing at the end of the period. Purchases and sales of investment
securities, income and expenses are translated on the respective dates of
such transactions. Since the values of investment securities are presented
at the foreign exchange rates prevailing at the end of the period, it is
not practical to isolate that portion of the results of operations arising
from changes in exchange rates from that portion of the results of
operations reflecting fluctuations arising from changes in market prices of
the investment securities. Such fluctuations are included with the net
realized and unrealized gain or loss on investments.
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 generally
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. Dividend income is recorded on the ex-
dividend date and interest income is recorded on the accrual basis. In
determining gain or loss on securities sold, the cost of securities has
been determined on the identified cost basis.
D. OPTIONS--Certain Series may use options to hedge against changes in values
of securities the Series owns or expects to purchase. Writing puts and
buying calls tends to increase the Series' exposure to the underlying
instrument and writing calls or buying puts tends to decrease the Series'
exposure to the underlying instrument, or hedge other Series investments.
For options purchased to hedge the Series' investments, the potential risk
to the Series is that the change in value of options contracts may not
correspond to the change in value of the hedged instruments. In addition,
losses may arise from changes in the value of the underlying instruments,
if there is an illiquid secondary market, or if the counterparty is unable
to perform. The maximum loss for purchased options is limited to the
premium initially paid for the option. For options written by the Series,
the maximum loss is not limited to the premium initially received for the
option.
Exchange traded options are valued at the last sale price, or if no sales
are reported, the last bid price for purchased options and the last ask
price for written options. Options traded over the counter are valued using
prices supplied by dealers.
126
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1999--(CONTINUED)
E. FUTURES CONTRACTS--The Morgan Stanley International Magnum Equity Series
uses international stock index futures contracts with the objective of
maintaining full exposure to the stock market, enhancing returns,
maintaining liquidity, and minimizing transaction costs. The Series may
seek to enhance returns by using futures contracts instead of the
underlying securities when futures are believed to be priced more
attractively than the underlying securities. The primary risks associated
with the use of futures contracts are imperfect correlation between changes
in market values of stocks held by the series and the prices of futures
contracts, and the possibility of an illiquid market. Futures contracts are
valued at their quoted daily settlement prices. The aggregate principal
amounts of the contracts are not recorded in the financial statements.
Fluctuations in the value of the contracts are recorded in the Statement of
Assets and Liabilities as an asset (liability) and in the Statement of
Operations as unrealized appreciation (depreciation) until the contracts
are closed, when they are recorded as realized gains (losses) on futures
contracts.
F. 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.
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. At December 31, 1999, there were no open
reverse repurchase agreements for the Salomon Brothers Strategic Bond
Opportunities Series or Salomon Brothers U.S. Government 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 between under/over distributed net investment income,
accumulated net realized gains/losses and paid in capital. These
differences primarily relate to tax equalization, investments in mortgage
backed securities and investments in foreign securities.
2. At December 31, 1999, MetLife held 28,600,506 shares of the Fund in
separate accounts funding annuity contracts issued by MetLife. NELICO held the
remaining 77,945,582 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.
127
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1999--(CONTINUED)
3. For the year ended December 31, 1999, purchases and sales of securities
(excluding short-term investments) for each of the Series were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------------------------ ------------------------------
SERIES U.S. GOVERNMENT OTHER U.S. GOVERNMENT OTHER
------ --------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Back Bay Advisors Bond
Income Series.......... $ 84,687,570 $ 189,976,257 $ 74,038,973 $ 135,322,903
Salomon Brothers
Strategic Bond
Opportunities Series... 117,776,265 92,147,764 116,126,478 83,946,514
Salomon Brothers U.S.
Government Series...... 243,640,296 -- 239,928,630 --
Back Bay Advisors
Managed Series......... 8,039,625 96,926,233 6,421,937 115,973,736
Loomis Sayles Balanced
Series................. 32,964,328 106,390,646 31,446,526 88,766,050
Alger Equity Growth
Series................. -- 914,624,336 -- 700,482,268
Capital Growth Series... -- 3,916,033,920 -- 4,018,082,659
Davis Venture Value
Series................. -- 226,297,701 -- 112,292,157
Goldman Sachs Midcap
Value Series........... -- 130,755,828 -- 120,497,799
Loomis Sayles Small Cap
Series................. -- 338,660,291 -- 329,370,479
MFS Investors Series
(April 30, 1999 through
December 31, 1999)..... -- 8,274,326 -- 2,033,520
MFS Research Managers
Series (April 30, 1999
through December 31,
1999).................. -- 8,201,156 -- 2,907,894
Westpeak Growth and
Income Series.......... -- 504,036,390 -- 397,839,435
Westpeak Stock Index
Series................. -- 45,990,418 -- 5,906,589
Morgan Stanley
International Magnum
Equity Series.......... -- 48,951,748 -- 42,506,684
</TABLE>
Purchases and sales (maturities) of short-term obligations for the Back Bay
Advisors Money Market Series aggregated $1,300,623,024 and $1,203,582,524,
respectively.
128
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1999--(CONTINUED)
4. New England Investment Management, Inc. ("NEIM") (formerly TNE Advisers,
Inc.) acts as adviser to all of the Series except the Capital Growth Series,
for which Capital Growth Management Limited Partnership ("CGM") serves as
adviser. Separate advisory agreements for each Series provide for management
fees payable by the Series as set forth below:
<TABLE>
<CAPTION>
MANAGEMENT
FEES EARNED ANNUAL
BY NEIM FOR PERCENTAGE BASED ON
THE YEAR ENDED RATES PAID TO SERIES AVERAGE DAILY NET ASSET
SERIES DECEMBER 31, 1999 ADVISER VALUE LEVELS
------ ----------------- ------------- ------------------------------------
<S> <C> <C> <C>
Back Bay Advisors Money
Market Series (a)...... $ 796,250 0.35% of the first $500 million
0.30% of the next $500 million
0.25% of amounts in excess of $1 billion
Back Bay Advisors Bond
Income Series (b)...... 1,121,515 0.40% of the first $400 million
0.35% of the next $300 million
0.30% of the next $300 million
0.25% of amounts in excess of $1 billion
Salomon Brothers
Strategic Bond
Opportunities Series... 618,506 0.65% of all assets
Salomon Brothers U.S.
Government Series...... 270,607 0.55% of all assets
Back Bay Advisors
Managed Series......... 1,083,736 0.50% of all assets
Loomis Sayles Balanced
Series................. 1,386,037 0.70% of all assets
Alger Equity Growth
Series................. 4,418,196 0.75% of all assets
Davis Venture Value
Series................. 4,032,970 0.75% of all assets
Goldman Sachs Midcap
Value Series........... 834,843 0.75% of all assets
Loomis Sayles Small Cap
Series (c)............. 2,368,856 1.00% of all assets
MFS Investors Series
(April 30, 1999 through
December 31, 1999)..... 25,852 0.75% of all assets
MFS Research Managers
Series (April 30, 1999
through December 31,
1999).................. 26,299 0.75% of all assets
Westpeak Growth and
Income Series (d)...... 2,410,327 0.70% of the first $200 million
0.65% of the next $300 million
0.60% of amounts in excess of $500 million
Westpeak Stock Index
Series................. 560,987 0.25% of all assets
Morgan Stanley
International Magnum
Equity Series.......... 691,945 0.90% of all assets
</TABLE>
(a) Effective January 1, 2000, the management fee payable by the Money Market
Series is at the annual rate of 0.35% on the first $1 billion of average
daily net assets; 0.30% of the next $1 billion of such assets; and 0.25%
of such assets in excess of $2 billion.
(b) Effective January 1, 2000, the management fee payable by the Bond Income
Series is at the annual rate of 0.40% on the first $1 billion of average
daily net assets; 0.35% of the next $1 billion of such assets; 0.30% of
the next $1 billion of such assets; and 0.25% of such assets in excess of
$3 billion.
(c) Effective January 1, 2000, the management fee payable by the Small Cap
Series is at the annual rate of 0.90% of the first $500 million of average
daily net assets; and 0.85% of such assets in excess of $500 million.
(d) Effective January 1, 2000, the management fee payable by the Growth and
Income Series is 0.70% of the first $200 million of average daily net
assets; 0.65% of the next $1.3 billion of such assets; and 0.60% of such
assets in excess of $1.5 billion.
129
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1999--(CONTINUED)
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, 1999, CGM was paid at an
average annual rate of 0.62% of the Capital Growth Series' average net assets,
totaling $11,792,608.
SUB-ADVISORY FEES. NEIM has sub-contracted day-to-day portfolio management
responsibilities for the Series it advises to each of the following sub-
advisers: Back Bay Advisors, L.P. ("Back Bay Advisors") for the Back Bay
Advisors Managed, Back Bay Advisors Bond Income and Back Bay Advisors Money
Market Series; Salomon Brothers Asset Management Inc for the Salomon Brothers
Strategic Bond Opportunities and Salomon Brothers U.S. Government Series;
Loomis, Sayles & Company, L.P. ("Loomis Sayles") for the Loomis Sayles Small
Cap and Loomis Sayles Balanced Series; Fred Alger Management, Inc. ("Alger")
for the Alger Equity Growth Series; Davis Selected Advisers, L.P. ("Davis")
for the Davis Venture Value Series; Goldman Sachs Asset Management ("GSAM")
for the Goldman Sachs Midcap Value Series; Massachusetts Financial Services
Company for MFS Investors Series and MFS Research Managers Series; Westpeak
Investment Advisors, L.P. ("Westpeak") for the Westpeak Growth and Income and
Westpeak Stock Index Series; and Morgan Stanley Asset Management ("MSAM") for
the Morgan Stanley International Magnum Equity Series. NEIM, which acts as
adviser to each Series except the Capital Growth Series, is an indirect wholly
owned subsidiary of NELICO, an indirect 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. NEIM
paid each sub-adviser as shown below for providing sub-advisory services to
the Series:
<TABLE>
<CAPTION>
FEES EARNED
BY SUB-ADVISERS FOR
THE YEAR ENDED
SERIES DECEMBER 31, 1999
------ -------------------
<S> <C>
Back Bay Advisors Money Market Series...................... $ 277,500
Back Bay Advisors Bond Income Series....................... 570,569
Salomon Brothers Strategic Bond Opportunities Series....... 310,464
Salomon Brothers U.S. Government Series.................... 110,702
Back Bay Advisors Managed Series........................... 458,497
Loomis Sayles Balanced Series.............................. 719,017
Alger Equity Growth Series................................. 2,356,293
Davis Venture Value Series................................. 2,176,500
Goldman Sachs Midcap Value Series.......................... 495,250
Loomis Sayles Small Cap Series............................. 1,110,043
MFS Investors Series (April 30, 1999 through December 31,
1999)..................................................... 13,788
MFS Research Managers Series (April 30, 1999 through
December 31, 1999)........................................ 14,025
Westpeak Growth and Income Series.......................... 1,241,303
Westpeak Stock Index Series................................ 224,395
Morgan Stanley International Magnum Equity Series.......... 495,170
</TABLE>
130
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1999--(CONTINUED)
VOLUNTARY EXPENSE LIMITATION. Pursuant to the voluntary expense agreement
relating to Small Cap, NEIM bears all the operating expenses (does not include
amortization of expenses, brokerage costs, interest, taxes or extraordinary
expenses) of the Series in excess of 1.00% of the Series' average daily net
assets. NEIM may terminate this expense agreement at any time.
EXPENSE DEFERRAL AGREEMENT. Pursuant to an Expense Deferral Agreement, which
has been in effect since November 1, 1994 with respect to the Morgan Stanley
International Magnum Equity Series, Alger Equity Growth Series, Davis Venture
Value Series, Loomis Sayles Balanced Series, Salomon Brothers Strategic Bond
Opportunities Series and Salomon Brothers U.S. Government Series, since May 1,
1998 for the Goldman Sachs Midcap Value Series and since April 30, 1999 for
the MFS Investors Series and the MFS Research Managers Series. Under this
Agreement, NEIM has agreed to pay expenses of each Series' operations
(exclusive of any brokerage costs, interest, taxes or extraordinary expenses)
in excess of the annual percentages of each Series' net assets set forth
below, subject to the obligation of each Series to repay NEIM such expenses in
future years, if any, when the Series' expenses fall below that percentage;
however, no Series is obligated to repay any expenses paid by NEIM more than
two years after the end of the fiscal year in which such expenses were
incurred (three years for the MFS Investors Series and MFS Research Managers
Series). The percentage applicable to each Series is shown below:
NEIM may terminate these expense arrangements at any time. If these expense
arrangements were terminated, some of the Series would have higher expense
ratios. For the year ended December 31, 1999, (i) the maximum expense ratio
for each Series after giving effect to the foregoing arrangements; (ii) the
amounts of expenses assumed by NEIM for each Series to which the Voluntary
Expense Limitation applies; and (iii) the amounts of expenses deferred for
each Series to which the Expense Deferral Agreement applies, are as follows
<TABLE>
<CAPTION>
MAXIMUM EXPENSE
RATIO UNDER
CURRENT EXPENSES ASSUMED
VOLUNTARY EXPENSE BY NEIM AS A EXPENSES DEFERRED IN EXPENSES DEFERRED IN
LIMITATION OR RESULT OF THE SERIES 1998 (SUBJECT TO 1999 (SUBJECT TO
EXPENSE DEFERRAL EXCEEDING THE REPAYMENT UNTIL REPAYMENT UNTIL
SERIES AGREEMENT VOLUNTARY EXPENSE LIMIT DECEMBER 31, 2000) DECEMBER 31, 2001)
------ ----------------- ----------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Loomis Sayles Small Cap
Series................. 1.00% $246,217 not applicable not applicable
Goldman Sachs Midcap
Value Series........... 0.90% not applicable --
Alger Equity Growth
Series................. 0.90% not applicable -- --
Davis Venture Value
Series................. 0.90% not applicable -- --
Loomis Sayles Balanced
Series................. 0.85% not applicable -- --
Morgan Stanley
International Magnum
Equity Series.......... 1.30% not applicable $ 62,316 $ 901
MFS Investors Series.... 0.90% not applicable -- 38,953(a)
MFS Research Managers
Series................. 0.90% not applicable -- 39,708(a)
Salomon Brothers
Strategic Bond
Opportunities Series... 0.85% not applicable -- --
Salomon Brothers U.S.
Government Series...... 0.70% not applicable 21,784 7,595
</TABLE>
(a) Subject to repayment until December 31, 2002.
131
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1999--(CONTINUED)
For the year ended December 31, 1999 the amount of deferred expense recovered
by NEIM from each Series subject to the Expense Deferral Agreement is set
forth below:
<TABLE>
<CAPTION>
DEFERRED EXPENSES DEFERRED EXPENSES
RECOVERED BY RECOVERED BY
SERIES NEIM FROM 1997 NEIM FROM 1998
------ ----------------- -----------------
<S> <C> <C>
Goldman Sachs Midcap Value Series.... None $4,535
MFS Investors Series................. None None
MFS Research Managers Series......... None None
Morgan Stanley International Magnum
Equity Series....................... None None
Salomon Brothers Strategic Bond
Opportunities Series................ $12,296 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, NEIM or their
affiliates, other than affiliated registered investment companies. Each other
trustee receives a retainer fee at the annual rate of $20,000 and meeting fees
of $2,500 for each meeting of the Board of Trustees attended. The chairmen of
the Contract Review Committee and the Audit Committee receive an additional
annual retainer fee of $6,000 and $4,000, respectively. These fees are
allocated to the various Series and the New England Variable Annuity Fund I
based upon a formula that takes into account among other factors, the relative
net assets of each Series. Each trustee is also a manager of New England
Variable Annuity Fund I. A deferred compensation plan is available to the
trustees on a voluntary basis. Each participating trustee will receive
deferred compensation in an amount equal to the value that such compensation
would have had if it had been invested in the Series on the normal payment
date. Deferred amounts remain in the Series until distributed in accordance
with the plan.
6. Shareholder Meeting (Unaudited)
At a Special Meeting of Shareholders held on October 15, 1999 such
shareholders voted for the following proposals:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN TOTAL
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
1. That with respect to all Series
the following trustees are hereby
elected:
John J. Arena...................... 89,021,827 711 4,071,887 93,094,425
Edward A. Benjamin................. 88,981,983 711 4,111,731 93,094,425
Mary Ann Brown..................... 88,984,233 711 4,109,482 93,094,426
Joseph W. Flynn.................... 88,980,774 711 4,112,940 93,094,425
Anne M. Goggin..................... 89,016,789 711 4,076,925 93,094,425
Nancy Hawthorne.................... 89,019,437 711 4,074,277 93,094,425
Joseph M. Hinchey.................. 88,950,855 711 4,142,859 93,094,425
Robert B. Kittredge................ 88,893,991 711 4,199,723 93,094,425
John T. Ludes...................... 89,025,375 711 4,068,339 93,094,425
Dale R. Marshall................... 89,018,770 711 4,074,944 93,094,425
2a. That with respect to the Money
Market Series the new proposed
Advisory Agreement between NEIM
and the Trust is hereby
approved........................ 2,029,297 164,372 74,698 2,268,367
2b. That with respect to the Bond
Income Series, the new proposed
Advisory Agreement between NEIM
and the Trust is hereby
approved........................ 2,409,028 111,559 101,552 2,622,139
2c. That with respect to the Growth
and Income Series, the new
proposed Advisory Agreement
between NEIM and the Trust is
hereby approved................. 1,585,875 64,278 69,767 1,719,920
3. That the proposal to replace the
fundamental investment objective
of the Money Market, Bond Income,
Managed, Capital Growth, Small
Cap, Growth and Income, and
Midcap Value Series with an
otherwise identical non-
fundamental investment objective
is hereby approved............... 12,869,447 730,801 591,629 14,191,877
4. That the proposal to grant
authority for the Money Market,
Bond Income, Managed, Balanced,
Equity Growth, Venture Value,
Small Cap, Investors, Research
Managers, Growth and Income,
Stock Index, and International
Magnum Equity Series whereby each
such Series may from time to
time, to the extent permitted by
an exemption or exemptions from
the Securities and Exchange
Commission, permit NEIM to enter
into new or amended agreements
with subadvisers with respect to
the Series without obtaining
shareholder approval of such
agreements, and to permit such
subadvisers to manage the assets
of the Series pursuant to such
subadvisory agreements is hereby
approved ........................ 69,183,900 3,273,146 3,081,893 75,538,939
5. That the following proposals to
adopt Standardized Investment
Restrictions for the Series are
hereby approved:
5a. That with respect to the Money
Market, Bond Income, Managed,
Capital Growth, and Stock Index
Series to eliminate the
restrictions relating to
investments in a single issuer.. 9,994,309 544,555 414,267 10,953,131
5b. That with respect to the Money
Market, Bond Income, Managed,
Capital Growth, and Stock Index
Series to eliminate the
restrictions relating to short
sales and purchasing securities
on margin....................... 9,799,175 731,724 422,232 10,953,131
</TABLE>
132
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1999--(CONTINUED)
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN TOTAL
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
5c. That with respect to all Series
to revise the restrictions
relating to concentrations of
investments in one industry.... 85,801,339 3,740,186 3,552,900 93,094,425
5d. That with respect to all Series
to revise the restrictions
relating to borrowings......... 85,142,143 4,467,632 3,484,650 93,094,425
5e. That with respect to the Money
Market, Bond Income, Managed,
Capital Growth, and Stock Index
Series to eliminate the
restrictions relating to
investments in businesses less
than three years old........... 9,979,014 585,980 388,137 10,953,131
5f. That with respect to the Money
Market, Bond Income, Managed,
Capital Growth, and Stock Index
Series to eliminate the
restrictions relating to
issuers whose shares are
beneficially owned by Trustees
and officers of the Trust or
directors and officers of
certain affiliates of the
Trust.......................... 9,838,478 706,217 408,436 10,953,131
5g. That with respect to all Series
to revise the restrictions
relating to underwriting of
securities..................... 85,813,170 3,457,557 3,823,698 93,094,425
5h. That with respect to the Money
Market, Bond Income, Managed,
Capital Growth, and Stock Index
Series to eliminate the
restrictions relating to the
purchase of restricted
securities and illiquid
securities..................... 9,812,801 709,941 430,389 10,953,131
5i. That with respect to the Money
Market, Bond Income, Managed,
Capital Growth, and Stock Index
Series to eliminate the
restrictions relating to
investments made for the
purpose of exercising control
or management.................. 9,829,766 683,782 439,583 10,953,131
5j. That with respect to the Money
Market, Bond Income, Managed,
Capital Growth, and Stock Index
Series to eliminate the
restrictions relating to joint
trading of securities.......... 9,939,276 565,449 448,406 10,953,131
5k. That with respect to the Money
Market, Bond Income, Managed,
Capital Growth, and Stock Index
Series to eliminate the
restrictions relating to
investments in other investment
companies...................... 10,006,906 546,267 399,958 10,953,131
5l. That with respect to all Series
to revise the restrictions
relating to investments in
commodities and real estate.... 85,694,164 3,874,396 3,525,865 93,094,425
5m. That with respect to the Money
Market, Bond Income, Managed,
Capital Growth, and Stock Index
Series to eliminate the
restrictions relating to
pledging assets................ 9,740,140 773,975 439,016 10,953,131
5n. That with respect to all Series
to revise the restrictions
relating to making loans....... 84,954,167 4,589,068 3,551,190 93,094,425
5o. That with respect to the Money
Market, Bond Income, Managed,
Capital Growth, and Stock Index
Series to eliminate the
restrictions relating to the
purchase and/or writing of
options........................ 9,832,550 699,831 420,750 10,953,131
5p. That with respect to the
Strategic Bond Opportunities,
U.S. Government, Balanced,
Equity Growth, Venture Value,
Midcap Value, Small Cap,
Investors, Research Managers,
Growth and Income, and
International Magnum Equity
Series to revise the
restrictions relating to the
issuance of senior securities.. 78,875,840 2,937,791 3,327,664 82,141,295
</TABLE>
133
<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, Westpeak Growth and 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, Alger Equity Growth Series, MFS Investors Series and MFS Research
Managers Series--the "Series"), including the portfolios of investments, as of
December 31, 1999, and the related statements of operations for the year then
ended, changes in net assets for each of the two years then ended and
financial highlights for each of the three years then ended. These financial
statements and financial highlight 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, 1999, 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, 1999, the results of their operations for the year then ended, the changes
in their net assets for each of the two years then ended and the financial
highlights for each of the three years then ended, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 4, 2000
134
<PAGE>
FOOTNOTES TO PORTFOLIO MANAGER COMMENTARY
(1) Lipper Variable Products Money Market Fund Average is an average of the
total return performance (calculated on the basis of net asset value) of
funds with similar investment objectives as calculated by Lipper
Analytical Services, an independent mutual fund ranking service.
(2) Lehman Brothers Aggregate Bond Index includes most obligations of the
U.S. Treasury, agencies and quasi-federal corporations, most publicly
issued investment grade corporate bonds, and most bonds backed by
mortgage pools of GNMA, FNMA and FHLMC. The index has not been adjusted
for ongoing management, distribution and operating expenses and sales
charges applicable to mutual fund investments.
(3) Lehman Brothers Government/Corporate Bond Index is an unmanaged index of
the market value of approximately 5,300 bonds with a face value currently
in excess of $1.3 trillion. To be included in the Lehman Brothers
Government/Corporate Bond Index, an issue must have amounts outstanding
in excess of $25 million, have at least one year to maturity and be rated
"Baa" or higher ("investment grade") by a nationally recognized rating
agency. The index has not been adjusted for ongoing management,
distribution and operating expenses and sales charges applicable to
mutual fund investments.
(4) Lehman Brothers Intermediate Government Bond Index includes most
obligations of the U.S. Treasury, agencies and quasi-federal corporations
having maturities of 1 to 10 years. The index has not been adjusted for
ongoing management, distribution and operating expenses and sales charges
applicable to mutual fund investments.
(5) Lehman Brothers Intermediate Government/Corporate Bond Index is an
unmanaged index of investment grade bonds issued by the U.S. Government
and U.S. corporations having maturities between one and ten years. The
index has not been adjusted for ongoing management, distributions and
operating expenses and sales charges applicable to mutual fund
investments.
(6) Lipper Variable Products A-Rated Corporate Bond Fund Average is an
average of the total return performance (calculated on the basis of net
asset value) of funds with similar investment objectives as calculated by
Lipper Analytical Services, on independent mutual fund ranking service.
(7) Lipper Variable Products Balanced Fund Average is an average of the total
return performance (calculated on the basis of net asset level) of funds
with similar investment objectives as calculated by Lipper Analytical
Services, an independent mutual fund ranking service.
(8) Lipper Variable Products Flexible Portfolio Fund Average is an average of
the total return performance (calculated on the basis of net asset value)
of funds with similar investment objectives as calculated by Lipper
Analytical Services, an independent mutual fund ranking service.
(9) Lipper Variable Products General Bond Fund Average is an average of the
total return performance (calculated on the basis of net asset value) of
funds with similar investment objectives as calculated by Lipper
Analytical Services, an independent mutual fund ranking service.
(10) Lipper Variable Products Growth Fund Average is an average of the total
return performance (calculated on the basis of net asset value) of funds
with similar investment objectives as calculated by Lipper Analytical
Services, an independent mutual fund ranking service.
(11) Lipper Variable Products Growth and Income Fund Average is an average of
the total return performance (calculated on the basis of net asset value)
of funds with similar investment objectives as calculated by Lipper
Analytical Services, an independent mutual fund ranking service.
(12) Lipper Variable Products International Fund Average is an average of the
total return performance (calculated on the basis of net asset value) of
funds with similar investment objectives as calculated by Lipper
Analytical Services, an independent mutual fund ranking service.
(13) Lipper Variable Products Intermediate Investment Grade Debt Average is an
average of the total return performance (calculated on the basis of net
asset value) of funds with similar investment objectives as calculated by
Lipper Analytical Services, an independent mutual fund ranking service.
(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.
135
<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 their performance (in
U.S. dollars) of companies representing the stock markets of Australia,
China Free, Hong Kong, Indonesia, Korea, Malaysia, New Zealand,
Philippines, Singapore, Taiwan and Thailand. The Index performance has
not been adjusted for ongoing management, distribution and operating
expenses and sales charges applicable to mutual funds.
(22) Russell Midcap Index consists of 800 mid-capitalization stocks having an
average market capitalization of $3.7 billion as of December 31, 1998.
The index has not been adjusted for ongoing management, distribution and
operating expenses and sales charges applicable to mutual fund
investments.
(23) Russell 2000 Index consists of 2000 small market capitalization stocks
having an average market capitalization of $592 million as of December
31, 1998. The index performance has not been adjusted for ongoing
management, distribution and operating expenses and sales charges
applicable to mutual fund investments.
(24) Salomon Brothers High Yield Market Index measurers the performance of
cash pay and deferred interest bonds.
(25) Standard & Poor's 500 Index(R) (S&P 500(R)) is an unmanaged index
representing the performance of 500 major companies, most of which are
listed on the New York Stock Exchange. The S&P 500 performance has not
been adjusted for ongoing management, distribution and operating expenses
and sales charges applicable to mutual fund investments.
136
<PAGE>
Bulk Rate
[LOGO OF NEW ENGLAND FINANCIAL] U.S. Postage
PAID
Hudson, MA
Permit No. 19
NEW ENGLAND LIFE INSURANCE COMPANY
501 BOYLSTON STREET
BOSTON, MASSACHUSETTS 02116
EQUAL OPPORTUNITY EMPLOYER M/F
(C) 2000 NEW ENGLAND LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
This booklet has been prepared for certain variable contract owners of
New England Life Insurance Company, Boston, MA and of
Metropolitan Life Insurance Company, New York, NY.
VA-177-00 VAI
