(ART)
-------------------------------------------------------------------------
Zenith Fund
Variable Products
Annual Reports
December 31, 1995
IMPORTANT:
Some funds appearing in this report may not be available under your variable
life or variable annuity product.
February 15, 1996
TO OUR POLICYHOLDERS/CONTRACT OWNERS:
I am pleased to provide you with the 1995 Annual Report for the Zenith Fund
variable life insurance and variable annuity products. This report includes
performance histories, present investments, and financial reports as of
December 31, 1995, as well as the outlook and strategy of each fund. It is
intended to help you make an informed decision regarding the investment of the
cash value of your variable product.
This report also contains important information regarding the recent sale of
Draycott Partners, Ltd., the subadvisor to the International Equity Series, to
Cursitor Holdings, Limited.
The New England offers 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 one of our Registered Representatives* with any
questions you may have regarding your financial objectives. Thank you for
making The New England your financial partner.
Sincerely,
[ART]
Kernan King Bruce Long
President President
New England Life New England Annuities
* Variable products are offered through New England Securities.
LOGO
NEW ENGLAND ZENITH FUND
DRAYCOTT INTERNATIONAL EQUITY SERIES
Supplement dated January 26, 1996 to New England Zenith Fund
Prospectus dated May 1, 1995 as Supplemented in November, 1995
The following paragraph is added to the section of the Prospectus captioned
"Management":
On December 29, 1995, NEIC, the parent company of Draycott, sold Draycott to
Cursitor Holdings, Limited ("Cursitor"). Cursitor, headquartered at 66
Buckingham Gate, London, England SW1E 6AU, is an international investment
management group that had approximately $9.4 billion in assets under management
at September 30, 1995. Alliance Capital Management L.P. ("Alliance Capital") is
expected to acquire the business of Cursitor in 1996. As a result of this
transaction, Draycott will become a wholly-owned subsidiary of a new entity,
Cursitor Alliance LLC, in which Alliance Capital will directly and indirectly
own a 93% interest. Alliance Capital Management Corporation ("ACMC") is the
sole general partner of, and the owner of a 1% general partnership interest in,
Alliance Capital. ACMC is an indirectly wholly owned subsidiary of The
Equitable Life Assurance Society of the United States, which is a wholly-owned
subsidiary of The Equitable Companies Incorporated, a holding company
controlled by AXA, a French insurance holding company. Effective December 29,
1995, short-term U.S. cash management services for the Draycott International
Equity Series are provided by Draycott (rather than by Back Bay Advisors).
1
ZENITH LOOMIS SAYLES SMALL CAP SERIES
PORTFOLIO MANAGERS: MARY CHAMPAGNE AND JEFFREY PETHERICK;LOOMIS SAYLES &
COMPANY, L.P.
MARKET REVIEW
Photo Mary Photo Jeffrey Petherick
Champagne Equity investors were well rewarded
in 1995. Slow economic growth, low
inflation and declining interest rates
provided the perfect backdrop for
rising corporate profits and, in turn,
healthy stock market returns.
Market performance, although strong,
was somewhat surprising. Smaller
companies, which tend to be more
niche-
oriented and therefore less sensitive to economic swings, typically fare
better than larger companies when the economy begins to slow. This was not the
case in 1995, however. Small-cap stocks on the whole lagged large-cap stocks
for much of the year for several reasons. Many large-cap stocks delivered
double digit returns, making it unnecessary for investors to flee the safety
of well-established issues in search of higher earnings growth. In addition,
many marginal investors who were hurt with small-cap stocks in 1994 have yet
to return to the market. Finally, a large number of initial public offerings
in the small-cap market, coupled with a shrinking supply of large-cap issues--
the result of stock buy-backs and corporate takeovers--led to better
performance for larger-cap stocks.
Despite the fact that the small-cap market lagged the larger-cap market
overall, the smaller companies we owned held their own. Technology stocks, for
example, proved to be solid contributors to the Series' performance. The
Series was neither dramatically overweighted nor underweighted in this sector.
Rather, we maintained a balanced positioning throughout the year. This
somewhat neutral stance helped the Series participate in the market's upside,
yet cushioned the Series on the downside when technology stocks were badly hit
in the latter half of 1995. The Series also maintained substantial positions
in the financial services and health care sectors over the course of the year,
while in the second half, we broadened the portfolio to include some energy
stocks, which helped boost performance dramatically.
We also tended to avoid consumer cyclicals--stocks whose performance is
closely tied to economic cycles--for much of 1995. This strategy worked to the
Series' advantage as industries in this sector--retailing and restaurants, for
example--have continued to underperform.
As always, our investment approach is one of individual stock selection: on
a stock by stock basis, we seek out those issues that are out of market favor,
yet have strong earnings potential. Stocks that were representative of our
strategy over the past year include: Seitel, a producer of seismic charts for
the oil and gas industry; DVI Health Services, a financier of large health and
medical equipment purchases; and Keystone International, a manufacturer of
pumps and valves for a growing international market.
OUTLOOK AND STRATEGY
Looking ahead, we expect favorable market conditions for small-cap stocks in
1996. We anticipate a further drop in interest rates early in the year, which
should lead to a pickup in economic activity and improved market performance,
especially in the small-cap market. Small-cap earnings growth should also be
stronger in 1996, leading to renewed interest in this segment.
1
FUND FACTS
GOAL: long-term growth from
investment in common stocks or
their equivalent.
START DATE: May 1, 1994
SIZE: $27.7 million as of
December 31, 1995
MANAGERS: Jeffrey Petherick and
Mary Champagne. Mr. Petherick
has co-managed the Series since
its inception in May 1994. Ms.
Champagne joined the management
of the Fund in July 1995. Mr.
Petherick has also co-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.
A $10,000 Investment Compared to an Index
Average Annual Total Return
Loomis Sayles Lipper Variable Small
Small Cap Company Fund Average
1995 28.88% 29.06%
Since
Inception 14.14% --
[A graph representing the following:]
A $10,000 Investment Compared to an Index
Loomis Sayles
Small Cap Series Russell 2000
---------------- ------------
5/1/94 $10,000 $10,000
1994 $ 9,677 $10,027
1995 $12,468 $12,879
Performance numbers are net of all fund operating expenses but do not
include any insurance, sales or administrative charges of the variable
contracts; if included, the returns 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 original cost.
2
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES SMALL CAP SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--82.3% OF TOTAL NET ASSETS
SHARES VALUE (a)
AEROSPACE--1.2%
14,800 Whittaker Corp.(c)....................................... $ 321,900
-----------
AUTOMOBILE & RELATED--1.9%
18,100 Masland Corp............................................. 253,400
7,000 Strattec Security Corp.(c)............................... 124,250
500 Tower Automotive(c)...................................... 8,750
7,800 Walbro Corp.............................................. 140,400
-----------
526,800
-----------
BANKS--SAVINGS & LOAN--3.2%
12,000 Charter One Financial, Inc. ............................. 367,500
6,150 Commercial Federal Corp. ................................ 232,163
7,500 First Financial Corp. ................................... 172,500
9,100 First Savings Bank of Washington Bancorp. ............... 119,437
-----------
891,600
-----------
BUSINESS SERVICES--2.4%
9,200 CDI Corp.(c)............................................. 165,600
6,800 Career Horizons, Inc.(c)................................. 229,500
5,500 Cort Business Services Corp.(c).......................... 90,750
6,900 W.H. Brady Co. .......................................... 186,300
-----------
672,150
-----------
CHEMICALS--SPECIALTY--2.7%
5,300 Cambrex Corp............................................. 219,288
3,700 Cytec Industries, Inc.(c)................................ 230,787
5,600 Intertape Polymer Group, Inc. ........................... 175,700
6,000 Learonal, Inc. .......................................... 138,000
-----------
763,775
-----------
COMPUTER SOFTWARE & SERVICES--2.3%
4,000 Analysts Internation Corp................................ 120,000
8,200 Control Data Systems, Inc.(c)............................ 160,925
7,200 MDL Information System, Inc.(c).......................... 165,600
3,200 SPSS, Inc.(c)............................................ 62,400
2,300 Sterling Software, Inc.(c)............................... 143,462
-----------
652,387
-----------
ELECTRICAL EQUIPMENT--1.5%
9,100 Gasonics International Corp.(c).......................... 122,850
21,900 Numerex Corp.(c)......................................... 142,350
10,400 Woodhead Industries...................................... 148,200
-----------
413,400
-----------
ELECTRONIC COMPONENTS--3.3%
6,100 Amphenol Corp.(c)........................................ 147,925
3,000 Burr Brown Corp.(c)...................................... 76,500
700 Dallas Semiconductor Corp. .............................. 14,525
18,700 Dynatech Corp.(c) ....................................... 317,900
6,500 Unitrode Corp.(c)........................................ 183,625
5,100 Zilog, Inc.(c)........................................... 186,788
-----------
927,263
-----------
SHARES VALUE (a)
ENVIROMENTAL SERVICES--2.0%
7,100 United Waste Systems, Inc.(c)............................ $ 264,475
18,400 World Fuel Services Corp. ............................... 292,100
-----------
556,575
-----------
FINANCIAL SERVICES--3.7%
6,000 Cityscape Financial Corp................................. 124,500
16,200 DVI(c)................................................... 226,800
4,900 Eaton Vance Corp......................................... 138,425
10,600 Imperial Credit Industries, Inc.(c)...................... 230,550
264 Investors Financial Services Co.(c)...................... 5,470
14,800 WFS Financial, Inc.(c)................................... 288,600
-----------
1,014,345
-----------
FOOD--0.7%
5,200 Universal Foods Corp..................................... 208,650
-----------
FREIGHT TRANSPORTATION--3.0%
9,300 ABC Rail Products Corp.(c)............................... 205,762
18,200 Harper Group, Inc........................................ 323,050
15,500 TNT Freightways Corp..................................... 311,938
-----------
840,750
-----------
HEALTH CARE--MEDICAL TECHNOLOGY--3.6%
9,000 Conmed Corp.(c).......................................... 225,000
11,600 Gelman Sciences, Inc.(c)................................. 292,900
2,000 Lunar Corp.(c)........................................... 55,000
15,100 Sofamor/Danek Group, Inc.(c)............................. 428,462
-----------
1,001,362
-----------
HEALTH CARE--SERVICES--6.2%
11,100 Community Health Systems, Inc.(c)........................ 395,438
19,945 Grancare, Inc.(c)........................................ 289,202
14,900 Health Images, Inc....................................... 108,025
5,000 Healthplan Services Corp.(c)............................. 125,000
8,900 Medisense, Inc.(c)....................................... 281,463
24,300 Regency Health Services(c)............................... 246,037
8,500 Sierra Health Services, Inc.(c).......................... 269,875
-----------
1,715,040
-----------
HOME PRODUCTS--3.4%
5,000 Aptargroup, Inc. ........................................ 186,875
6,300 Bush Boake Allen, Inc.(c)................................ 172,463
17,550 Inbrand Corp.(c)......................................... 289,575
21,150 US Can Corp.(c).......................................... 285,525
-----------
934,438
-----------
HOTELS & RESTAURANTS--0.1%
3,000 Supertel Hospitality, Inc.(c)............................ 30,000
-----------
HOUSING & BUILDING MATERIALS--3.6%
20,200 Congoleum Corp........................................... 217,150
10,500 Crossman Communities, Inc.(c)............................ 196,875
16,100 Giant Cement Holdings, Inc.(c)........................... 185,150
12,400 Toro Co.................................................. 407,650
-----------
1,006,825
-----------
See accompanying notes to financial statements.
3
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES SMALL CAP SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--(CONTINUED)
SHARES VALUE (a)
INSURANCE--7.1%
10,200 Allied Group, Inc........................................ $ 367,200
5,300 Amerin Corp.(c).......................................... 141,775
12,200 Capital Resource Corp.................................... 375,150
3,600 Meadrowbrook Insurance Group(c).......................... 120,600
10,600 Protective Life Corp..................................... 331,250
11,900 Reinsurance Group of America, Inc. ...................... 435,837
7,150 Triad Guaranty, Inc.(c).................................. 189,475
-----------
1,961,287
-----------
LEISURE--0.6%
4,095 Harman International..................................... 164,312
-----------
MACHINERY--3.5%
7,700 Greenfield Industries, Inc............................... 240,625
8,700 Hardinge Bros, Inc....................................... 226,200
14,900 Keystone International, Inc.............................. 298,000
5,400 Wolverine Tube, Inc.(c).................................. 202,500
-----------
967,325
-----------
MEDIA & ENTERTAINMENT--2.2%
7,200 Banta Corp............................................... 316,800
6,900 Houghton Mifflin Co...................................... 296,700
-----------
613,500
-----------
METALS--3.6%
15,200 Citation Corp.(c)........................................ 182,400
5,500 Cleveland Cliffs, Inc. .................................. 225,500
10,300 Quanex Corp.............................................. 199,563
19,300 Republic Engineered Steels(c)............................ 89,262
33,800 UNR Industries, Inc. .................................... 291,525
-----------
988,250
-----------
MULTI-INDUSTRY--1.6%
36,000 Griffon Corp.(c)......................................... 324,000
3,700 Insilco Corp.(c)......................................... 117,937
-----------
441,937
-----------
OIL--INDEPENDENT PRODUCERS--4.2%
18,100 Belden & Blake Corp.(c).................................. 316,750
13,400 Cross Timbers Oil Co..................................... 236,175
19,400 Lomak Petroleum, Inc.(c)................................. 189,150
19,100 Vintage Petroleum, Inc................................... 429,750
-----------
1,171,825
-----------
OIL--SERVICES--2.5%
3,000 Global Industries, Inc.(c)............................... 90,000
17,900 Pride Petroleum Services, Inc.(c)........................ 190,188
11,400 Seitel, Inc.(c).......................................... 403,275
-----------
683,463
-----------
PAPER PRODUCTS--1.1%
15,000 Caraustar Industries, Inc................................ 300,000
-----------
REAL-ESTATE INVESTMENT TRUSTS--6.2%
18,700 Capstone Capital Corp.(c)................................ 357,638
17,800 Chateau Properties, Inc.................................. 400,500
12,600 HGI Realty, Inc.......................................... 288,225
SHARES VALUE (a)
17,000 Liberty Property.................................... $ 352,750
12,700 Patriot American Hospitality(c)..................... 327,025
-----------
1,726,138
-----------
RETAIL--3.4%
7,200 Borders Group, Inc.(c).............................. 133,200
18,050 Cato Corp. Class A(c)............................... 139,887
1,200 Claire Speciality Stores............................ 21,150
21,800 Cole National Corp.(c).............................. 302,475
13,000 Haverty Furniture Companies, Inc.................... 180,375
6,800 Office Max, Inc.(c)................................. 152,150
-----------
929,237
-----------
TELECOMMUNICATIONS--0.3%
6,800 Davel Communications Group(c)....................... 91,800
-----------
TEXTILE & APPAREL--1.2%
7,900 Jones Apparel Group(c).............................. 311,063
-----------
Total Common Stocks
(Identified Cost $20,587,015)...................... 22,827,397
-----------
SHORT-TERM INVESTMENTS--18.4%
FACE
AMOUNT VALUE (a)
COMMERICAL PAPER--18.4%
$1,311,233 Associates Corp. NA, 5.954%,
1/02/96............................................ 1,311,233
1,300,000 Chevron Oil Finance Co., 5.754%, 1/02/96............ 1,300,000
1,300,000 Exxon Asset Management, 5.553%, 1/02/96............. 1,300,000
1,200,000 General Electric Capital Corp., 5.553%, 1/02/96..... 1,200,000
-----------
Total Short-Term Investments
(Identified Cost $5,111,233)....................... 5,111,233
-----------
Total Investments--100.7%
(Identified Cost $25,698,248)(b)................... 27,938,630
Cash and Receivables................................ 673,358
Liabilities......................................... (870,842)
-----------
TOTAL NET ASSETS--100%.............................. $27,741,146
===========
(a) See Note 1A.
(b) Federal Tax Information:
At December 31,1995 the net unrealized appreciation on investments based on
cost of $25,700,577 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...................................... $ 2,764,087
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value......................................... (526,034)
-----------
Net unrealized appreciation......................... $ 2,238,053
===========
(c) Non-income producing security.
See accompanying notes to financial statements.
4
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES SMALL CAP SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1995
ASSETS
Investments at value..................................... $27,938,630
Receivable for:
Fund shares sold......................................... 79,549
Securities sold.......................................... 534,881
Dividends and interest................................... 41,863
Due from advisor......................................... 17,065
-----------
28,611,988
LIABILITIES
Payable for:
Securities purchased..................................... $815,769
Fund shares redeemed..................................... 4,675
Accrued expenses:
Management fees.......................................... 12,082
Other expenses........................................... 38,316
--------
870,842
-----------
$27,741,146
===========
NET ASSETS
Net Assets consist of:
Capital paid in.......................................... $25,080,746
Undistributed net investment income...................... 14,855
Accumulated net realized gains........................... 405,163
Unrealized appreciation on investments................... 2,240,382
-----------
NET ASSETS................................................ $27,741,146
===========
Computation of offering price:
Net asset value and redemption price per share
($27,741,146 divided by 233,502 shares of beneficial
interest)................................................ $ 118.80
===========
Identified cost of investments............................ $25,698,248
===========
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
INVESTMENT INCOME
Dividends................................................ $ 155,166
Interest................................................. 178,490
----------
333,656
EXPENSES
Management fees.......................................... $147,104
Trustees' fees and expenses.............................. 15,050
Custodian................................................ 84,932
Audit and tax services................................... 11,400
Legal.................................................... 11,958
Printing................................................. 8,923
Registration............................................. 7
Miscellaneous............................................ 3,577
--------
Total expenses.......................................... 282,951
Less expenses assumed by the investment adviser......... (135,845) 147,106
-------- ----------
NET INVESTMENT INCOME..................................... 186,550
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on investments--net........................ 1,462,220
Unrealized appreciation on investments--net.............. 2,281,753
----------
Net gain on investment transactions....................... 3,743,973
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS................ $3,930,523
==========
See accompanying notes to financial statements.
5
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES SMALL CAP SERIES)
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD
MAY 1, 1994 (a)
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
--------------- ------------
FROM OPERATIONS
Net investment income......................... $ 4,483 $ 186,550
Net realized gain on investments.............. 455 1,462,220
Unrealized appreciation (depreciation) on in-
vestments.................................... (41,371) 2,281,753
---------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM OPERA-
TIONS........................................ (36,433) 3,930,523
---------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income......................... (4,709) (171,695)
Net realized gain on investments.............. 0 (1,055,203)
---------- -----------
(4,709) (1,226,898)
---------- -----------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares.................. 5,264,621 25,462,402
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income...... 4,709 171,695
Distributions from net realized gain.......... 0 1,055,203
---------- -----------
5,269,330 26,689,300
Cost of shares redeemed....................... (2,123,311) (4,756,656)
---------- -----------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS........................... 3,146,019 21,932,644
---------- -----------
TOTAL INCREASE IN NET ASSETS.................. 3,104,877 24,636,269
NET ASSETS
Beginning of the year......................... 0 3,104,877
---------- -----------
End of the year............................... $3,104,877 $27,741,146
========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year......................... $ 0 $ 0
========== ===========
End of the year............................... $ 0 $ 14,855
========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares................ 95,218 234,111
Issued in connection with the reinvestment of:
Distributions from net investment income...... 49 1,477
Distributions from net realized gain.......... 0 9,076
---------- -----------
95,267 244,664
Redeemed...................................... (63,128) (43,301)
---------- -----------
Net change.................................... 32,139 201,363
========== ===========
(a) Commencement of Operations
FINANCIAL HIGHLIGHTS
MAY 2, 1994*
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
--------------- ------------
Net Asset Value, Beginning of Year............. $ 100.00 $ 96.61
---------- -----------
Income From Investment Operations
Net Investment Income......................... 0.14 0.85
Net Realized and Unrealized Gain (Loss) on In-
vestments.................................... (3.38) 26.93
---------- -----------
Total From Investment Operations.............. (3.24) 27.78
---------- -----------
Less Distributions
Distributions From Net Investment Income...... (0.15) (0.78)
Distributions From Net Realized Capital Gains. 0.00 (4.81)
---------- -----------
Total Distributions........................... (0.15) (5.59)
---------- -----------
Net Asset Value, End of Year................... $ 96.61 $ 118.80
========== ===========
TOTAL RETURN (%)............................... (3.23)*** 28.88
Ratio of Operating Expenses to Average Net As-
sets (%)...................................... 1.00** .99
Ratio of Net Investment Income to Average Net
Assets (%).................................... 0.32** 1.26
Portfolio Turnover Rate (%).................... 80** 98
Net Assets, End of Year (000).................. $ 3,105 $ 27,741
The ratios of expenses to average net assets
without giving effect to the voluntary expense
limitations described in Note 4 to the Finan-
cial Statements would have been (%)........... 2.31** 1.91
* Commencement of operations.
** Computed on an annualized basis.
*** Not computed on an annualized basis.
See accompanying notes to financial statements.
6
ZENITH DRAYCOTT INTERNATIONAL EQUITY SERIES
PORTFOLIO MANAGERS: NICHOLAS D. P. CARN , TIMOTHY S. GRIFFEN, GREGORY D.
ECKERSLEY AND NIGEL HANKIN; DRAYCOTT PARTNERS, LTD.
MARKET REVIEW
Photo Nicholas Photo Timothy S. Griffen
D. P. Carn The international investment climate
in 1995 was characterized by declining
interest rates and low inflation
worldwide and a pronounced slowing of
European economies. Despite slower
growth, European markets fared
relatively well, while the financial
markets of Southeast Asia--which
continue to be dominated by increasing
inflation and upward pressures on
interest rates--provided a sharp
contrast. In Japan, the economy
remained weak, although there were
some signs of renewed growth late in
the year.
Photo Gregory Photo Nigel Hankin Against this backdrop, your Series
D. Eckersley delivered a return of 6.03% for the
twelve months ended December 31, 1995
compared to the return of 11.55% for
the same period for the Europe,
Australia, Far East Index/2/ (EAFE),
the major benchmark for international
stocks.
Our investment goal over the past
year was two-fold: gradually increase
exposure to the Japanese market while
maintaining a significant weighting in
the United Kingdom.
In the United Kingdom, economic forces continue to set the stage for strong
corporate earnings growth, thereby providing attractive investment
opportunities. Of the major markets, the British stock market was one of
1995's top-performers, delivering a return of close to 21% in U.S. dollar
terms. True to our investment goal for the year, we overweighted the Series in
the United Kingdom. In fact, British holdings accounted for more than 20% of
assets for much of 1995--a positioning which helped boost performance.
Our investment policy in Britain over the past twelve months was to shift
attention away from export-oriented sectors, which tended to underperform,
toward those sectors more related to domestic consumption. We also avoided
those sectors related to housing and building construction. One of our
favorite British stocks was Glaxo, a drug company that is currently benefiting
from a combination of growing global drug sales and a significant reduction in
operating costs.
In Japan, the economy has been struggling for more than five years now. Real
estate prices have fallen, banks have suffered and consumer spending has
slowed. And yet, foreign demand for Japanese goods has remained strong,
resulting in a significant trade surplus and, until this past summer, a rising
yen. The surge in the U.S. dollar versus the yen later in 1995 was just one
sign that Japanese fiscal and monetary policy is beginning to produce results.
In fact, we witnessed what we believed to be a recent low for the Japanese
stock market this past year, suggesting that a full economic recovery for that
country is just around the corner.
Reflecting our bullish hopes for Japanese equities, we gradually increased
our position in Japan over the past twelve months. Japanese holdings now
account for over 33% of the portfolio--up from 23% at mid-year. Sectors we
found attractive in Japan included financial services and banking. We believe
these will be the major beneficiaries as deflation ends in that country.
Over the past twelve months, we continued to emphasize "blue chip" companies
in major non-U.S. markets. Indicative of the types of stocks we sought out was
Asahi Bank--one of the so-called Japanese city banks. With the company on
sound footing and business growing, Asahi's operating profits are reaching
record levels. Another one of our favorites is Takashiyama, a specialty
retailer poised to benefit from a rebound in domestic consumption and a
further relaxation in Japan's very strict rules regarding new store openings.
7
In addition to our weightings in Japan and the United Kingdom, we also sought
out opportunities in Spain, Switzerland, Norway, the Netherlands and Germany.
In fact, over the past twelve months, the Series remained fully invested among
more than 10 countries. We also maintained positions in Singapore, Malaysia and
Thailand early in the year, although we gradually cut back our holdings in
Southeast Asia due to concerns over interest rates and domestic inflationary
pressures.
Finally, we avoided Mexico and the extremely speculative markets of Latin
America during the year--a move that helped shelter the Series from dramatic
underperformance in that corner of the world.
OUTLOOK AND STRATEGY
International stock markets continue to offer tremendous opportunities for
investors who recognize the wisdom of international diversification and are
aware of its risks. In fact, given 1995's sharp gains in domestic markets,
foreign markets appear to have greater relative value in the near term.
Our emphasis on fundamental research and discovery of undervalued stocks and
market situations remain keys to successful investment in 1996. Looking ahead,
we expect further drops in interest rates in Europe and a continued slowing of
European economies, some to near-recessionary levels. On the other hand, we are
quite optimistic about the Japanese economy. We're looking for continued
improvement in Japanese financial conditions in the near term, with
developments which could lead to a full economic recovery within the next six
months.
FUND FACTS
GOAL: total return from long-term
growth of capital and dividend
income, primarily through
investment in international
securities.
START DATE: October 31, 1994
SIZE: $16.3 million as of
December 31, 1995
MANAGERS: Nicholas Carn, Timothy
Griffen, Gregory Eckersley and
Nigel Hankin have served as
portfolio managers since the
Series' inception in 1994. Each
has also served as a portfolio
manager of New England
International Equity Fund since
1991. They also have managed the
Maxim Series Fund--Foreign Equity
Portfolio since November 1994.
A $10,000 Investment Compared to an Index
Average Annual Total Return
Draycott Lipper Variable International
Int'l Equity Fund Average
1995 6.03% 10.05%
Since
Inception 8.79% --
[A graph representing the following:]
A $10,000 Investment Compared to an Index
Draycott
International
Equity Series EAFE(2)
--------------- ---------
10/31/94 $10,000 $10,000
1994 $10,260 $ 9,583
1995 $10,899 $10,690
Performance numbers are net of all fund operating expenses but do not include
any insurance, sales or administrative charges of the variable contracts; if
included, the returns 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 original cost.
8
NEW ENGLAND ZENITH FUND
(DRAYCOTT INTERNATIONAL EQUITY SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--92.4% OF TOTAL NET ASSETS
SHARES VALUE (a)
AUSTRALIA--4.4%
6,300 Advance Bank Australia................................... $ 50,479
4,200 Amcor Ltd. .............................................. 29,657
4,900 Broken Hill Property..................................... 69,199
19,400 CSR Ltd. ................................................ 63,157
19,750 Fairfax (John)........................................... 41,103
3,800 Lend Lease Corp. ........................................ 55,077
8,900 Mayne Nickless Ltd. ..................................... 39,690
5,800 National Australia Bank.................................. 52,163
15,100 News Corporation......................................... 80,584
19,200 North Ltd. .............................................. 53,516
40,800 Normandy Mining Ltd. .................................... 59,135
15,000 QNI Limited.............................................. 31,663
11,300 WMC Limited.............................................. 72,567
6,700 Woolworths Ltd. ......................................... 16,135
-----------
714,125
-----------
FINLAND--1.8%
2,800 Cultor OY................................................ 115,878
1,900 Kymmene Corporation...................................... 50,237
3,500 Nokia (AB) OY............................................ 135,191
-----------
301,306
-----------
GERMANY--6.0%
1,600 Adidas................................................... 84,657
100 Boss (Hugo) AG........................................... 83,025
710 Mannesmann AG............................................ 226,042
530 Hoechst AG............................................... 143,723
280 Siemens AG............................................... 153,224
1,530 SGL Carbon............................................... 118,390
3,810 Veba Ag. ................................................ 161,749
-----------
970,810
-----------
GREAT BRITAIN--25.4%
104,500 ASDA Group............................................... 180,144
23,200 BAT Industries........................................... 204,293
4,750 Barclays................................................. 54,442
14,100 Bass..................................................... 157,336
15,150 British Aerospace........................................ 187,243
14,150 British Airways.......................................... 102,406
25,650 British Telecommunication................................ 140,619
15,700 British Sky Broadcast.................................... 99,116
40,600 Burton Group............................................. 84,807
47,450 Caradon PLC.............................................. 144,067
11,250 Commercial Union......................................... 109,722
24,850 Compass Group............................................ 189,105
22,000 Courtaulds............................................... 138,888
24,800 General Electric......................................... 136,344
17,150 Glaxo Welcome............................................ 243,706
77,600 Ladbroke Group........................................... 176,555
36,990 LLoyds TSB Group......................................... 190,436
12,800 Pearson.................................................. 123,945
35,100 Pillar Properties Inv. .................................. 77,406
SHARES VALUE (a)
13,150 Prudential Corporation................................... $ 84,651
14,400 Reed International....................................... 219,500
9,715 Shell Transportation & Trading........................... 128,472
15,800 Smithkline Beecham....................................... 174,220
33,650 Telewest Communications.................................. 81,003
21,500 Ti Group................................................. 153,094
6,265 Thorn EmI................................................ 147,552
28,950 Tomkins.................................................. 126,564
17,450 United News & Media PLC.................................. 150,255
26,100 Williams Holdings........................................ 132,750
-----------
4,138,641
-----------
ITALY--4.8%
54,750 BCA Fideuram SPA......................................... 63,261
14,200 Burgo (Cartiere) SA...................................... 70,860
92,200 Credito Italiano......................................... 107,403
7,900 Edison................................................... 34,025
26,900 Eni SPA.................................................. 94,007
155,750 Olivetti and C SPA....................................... 124,845
18,400 RAS...................................................... 112,905
24,350 Saipem................................................... 56,117
75,760 Telecom Italia Mob....................................... 79,666
15,760 Unicem (Union Cem)....................................... 39,992
-----------
783,081
-----------
JAPAN--33.3%
9,000 Asahi Glass Co. ......................................... 100,242
19,000 Asahi Bank............................................... 239,225
6,000 Bank of Tokyo............................................ 105,182
7,000 Canon Inc. .............................................. 126,780
9,000 Dai Nippon Printing...................................... 152,542
4,000 Daiwa Securities......................................... 61,211
13 East Japan Railway....................................... 63,206
12,000 Fuji Bank................................................ 264,988
2,000 Hitachi.................................................. 20,145
7,000 Honda Motor Co. ......................................... 144,407
7,000 Isetan Co. .............................................. 115,254
28,000 Ishikawajima Har......................................... 117,966
7,000 Kirin Brewery Co. ....................................... 82,712
12,000 Matsushita Electronic Industries......................... 195,254
11,000 Mitsubishi Bank.......................................... 258,886
11,000 Mitsubishi Corp. ........................................ 135,303
16,000 Mitsubishi Chemical...................................... 77,792
11,000 Mitsubishi Heavy Industrial.............................. 87,680
9,000 Mitsui + Co. ............................................ 78,973
19,000 MItsukoshi............................................... 178,499
11,000 Mitsui Fudosan Co. ...................................... 135,303
6,000 Nippondenso Co. ......................................... 112,155
39,000 Nippon Steel Corp. ...................................... 133,714
6,000 Nomura Securities........................................ 130,751
19,000 Odakyu Electric Railway.................................. 129,734
9,000 Okumura Corporation...................................... 81,937
See accompanying notes to financial statements.
9
NEW ENGLAND ZENITH FUND
(DRAYCOTT INTERNATIONAL EQUITY SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--(CONTINUED)
SHARES VALUE (a)
JAPAN--(CONTINUED)
9,000 Onward Kkashiyama...................................... $ 146,441
9,000 Ricom Company.......................................... 98,499
9,000 Sakura Bank............................................ 114,189
11,000 Sanwa Bank............................................. 223,729
5,000 Sony Corp.............................................. 299,758
12,000 Sumitomo Bank.......................................... 254,528
1,000 Sumitomo Marine & Fire................................. 8,213
15,000 Sumitomo Realty & Development.......................... 106,053
12,000 Sumitomo Rubber........................................ 100,184
7,000 Takashimaya Co. ....................................... 111,864
15,000 Tokai Bank............................................. 209,200
4,000 Toto................................................... 55,787
11,000 Yakult Honsha Co. ..................................... 150,218
10,000 Yamanouchi Pharmaceutical.............................. 215,012
-----------
5,423,516
-----------
NETHERLAND--4.8%
1,900 Akzo Nobel NV.......................................... 219,755
3,500 Fortis Amev NV......................................... 234,468
1,100 Nutricia Ver Berdj..................................... 88,976
2,600 N V Koninklijke Sphinx Gus............................. 50,227
5,300 Philips Electronic..................................... 191,562
-----------
784,988
-----------
NORWAY--1.5%
1,880 Kvaerner AS............................................ 66,485
3,300 Norske Skogsindust..................................... 91,173
6,000 Schibsted A/S.......................................... 81,464
-----------
239,122
-----------
SPAIN--5.2%
1,755 Acerinox SA............................................ 177,526
3,400 BCO Santander SA....................................... 170,700
1,550 Gas Natural Sdg SA..................................... 241,509
35,500 Sevillana de Elec...................................... 275,688
-----------
865,423
-----------
SWITZERLAND--5.2%
263 Alusuisse Lonza HD..................................... 208,394
36 Roche Holdings AG...................................... 284,785
100 Sandoz AG.............................................. 91,547
904 Zurich Versicherun..................................... 270,377
-----------
855,103
-----------
Total Common Stocks
(Identified Cost $14,217,725)......................... 15,076,115
-----------
SHORT-TERM INVESTMENTS--5.3%
FACE
AMOUNT VALUE (a)
$865,000 Repurchase agreement with State Street Bank & Trust
Company dated 12/29/95 at 5.000% to be repurchased at
$865,480 on 1/2/96 collateralized by $865,000
U.S.Treasury Notes 8.00%, due 8/15/99 with a value of
$1,009,891........................................... $ 865,000
-----------
Total Short-Term Investments
(Identified Cost $865,000)........................... 865,000
-----------
Total Investments--97.7%
(Identified Cost $15,082,725)........................ 15,941,115
Cash and Receivables(c)............................... 418,547
Liabilities........................................... (92,155)
-----------
TOTAL NET ASSETS--100%................................ $16,267,507
===========
(a) See Note 1a.
(b) Federal Tax Information:
At December 31, 1995 the net unrealized appreciation on investments based on
cost of $15,104,781 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............................................. $ 1,138,334
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value........................................... (302,000)
-----------
Net unrealized appreciation........................... $ 836,334
===========
As of December 1995, the Series had a net tax basis capital loss
carryforward as follows:
Expiring December 31, 2002 $323
Expiring December 31, 2003 $50,456
(c) Including deposits in foreign denominated currencies with a value of
$252,491 and a cost of $253,850.
TEN LARGEST INDUSTRY HOLDINGS AT DECEMBER 31, 1995
Banking.................................................................... 14.6
Consumer Basics............................................................ 12.6
Basic Industries........................................................... 10.7
Miscellaneous Industries................................................... 6.7
Consumer Non-Durables...................................................... 6.7
Capital Goods.............................................................. 6.3
Finance.................................................................... 6.3
Consumer Durables.......................................................... 6.1
Utilities.................................................................. 5.8
Communications............................................................. 4.4
See accompanying notes to financial statements.
10
NEW ENGLAND ZENITH FUND
(DRAYCOTT INTERNATIONAL EQUITY SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1995
ASSETS
Investments at value..................................... $15,941,115
Cash..................................................... 567
Foreign cash at value.................................... 252,491
Receivable for:
Fund shares sold......................................... 88,653
Dividends and interest................................... 19,415
Foreign taxes............................................ 13,223
Due from advisor......................................... 36,493
Unamortized organization expense......................... 7,705
-----------
16,359,662
LIABILITIES
Payable for:
Securities purchased..................................... $29,374
Fund shares redeemed..................................... 80
Withholding Taxes........................................ 2,656
Accrued expenses:
Management fees.......................................... 5,181
Other expenses........................................... 54,864
-------
92,155
-----------
$16,267,507
===========
NET ASSETS
Net Assets consist of:
Capital paid in.......................................... $15,581,805
Distributions in excess of net investment income......... (6,800)
Accumulated net realized losses.......................... (164,529)
Unrealized appreciation on investments, forward contracts
and foreign currency.................................... 857,031
-----------
NET ASSETS................................................ $16,267,507
===========
Computation of offering price:
Net asset value and redemption price per share
($16,267,507 divided by 1,516,717 shares of beneficial
interest)................................................ $ 10.73
===========
Identified cost of investments............................ $15,082,725
===========
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
INVESTMENT INCOME
Dividends.............................................. $174,150(a)
Interest............................................... 72,866
--------
247,016
EXPENSES
Management fees........................................ $ 85,666
Trustees' fees and expenses............................ 15,050
Custodian.............................................. 147,730
Audit and tax services................................. 28,000
Legal.................................................. 10,821
Printing............................................... 4,651
Registration........................................... 7
Insurance.............................................. 98
Amortization of organization expenses.................. 2,347
Miscellaneous.......................................... 3,165
---------
Total expenses........................................ 297,535
Less expenses assumed by the investment adviser....... (173,796) 123,739
--------- --------
NET INVESTMENT INCOME................................... 123,277
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS
Realized gain (loss) on:
Investments--net....................................... (205,658)
Foreign currency transactions--net..................... 80,389
---------
Total realized loss on investments and foreign
currency transactions................................ (125,269)
---------
Unrealized appreciation on:
Investments--net....................................... 543,413
Foreign currency transactions--net..................... 255,106
---------
Total unrealized appreciation on investments and
foreign currency transactions........................ 798,519
---------
Net gain on investment transactions..................... 673,250
--------
NET INCREASE IN NET ASSETS FROM OPERATIONS.............. $796,527
========
(a)Net of foreign taxes of: $26,441
See accompanying notes to financial statements.
11
NEW ENGLAND ZENITH FUND
(DRAYCOTT INTERNATIONAL EQUITY SERIES)
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD
OCTOBER 31, 1994 (a)
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
-------------------- ------------
FROM OPERATIONS
Net investment income...................... $ 7,643 $ 123,277
Net realized loss on investments and for-
eign currency transactions................ (2,176) (125,269)
Unrealized appreciation on investments, and
foreign currency transactions............. 58,511 798,519
----------- -----------
INCREASE IN NET ASSETS FROM OPERATIONS..... 63,978 796,527
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................... (5,791) (123,277)
In excess of net investment income......... 0 (48,516)
Paid in capital............................ (2,628) 0
----------- -----------
(8,419) (171,793)
----------- -----------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares............... 3,566,918 16,189,698
Net asset value of shares issued in connec-
tion with the reinvestment of:
Distributions from net investment income... 5,791 171,793
Distributions from paid in capital......... 2,628 0
----------- -----------
3,575,337 16,361,491
Cost of shares redeemed.................... (1,641,679) (3,707,935)
----------- -----------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS........................ 1,933,658 12,653,556
----------- -----------
TOTAL INCREASE IN NET ASSETS............... 1,989,217 13,278,290
NET ASSETS
Beginning of the year...................... 1,000,000 2,989,217
----------- -----------
End of the year............................ $ 2,989,217 $16,267,507
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year...................... $ 0 $ 0
=========== ===========
End of the year............................ $ 0 $ (6,800)
=========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares............. 355,009 1,564,292
Issued in connection with the reinvestment
of:
Distributions from net investment income... 571 16,055
Distributions from paid in capital......... 257 0
----------- -----------
355,837 1,580,347
Redeemed................................... (163,731) (355,736)
----------- -----------
Net change................................. 192,106 1,224,611
=========== ===========
(a) Commencement of Operations
FINANCIAL HIGHLIGHTS
OCTOBER 31, 1994*
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
-------------------- ------------
Net Asset Value, Beginning of Year.......... $ 10.00 $ 10.23
----------- -----------
Income From Investment Operations
Net Investment Income...................... 0.03 0.09
Net Realized and Unrealized Gain (Loss) on
Investments............................... 0.23 0.53
----------- -----------
Total From Investment Operations........... 0.26 0.62
----------- -----------
Less Distributions
Distributions From Net Investment Income... (0.02) (0.09)
Distributions in Excess of Net Investment
Income.................................... 0.00 (0.03)
Distributions From Paid-in Capital......... (0.01) 0.00
----------- -----------
Total Distributions........................ (0.03) (0.12)
----------- -----------
Net Asset Value, End of Year................ $ 10.23 $ 10.73
=========== ===========
TOTAL RETURN (%)............................ 2.60*** 6.03
Ratio of Operating Expenses to Average Net
Assets (%)................................. 1.30** 1.30
Ratio of Net Investment Income to Average
Net Assets (%)............................. 2.56** 1.29
Portfolio Turnover Rate (%)................. 4** 89
Net Assets, End of Year (000)............... $ 2,989 $ 16,268
The ratios of expenses to average net assets
without giving effect to the voluntary
expense limitations described in Note 4 to
the Financial Statements would have been
(%)........................................ 5.38** 3.12
* Commencement of operations.
** Computed on an annualized basis.
*** Not computed on an annualized basis.
See accompanying notes to financial statements.
12
ZENITH ALGER EQUITY GROWTH SERIES
PORTFOLIO MANAGERS: DAVID D. ALGER, SEILAI KHOO AND RON TARRARO; FRED ALGER
MANAGEMENT, INC.
MARKET REVIEW
Photo David
Alger 1995 proved to be a very good year for the stock market.
The general stock market indices all posted substantial
gains, and the Alger Growth Equity Series had a very
impressive 48.7% return for the year, significantly
outperforming all major indices, including the Standard &
Poor's 500 Index/1//9/, which returned 37.44%. In fact,
according to Lipper Analytical Services, Inc., the
portfolio ended the year ranked second out of ninety-six
variable product growth funds.
As of December 31, 1995, the Alger Equity Growth Series
portfolio held 66 stocks with a
median price/earnings ratio (P/E) of 24.4x, 1 year earnings per share (EPS)
growth of 36.61% based on 1995 estimated earnings, and a weighted average
annual five year EPS growth estimate of 25.3%. The weighted average market cap
was $10.3 billion. The top three industry sectors were semiconductors,
computer networking and pharmaceuticals. The portfolio held 17 stocks for the
entire 12 month period of which 16 advanced and only 1 declined in price. Of
the 16 that advanced, 11 appreciated more than 50%. The portfolio did not
invest in derivative securities during the year.
The year began with growth stocks undervalued relative to the market and
interest rates at a fairly high level of 7.89%. The Federal Reserve Board had
targeted a desired growth rate of 2.5% for 1995, a substantial reduction from
the 4.1% growth in 1994. Predictably, the economy began to decelerate from a
fairly strong fourth quarter in response to increases in interest rates (both
long and short) that occurred during 1994. This deceleration had a negative
impact on consumer spending--principally in interest-sensitive sectors such as
housing and autos. Many non-growth groups, including those that were depressed
in 1994, including financials and utilities, had an excellent first quarter.
As a result, growth stocks remained deeply undervalued relative to the market
and presented excellent investment opportunities for the rest of the year.
In the second quarter, growth stocks improved to the low end of their normal
range. Technology related stocks started to do especially well in April (after
March earnings were announced) with positive product cycles in all areas of
technology. Additionally, businesses were continuing to lay off employees and
invest heavily in information technology to augment productivity. The
portfolio had strong performance returns during this time, due primarily to a
large exposure to technology related stocks (40-55% of the portfolio).
Second quarter Gross Domestic Product (GDP) annualized growth was a very
slow 1.3%. In response, the Fed lowered rates by 1/4 point in July. At the
same time, the bond market rallied sharply due to the slowdown in the economy
and lack of inflation. The market in general rose quickly, with the Dow Jones
Industrial Average breaking one record after another. Technology stocks
continued to respond strongly to extremely favorable second quarter earnings,
especially semiconductors and related semiconductor equipment (approximately
20-30% of the portfolio). The third quarter ended with GDP up a surprising
4.2%. This better than expected growth rate resulted in a build-up in
inventories, suggesting that the fourth quarter numbers would be lower than
the third quarter.
As the fourth quarter progressed, it became clear that the economy was
decelerating sharply, especially at the consumer level. This began to have
negative implications for certain technology stocks--especially commodity-
based semiconductors (DRAM's and SRAM's) which were also beset by a build-up
of capacity in Asia. We had a substantial commitment to technology related
stocks entering the fourth quarter--approximately 50% of the portfolio.
Significant sell-offs began to occur and we liquidated select technology
holdings. By December, we had reduced the portfolio's technology related
exposure from 50+% to approximately 35%, retaining stocks that we felt still
had good fundamentals. In general, prices of growth stocks, which had peaked
at around 1.7x market in September and October, fell dramatically as investors
took profits and rotated into defensive stocks, sending the averages higher
but depressing growth stocks. We had predicted that the Fed would lower rates
in December, and this proved an accurate forecast on December 19th. This
action eliminated some negativity in the market and we regained some of our
lost momentum.
13
OUTLOOK AND STRATEGY
At present, technology stocks have continued to be subject to periods of
excessive profit taking. There were sharp sell-offs in the technology sector
during the fourth quarter of 1995. We believe that this phenomenon has been
greatly overdone and that many of our holdings are exceedingly undervalued. We
recently completed a study that shows that if our top thirteen technology
holdings were to return to the high P/E multiples reached in 1995, based on
1996 projected earnings, the average appreciation would be in excess of 70%.
Therefore, we are extremely reluctant to sell stocks that are doing well at
this price. We believe that this strategy will, in the end, prevail.
What we see for the economy in 1996 is as follows:
1) The first quarter may grow, but at a slow rate;
2) The Fed may be anxious to supply credit in small increments;
3) Inflation, after a brief commodity-based scare, may be low;
4) Corporate profits may rise, but not as sharply as in 1995;
5) The stock market may have a good year, possibly reaching 6000.
In conclusion, we expect that 1996 will be another successful year for the
Alger Equity Growth Series.
FUND FACTS
GOAL: long-term capital
appreciation.
START DATE: October 31, 1994
SIZE: $46.4 million
MANAGERS: David D. Alger,
President and Chief Investment
Officer (since 1995), Executive
Vice President, Portfolio Manager
and Director of Research (since
1971), Fred Alger Management
Inc.; Portfolio Manager, The
Alger Growth Portfolio (since
1986), The Alger American Fund
Growth Portfolio (since 1989) and
The Alger Defined Contribution
Trust Growth Portfolio (since
1993). Seilai Khoo and Ron
Tarraro have managed the Series
since 1995.
A $10,000 Investment Compared to an Index
Average Annual Total Return
Alger Equity Lipper Variable Small
Growth Fund Average
1995 48.70% 32.47%
Since
Inception 32.42% --
[A graph representing the following:]
A $10,000 Investment Compared to an Index
Alger Equity
Growth S&P 500(19)
--------------- ---------
10/31/94 $10,000 $10,000
1994 $ 9,580 $ 9,794
1995 $14,245 $13,461
Performance numbers are net of all fund operating expenses but do not include
any insurance, sales or administrative charges of the variable contracts; if
included, the returns 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 original cost.
14
NEW ENGLAND ZENITH FUND
(ALGER EQUITY GROWTH SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--87.9% OF TOTAL NET ASSETS
SHARES VALUE (a)
AIRLINES--0.8%
5,000 Delta Air Lines, Inc. .................................... $ 369,375
-----------
APPAREL--0.9%
10,000 Tommy Hilfiger Corp. ..................................... 423,750
-----------
BIO TECHNOLOGY--2.7%
31,000 Biochem Pharmacy, Inc. ................................... 1,243,875
-----------
BUILDING & CONSTRUCTION--1.7%
22,500 Clayton Homes, Inc. ...................................... 480,938
9,200 Pulte Corp. .............................................. 309,350
-----------
790,288
-----------
CASINOS & RESORTS--0.2%
2,800 Mirage Resorts, Inc. ..................................... 96,600
-----------
COMMUNICATIONS--5.5%
13,500 DSC Communications Corp.(c)............................... 497,813
10,000 Glenayre Technologies, Inc. .............................. 622,500
5,400 Tellabs, Inc.(c).......................................... 199,800
8,000 US Robotics, Inc. ........................................ 702,000
11,000 Viacom Inc.--Class B(c)................................... 521,125
-----------
2,543,238
-----------
COMPUTER RELATED & BUSINESS
EQUIPMENT--18.1%
26,750 Bay Networks, Inc. ....................................... 1,100,094
11,500 Cisco Systems, Inc. ...................................... 858,187
9,000 Compaq Computer Corp.(c).................................. 432,000
23,350 Dell Computer Corp. ...................................... 808,494
22,900 Digital Equipment Corp.(c)................................ 1,468,462
19,801 First Data Corp. ......................................... 1,324,192
17,400 Seagate Technology........................................ 826,500
12,600 Summit Technology, Inc. .................................. 425,250
24,900 3Com Corp.(c)............................................. 1,160,962
-----------
8,404,141
-----------
COMPUTER SOFTWARE--1.0%
5,000 Broderbund Software, Inc. ................................ 303,750
6,000 Informix Corporation...................................... 180,000
-----------
483,750
-----------
COMPUTER TECHNOLOGY--1.9%
3,550 Adaptec, Inc. ............................................ 145,550
10,000 America Online, Inc. ..................................... 375,000
10,000 General Datacomm Industries, Inc. ........................ 171,250
6,500 Silicon Graphics, Inc. ................................... 178,750
-----------
870,550
-----------
DEFENSE--3.6%
3,000 Lockheed Martin Corp. .................................... 237,000
14,400 Loral Corp. .............................................. 509,400
10,200 McDonnell Douglas Corp. .................................. 938,400
-----------
1,684,800
-----------
SHARES VALUE (a)
FINANCE--2.8%
6,900 American International Group, Inc. ....................... $ 638,250
10,600 Travelers Group, Inc. .................................... 666,475
-----------
1,304,725
-----------
FINANCIAL SERVICES--0.7%
4,500 Lehman Brothers Holdings, Inc. ........................... 95,625
4,000 Merrill Lynch & Co., Inc. ................................ 204,000
-----------
299,625
-----------
HEALTH CARE--11.8%
8,400 Apria Health Care Group, Inc. ............................ 237,300
6,000 Boston Scientific Corp. .................................. 294,000
20,000 Cardinal Health, Inc. .................................... 1,095,000
16,400 Columbia/HCA Healthcare Corp. ............................ 832,300
12,000 Genzyme Corp. ............................................ 748,500
3,450 Health Management Assoc., Inc. ........................... 90,131
16,500 Merck & Co., Inc. ........................................ 1,084,875
4,300 Nellcor Puritan Bennett, Inc. ............................ 249,400
20,000 Occusystems, Inc. ........................................ 400,000
7,000 United Healthcare Corp. .................................. 458,500
-----------
5,490,006
-----------
HEALTH CARE--ADMINISTRATIVE
SERVICES--3.0%
33,400 Healthsource, Inc. ....................................... 1,202,400
10,000 Liposome, Inc. ........................................... 200,000
-----------
1,402,400
-----------
HEALTH MAINTENANCE SERVICES--2.5%
15,500 Oxford Health Plans, Inc. ................................ 1,145,062
-----------
MEDICAL SERVICES--0.6%
5,200 Medtronic, Inc. .......................................... 290,550
-----------
MISCELLANEOUS--2.6%
27,000 Service Corp. International............................... 1,188,000
-----------
PHARMECUTICALS--3.7%
16,200 Eli Lilly & Company....................................... 911,250
14,700 Smithkline Beecham PLC.................................... 815,850
-----------
1,727,100
-----------
RESTAURANTS & LODGING--5.9%
14,400 Boston Chicken, Inc. ..................................... 462,600
7,150 Cracker Barrel Old Country Store.......................... 123,338
20,000 La Quinta Inns, Inc. ..................................... 547,500
35,800 Lone Star Steakhouse Saloon............................... 1,373,825
6,000 Outback Steakhouse, Inc. ................................. 215,250
-----------
2,722,513
-----------
RETAILING--6.6%
9,800 Cintas Corp. ............................................. 436,100
10,000 CompUSA, Inc. ............................................ 311,250
56,000 Officemax, Inc. .......................................... 1,253,000
See accompanying notes to financial statements.
15
NEW ENGLAND ZENITH FUND
(ALGER EQUITY GROWTH SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--(CONTINUED)
SHARES VALUE (a)
RETAILING--(CONTINUED)
20,000 The Gap, Inc.............................................. $ 840,000
5,000 Viking Office Products, Inc............................... 232,500
-----------
3,072,850
-----------
SEMI-CONDUCTORS--11.3%
27,000 Altera Corp............................................... 1,343,250
17,800 Intel Corp. .............................................. 1,010,150
10,000 LSI Logic Corp............................................ 327,500
15,000 Linear Technology Corporation............................. 588,750
32,600 Maxim Integrated Products, Inc............................ 1,255,100
23,300 Xilinx, Inc............................................... 710,650
-----------
5,235,400
-----------
Total Common Stocks
(Identified Cost $36,287,708)............................ 40,788,598
-----------
SHORT-TERM INVESTMENTS--16.2%
FACE
AMOUNT VALUE (a)
$7,504,356 Seven Seas U.S. Government
Money Market Fund........ $ 7,504,356
-----------
Total Short-Term
Investment
(Identified Cost
$7,504,356)................ 7,504,356
-----------
Total Investments--104.1%
(Identified cost
$43,792,064)(b)............ 48,292,954
Receivables............... 266,770
Liabilities............... (2,173,322)
-----------
TOTAL NET ASSETS--100%...... $46,386,402
===========
(a) See Note 1A.
(b) Federal Tax Information:
At December 31, 1995 the net unrealized appreciation on investments based on
cost of $43,809,703 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...... $ 5,430,730
Aggregate gross unrealized
depreciation for all
investments in which
there is an excess of tax
cost over value.......... (947,479)
-----------
Net unrealized
appreciation............. $ 4,483,251
===========
(c) Non-income producing security.
See accompanying notes to financial statements.
16
NEW ENGLAND ZENITH FUND
(ALGER EQUITY GROWTH SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1995
ASSETS
Investments at value.................................. $48,292,954
Receivable for:
Fund shares sold...................................... 215,212
Dividends and interest................................ 43,853
Unamortized organization expense...................... 7,705
-----------
48,559,724
LIABILITIES
Payable for:
Securities purchased.................................. $2,110,953
Fund shares redeemed.................................. 1,877
Accrued expenses:
Management fees....................................... 21,027
Other expenses........................................ 39,465
----------
2,173,322
-----------
$46,386,402
===========
NET ASSETS
Net Assets consist of:
Capital paid in....................................... $42,729,581
Undistributed net investment income................... 1,354
Accumulated net realized losses....................... (845,423)
Unrealized appreciation on investments................ 4,500,890
-----------
NET ASSETS............................................. $46,386,402
===========
Computation of offering price:
Net asset value and redemption price per share
($46,386,402 divided by 3,362,196 shares of beneficial
interest)............................................. $ 13.80
===========
Identified cost of investments......................... $43,792,064
===========
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
INVESTMENT INCOME
Dividends............................................. $ 81,944(a)
Interest.............................................. 124,430
----------
206,374
EXPENSES
Management fees....................................... $144,943
Trustees' fees and expenses........................... 15,049
Custodian............................................. 52,793
Audit and tax services................................ 19,800
Legal................................................. 10,821
Printing.............................................. 4,920
Registration.......................................... 7
Amortization of organization expenses................. 2,347
Miscellaneous......................................... 2,575
--------
Total expenses....................................... 253,255
Less expenses assumed by the investment adviser...... (77,254) 176,001
-------- ----------
NET INVESTMENT INCOME.................................. 30,373
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on investments--net..................... 448,499
Unrealized appreciation on investments--net........... 4,579,507
----------
Net gain on investment transactions.................... 5,028,006
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS............. $5,058,379
==========
(a) Net of foreign taxes of: $319
See accompanying notes to financial statements.
17
NEW ENGLAND ZENITH FUND
(ALGER EQUITY GROWTH SERIES)
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD
OCTOBER 31, 1994(a)
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
------------------- ------------
FROM OPERATIONS
Net investment income....................... $ 3,467 $ 30,373
Net realized gain (loss) on investments..... (7,937) 448,499
Unrealized appreciation (depreciation) on
investments................................ (78,617) 4,579,507
---------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM OPER-
ATIONS..................................... (83,087) 5,058,379
---------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income....................... (3,466) (30,373)
In excess of net investment income.......... (534) (993)
Net realized gain on investments............ 0 (1,285,986)
---------- -----------
(4,000) (1,317,352)
---------- -----------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares................ 1,872,491 47,127,562
Net asset value of shares issued in connec-
tion with the reinvestment of:
Distributions from net investment income.... 4,000 31,366
Distributions from net realized gain........ 0 1,285,986
---------- -----------
1,876,491 48,444,914
Cost of shares redeemed..................... (1,872,491) (7,716,452)
---------- -----------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS......................... 4,000 40,728,462
---------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS..... (83,087) 44,469,489
NET ASSETS
Beginning of the year....................... 2,000,000 1,916,913
---------- -----------
End of the year............................. $1,916,913 $46,386,402
========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year....................... $ 0 $ 0
========== ===========
End of the year............................. $ 0 $ 1,354
========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.............. 220,620 3,648,304
Issued in connection with the reinvestment
of:
Distributions from net investment income.... 421 2,303
Distributions from net realized gain........ 0 94,419
---------- -----------
221,041 3,745,026
Redeemed.................................... (220,620) (583,251)
---------- -----------
Net change.................................. 421 3,161,775
========== ===========
(a) Commencement of Operations
FINANCIAL HIGHLIGHTS
OCTOBER 31, 1994*
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
------------------- ------------
Net Asset Value, Beginning of Year........... $ 10.00 $ 9.56
---------- -----------
Income From Investment Operations
Net Investment Income....................... 0.02 0.01
Net Realized and Unrealized Gain (Loss) on
Investments................................ (0.44) 4.65
---------- -----------
Total From Investment Operations............ (0.42) 4.66
---------- -----------
Less Distributions
Distributions From Net Investment Income.... (0.02) (0.01)
Distributions From Net Realized Capital
Gains...................................... 0.00 (0.41)
---------- -----------
Total Distributions......................... (0.02) (0.42)
---------- -----------
Net Asset Value, End of Year................. $ 9.56 $ 13.80
========== ===========
TOTAL RETURN (%)............................. (4.20)*** 48.70
Ratio of Operating Expenses to Average Net
Assets (%).................................. 0.85** 0.83
Ratio of Net Investment Income to Average Net
Assets (%).................................. 1.07** 0.14
Portfolio Turnover Rate (%).................. 32** 107
Net Assets, End of Year (000)................ $ 1,917 $ 46,386
The ratios of expenses to average net assets
without giving effect to the voluntary
expense limitations described in Note 4 to
the Financial Statements would have been
(%)......................................... 2.74** 2.45
* Commencement of operations.
** Computed on an annualized basis.
*** Not computed on an annualized basis.
See accompanying notes to financial statements.
18
ZENITH CAPITAL GROWTH SERIES
PORTFOLIO MANAGER: G. KENNETH HEEBNER; CAPITAL GROWTH MANAGEMENT, L.P.
MARKET REVIEW
Photo G. In 1995, an economic environment fell into place that was
Kenneth Heebner highly favorable to the stock market, and particularly the
kind of growth stocks your Series invests in. Both bond and
stock markets prospered. Among the key factors were a
benign inflationary background and moderating interest
rates, along with low labor and capital costs and high
productivity--a combination that permitted many companies
to enjoy increased revenues, expanding profit margins and
earnings growth.
Taking advantage of these positive trends, the Series
rewarded shareholders with very
strong performance in 1995. Total return was 38.03% for the 12 months ended
December 31, 1995. The Series outperformed the overall market as measured by
the Standard and Poor's 500 Index,/1//9/ which had a total return of 37.44% for
the period.
The Series delivered these strong returns in 1995 by staying fully invested
in a rising stock market. Most holdings rose in price, and the Series benefited
significantly from its substantial positions in airlines, banks and technology
stocks.
Holdings in steel, chemical and copper stocks were sold in the first quarter,
in anticipation of a slow-growth economy. A large position in technology stocks
was taken early in the year. Most of these issues were sold during the second
half of the year, at higher prices.
Over the last two years many investors have come to appreciate the difficulty
of trying to time moves in and out of the market. In early 1995, few market
observers anticipated the long string of record highs that we witnessed last
year. Manager Ken Heebner's investment approach--concentrating on a relatively
small number of holdings that he believes can deliver earnings in excess of the
consensus view--has delivered positive results for shareholders over the years.
Although past performance does not guarantee future results, the Series' long-
term record demonstrates that the surest way to take advantage of the market's
potential for growth is to stay invested.
FUND FACTS
GOAL: long-term growth of
capital.
START DATE: August 26, 1983
SIZE: $921.4 million as of
December 31, 1995
MANAGER: G. Kenneth Heebner,
since 1983; portfolio manager of
New England Growth Fund since
1976; CGM Capital Development
Fund since 1976; CGM Mutual Fund
since 1981; CGM Realty Fund since
1994; CGM Fixed Income Fund since
1993.
A $10,000 Investment Compared to an Index
Average Annual Total Return
Capital Lipper Variable
Growth Growth Fund Average
1 year 38.03% 32.47%
5 years 16.37% 17.27%
10 years 22.02% 14.24%
[A graph representing the following:]
A $10,000 Investment Compared to an Index
Zenith
Capital
Growth S&P 500(19)
--------------- -----------
12/31/85 $10,000 $10,000
1986 $19,520 $11,862
1987 $29,807 $12,480
1988 $27,184 $14,539
1989 $35,557 $19,132
1990 $34,312 $18,535
1991 $52,841 $24,159
1992 $49,618 $25,997
1993 $57,045 $28,613
1994 $53,012 $29,002
1995 $73,173 $39,860
Performance numbers are net of all fund operating expenses but do not include
any insurance, sales or administrative charges of the variable contracts; if
included, the returns 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 original cost.
19
NEW ENGLAND ZENITH FUND
(CAPITAL GROWTH SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--98.5% OF TOTAL NET ASSETS
SHARES VALUE (a)
AEROSPACE--6.1%
721,000 Boeing Co............................................. $ 56,508,375
------------
AIRLINES--9.6%
90,000 AMR Corp.(c).......................................... 6,682,500
680,000 Northwest Airlines Corp.(c)........................... 34,680,000
265,000 UAL Corp.(c).......................................... 47,302,500
------------
88,665,000
------------
BANKS--MONEY CENTER--12.7%
930,000 Chemical Banking Corp. ............................... 54,637,500
926,000 CitiCorp.............................................. 62,273,500
------------
116,911,000
------------
BEVERAGES AND TOBACCO--4.5%
745,000 Pepsico, Inc.......................................... 41,626,875
------------
CHEMICALS--2.4%
423,000 Air Products & Chemicals, Inc......................... 22,313,250
------------
COMPUTER SOFTWARE & SERVICES--4.6%
485,000 Computer Associates International, Inc................ 27,584,375
211,000 Computer Sciences Corp.(c)............................ 14,822,750
------------
42,407,125
------------
DEFENSE--1.9%
220,000 Lockheed Martin Corp. ................................ 17,380,000
------------
DRUGS--13.4%
924,000 Eli Lilly and Co...................................... 51,975,000
775,000 Merck and Company, Inc. .............................. 50,956,250
330,000 Pfizer, Inc........................................... 20,790,000
------------
123,721,250
------------
FINANCIAL SERVICES--1.9%
253,000 First Data Corp....................................... 16,919,375
------------
FOOD--RETAILERS/WHOLERS--5.5%
560,000 Philip Morris Companies, Inc.......................... 50,680,000
------------
FREIGHT TRANSPORTATION--5.2%
611,000 Burlington Northern Santa Fe Corp. ................... 47,658,000
------------
HOME PRODUCTS AND COSMETIC--3.8%
425,000 Procter and Gamble Co. ............................... 35,275,000
------------
INSURANCE--11.9%
1,215,000 Allstate Corp......................................... 49,966,875
638,850 American International Group, Inc. ................... 59,093,625
------------
109,060,500
------------
MACHINERY--2.1%
555,000 Deere & Co............................................ 19,563,750
------------
SHARES VALUE (a)
RETAIL--7.8%
820,000 May Department Stores Co. .......................... $ 34,645,000
940,000 Sears Roebuck and Co................................ 36,660,000
------------
71,305,000
------------
MISCELLANEOUS--5.1%
498,000 United Technologies Corp............................ 47,247,750
------------
Total Common Stock
(Identified Cost $780,984,415)..................... 907,242,250
------------
SHORT-TERM INVESTMENTS--0.6%
FACE
AMOUNT VALUE (A)
$5,910,000 Chevron Oil Finance Co.
5.7500%, 01/02/96................................. 5,910,000
------------
Total Short-Term Investments
(Identified Cost $5,910,000)...................... 5,910,000
------------
Total Investments--99.1%
(Identified Cost $786,894,415)(b)................. 913,152,250
Cash and Receivables............................... 23,889,162
Liabilities........................................ (15,597,592)
------------
TOTAL NET ASSETS--100%............................. $921,443,820
============
(a) See Note 1A.
(b) Federal Tax Information:
At December 31, 1995 the net unrealized appreciation on investments based on
cost of $788,379,751 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..................................... $129,236,142
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value................................... (4,463,643)
------------
Net unrealized appreciation........................ $124,772,499
============
(c) Non-Income producing security.
See accompanying notes to financial statements.
20
NEW ENGLAND ZENITH FUND
(CAPITAL GROWTH SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1995
ASSETS
Investments at value................................. $913,152,250
Cash................................................. 956
Receivable for:
Fund shares sold..................................... 668,455
Securities sold...................................... 21,702,342
Dividends and interest............................... 1,517,409
------------
937,041,412
LIABILITIES
Payable for:
Securities purchased................................. $14,184,326
Fund shares redeemed................................. 669,835
Accrued expenses:
Management fees...................................... 493,781
Deferred trustees' fees.............................. 44,575
Other expenses....................................... 205,075
-----------
15,597,592
------------
$921,443,820
============
NET ASSETS
Net Assets consist of:
Capital paid in...................................... $775,378,866
Undistributed net investment income.................. 28,556
Accumulated net realized gains....................... 19,778,563
Unrealized appreciation on investments............... 126,257,835
------------
NET ASSETS............................................ $921,443,820
============
Computation of offering price:
Net asset value and redemption price per share
($921,443,820 divided by 2,459,656 shares of
beneficial interest)................................. $ 374.62
============
Identified cost of investments........................ $786,894,415
============
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
INVESTMENT INCOME
Dividends.......................................... $ 13,027,061(a)
Interest........................................... 124,993
------------
13,152,054
EXPENSES
Management fees.................................... $5,232,562
Trustees' fees and expenses........................ 41,166
Custodian.......................................... 143,365
Audit and tax services............................. 14,900
Legal.............................................. 8,055
Printing........................................... 240,863
Registration....................................... 7
Miscellaneous...................................... 20,525
----------
Total expenses.................................... 5,701,443
------------
NET INVESTMENT INCOME............................... 7,450,611
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on investments--net.................. 132,068,325
------------
Unrealized appreciation on investments--net........ 114,117,353
------------
Net gain on investment transactions................. 246,185,678
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS.......... $253,636,289
============
(a) Net of foreign taxes of: $29,811
See accompanying notes to financial statements.
21
NEW ENGLAND ZENITH FUND
(CAPITAL GROWTH SERIES)
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
------------- -------------
FROM OPERATIONS
Net investment income........................... $ 10,848,989 $ 7,450,611
Net realized gain on investments................ 18,279,890 132,068,325
Unrealized appreciation (depreciation) on in-
vestments...................................... (79,261,045) 114,117,353
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERA-
TIONS.......................................... (50,132,166) 253,636,289
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income........................... (10,566,409) (7,422,072)
Net realized gain on investments................ (19,094,533) (112,289,797)
------------- -------------
(29,660,942) (119,711,869)
------------- -------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares.................... 265,969,106 211,234,567
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income........ 10,556,416 7,422,051
Distributions from net realized gain............ 18,284,122 112,289,762
------------- -------------
294,809,644 330,946,380
Cost of shares redeemed......................... (192,273,754) (210,553,681)
------------- -------------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS............................. 102,535,890 120,392,699
------------- -------------
TOTAL INCREASE IN NET ASSETS.................... 22,742,782 254,317,119
NET ASSETS
Beginning of the year........................... 644,383,919 667,126,701
------------- -------------
End of the year................................. $ 667,126,701 $ 921,443,820
============= =============
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year........................... $ (1,766) $ 278,739
============= =============
End of the year................................. $ 278,739 $ 28,556
============= =============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................. 773,701 561,255
Issued in connection with the reinvestment of:
Distributions from net investment income........ 33,768 19,951
Distributions from net realized gain............ 58,487 301,846
------------- -------------
865,956 883,052
Redeemed........................................ (562,304) (559,603)
------------- -------------
Net change...................................... 303,652 323,449
============= =============
FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31,
------------------------------------------------
1991 1992 1993 1994 1995
-------- -------- -------- -------- --------
Net Asset Value, Beginning of
Year........................ $ 249.04 $ 347.36 $ 322.23 $ 351.63 $ 312.30
-------- -------- -------- -------- --------
Income From Investment Opera-
tions
Net Investment Income....... 3.16 4.04 2.12 5.28 3.47
Net Realized and Unrealized
Gain (Loss) on Investments. 130.75 (25.10) 46.21 (30.54) 114.91
-------- -------- -------- -------- --------
Total From Investment Opera-
tions...................... 133.91 (21.06) 48.33 (25.26) 118.38
-------- -------- -------- -------- --------
Less Distributions
Distributions From Net In-
vestment Income............ (3.22) (4.07) (2.18) (5.15) (3.48)
Distributions From Net Real-
ized Capital Gains......... (31.93) 0.00 (16.75) (8.92) (52.58)
Distributions From Paid-in
Capital.................... (0.44) 0.00 0.00 0.00 0.00
-------- -------- -------- -------- --------
Total Distributions......... (35.59) (4.07) (18.93) (14.07) (56.06)
-------- -------- -------- -------- --------
Net Asset Value, End of Year. $ 347.36 $ 322.23 $ 351.63 $ 312.30 $ 374.62
======== ======== ======== ======== ========
TOTAL RETURN (%)............. 54.00 (6.05) 14.97 (7.07) 38.03
Ratio of Operating Expenses
to Average Net Assets (%)... 0.70 0.70 0.68 0.67 0.71
Ratio of Net Investment In-
come to Average Net Assets
(%)......................... 1.22 1.53 0.67 1.61 0.92
Portfolio Turnover Rate (%).. 174 207 169 140 242
Net Assets, End of Year
(000)....................... $343,965 $472,017 $644,384 $667,127 $921,444
See accompanying notes to financial statements.
22
ZENITH LOOMIS SAYLES AVANTI GROWTH SERIES
PORTFOLIO MANAGERS: RICHARD HURCKES AND SCOTT PAPE; LOOMIS SAYLES & COMPANY,
L.P.
MARKET REVIEW
Photo Richard Photo Scott Pape
Hurckes In 1995, the economic environment
proved to be extremely good for the
stock market, and for growth investing
in particular. A combination of steady
growth in revenue, low labor and
capital costs and high productivity
allowed American corporations to enjoy
expanding profit margins and strong
earnings growth.
American companies doing business
internationally
benefited from the decline of the U.S. dollar early in the year. Corporations
with significant global sales experienced healthy profits thanks in part to
favorable currency translations.
Loomis Sayles Avanti Growth Series remained fully in the stock market as the
market rose to new highs in 1995. For the 12 months ended December 31, 1995,
the Series achieved a total return of 30.35% at net asset value. This compares
favorably to a 32.47% return for the Lipper Variable Growth Fund Average/1//1/
and S&P 500 Index/1//9/ return of 37.44% over the same period.
The Series' successful performance was driven by our investment in premier
companies across a broad spectrum of industries. Holdings that delivered the
largest gains were those in the technology, medical technology and financial
sectors.
Early in the year, we anticipated the strength of technology stocks, and
increased our position in that sector. Among our best performers were Oracle
Systems, a leader in database management software, and Cisco Systems, a
principal provider of inter-networking software used to connect computers
worldwide. During the fourth quarter, we reduced our technology holdings
slightly in the wake of increasing price volatility, and locked in some of the
sizeable gains made earlier in the year.
In 1995, we also built up our position in medical technology stocks, adding
two distinguished companies--Medtronic, a leading worldwide manufacturer of
pacemakers and implantable defribrillators, and Boston Scientific, a pioneer
in technology for interventional cardiology procedures such as angioplasty.
Both companies enjoyed strong profits during the year and contributed greatly
to the performance of the Series.
Pharmaceutical companies in the portfolio such as Johnson & Johnson, Merck
and biotechnology leader Amgen also experienced good revenue gains due in
large part to their proprietary products and increasing international sales.
Financial stocks contributed to the Series' performance in the first half of
the year. The prices of First Data Corp., a premier data processing company,
and MBNA, one of the largest credit card issuers in the nation, were driven up
by strong earnings. By mid-year, as the growth rate of earnings slowed, we
began to shift out of the financial sector and into other areas, including
consumer non-durables and medical technology.
The Series' portfolio includes several Fortune 100 companies doing business
internationally. During 1995, we maintained our existing positions in Gillette
and Coca-Cola and added Proctor & Gamble and Duracell. All benefited from
strong consumer demand abroad and favorable currency exchange rates.
In 1995, we took advantage of the growth opportunities in equity securities
of companies with market capitalization under $1 billion by increasing the
percentage of these stocks from 23% to 30%. Examples include technology stars
Informix and Parametric, retailers Starbucks and PETsMART, Inc., transaction
processors Paychex Inc. and Medaphis and medical providers HealthSouth and
Ventritex. Each is a superbly managed industry leader. Correspondingly, we
reduced our investment in mid-size and large, blue chip companies, which
offered relatively less upside potential.
23
OUTLOOK AND STRATEGY
We believe the stock market will generate positive returns for investors in
1996, as it has in most Presidential election years. While we don't expect a
repeat of 1995's impressive performance levels, we do expect a favorable
climate for growth stocks. We expect American companies may benefit from
domestic economic growth of about 2% and continuing low interest rates and
inflation. Companies doing business internationally should continue to profit
from the low value of the U.S. dollar.
Economic conditions that favor smaller, emerging companies is likely to
continue; therefore our interest in the technology and medical technology
sectors--areas where attractive emerging companies can be found--remains
strong.
The Series will continue to own America's premier companies--leaders in their
respective industries with strong management and excellent prospects for
increased revenues and earnings. We feel these stocks offer investors the best
opportunities for long-term growth.
FUND FACTS
GOAL: long-term growth of
capital.
START DATE: May 1, 1993
SIZE: $48.8 million as of
December 31, 1995
MANAGERS: Richard Hurckes and
Scott Pape since 1993; They have
managed New England Capital
Growth Fund since 1992. Mr.
Hurckes joined Loomis Sayles in
1971. Mr. Pape joined Loomis
Sayles in 1991.
A $10,000 Investment Compared to an Index
Average Annual Total Return
Loomis Sayles Lipper Variable Growth
Avanti Growth Fund Average
1 year 30.35% 32.47%
Since
Inception 16.15% --
[A graph representing the following:]
A $10,000 Investment Compared to an Index
Loomis Sayles
Avanti Growth S&P 500(19)
---------------- ------------
4/30/93 $10,000 $10,000
1993 $11,474 $10,819
1994 $11,443 $10,966
1995 $14,916 $15,072
Performance numbers are net of all fund operating expenses but do not include
any insurance, sales or administrative charges of the variable contracts; if
included, the returns 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 original cost.
24
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES AVANTI GROWTH SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--94.7% OF NET ASSETS
SHARES VALUE (a)
BANKS--SAVINGS AND LOAN--1.9%
18,500 First Bank System....................................... $ 918,063
-----------
BEVERAGES--3.1%
14,200 Coca Cola Co. .......................................... 1,054,350
8,500 Pepsico, Inc. .......................................... 474,937
-----------
1,529,287
-----------
BUSINESS SERVICES--11.9%
10,000 Checkfree Corp. ........................................ 215,000
14,000 Ceridian Corp.(c)....................................... 577,500
16,700 Cintas Corp. ........................................... 743,150
21,550 CUC International, Inc. ................................ 735,394
12,500 Danka Business Systems.................................. 462,500
15,000 First Data Corp. ....................................... 1,003,125
27,750 Fiserv, Inc. ........................................... 832,500
13,700 Medaphis Corp. ......................................... 506,900
15,000 Paychex, Inc. .......................................... 748,125
-----------
5,824,194
-----------
CHEMICAL--MAJOR--0.7%
6,500 Air Products & Chemicals, Inc. ......................... 342,875
-----------
COMPUTER SOFTWARE & SERVICES--8.6%
6,000 Adobe Systems, Inc. .................................... 372,000
10,900 Autodesk Inc. .......................................... 373,325
5,200 Broderbund Software, Inc. .............................. 315,900
16,500 FTP Software, Inc. ..................................... 478,500
27,000 Informix Corp. ......................................... 810,000
10,500 Microsoft Corp.(c)...................................... 921,375
22,000 Oracle Systems Corp.(c)................................. 932,250
-----------
4,203,350
-----------
ELECTRICAL EQUIPMENT--1.3%
9,000 General Electric Co. ................................... 648,000
-----------
ELECTRONIC COMPONENTS--7.5%
19,000 Intel Corp. ............................................ 1,078,250
16,500 LSI Logic Corp.(c)...................................... 540,375
12,500 Micron Technology....................................... 495,313
10,000 Motorola, Inc. ......................................... 570,000
16,700 Premier Industrial Corp. ............................... 409,150
8,000 Solectron Corp. ........................................ 353,000
4,100 Texas Instruments, Inc. ................................ 212,175
-----------
3,658,263
-----------
FINANCIAL SERVICES--2.1%
10,000 Dean Witter Discover & Co. ............................. 470,000
14,500 MBNA Corp. ............................................. 534,687
-----------
1,004,687
-----------
FOOD--PACKAGED & MISCELLANEOUS--1.9%
8,300 Dreyers Grand Ice Cream, Inc. .......................... 275,975
30,800 Starbucks Corp. ........................................ 646,800
-----------
922,775
-----------
SHARES VALUE (a)
HEALTH CARE--DRUGS--8.1%
15,200 Amgen, Inc.(c)............................................ $ 902,500
6,600 Johnson & Johnson......................................... 565,125
16,500 Merck & Co. .............................................. 1,084,875
60,000 Oncor, Inc. .............................................. 270,000
13,700 Smithkline Beecham PLC.................................... 760,350
20,000 Somatogen, Inc. .......................................... 377,500
-----------
3,960,350
-----------
HEALTH CARE--MEDICAL TECHNOLOGY--5.4%
23,500 Boston Scientific Corp. .................................. 1,151,500
20,000 Medtronic, Inc. .......................................... 1,117,500
21,000 Ventritex, Inc. .......................................... 364,875
-----------
2,633,875
-----------
HEALTH CARE SERVICES--3.6%
19,000 Columbia/HCA Health Care.................................. 964,250
26,800 Healthsouth Corp. ........................................ 780,550
-----------
1,744,800
-----------
HOME PRODUCTS--4.7%
16,000 Duracell International, Inc. ............................. 828,000
20,000 Gillette Co. ............................................. 1,042,500
5,000 Procter & Gamble Co. ..................................... 415,000
-----------
2,285,500
-----------
HOTELS & RESTAURANTS--2.7%
10,200 Boston Chicken, Inc. ..................................... 327,675
17,000 McDonalds Corp. .......................................... 767,125
14,900 Primadonna Resorts, Inc. ................................. 219,775
-----------
1,314,575
-----------
INSURANCE--3.9%
14,000 American International Group, Inc. ....................... 1,295,000
10,000 Exel Limited.............................................. 610,000
-----------
1,905,000
-----------
MEDIA & EQUIPMENT--3.1%
13,500 Walt Disney Co. .......................................... 796,500
15,000 Viacom, Inc. ............................................. 710,625
-----------
1,507,125
-----------
NATURAL GAS--PIPELINES--1.6%
19,900 Enron Corp. .............................................. 758,688
-----------
OFFICE EQUIPMENT--6.7%
10,300 Cisco Systems, Inc. ...................................... 768,638
14,000 Hewlett Packard Co. ...................................... 1,172,500
11,000 Parametric Technology Corp. .............................. 731,500
22,500 Silicon Graphics, Inc.(c)................................. 618,750
-----------
3,291,388
-----------
OIL--INDEPENDENT PRODUCERS--3.3%
22,500 Anadarko Petroleum Corp................................... 1,217,812
12,000 Philips Petroleum Co...................................... 409,500
-----------
1,627,312
-----------
See accompanying notes to financial statements.
25
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES AVANTI GROWTH SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--(CONTINUED)
SHARES VALUE (A)
PHOTOGRAPHY--2.5%
18,000 Eastman Kodak Co. ........................................ $ 1,206,000
-----------
RETAIL--4.0%
40,500 Office Depot, Inc......................................... 799,875
22,500 Office Max, Inc........................................... 503,437
21,750 Petsmart, Inc............................................. 674,250
-----------
1,977,562
-----------
TELECOMMUNICATIONS--3.9%
5,000 Glenayre Technologies, Inc. .............................. 311,250
22,000 Qualcomm, Inc. ........................................... 946,000
18,000 Tellabs, Inc.(c).......................................... 666,000
-----------
1,923,250
-----------
TOBACCO--2.2%
12,000 Philip Morris Companies, Inc. ............................ 1,086,000
-----------
Total Common Stocks
(Identified Cost $38,942,941)............................ 46,272,919
-----------
SHORT-TERM INVESTMENTS--5.1%
FACE
AMOUNT VALUE (A)
$2,481,000 Repurchase agreement with State Street Bank & Trust
Company dated 12/29/95 at 5.00% to be repurchased
at $2,484,378 on 1/2/96 and collateralized by
$2,350,000 U.S. Treasury Note 7.125% with a value
of $2,533,203...................................... $ 2,481,000
-----------
Total Short-Term Investments
(Identified Cost $2,481,000)....................... 2,481,000
-----------
Total Investments--99.8%
(Identified Cost $41,423,941)(b)................... 48,753,919
Receivables......................................... 169,962
Liabilities......................................... (91,511)
-----------
TOTAL NET ASSETS--100%.............................. $48,832,370
===========
(a) See Note 1A.
(b) Federal Tax Information:
At December 31, 1995 the net unrealized appreciation on investments based on
cost for federal income tax purposes of $41,423,941 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost...................................... $ 8,868,515
Aggregate gross unrealized appreciation for all
investments in which there is an excess of tax cost
over value......................................... (1,538,537)
-----------
Net unrealized appreciation......................... $ 7,329,978
===========
(c) Non-income producing security.
See accompanying notes to financial statements.
26
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES AVANTI GROWTH SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1995
ASSETS
Investments at value........................................... $48,753,919
Receivable for:
Fund shares sold............................................... 116,599
Dividends and interest......................................... 53,316
Foreign taxes.................................................. 47
-----------
48,923,881
LIABILITIES
Payable for:
Fund shares redeemed.................................. $23,146
Withholding taxes..................................... 141
Due to custodian bank................................. 173
Accrued expenses:
Management fees....................................... 20,024
Deferred trustees' fees............................... 11,551
Other expenses........................................ 36,476
-------
91,511
-----------
$48,832,370
===========
NET ASSETS
Net Assets consist of:
Capital paid in................................................ $40,587,121
Undistributed net investment income............................ 6,362
Accumulated net realized gains................................. 908,909
Unrealized appreciation on investments......................... 7,329,978
-----------
NET ASSETS...................................................... $48,832,370
===========
Computation of offering price:
Net asset value and redemption price per share ($48,832,370
divided by 342,823 shares of beneficial interest).............. $ 142.44
===========
Identified cost of investments.................................. $41,423,941
===========
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
INVESTMENT INCOME
Dividends............................................. $ 337,093(a)
Interest.............................................. 118,109
----------
455,202
EXPENSES
Management fees....................................... $260,886
Trustees' fees and expenses........................... 15,250
Custodian............................................. 64,836
Audit and tax services................................ 11,400
Legal................................................. 10,325
Printing.............................................. 26,351
Registration.......................................... 7
Miscellaneous......................................... 5,263
--------
Total expenses....................................... 394,318
Less expenses assumed by the investment adviser...... (77,529) 316,789
-------- ----------
NET INVESTMENT INCOME.................................. 138,413
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on investments--net..................... 2,703,726
----------
Unrealized appreciation on investments--net........... 6,182,432
----------
Net gain on investment transactions.................... 8,886,158
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS............. $9,024,571
==========
(a) Net of foreign taxes of: $141
See accompanying notes to financial statements.
27
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES AVANTI GROWTH SERIES)
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
FROM OPERATIONS
Net investment income............................. $ 133,225 $ 138,413
Net realized gain (loss) on investments........... (429,848) 2,703,726
Unrealized appreciation on investments............ 522,519 6,182,432
------------ ------------
INCREASE IN NET ASSETS FROM OPERATIONS............ 225,896 9,024,571
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income............................. (133,225) (132,051)
In excess of net investment income................ (1,266) 0
Net realized gain on investments.................. 0 (1,364,969)
------------ ------------
(134,491) (1,497,020)
------------ ------------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares...................... 24,276,118 25,328,373
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income.......... 134,491 132,051
Distributions from net realized gain.............. 0 1,364,969
------------ ------------
24,410,609 26,825,393
Cost of shares redeemed........................... (10,852,176) (11,142,834)
------------ ------------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE
TRANSACTIONS..................................... 13,558,433 15,682,559
------------ ------------
TOTAL INCREASE IN NET ASSETS...................... 13,649,838 23,210,110
NET ASSETS
Beginning of the year............................. 11,972,422 25,622,260
------------ ------------
End of the year................................... $ 25,622,260 $ 48,832,370
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year............................. $ 0 $ 0
============ ============
End of the year................................... $ 0 $ 6,362
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................... 219,339 188,223
Issued in connection with the reinvestment of:
Distributions from net investment income.......... 1,197 929
Distributions from net realized gain.............. 0 9,604
------------ ------------
220,536 198,756
Redeemed.......................................... (98,649) (83,183)
------------ ------------
Net change........................................ 121,887 115,573
============ ============
FINANCIAL HIGHLIGHTS
APRIL 30, 1993*
THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1994 1995
--------------- ------------ ------------
Net Asset Value, Beginning of Year... $100.00 $113.67 $112.77
------- ------- -------
Income From Investment Operations
Net Investment Income............... 0.18 0.59 0.42
Net Realized and Unrealized Gain
(Loss) on Investments.............. 14.56 (0.89) 33.80
------- ------- -------
Total From Investment Operations.... 14.74 (0.30) 34.22
------- ------- -------
Less Distributions
Distributions From Net Investment
Income............................. (0.18) (0.60) (0.40)
Distributions From Net Realized Cap-
ital Gains......................... (0.67) 0.00 (4.15)
Distributions From Paid-in Capital.. (0.22) 0.00 0.00
------- ------- -------
Total Distributions................. (1.07) (0.60) (4.55)
------- ------- -------
Net Asset Value, End of Year......... $113.67 $112.77 $142.44
======= ======= =======
TOTAL RETURN (%)..................... 14.74*** (0.27) 30.35
Ratio of Operating Expenses to Aver-
age Net Assets (%).................. 0.85** 0.84 0.85
Ratio of Net Investment Income to Av-
erage Net Assets (%)................ 0.46** 0.67 0.37
Portfolio Turnover Rate (%).......... 21** 67 58
Net Assets, End of Year (000)........ $11,972 $25,622 $48,832
The ratios of expenses to average net
assets without giving effect to the
voluntary expense limitations
described in Note 4 to the Financial
Statements would have been (%)...... 0.89** 0.84 1.06
* Commencement of operations.
** Computed on an annualized basis.
*** Not computed on an annualized basis.
See accompanying notes to financial statements.
28
ZENITH VENTURE VALUE SERIES
PORTFOLIO MANAGER: SHELBY M.C. DAVIS; DAVIS SELECTED ADVISERS, L.P.
MARKET REVIEW
Photo Shelby
M.C. Davis The Zenith Venture Value Series ended the twelve months
ended December 31, 1995 with a total return of 39.28%. This
compared favorably to the return of 37.44% posted by the
S&P 500 Index/1//9/ over the same period.
Stock performance during 1995 will be a hard one to beat.
From a macro perspective, the economy was solid without
being inflationary, interest rates remained at low levels,
the inflation genie remained in the bottle, and investors
continued to worry about all three. A slow-growth, low
inflation economy is ideal for the stock market; and the
returns for 1995
proved it. Our continued belief in financial stocks (such as Wells Fargo, First
Bank Systems, American International Group and Citicorp) paid off handsomely.
Moreover, our strategy of investing in multi-product technology companies
worked as well. Examples include Intel, Texas Instruments and Hewlett Packard.
OUTLOOK AND STRATEGY
We are optimistic but not blind. We continue to look for warning signs that
we are headed for a slow-down, but those signs have not emerged as yet. The
economy continues to chug along, albeit at a slower pace than some might like.
Corporate profits (a major focus at Davis Selected Advisers) remain on target,
and inflation appears to be under control.
Again, this is an ideal environment for financial stocks. Our belief that
these are the stocks of the decade, not the day, remains the dominant theme at
Davis Selected Advisers. We expect to remain in these types of stocks until
that view point changes.
Finally, we have maintained and added to our positions in the paper industry
(most notably Union Camp), and continue to buy specific multi-technology
companies during periods of price declines. At Davis Selected Advisers, we take
comfort in the fact that our investment strategy doesn't change with each
passing fad; it tends to run against conventional wisdom.
FUND FACTS
GOAL: growth of capital.
START DATE: October 31, 1994
SIZE: $35 million
MANAGER: Shelby M.C. Davis has
served as portfolio manager since
the Series' inception in 1994 and
has served as portfolio manager
of Davis New York Venture Fund
since 1968 and of Selected
American Shares since May 1993.
He also managed the Selected
Special Fund from May 1993
through October 1994 and the
Davis Financial Fund May 1991
through May 1995.
A $10,000 Investment Compared to an Index
Average Annual Total Return
Venture Lipper Variable Growth and
Value Income Fund
1995 39.28% 32.37%
Since
Inception 28.83% --
[A graph representing the following:]
A $10,000 Investment Compared to an Index
Venture Value S&P 500(19)
--------------- ---------
10/31/94 $10,000 $10,000
1994 $ 9,650 $ 9,794
1995 $13,441 $13,461
Performance numbers are net of all fund operating expenses but do not include
any insurance, sales or administrative charges of the variable contracts; if
included, the returns 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 original cost.
29
NEW ENGLAND ZENITH FUND
(VENTURE VALUE SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--88.4% OF TOTAL NET ASSETS
SHARES VALUE (a)
BANKS AND SAVINGS & LOANS--10.5%
17,800 Banc One Corp. .......................................... $ 671,950
5,300 Barnett Banks, Inc. ..................................... 312,700
15,200 First Bank Systems, Inc. ................................ 754,300
300 First Union Corp. ....................................... 16,687
8,400 Golden West Financial Corp. ............................. 464,100
12,400 State Street Boston Corp. ............................... 558,000
4,200 Wells Fargo & Co. ....................................... 907,200
-----------
3,684,937
-----------
CHEMICALS--0.0%
100 Dow Chemical Co. ........................................ 7,037
-----------
COMPUTER PRODUCTS AND SERVICES--7.1%
7,100 Cirrus Logic, Inc.(c).................................... 140,225
9,800 Hewlett-Packard Co. ..................................... 820,750
15,200 Intel Corp. ............................................. 862,600
12,800 Texas Instruments, Inc. ................................. 662,400
-----------
2,485,975
-----------
CONSUMER PRODUCTS--8.1%
500 American Brands, Inc. ................................... 22,312
100 American Home Products Corp. ............................ 9,700
11,700 Coca-Cola Company........................................ 868,725
700 General Electric Co. .................................... 50,400
15,900 General Motors Corp. .................................... 840,712
400 Maytag Corp. ............................................ 8,100
7,200 Nestle SA (Switzerland) (ADR)(d)......................... 399,217
600 Philip Morris Cos., Inc. ................................ 54,300
6,100 The Gillette Co. ........................................ 317,963
8,000 The Seagram Co., Ltd. ................................... 277,000
-----------
2,848,429
-----------
ENERGY--4.5%
10,000 Amerada Hess Corp. ...................................... 530,000
200 Amoco Corp. ............................................. 14,375
300 Atlantic Richfield Co. .................................. 33,225
12,100 Burlington Resources, Inc. .............................. 474,925
900 Chevron Corp. ........................................... 47,250
6,200 Energy Venture, Inc.(c).................................. 156,550
1,400 Exxon Corp. ............................................. 112,175
100 Mobil Corp. ............................................. 11,200
2,600 Schlumberger, Ltd. ...................................... 180,050
200 Sonat, Inc. ............................................. 7,125
-----------
1,566,875
-----------
ENTERTAINMENT--0.7%
3,900 The Walt Disney Company.................................. 230,100
-----------
FINANCIAL SERVICES--11.4%
27,100 American Express Co. .................................... 1,121,262
2,800 Dean Witter, Discover & Co. ............................. 131,600
SHARES VALUE (a)
9,000 Donaldson Lufkin & Jenrette, Inc......................... $ 281,250
2,500 Federal Home Loan Mortgage Corporation................... 208,750
8,400 J.P. Morgan & Co., Inc. ................................. 674,100
10,200 Morgan Stanley Group, Inc. .............................. 822,375
15,700 SunAmerica, Inc. ........................................ 745,750
-----------
3,985,087
-----------
FOOD--2.7%
15,300 McDonalds Corp. ......................................... 690,413
9,600 Tyson Foods Inc. (Del.).................................. 250,800
-----------
941,213
-----------
INSURANCE--20.3%
19,181 Allstate Corp. .......................................... 788,819
4,300 Americal International Group, Inc. ...................... 397,750
9,000 Chubb Corp. ............................................. 870,750
36,700 Equitable Companies, Inc. ............................... 880,800
5,700 General Re Corp. ........................................ 883,500
9,600 NAC Re Corp. ............................................ 345,600
4,300 National Re Holdings Corp. .............................. 163,400
8,000 Progressive Corp. (Ohio)................................. 391,000
3,800 Transatlantic Holdings Inc. ............................. 278,825
60 Transport Holdings, Inc., Class A........................ 2,445
16,700 The Travelers Group, Inc. ............................... 1,050,013
15,200 20th Century Industries, Inc. ........................... 302,100
8,900 W.R. Berkley Corp. ...................................... 478,375
5,300 UNUM Corp. .............................................. 291,500
-----------
7,124,877
-----------
INTERNATIONAL--0.7%
17,700 Morgan Stanley Asia Pacific Fund, Inc. .................. 236,738
-----------
METALS AND MINERALS--0.3%
800 Alumax, Inc. ............................................ 24,500
1,200 Reynolds Metals Co. ..................................... 67,950
-----------
92,450
-----------
NEWSPAPER, TELEVISION AND RADIO--4.5%
10,900 Gannet Co., Inc.......................................... 668,987
31,300 News Corp. Ltd. (Australia) ADR(d)....................... 602,525
5,200 Tribune Co............................................... 317,850
-----------
1,589,362
-----------
PAPER--3.6%
18,900 Fort Howard Corp.(c)..................................... 425,250
200 International Paper Co................................... 7,575
12,500 Jefferson Smurfit Corp.(c)............................... 118,750
4,400 Mead Corp. .............................................. 229,900
10,400 Union Camp Corp. ........................................ 495,300
-----------
1,276,775
-----------
See accompanying notes to financial statements.
30
NEW ENGLAND ZENITH FUND
(VENTURE VALUE SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--(CONTINUED)
SHARES VALUE (A)
PHARMACEUTICAL AND HEALTH CARE--3.2%
100 Bristol-Myers Squibb Co. ............................. $ 8,588
3,300 Johnson & Johnson..................................... 282,562
2,300 Merck & Co., Inc. .................................... 151,225
10,700 Pfizer, Inc. ......................................... 674,100
-----------
1,116,475
-----------
PHOTOGRAPHIC--1.1%
5,600 Eastman Kodak Co. .................................... 375,200
-----------
REAL ESTATE--3.4%
5,500 Federal Realty Investment Trust....................... 125,125
37,700 Host Marriott Corp.(c)................................ 499,525
1,200 Kimco Realty Corp..................................... 32,700
3,200 Mid-Atlantic Realty Trust............................. 27,600
3,500 Saul Centers, Inc..................................... 47,688
6,000 United Dominion Realty Trust, Inc. ................... 90,000
8,600 Vornado Realty Trust.................................. 322,500
1,700 Weingarten Realty, Inc................ ............... 64,600
-----------
1,209,738
-----------
RETAIL--2.1%
15,100 Federated Department Stores, Inc.(c).................. 415,250
7,400 Harcourt General, Inc................................. 309,875
-----------
725,125
-----------
TELECOMMUNICATIONS--2.4%
12,700 Airtouch Communications(c)............................ 358,775
1,700 AT & T Corp........................................... 110,075
2,600 Cellular Communications, Inc.(c)...................... 129,350
8,800 MCI Communications Corp. ............................. 229,900
200 SBC Communications, Inc. ............................. 11,500
-----------
839,600
-----------
TIMBER PRODUCTS--0.6%
5,300 Weyerhaeuser Co. ..................................... 229,225
-----------
TRANSPORTATION--1.1%
4,600 Illinois Central Corp. ............................... 176,525
3,400 Union Pacific Corp. .................................. 224,400
-----------
400,925
-----------
UTILITIES--0.1%
100 Carolina Power & Light................................ 3,450
200 Duke Power Co. ....................................... 9,475
100 San Diego Gas & Electric Co. ......................... 2,375
200 SCEcorp. ............................................. 3,550
100 Wisconsin Energy Corp. ............................... 3,063
-----------
21,913
-----------
Total Common Stocks
(Identified Cost $27,202,197)........................ 30,988,056
-----------
PREFERRED STOCKS--2.3%
SHARES VALUE (A)
900 Banc One Corp., $3.50,
Ser. C Conv. Pfd................................... $ 59,063
4,100 Citicorp, $5.375, Ser. 13 Conv. Pfd................. 752,862
-----------
Total Preferred Stocks
(Identified Cost $654,977)......................... 811,925
-----------
SHORT-TERM INVESTMENT--9.3%
FACE
AMOUNT VALUE (A)
$3,255,000 Federal Home Loan Mortgage Association Discount
Note, 5.500%, 1/02/96.............................. 3,254,503
-----------
Total Short-Term Investment
(Identified Cost $3,254,503)....................... 3,254,503
-----------
Total Investments--100.0%
(Identified Cost $31,111,677)(b)................... 35,054,484
Cash and Receivables................................ 186,716
Liabilities......................................... (196,233)
-----------
TOTAL NET ASSETS--100%.............................. $35,044,967
===========
(a) See Note 1A.
(b) Federal Tax Information:
At December 31, 1995 the net unrealized appreciation on investments based on
cost of $31,114,217 for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost...................................... $ 4,206,324
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value......................................... (266,057)
-----------
Net unrealized appreciation......................... $ 3,940,267
===========
(c) Non-income producing security.
(d) An American Depository Receipt (ADR) is a certificate issued by U.S. bank
representing the right to receive securities of the foreign issuer
described. The values of ADRs are significantly influenced by trading on
exchanges not not located in the United States or Canada.
See accompanying notes to financial statements.
31
NEW ENGLAND ZENITH FUND
(VENTURE VALUE SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1995
ASSETS
Investments at value..................................... $35,054,484
Cash..................................................... 6,174
Receivable for:
Fund shares sold......................................... 116,545
Dividends and interest................................... 54,906
Foreign taxes............................................ 137
Due from advisor......................................... 1,249
Unamortized organization expense......................... 7,705
-----------
35,241,200
LIABILITIES
Payable for:
Securities purchased..................................... $142,266
Fund shares redeemed..................................... 7,525
Dividends declared....................................... 178
Accrued expenses:
Management fees.......................................... 12,762
Other expenses........................................... 33,502
--------
196,233
-----------
$35,044,967
===========
NET ASSETS
Net Assets consist of:
Capital paid in.......................................... $31,014,881
Undistributed net investment income...................... 3,911
Accumulated net realized gains........................... 83,368
Unrealized appreciation on investments................... 3,942,807
-----------
NET ASSETS................................................ $35,044,967
===========
Computation of offering price:
Net asset value and redemption price per share
($35,044,967 divided by 2,674,422 shares of beneficial
interest)................................................ $ 13.10
===========
Identified cost of investments............................ $31,111,677
===========
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
INVESTMENT INCOME
Dividends............................................. $ 300,211(a)
Interest.............................................. 104,200
----------
404,411
EXPENSES
Management fees....................................... $131,969
Trustees' fees and expenses........................... 15,050
Custodian............................................. 79,272
Audit and tax services................................ 19,800
Legal................................................. 10,821
Printing.............................................. 5,529
Registration.......................................... 7
Insurance............................................. 166
Amortization of organization expense.................. 2,347
Miscellaneous......................................... 2,372
--------
Total expenses....................................... 267,333
Less expenses assumed by the investment adviser...... (108,971) 158,362
-------- ----------
NET INVESTMENT INCOME.................................. 246,049
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on Investments--net..................... 600,646
Unrealized appreciation on Investments--net........... 3,966,150
----------
Net gain on investment transactions.................... 4,566,796
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS............. $4,812,845
==========
(a) Net of foreign taxes of: $1,574
See accompanying notes to financial statements.
32
NEW ENGLAND ZENITH FUND
(VENTURE VALUE SERIES)
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD
OCTOBER 31, 1994 (a)
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
-------------------- ------------
FROM OPERATIONS
Net investment income...................... $ 8,452 $ 246,049
Net realized gain on investments........... 0 600,646
Unrealized appreciation (depreciation) on
investments............................... (23,343) 3,966,150
----------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM OP-
ERATIONS.................................. (14,891) 4,812,845
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................... (8,452) (244,485)
In excess of net investment income......... (1,456) 0
Net realized gain on investments........... 0 (517,278)
----------- -----------
(9,908) (761,763)
----------- -----------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares............... 3,821,298 31,372,928
Net asset value of shares issued in connec-
tion with the reinvestment of:
Distributions from net investment income... 9,908 244,485
Distributions from net realized gain....... 0 517,278
----------- -----------
3,831,206 32,134,691
Cost of shares redeemed.................... (1,434,963) (4,512,250)
----------- -----------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS........................ 2,396,243 27,622,441
----------- -----------
TOTAL INCREASE IN NET ASSETS............... 2,371,444 31,673,523
NET ASSETS
Beginning of the year...................... 1,000,000 3,371,444
----------- -----------
End of the year............................ $ 3,371,444 $35,044,967
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year...................... $ 0 $ 0
=========== ===========
End of the year............................ $ 0 $ 3,911
=========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares............. 397,102 2,627,688
Issued in connection with the reinvestment
of:
Distributions from net investment income... 1,030 18,850
Distributions from net realized gain....... 0 39,883
----------- -----------
398,132 2,686,421
Redeemed................................... (147,540) (362,591)
----------- -----------
Net change................................. 250,592 2,323,830
=========== ===========
(a) Commencement of Operations
FINANCIAL HIGHLIGHTS
OCTOBER 31, 1994*
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
-------------------- ------------
Net Asset Value, Beginning of Year.......... $ 10.00 $ 9.62
----------- -----------
Income From Investment Operations
Net Investment Income...................... 0.03 0.10
Net Realized and Unrealized Gain (Loss) on
Investments............................... (0.38) 3.68
----------- -----------
Total From Investment Operations........... (0.35) 3.78
----------- -----------
Less Distributions
Distributions From Net Investment Income... (0.03) (0.10)
Distributions From Net Realized Capital
Gains..................................... 0.00 (0.20)
----------- -----------
Total Distributions........................ (0.03) (0.30)
----------- -----------
Net Asset Value, End of Year................ $ 9.62 $ 13.10
=========== ===========
TOTAL RETURN (%)............................ (3.50)*** 39.28
Ratio of Operating Expenses to Average Net
Assets (%)................................. 0.90 ** 0.90
Ratio of Net Investment Income to Average
Net Assets (%)............................. 2.54 ** 1.39
Portfolio Turnover Rate (%)................. 1 ** 20
Net Assets, End of Year (000)............... $ 3,371 $ 35,045
The ratios of expenses to average net assets
without giving effect to the voluntary
expense limitations described in Note 4 to
the Financial Statements would have been
(%)........................................ 3.97 ** 1.51
* Commencement of operations.
** Computed on an annualized basis.
*** Not computed on an annualized basis.
See accompanying notes to financial statements.
33
ZENITH WESTPEAK VALUE GROWTH SERIES
PORTFOLIO MANAGERS: GERALD H. SCRIVER AND PHILIP J. COOPER; WESTPEAK
INVESTMENT ADVISORS, L.P.
MARKET REVIEW
Photo Gerald Photo Philip J. Cooper The stock market delighted investors
H. Scriver with red-hot performance in 1995. The
Dow Jones Industrial Average broke two
historic milestones, charging through
the 4,000 and 5,000 marks, and ended
the year with the fourth best result
in the post World War II era. Not
surprisingly, it was also a banner
year for stock mutual funds, which
posted one of their strongest years on
record.
For the fiscal year ended December 31, 1995, Westpeak Value Growth Series'
total return was 36.46%. At the same time, the average return for all growth
and income funds underlying variable insurance products tracked by Lipper
Analytical Services was 32.37%. The Series outperformed the Dow Jones
Industrial Average and the S&P 500/1//9/ which posted 33.45% and 37.44%,
respectively. [Source, WSJ, Mutual Funds Quarterly Review, January 5, 1995.]
Our performance places your fund 6th out of 64 in its peer group.
In May, we added more technology stocks in the portfolio, benefiting the
Series handsomely. However, by September we felt that technology stocks were
getting overvalued, so we started cutting back our exposure in that sector. We
ended up somewhat underweighted in technology at the end of the year. Our
timely movement away from the technology area significantly boosted your
Series' performance. The Series was actually up 3.88% in the fourth quarter,
while many other funds were down.
It's important to point out that we never overweighted the technology sector
to the extent that many funds did to reach 30% or 40% of assets. Such huge
bets carry too much potential volatility and are not consistent with our
philosophy of controlling risk.
Toward the end of the year we began moving away from growth stocks, because
we believed they were overpriced. We've been shifting toward value stocks,
including telephone stocks like Bell South, SBC Communications (formerly
Southwest Bell) and Ameritech. Three of our top five positions were in
telephone stocks, where we can obtain higher dividend yields and lower price-
earnings ratios. We also bought some electric utilities and oil stocks. Our
largest position at year-end was Exxon, a value stock with a low price-
earnings ratio and a high dividend yield. In the current sluggish economic
environment, where corporate profit growth is less certain, companies such as
Exxon are good prospects because they have learned through relentless cost
cutting how to prosper without price increases. Telephone and electric
utilities have also benefited from belt-tightening and restructuring.
One of the sectors that we've liked throughout the past year has been banks,
where we expect benefits to come via mergers and acquisitions, and fiscal
streamlining. Banks, of course, have also benefited from lower interest rates.
Our three largest bank holdings at year-end were Citicorp, Bank of Boston and
Bank of New York. These are high quality banks and, we believe, solid value
stocks.
OUTLOOK AND STRATEGY
We don't expect the market's pace to continue in view of increasing signs of
economic weakness and growing worries over corporate earnings. We expect that
the Federal Reserve Board will come through with another easing of short-term
interest rates, but that may not be enough to stave off a stock market
correction.
With that in mind, we are positioning the portfolio more conservatively for
the first quarter of 1996, emphasizing value. Experience has shown that value
stocks tend to outperform growth stocks in uncertain environments, just as
growth stocks outperform their value counterparts during periods of stock
market strength. Longer term, we believe that the fundamentals are favorable
for the stock market, and your Series is well positioned to benefit from the
opportunities ahead.
34
FUND FACTS
GOAL: long-term total return
through investment in equity
securities.
START DATE: April 30, 1993
SIZE: $48.1 million as of
December 31, 1995
MANAGERS: Gerald Scriver and
Philip Cooper. Mr. Scriver and
Mr. Cooper have managed the Fund
from its inception in 1993; they
also have managed Westpeak Stock
Index Series since August 1993
and New England Growth
Opportunities Fund since May 1,
1995. Mr. Scriver founded
Westpeak in May 1991 and Mr.
Cooper joined Westpeak in
December 1991.
A $10,000 Investment Compared to an Index
Average Annual Total Return
Westpeak Lipper Variable Growth
Value Growth and Income Fund Average
1995 36.46% 32.37%
Since
Inception 17.55% --
[A graph representing the following:]
A $10,000 Investment Compared to an Index
Westpeak
Value Growth S&P 500(19)
--------------- -----------
4/30/93 $10,000 $10,000
1993 $11,424 $10,819
1994 $11,286 $10,966
1995 $15,402 $15,072
Performance numbers are net of all fund operating expenses but do not include
any insurance, sales or administrative charges of the variable contracts; if
included, the returns 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 original cost.
35
NEW ENGLAND ZENITH FUND
(WESTPEAK VALUE GROWTH SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--95.5% OF TOTAL NET ASSETS
SHARES VALUE (a)
AEROSPACE--2.2%
6,200 Lockheed Martin Corp. ................................... $ 489,800
6,200 McDonnell Douglas Corp. ................................. 570,400
-----------
1,060,200
-----------
AGRICULTURE & FOOD--4.7%
4,600 CPC International, Inc. ................................. 315,675
13,900 IBP, Inc. ............................................... 701,950
17,000 Pioneer Hi Bred, Inc. ................................... 945,625
2,200 Unilever NV.............................................. 309,650
-----------
2,272,900
-----------
AIRLINES--1.4%
6,900 AMR Corp. (c)............................................ 512,325
2,800 Northwest Airlines Corp. ................................ 142,800
-----------
655,125
-----------
ALUMINUM--1.7%
15,600 Aluminium Company of America............................. 824,850
-----------
APPAREL--1.1%
7,600 Nike, Inc. .............................................. 529,150
-----------
BANKS--5.7%
5,900 Bank of Boston Corp. .................................... 272,875
17,000 Bank of New York, Inc. .................................. 828,750
7,000 Citicorp................................................. 470,750
9,100 NationsBank Corp. ....................................... 633,588
1,300 Suntrust Banks, Inc. .................................... 89,050
8,000 Union Bank of San Francisco.............................. 434,000
-----------
2,729,013
-----------
BEVERAGE--2.6%
17,000 Coca Cola Co. ........................................... 1,262,250
-----------
BUSINESS MACHINES--2.8%
8,200 Dell Computer Corp. ..................................... 283,925
7,600 Hewlett Packard Co. ..................................... 636,500
7,400 Seagate Technology....................................... 351,500
1,400 Sun Microsystems, Inc. (c)............................... 63,875
-----------
1,335,800
-----------
CHEMICALS--1.6%
14,400 Cabot Corp. ............................................. 775,800
-----------
COSMETICS--3.4%
16,700 Johnson & Johnson........................................ 1,429,939
2,700 Procter & Gamble Co. .................................... 224,100
-----------
1,654,039
-----------
DRUGS--6.3%
6,200 Amgen, Inc. (c).......................................... 368,125
8,800 Lilly & Eli and Co. ..................................... 495,000
27,600 Merck & Company, Inc. ................................... 1,814,700
6,500 Schering Plough Corp. ................................... 355,875
-----------
3,033,700
-----------
SHARES VALUE (a)
ELECTRIC UTILITIES--5.3%
3,500 Central and Southwest Corp. .............................. $ 97,563
15,200 Consolidated Edison Co. of New York....................... 486,400
13,000 Houston Industries, Inc. ................................. 315,250
32,400 Pacific Gas and Electric Co. ............................. 919,350
5,800 Southern Co. ............................................. 142,825
18,400 Unicom Corp. ............................................. 602,600
-----------
2,563,988
-----------
ELECTRONICS--2.4%
5,800 Intel Corp. .............................................. 329,150
11,800 Raytheon Co. ............................................. 557,550
900 U.S. Robotics Corp. ...................................... 78,975
6,510 Vishay Intertechnology, Inc. ............................. 205,065
-----------
1,170,740
-----------
FINANCIAL-SERVICES--3.1%
6,500 Beneficial Corp. ......................................... 303,062
2,700 Household International, Inc. ............................ 159,637
3,000 Merrill Lynch & Co. ...................................... 153,000
5,700 Student Loan Marketing Association........................ 375,488
7,900 Travelers Group, Inc. .................................... 496,712
-----------
1,487,899
-----------
GAS UTILITIES--1.6%
19,900 Oneok..................................................... 455,213
10,900 Pacific Enterprises....................................... 307,925
-----------
763,138
-----------
GOLD--0.1%
1,400 Newmont Gold Co. ......................................... 61,250
-----------
HEALTHCARE--4.5%
19,700 Abbott Labs............................................... 822,475
6,600 Boston Scientific Group................................... 323,400
18,000 Medtronic, Inc. .......................................... 1,005,750
-----------
2,151,625
-----------
HOTEL & RESTAURANT--0.3%
3,000 McDonalds Corp. .......................................... 135,375
-----------
INSURANCE--LIFE--0.3%
3,900 Protective Life Corp. .................................... 121,875
-----------
INSURANCE--OTHER--5.5%
12,000 American International Group, Inc. ....................... 1,110,000
3,300 Cigna Corp. .............................................. 340,725
700 General Realty Corp. ..................................... 108,500
13,000 Loews Corp. .............................................. 1,018,875
900 MGIC Investment Corp. .................................... 48,825
-----------
2,626,925
-----------
INTERNATIONAL OIL--5.2%
3,600 Chevron Corp. ............................................ 189,000
17,600 Exxon Corp. .............................................. 1,410,200
8,100 Mobil Corp. .............................................. 907,200
-----------
2,506,400
-----------
See accompanying notes to financial statements.
36
NEW ENGLAND ZENITH FUND
(WESTPEAK VALUE GROWTH SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--(CONTINUED)
SHARES VALUE (a)
MEDIA--2.1%
22,500 Clear Channel Communications.............................. $ 992,812
-----------
MORTGAGE--0.5%
500 Federal Home Loan Mortgage Corp. ......................... 41,750
7,200 Green Tree Financial Corp. ............................... 189,900
-----------
231,650
-----------
MOTOR VEHICLES--1.1%
19,000 Ford Motor Co. ........................................... 551,000
-----------
OIL REFINEMENT/DISTRIBUTION--5.0%
14,600 Amoco Corp. .............................................. 1,049,375
9,600 Royal Dutch Petroleum Co. ................................ 1,354,800
-----------
2,404,175
-----------
OIL SERVICE--0.3%
2,800 Halliburton Co. .......................................... 141,750
-----------
PAPER--0.9%
8,900 Champion International Corp. ............................. 373,800
800 Consolidated Papers....................................... 44,900
-----------
418,700
-----------
PHOTOGRAPHY--0.8%
6,100 Eastman Kodak............................................. 408,700
-----------
PRODUCER OF GOODS--2.4%
4,400 Applied Materials, Inc.(c)................................ 173,250
1,900 Danaher Corp. ............................................ 60,325
2,600 Dover Corp. .............................................. 95,875
7,300 Harsco Corp. ............................................. 424,312
5,200 Illinois Tool Works, Inc. ................................ 306,800
2,800 Parker-Hannifin Corp. .................................... 95,900
-----------
1,156,462
-----------
PUBLISHING--0.3%
3,700 Reynolds & Reynolds....................................... 143,837
-----------
RAILROAD--2.8%
8,900 Burlington Northern, Inc. ................................ 694,200
14,400 CSX Corp. ................................................ 657,000
-----------
1,351,200
-----------
RETAIL--3.4%
4,800 Barnes & Noble, Inc. ..................................... 139,200
8,100 Eckerd Jack Corp. Del..................................... 361,462
2,100 Micro Warehouse, Inc. .................................... 90,825
26,700 Sears Roebuck and Co. .................................... 1,041,300
-----------
1,632,787
-----------
SHARES VALUE (a)
SOAPS--1.0%
9,900 Premark International, Inc. ........................ $ 501,188
-----------
TELEPHONE--11.6%
22,000 Ameritech Corp. .................................... 1,298,000
5,600 Bell Atlantic Corp. ................................ 374,500
32,600 Bell South Corp. ................................... 1,418,100
27,500 Cincinnati Bell, Inc. .............................. 955,625
20,500 SBC Communications, Inc. ........................... 1,178,750
9,600 Sprint Corp. ....................................... 382,800
-----------
5,607,775
-----------
THRIFT--0.6%
7,200 Standard Federal Bancorporation..................... 283,500
-----------
TOBACCO--0.9%
4,800 Phillip Morris Companies, Inc. ..................... 434,400
-----------
Total Common Stocks
(Identified Cost $38,331,094)...................... 45,981,978
-----------
SHORT-TERM INVESTMENTS--4.8%
FACE
AMOUNT VALUE (a)
$2,304,000 Repurchase agreement with State Street Bank & Trust
Company dated 12/29/95 at 5% to be repurchased at
$2,305,280 on 1/2/96. Collaterized by $2,015,000
U.S. Treasury Notes 8.75% due 8/15/00 with a value
of $2,352,498...................................... 2,304,000
-----------
Total Short-Term Investments
(Identified Cost $2,304,000)....................... 2,304,000
-----------
Total Investments--100.3%
(Identified Cost $40,635,094)(b)................... 48,285,978
Cash and Receivables................................ 173,840
Liabilities......................................... (330,781)
-----------
TOTAL NET ASSETS--100%.............................. $48,129,037
===========
(a) See Note 1A.
(b) Federal Tax Information:
At December 31, 1995 the net unrealized appreciation on investments based on
cost of $40,635,910 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...................................... $ 7,954,474
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value......................................... (304,406)
-----------
Net unrealized appreciation......................... $ 7,650,068
===========
(c) Non-income producing security.
(d) An American Depository Receipt (ADR) is a certificate issued by a U.S.
Bank representing the right to receive securities of the foreign issuer
described. The values of ADR's are significantly influenced by trading on
exchanges not located in the United States or Canada.
See accompanying notes to financial statements.
37
NEW ENGLAND ZENITH FUND
(WESTPEAK VALUE GROWTH SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1995
ASSETS
Investments at value..................................... $48,285,978
Cash..................................................... 751
Receivable for:
Fund shares sold......................................... 80,096
Dividends and interest................................... 92,993
-----------
48,459,818
LIABILITIES
Payable for:
Securities purchased..................................... $258,121
Fund shares redeemed..................................... 11,565
Accrued expenses:
Management fees.......................................... 19,720
Deferred trustees' fees.................................. 655
Other expenses........................................... 40,720
--------
330,781
-----------
$48,129,037
===========
NET ASSETS
Net Assets consist of:
Capital paid in.......................................... $39,982,393
Undistributed net investment income...................... 13,865
Accumulated net realized gains........................... 481,895
Unrealized appreciation on investments................... 7,650,884
-----------
NET ASSETS................................................ $48,129,037
===========
Computation of offering price:
Net asset value and redemption price per share
($48,129,037 divided by 340,603 shares of beneficial
interest)................................................ $ 141.31
===========
Identified cost of investments............................ $40,635,094
===========
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
INVESTMENT INCOME
Dividends............................................ $ 764,562(a)
Interest............................................. 93,774
-----------
858,336
EXPENSES
Management fees...................................... $242,628
Trustees' fees and expenses.......................... 15,270
Custodian............................................ 59,894
Audit and tax services............................... 11,400
Legal................................................ 10,326
Printing............................................. 23,326
Registration......................................... 7
Miscellaneous........................................ 5,506
--------
Total expenses...................................... 368,357
Less expenses assumed by the investment adviser..... (73,738) 294,619
-------- -----------
NET INVESTMENT INCOME................................. 563,717
REALIZED AND UNREALIZED GAIN ON INVESTMENTS,
Realized gain on investments--net.................... 2,941,365
Unrealized appreciation on investments--net.......... 6,907,865
-----------
Net gain on investment transactions................... 9,849,230
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS............ $10,412,947
===========
(a) Net of foreign taxes of $4,644
See accompanying notes to financial statements.
38
NEW ENGLAND ZENITH FUND
(WESTPEAK VALUE GROWTH SERIES)
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
FROM OPERATIONS
Net investment income.............................. $ 387,990 $ 563,717
Net realized gain (loss) on investments............ (633,620) 2,941,365
Unrealized appreciation on investments............. 298,917 6,907,865
----------- -----------
INCREASE IN NET ASSETS FROM OPERATIONS............. 53,287 10,412,947
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income.............................. (387,990) (549,852)
Paid in capital.................................... (9,110) 0
Net realized gain on investments................... 0 (1,825,459)
----------- -----------
(397,100) (2,375,311)
----------- -----------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares....................... 23,191,269 22,945,280
Net asset value of shares issued in connection with
the reinvestment of:
Distributions from net investment income........... 387,990 549,852
Distributions from paid in capital................. 9,110
Distributions from net realized gain............... 0 1,825,459
----------- -----------
23,588,369 25,320,591
Cost of shares redeemed............................ (9,392,660) (8,163,352)
----------- -----------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE
TRANSACTIONS...................................... 14,195,709 17,157,239
----------- -----------
TOTAL INCREASE IN NET ASSETS....................... 13,851,696 25,194,875
NET ASSETS
Beginning of the year.............................. 9,082,266 22,934,162
----------- -----------
End of the year.................................... $22,934,162 $48,129,037
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year.............................. $ (315) $ 0
=========== ===========
End of the year.................................... $ 0 $ 13,865
=========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares..................... 212,075 175,593
Issued in connection with the reinvestment of:
Distributions from net investment income........... 3,558 3,932
Distributions from paid in capital................. 73 0
Distributions from net realized gain............... 0 13,054
----------- -----------
215,706 192,579
Redeemed........................................... (88,227) (62,314)
----------- -----------
Net change......................................... 129,479 130,265
=========== ===========
FINANCIAL HIGHLIGHTS
APRIL 30, 1993*
THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1994 1995
--------------- ------------ ------------
Net Asset Value, Beginning of Year... $100.00 $112.32 $109.03
------- ------- -------
Income From Investment Operations
Net Investment Income............... 0.92 1.90 1.77
Net Realized and Unrealized Gain
(Loss) on Investments.............. 13.33 (3.25) 37.91
------- ------- -------
Total From Investment Operations.... 14.25 (1.35) 39.68
------- ------- -------
Less Distributions
Distributions From Net Investment
Income............................. (0.92) (1.92) (1.71)
Distributions From Net Realized Cap-
ital Gains......................... (1.00) 0.00 (5.69)
Distributions In Excess of Net Real-
ized Capital Gains................. (0.01) 0.00 0.00
Distributions From Paid-in Capital.. 0.00 (0.02) 0.00
------- ------- -------
Total Distributions................. (1.93) (1.94) (7.40)
------- ------- -------
Net Asset Value, End of Year......... $112.32 $109.03 $141.31
======= ======= =======
TOTAL RETURN (%)..................... 14.24*** (1.21) 36.46
Ratio of Operating Expenses to Aver-
age Net Assets (%).................. 0.85** 0.85 0.85
Ratio of Net Investment Income to Av-
erage Net Assets (%)................ 2.16** 2.30 1.63
Portfolio Turnover Rate (%).......... 49** 133 92
Net Assets, End of Year (000)........ $ 9,082 $22,934 $48,129
The ratios of expenses to average net
assets without giving effect to the
voluntary expense limitations
described in Note 4 to the Financial
Statements would have been (%)...... 0.94** 0.86 1.06
* Commencement of operations.
** Computed on an annualized basis.
*** Not computed on an annualized basis.
See accompanying notes to financial statements.
39
ZENITH WESTPEAK STOCK INDEX SERIES
PORTFOLIO MANAGERS: GERALD H. SCRIVER AND PHILIP J. COOPER; WESTPEAK
INVESTMENT ADVISORS, L.P.
MARKET REVIEW
Photo Gerald Photo Philip J. Cooper
H. Scriver The Westpeak Stock Index Series
returned 36.88% compared to the 37.44%
posted by the S&P 500 Index/1//9/, for
the twelve months ended December 31,
1995.
The Series is managed so as to track
the performance of the S&P 500
Index/1//9/. Westpeak's approach is to
seek to emulate the S&P 500 Index by
owning a majority of the
stocks in the Index in the same proportion as the Index. This process
minimizes the tracking error (the difference between the performance of the
Series and the Index). For example, during the third quarter of 1995, the
Series returned 5.80% at net asset value while the S&P 500 Index returned
6.03%.
OUTLOOK AND STRATEGY
The stock market has flourished in a climate of moderate growth, falling
inflationary expectations and declining interest rates. However, this
favorable set of circumstances could change during the next three to six
months. We believe investors will be forced to reassess overly optimistic
expectations about lower short-term rates. We do not expect a major bear
market, but risks are high enough to warrant a somewhat cautious view of the
market.
FUND FACTS
GOAL: investment results that
correspond to the composite
price and yield performance of
United States publicly traded
common stocks.
START DATE: May 1, 1987.
SIZE: $58.7 million as of
December 31, 1995.
MANAGERS: Gerald Scriver and
Philip Cooper. Mr. Scriver and
Mr. Cooper have managed the
Series since 1993; they have
also managed the Westpeak Value
Growth Series since August 1993
and New England Growth
Opportunities Fund since May
1995. Mr. Scriver founded
Westpeak in May 1991 and Mr.
Cooper joined Westpeak in
December 1991.
A $10,000 Investment Compared to an Index
Average Annual Total Return
Westpeak Lipper Variable
Stock Index S&P 500 Fund Index
1 year 36.88% 36.81%
5 years 16.28% 16.09%
Since
Inception 12.18% --
[A graph representing the following:]
A $10,000 Investment Compared to an Index
Westpeak
Stock Index
Series S&P 500(19)
--------------- -----------
4/30/87 $10,000 $10,000
1987 $ 8,780 $ 8,750
1988 $10,215 $10,194
1989 $13,294 $13,414
1990 $12,744 $12,995
1991 $16,614 $16,938
1992 $17,827 $18,227
1993 $19,560 $20,061
1994 $19,785 $20,334
1995 $27,082 $27,947
Performance numbers are net of all fund operating expenses but do not
include any insurance, sales or administrative charges of the variable
contracts; if included, the returns 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 original cost.
40
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--99.1% OF TOTAL NET ASSETS
SHARES VALUE (a)
AEROSPACE--2.2%
3,100 Allied Signal, Inc. ..................................... $ 147,250
4,500 Boeing Co. .............................................. 352,687
900 General Dynamics Corp. .................................. 53,213
2,815 Lockheed Martin Corp. ................................... 222,385
1,500 McDonnell Douglas Corp. ................................. 138,000
400 Northrop Grumman Corp. .................................. 25,600
2,300 Rockwell International Corp. ............................ 121,612
900 Teledyne, Inc. .......................................... 23,062
1,300 United Technologies Corp. ............................... 123,337
-----------
1,207,146
-----------
AGRICULTURE AND FOOD--3.1%
6,596 Archer-Daniels-Midland Co. .............................. 118,728
3,300 Campbell Soup Company.................................... 198,000
3,050 Conagra, Inc. ........................................... 125,812
1,600 CPC International, Inc. ................................. 109,800
2,200 General Mills, Inc. ..................................... 127,050
4,800 H.J. Heinz Co. .......................................... 159,000
700 Hershey Foods Corp. ..................................... 45,500
3,400 Kellogg Co. ............................................. 262,650
800 Pioneer Hi Bred International, Inc. ..................... 44,500
1,600 Quaker Oats Co. ......................................... 55,200
6,000 Sara Lee Corp. .......................................... 191,250
2,200 Unilever N.V. ........................................... 309,650
1,300 William Wrigley Jr. Co. ................................. 68,250
-----------
1,815,390
-----------
AIR TRANSPORT--0.4%
900 AMR Corp.(c)............................................. 66,825
900 Delta Airlines, Inc. .................................... 66,487
700 Federal Express Corp.(c)................................. 51,712
1,600 Southwest Airlines Co. .................................. 37,200
400 US Air Group, Inc.(c).................................... 5,300
-----------
227,524
-----------
ALUMINUM--0.4%
2,400 Alcan Aluminum, Ltd. .................................... 74,700
2,000 Aluminum Company of America.............................. 105,750
900 Reynolds Metals Co. ..................................... 50,962
-----------
231,412
-----------
APPAREL--0.5%
100 Brown Group, Inc. ....................................... 1,425
600 Liz Claiborne, Inc. ..................................... 16,650
2,400 Nike, Inc. .............................................. 167,100
1,200 Reebok International Ltd. ............................... 33,900
300 Russell Corp. ........................................... 8,325
100 Springs Industries, Inc. ................................ 4,137
400 Stride Rite Corp. ....................................... 3,000
1,000 VF Corp. ................................................ 52,750
-----------
287,287
-----------
SHARES VALUE (a)
BANKS--6.5%
4,978 Banc One Corp. .......................................... $ 187,920
2,200 Bank of New York, Inc. .................................. 107,250
1,800 Bank of Boston Corp. .................................... 83,250
4,928 BankAmerica Corp. ....................................... 319,088
900 Bankers Trust New York Corp. ............................ 59,850
1,100 Barnett Banks of Florida, Inc. .......................... 64,900
1,500 Boatmens Bancshares, Inc. ............................... 61,312
2,200 Chase Manhattan Corp. ................................... 133,375
3,282 Chemical Banking Corp. .................................. 192,817
5,200 Citicorp(c).............................................. 349,700
1,500 Comerica, Inc. .......................................... 60,187
1,700 Core States Financial Corp. ............................. 64,388
1,700 First Bank Systems, Inc. ................................ 84,362
3,510 First Chicago Corp. ..................................... 138,645
1,000 First Fidelity Bancorporation............................ 75,375
1,100 First Interstate Bancorp................................. 150,150
2,100 First U.N. Corp. ........................................ 116,812
4,462 Fleet Financial Group, Inc. ............................. 181,827
2,400 J.P. Morgan & Co., Inc. ................................. 192,600
3,100 Keycorp.................................................. 112,375
1,750 Mellon Bank Corp. ....................................... 94,062
1,800 National City Corp. ..................................... 59,625
3,816 Nationsbank Corp. ....................................... 265,689
3,700 Norwest Corp. ........................................... 122,100
4,400 PNC Bank Corp. .......................................... 141,900
700 Republic New York Corp. ................................. 43,487
1,100 Suntrust Banks, Inc. .................................... 75,350
1,900 U.S. Bancorp............................................. 63,887
1,900 Wachovia Corp. .......................................... 86,925
600 Wells Fargo & Co. ....................................... 129,600
-----------
3,818,808
-----------
BEVERAGES--3.1%
16,100 Coca Cola Co. ........................................... 1,195,425
10,100 PepsiCo, Inc. ........................................... 564,337
1,300 Whitman Corp. ........................................... 30,225
-----------
1,789,987
-----------
BUSINESS MACHINES--4.0%
1,400 Amdahl Corporation(c).................................... 11,900
1,400 Apple Computer, Inc. .................................... 44,625
1,000 Cabletron Systems, Inc.(c)............................... 81,000
3,600 Cisco Systems, Inc. ..................................... 268,650
3,300 Compaq Computer Corp.(c)................................. 158,400
300 Cray Research, Inc.(c)................................... 7,425
300 Data General Corp.(c).................................... 4,125
1,800 Digital Equipment Corp.(c)............................... 115,425
6,300 Hewlett-Packard Co. ..................................... 527,625
7,300 International Business Machines Corp. ................... 669,775
1,700 Pitney Bowes, Inc. ...................................... 79,900
2,200 Silicon Graphics, Inc.(c)................................ 60,500
See accompanying notes to financial statements.
41
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--(CONTINUED)
SHARES VALUE (a)
BUSINESS MACHINES--(CONTINUED)
2,300 Sun Microsystems, Inc.(c)................................ $ 104,938
1,800 Tandem Computers, Inc.(c)................................ 19,125
2,200 Unisystems, Corp.(c)..................................... 12,375
1,500 Xerox Corp. ............................................. 205,500
-----------
2,371,288
-----------
CHEMICALS--3.1%
1,000 Air Products and Chemicals, Inc. ........................ 52,750
900 Avery Dennison Corp. .................................... 45,113
300 B.F. Goodrich Co. ....................................... 20,437
3,050 Dow Chemical Co. ........................................ 214,644
1,300 Eastman Chemical Co. .................................... 81,413
7,000 E.I. Du Pont de Nemours & Co. ........................... 489,125
300 FMC Corp.(c)............................................. 20,288
800 Great Lakes Chemical Corp. .............................. 57,600
1,400 Hercules, Inc. .......................................... 78,925
1,300 Monsanto Company......................................... 159,250
2,100 Morton International, Inc. .............................. 75,337
1,000 Nalco Chemical Co. ...................................... 30,125
3,300 Occidental Petroleum Corp. .............................. 70,537
2,300 PPG Industries, Inc. .................................... 105,225
2,000 Praxair, Inc. ........................................... 67,250
1,000 Rohm & Haas Co. ......................................... 64,375
1,000 Sigma-Aldrich Corp. ..................................... 49,500
1,700 Union Carbide Corp. ..................................... 63,750
1,200 W.R. Grace & Co. ........................................ 70,950
-----------
1,816,594
-----------
CONSTRUCTION--0.3%
800 Armstrong World Industries, Inc. ........................ 49,600
700 Centex Corp. ............................................ 24,325
900 Fluor Corp. ............................................. 59,400
700 Sherwin Williams Co. .................................... 28,525
100 Skyline Corp. ........................................... 2,075
200 Zurn Industries, Inc. ................................... 4,275
-----------
168,200
-----------
CONSUMER DURABLES--0.3%
1,000 Black & Decker Corp. .................................... 35,250
2,000 Masco Corp. ............................................. 62,750
800 Maytag Corp. ............................................ 16,200
1,000 Whirlpool Corp. ......................................... 53,250
-----------
167,450
-----------
CONTAINERS--0.2%
200 Ball Corp. .............................................. 5,500
400 Bemis, Inc. ............................................. 10,250
1,300 Crown Cork & Seal, Inc.(c)............................... 54,275
900 Temple Inland, Inc. ..................................... 39,713
-----------
109,738
-----------
SHARES VALUE (a)
COSMETICS--2.6%
200 Alberto Culver Co. ...................................... $ 6,875
800 Avon Products, Inc. ..................................... 60,300
8,100 Johnson & Johnson........................................ 693,562
9,060 Procter & Gamble Co. .................................... 751,980
-----------
1,512,717
-----------
DOMESTIC OIL RESERVES--0.8%
2,000 Atlantic Richfield Co. .................................. 221,500
1,600 Burlington Resources, Inc. .............................. 62,800
700 Louisiana Land & Exploration............................. 30,013
800 Pennzoil Company......................................... 33,800
2,900 Phillips Petroleum Company............................... 98,962
1,711 Santa Fe Energy Research, Inc.(c)........................ 16,468
-----------
463,543
-----------
DRUGS & MEDICINE--6.2%
700 Allergan, Inc. .......................................... 22,750
1,600 Alza Corp.(c)............................................ 39,600
3,700 American Home Products Corp. ............................ 358,900
3,800 Amgen, Inc.(c)........................................... 225,625
6,140 Bristol Myers & Squibb Co. .............................. 527,273
7,200 Eli Lilly & Company...................................... 405,000
15,600 Merck & Co., Inc. ....................................... 1,025,700
8,000 Pfizer, Inc. ............................................ 504,000
6,680 Pharmacia & Upjohn, Inc. ................................ 258,850
4,600 Schering-Plough Corp. ................................... 251,850
-----------
3,619,548
-----------
ELECTRIC UTILITIES--3.7%
2,500 American Electric Power Co., Inc. ....................... 101,250
1,600 Baltimore Gas & Electric Co. ............................ 45,600
1,700 Carolina Power & Light Co. .............................. 58,650
2,500 Central & South West Corp. .............................. 69,688
2,111 Cinergy Corp. ........................................... 64,649
3,100 Consolidated Edison Co. of New York...................... 99,200
1,600 Detroit Edison Co. ...................................... 55,200
2,050 Dominion Resources, Inc. ................................ 84,562
2,800 Duke Power Co. .......................................... 132,650
3,200 Entergy Corp. ........................................... 93,600
2,300 FPL Group, Inc. ......................................... 106,663
1,500 General Public Utilities Corp. .......................... 51,000
4,000 Houston Industries, Inc. ................................ 97,000
2,000 Niagara Mohawk Power Corp. .............................. 19,250
500 Northern States Power Co. ............................... 24,563
2,100 Ohio Edison Co. ......................................... 49,350
5,600 Pacific Gas & Electric Corp. ............................ 158,900
3,500 Pacificorp............................................... 74,375
3,500 PECO Energy Co. ......................................... 105,437
2,000 P.P. & L Res, Inc. ...................................... 50,000
3,700 Public Service Enterprise Group.......................... 113,312
5,700 SCE Corp. ............................................... 101,175
See accompanying notes to financial statements.
42
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--(CONTINUED)
SHARES VALUE (a)
ELECTRIC UTILITIES--(CONTINUED)
8,800 Southern Co. ............................................ $ 216,700
2,500 Texas Utilities Company.................................. 102,812
2,700 Unicom Corp. ............................................ 88,425
800 Union Electric Co. ...................................... 33,400
-----------
2,197,411
-----------
ELECTRONICS--3.6%
1,600 Advanced Micro Devices, Inc.(c).......................... 26,400
3,056 AMP, Inc. ............................................... 117,274
225 Andrew Corp.(c).......................................... 8,606
1,300 Cooper Industries, Inc. ................................. 47,775
1,800 DSC Communications Corp.(c).............................. 66,375
300 Harris Corp. ............................................ 16,388
1,400 Honeywell, Inc. ......................................... 68,075
10,700 Intel Corp. ............................................. 607,225
1,800 Loral Corp. ............................................. 63,675
1,500 LSI Logic Corp.(c)....................................... 49,125
3,400 Micron Technology, Inc. ................................. 134,725
7,300 Motorola, Inc. .......................................... 416,100
1,800 National Semiconductor Corp.(c).......................... 40,050
3,100 Northern Telecom, Ltd. .................................. 133,300
300 Raychem Corp. ........................................... 17,063
2,600 Raytheon Co. ............................................ 122,850
1,100 Scientific Atlanta, Inc. ................................ 16,500
200 Tektronix, Inc. ......................................... 9,825
1,100 Tellabs, Inc.(c)......................................... 40,700
2,500 Texas Instruments, Inc. ................................. 129,375
100 Thomas & Betts Corp. .................................... 7,375
-----------
2,138,781
-----------
FINANCE--1.8%
6,400 American Express Co. .................................... 264,800
400 Beneficial Corp. ........................................ 18,650
2,402 Dean Witter Discover & Co. .............................. 112,894
1,200 Household International, Inc. ........................... 70,950
1,550 MBNA Corp. .............................................. 57,156
2,300 Merrill Lynch & Co., Inc. ............................... 117,300
1,000 Morgan Stanley Group, Inc. .............................. 80,625
1,200 Salomon, Inc. ........................................... 42,600
4,384 Travelers Group, Inc. ................................... 275,644
-----------
1,040,619
-----------
FOREIGN OIL RESERVES--0.1%
900 Kerr McGee Corp. ........................................ 57,150
-----------
FOREST PRODUCTS--0.1%
1,300 Louisiana Pacific Corp. ................................. 31,525
-----------
GAS UTILITIES--1.0%
900 Columbia Gas System, Inc.(c)............................. 39,488
1,100 Consolidated Natural Gas Co. ............................ 49,913
SHARES VALUE (a)
700 Eastern Enterprises...................................... $ 24,675
3,200 Enron Corp. ............................................. 122,000
700 Ensearch Corporation..................................... 11,375
400 Nicor, Inc. ............................................. 11,000
1,300 Noram Energy Corp. ...................................... 11,538
200 Oneok, Inc. ............................................. 4,575
1,100 Pacific Enterprises, Ltd. ............................... 31,075
1,829 Panhandle Eastern Corporation............................ 50,983
300 Peoples Energy Corp. .................................... 9,525
1,000 Sonat, Inc. ............................................. 35,625
2,800 Tenneco, Inc. ........................................... 138,950
1,600 Williams Companies, Inc. ................................ 70,200
-----------
610,922
-----------
GOLD--0.7%
4,300 Barrick Gold Corp. ...................................... 113,412
1,800 Echo Bay Mines, Ltd. .................................... 18,675
1,425 Engelhard Corp. ......................................... 30,994
2,700 Freeport McMoran Copper & Gold........................... 75,937
1,500 Homestake Mining Co. .................................... 23,438
1,124 Newmont Mining Corp. .................................... 50,861
3,000 Placer Dome, Inc. ....................................... 72,375
2,200 Santa Fe Pacific Gold Corp. ............................. 26,675
-----------
412,367
-----------
HEALTH CARE--3.4%
9,400 Abbott Laboratories, Inc. ............................... 392,450
400 Bausch & Lomb, Inc. ..................................... 15,850
3,400 Baxter International, Inc. .............................. 142,375
600 Becton Dickinson & Co. .................................. 45,000
1,300 Beverly Enterprises, Inc.(c)............................. 13,813
1,300 Biomet, Inc.(c).......................................... 23,238
2,100 Boston Scientific Corp.(c)............................... 102,900
5,791 Columbia Healthcare Corp. ............................... 293,893
1,300 Community Psychiatric Centers(c)......................... 15,925
3,300 Corning, Inc. ........................................... 105,600
400 C.R. Bard, Inc. ......................................... 12,900
2,100 Humana, Inc.(c).......................................... 57,487
400 Manor Care, Inc. ........................................ 14,000
3,600 Medtronics, Inc. ........................................ 201,150
400 Millipore Corp. ......................................... 16,450
600 St. Jude Medical, Inc.(c)................................ 25,800
3,000 Tenet Healthcare Corp.(c)................................ 62,250
2,600 U.S. Healthcare, Inc. ................................... 120,900
2,300 United Healthcare Corp. ................................. 150,650
700 United States Surgical Corp. ............................ 14,963
1,900 Warner-Lambert Company................................... 184,537
-----------
2,012,131
-----------
HOTELS AND RESTAURANTS--1.1%
600 Bally Entertainment Group(c)............................. 8,400
2,200 Darden Restaurants, Inc.(c).............................. 26,125
1,750 Harrahs Entertainment, Inc. ............................. 42,438
See accompanying notes to financial statements.
43
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--(CONTINUED)
SHARES VALUE (a)
HOTELS AND RESTAURANTS--(CONTINUED)
400 Hilton Hotels Corp. ..................................... $ 24,600
200 Luby's Cafeterias, Inc. ................................. 4,450
1,700 Marriott Corporation..................................... 65,025
8,600 McDonald's Corp. ........................................ 388,075
875 Promus Companies, Inc. .................................. 19,469
400 Ryans Family Steak Houses(c)............................. 2,800
800 Shoney's, Inc.(c)........................................ 8,200
1,400 Wendys International, Inc. .............................. 29,750
-----------
619,332
-----------
INTERNATIONAL OIL--4.3%
8,300 Chevron Corporation...................................... 435,750
15,800 Exxon Corporation........................................ 1,265,975
5,400 Mobil Corporation........................................ 604,800
1,200 Oryx Energy Corp.(c)..................................... 16,050
2,700 Texaco, Inc. ............................................ 211,950
-----------
2,534,525
-----------
LEISURE--0.3%
1,200 Brunswick Corp. ......................................... 28,800
1,400 Hasbro, Inc. ............................................ 43,400
3,000 Mattel, Inc. ............................................ 92,250
100 Outboard Marine Corp. ................................... 2,038
-----------
166,488
-----------
LIFE INSURANCE--0.4%
2,600 American General Corp. .................................. 90,675
525 Jefferson Pilot Corp. ................................... 24,413
1,400 Providian Corp. ......................................... 57,050
600 Transamerica Corp. ...................................... 43,725
1,050 USLife Corp. ............................................ 31,369
-----------
247,232
-----------
LIQUOR--0.7%
300 Adolph Coors Co. ........................................ 6,638
2,900 Anheuser-Busch Companies, Inc. .......................... 193,937
1,100 Brown Forman Corp. "B"................................... 40,150
5,100 Seagram Company, Ltd. ................................... 176,587
-----------
417,312
-----------
MEDIA--2.3%
2,000 Capital Cities/ABC, Inc. ................................ 246,750
2,600 Comcast Corp. ........................................... 47,288
200 Handleman Co. ........................................... 1,150
250 King World Productions(c)................................ 9,719
8,500 Tele-Communications A(c)................................. 168,937
5,000 Time-Warner, Inc. ....................................... 189,375
1,000 Tribune Co. ............................................. 61,125
4,857 Viacom, Inc.(c).......................................... 230,100
6,700 Walt Disney Co. ......................................... 395,300
-----------
1,349,744
-----------
SHARES VALUE (a)
METALS--0.3%
800 Asarco, Inc. ............................................ $ 25,600
1,050 Cyprus Amax Minerals Co. ................................ 27,431
1,400 Inco, Ltd. .............................................. 46,550
1,000 Phelps Dodge Corp. ...................................... 62,250
-----------
161,831
-----------
MORTGAGE--1.1%
2,400 Federal Home Loan Mortgage Corp. ........................ 200,400
3,500 Federal National Mortgage Association.................... 434,437
-----------
634,837
-----------
MOTOR VEHICLES--2.2%
4,800 Chrysler Corp. .......................................... 265,800
1,300 Dana Corp. .............................................. 38,025
400 Echlin, Inc. ............................................ 14,600
800 Fleetwood Enterprises, Inc. ............................. 20,600
13,500 Ford Motor Co. .......................................... 391,500
9,600 General Motors Corp. .................................... 507,600
100 Nacco Industries, Inc. .................................. 5,550
1,220 Navistar International Corp., Inc.(c).................... 12,810
345 Paccar, Inc. ............................................ 14,533
500 Varity Corp.(c).......................................... 18,563
-----------
1,289,581
-----------
OIL DISTRIBUTION--2.9%
1,200 Amerada Hess Corp. ...................................... 63,600
6,400 Amoco Corp. ............................................. 460,000
800 Ashland Oil Co. ......................................... 28,100
800 Coastal Corp. ........................................... 29,800
6,800 Royal Dutch Petroleum Co. ADR(d)......................... 959,650
800 Sun, Inc. ............................................... 21,900
3,000 Unocal Corp. ............................................ 87,375
4,000 USX Marathon Group....................................... 78,000
-----------
1,728,425
-----------
OIL SERVICES--0.6%
2,000 Baker Hughes, Inc. ...................................... 48,750
1,300 Halliburton Co. ......................................... 65,812
300 Helmerich & Payne, Inc. ................................. 8,925
1,100 Rowan Companies, Inc.(c)................................. 10,863
3,100 Schlumberger, Ltd. ...................................... 214,675
300 Western Atlas, Inc.(c)................................... 15,150
-----------
364,175
-----------
OTHER INSURANCE--2.7%
1,200 Aetna Life and Casualty Company.......................... 83,100
5,686 Allstate Corp. .......................................... 233,837
5,812 American International Group, Inc. ...................... 537,610
800 Chubb Corp. ............................................. 77,400
1,000 CIGNA Corp. ............................................. 103,250
See accompanying notes to financial statements.
44
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--(CONTINUED)
SHARES VALUE (a)
OTHER INSURANCE--(CONTINUED)
800 General Reinsurance Corp................................. $ 124,000
1,200 Lincoln National Corp., Inc. ............................ 64,500
1,400 Loews Corp. ............................................. 109,725
1,000 Safeco Corp.............................................. 34,500
600 St. Paul Companies, Inc. ................................ 33,375
1,450 Torchmark, Inc........................................... 65,612
1,700 UNUM Corp................................................ 93,500
2,100 USF&G Corp. ............................................. 35,438
-----------
1,595,847
-----------
PAPER--1.7%
1,600 Alco Standard Corp....................................... 73,000
633 Boise Cascade Corp....................................... 21,918
1,100 Champion International Corp.............................. 46,200
800 Federal Paper Board, Inc................................. 41,500
1,200 Georgia Pacific Corp. ................................... 82,350
3,800 International Paper Co. ................................. 143,925
900 James River Corp......................................... 21,713
3,806 Kimberly Clark Corp...................................... 314,946
900 Mead Corp. .............................................. 47,025
200 Potlatch Corp. .......................................... 8,000
1,100 Stone Container Corp..................................... 15,813
500 Union Camp Corp.......................................... 23,813
675 Westvaco Corporation..................................... 18,731
2,500 Weyerhaeuser Co. ........................................ 108,125
700 Willamette Industries, Inc............................... 39,375
-----------
1,006,434
-----------
PHOTOGRAPHY--0.5%
4,050 Eastman Kodak Co. ....................................... 271,350
800 Polaroid Corp............................................ 37,900
-----------
309,250
-----------
POLLUTION CONTROL--0.5%
2,800 Browning-Ferris Industries, Inc.......................... 82,600
3,200 Laidlaw, Inc. ........................................... 32,800
700 Safety Kleen Corp. ...................................... 10,938
6,300 WMX Technologies, Inc. .................................. 188,212
-----------
314,550
-----------
PRODUCER GOODS--6.4%
2,600 American Brands, Inc..................................... 116,025
2,000 Applied Materials, Inc.(c)............................... 78,750
700 Briggs & Stratton Corp. ................................. 30,363
2,900 Caterpillar Tractor Co. ................................. 170,375
700 Cincinnati Milacron, Inc. ............................... 18,375
200 Crane Co. ............................................... 7,375
700 Cummins Engine, Inc. .................................... 25,900
4,200 Deere & Co. ............................................. 148,050
2,000 Dover Corporation........................................ 73,750
SHARES VALUE (a)
1,600 Dresser Industries, Inc.................................. $ 39,000
1,000 Eaton Corp............................................... 53,625
3,100 Emerson Electric Co. .................................... 253,425
300 Foster Wheeler Corp. .................................... 12,750
21,900 General Electric Co...................................... 1,576,800
500 General Signal Corp. .................................... 16,188
1,400 Genuine Parts Company.................................... 57,400
400 Giddings & Lewis, Inc.................................... 6,600
300 Harnischfeger Industries, Inc............................ 9,975
1,300 Illinois Tool Works, Inc. ............................... 76,700
1,300 ITT Corp. ............................................... 68,900
1,300 ITT Industries, Inc. .................................... 31,200
1,200 Ingersoll Rand Co. ...................................... 42,150
300 Johnson Controls, Inc. .................................. 20,625
600 Mallinckrodt Group, Inc. ................................ 21,825
600 McDermott International, Inc. ........................... 13,200
5,300 Minnesota Mining & Mfg. Co............................... 351,125
400 National Services Industries, Inc. ...................... 12,950
800 Owens Corning Fiberglas Co.(c)........................... 35,900
1,400 Pall Corp................................................ 37,625
600 Parker Hannifin Corp. ................................... 20,550
300 Perkin Elmer Corp. ...................................... 11,325
300 Snap-On Tools Corp. ..................................... 13,575
300 Stanley Works............................................ 15,450
1,000 Textron, Inc. ........................................... 67,500
200 Timken Co. .............................................. 7,650
700 Trinova Corp. ........................................... 20,038
1,000 TRW, Inc................................................. 77,500
2,000 TYCO International Ltd. ................................. 71,250
900 W.W. Grainger, Inc....................................... 59,625
-----------
3,771,389
-----------
PROPERTY--0.0%
300 Kaufman & Broad Home Corp................................ 4,463
200 Pulte Corp. ............................................. 6,725
-----------
11,188
-----------
PUBLISHING--0.9%
1,100 American Greetings Corp. ................................ 30,387
2,100 Gannet Co., Inc. ........................................ 128,887
300 John H. Harland Co....................................... 6,263
800 Jostens, Inc............................................. 19,400
600 Knight-Ridder, Inc....................................... 37,500
400 McGraw-Hill Companies, Inc. ............................. 34,850
200 Meredith Corp. .......................................... 8,375
1,200 Moore Corp., Ltd......................................... 22,350
1,000 New York Times Co........................................ 29,625
1,700 R.R. Donnelley & Sons Co. ............................... 66,937
1,900 Time Mirror Co........................................... 64,363
5,600 U.S. West Media Group, Inc.(c)........................... 106,400
-----------
555,337
-----------
See accompanying notes to financial statements.
45
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--(CONTINUED)
SHARES VALUE (a)
RAILROADS--1.1%
2,122 Burlington Northern, Inc................................. $ 165,516
900 Conrail, Inc............................................. 63,000
2,600 CSX Corporation.......................................... 118,625
1,500 Norfolk Southern Corp. .................................. 119,062
2,300 Union Pacific Corp....................................... 151,800
-----------
618,003
-----------
RETAIL--FOOD--0.7%
2,800 Albertson's, Inc. ....................................... 92,050
2,100 American Stores Co....................................... 56,175
300 Fleming Companies, Inc. ................................. 6,188
600 Giant Foods, Inc. ....................................... 18,900
800 Great Atlantic & Pacific Tea Company, Inc. .............. 18,400
1,400 Kroger Co.(c)............................................ 52,500
1,300 SuperValu Stores, Inc. .................................. 40,950
2,700 Sysco Corp. ............................................. 87,750
1,200 Winn-Dixie Stores, Inc................................... 44,250
-----------
417,163
-----------
RETAIL--OTHER--4.0%
1,400 Charming Shoppes, Inc.(c)................................ 4,025
1,200 Circuit City Stores, Inc................................. 33,150
800 Dayton Hudson Corp. ..................................... 60,000
1,700 Dillard Department Stores, Inc........................... 48,450
2,600 Federated Department Stores.............................. 71,500
600 Harcourt General, Inc.................................... 25,125
5,849 Home Depot, Inc.......................................... 280,021
2,500 J.C. Penney Company, Inc................................. 119,062
5,900 K-Mart Corp.(c).......................................... 42,775
200 Longs Drug Stores Corp. ................................. 9,575
2,400 Lowes Companies, Inc. ................................... 80,400
2,700 May Department Stores Co. ............................... 114,075
1,100 Melville Corporation..................................... 33,825
250 Mercantile Stores Co., Inc. ............................. 11,563
1,400 Nordstrom, Inc. ......................................... 56,700
900 Pep Boys: Manny, Moe & Jack.............................. 23,063
2,239 Price Costco.(c)......................................... 34,145
900 Rite Aid Corp............................................ 30,825
5,300 Sears, Roebuck & Co...................................... 206,700
1,200 Tandy Corp. ............................................. 49,800
2,600 The Gap, Inc. ........................................... 109,200
4,400 The Limited, Inc......................................... 76,450
1,300 TJX Companies, Inc. ..................................... 24,537
3,475 Toys R Us, Inc.(c)....................................... 75,581
2,600 Walgreen Co. ............................................ 77,675
28,700 Wal-Mart Stores, Inc..................................... 642,162
1,800 Woolworth Corp.(c)....................................... 23,400
-----------
2,363,784
-----------
SERVICES--3.9%
800 Alexander & Alexander Services........................... 15,200
600 Autodesk, Inc. .......................................... 20,550
SHARES VALUE (a)
2,000 Automatic Data Processing, Inc........................... $ 148,500
600 Ceridian Corp.(c)........................................ 24,750
3,000 Computer Associates International, Inc. ................. 170,625
700 Computer Sciences Corp.(c)............................... 49,175
2,100 CUC International, Inc.(c)............................... 71,662
1,000 De Luxe Corp. ........................................... 29,000
1,200 Dow Jones & Co., Inc. ................................... 47,850
2,320 Dun & Bradstreet Corp. .................................. 150,220
400 EG & G, Inc.............................................. 9,700
2,600 First Data Corp.......................................... 173,875
1,200 H & R Block, Inc. ....................................... 48,600
400 Intergraph Corp.(c)...................................... 6,300
800 Interpublic Group Companies, Inc......................... 34,700
1,000 Marsh & McLennan Companies............................... 88,750
7,800 Microsoft Corp.(c)....................................... 684,450
4,500 Novell, Inc.(c).......................................... 64,125
300 Ogden Corp............................................... 6,413
5,750 Oracle Systems Corp.(c).................................. 243,656
800 Pittston Service Group................................... 25,100
800 Ryder Systems, Inc....................................... 19,800
1,050 Service Corporation International........................ 46,200
200 Shared Medical System.................................... 10,875
4,400 Westinghouse Electric Corp............................... 72,600
-----------
2,262,676
-----------
SOAPS--1.5%
400 Clorox Co. .............................................. 28,650
1,700 Colgate Palmolive Co. ................................... 119,425
1,100 Dial Corp. .............................................. 32,587
700 Ecolab, Inc. ............................................ 21,000
6,600 Gillette Co. ............................................ 344,025
1,300 International Flavours & Fragrances, Inc. ............... 62,400
1,900 Newell Co. .............................................. 49,163
800 Premark International, Inc. ............................. 40,500
1,800 Ralston Purina Co. ...................................... 112,275
2,200 Rubbermaid, Inc. ........................................ 56,100
-----------
866,125
-----------
STEEL & IRON--0.2%
1,300 Armco, Inc.(c)........................................... 7,638
1,200 Bethlehem Steel Corp.(c)................................. 16,800
300 Inland Steel Industries, Inc. ........................... 7,538
1,000 Nucor Corp. ............................................. 57,125
1,020 USX US Steel Corp. ...................................... 31,365
1,200 Worthington Industries, Inc. ............................ 24,975
-----------
145,441
-----------
TELEPHONE--8.4%
6,400 Airtouch Communications.................................. 180,800
2,400 ALLTEL Corp. ............................................ 70,800
6,900 Ameritech Corp. ......................................... 407,100
20,535 AT & T Corp. ............................................ 1,329,641
See accompanying notes to financial statements.
46
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--(CONTINUED)
SHARES VALUE (a)
TELEPHONE--(CONTINUED)
5,600 Bell Atlantic Corp....................................... $ 374,500
13,000 BellSouth Corp. ......................................... 565,500
12,500 GTE Corp. ............................................... 550,000
8,400 MCI Communications Corp. ................................ 219,450
4,400 NYNEX Corp. ............................................. 237,600
5,100 Pacific Telesis Group.................................... 171,487
7,600 SBC Communications, Inc. ................................ 437,000
4,400 Sprint Corp. ............................................ 175,450
5,600 U.S. West, Inc.(c)....................................... 200,200
-----------
4,919,528
-----------
THRIFT--0.3%
700 Golden West Financial Corp. ............................. 38,675
1,450 Great Western Financial Corp. ........................... 36,975
1,300 H.F. Ahmanson & Co....................................... 34,450
1,300 ITT Hartford Group, Inc.................................. 62,888
-----------
172,988
-----------
TIRES AND RUBBER GOODS--0.2%
600 Cooper Tire & Rubber Co. ................................ 14,775
1,600 Goodyear Tire & Rubber Company........................... 72,600
-----------
87,375
-----------
TOBACCO--1.8%
10,700 Philip Morris Companies, Inc. ........................... 968,350
3,000 UST, Inc. ............................................... 100,125
-----------
1,068,475
-----------
TRUCKING AND FREIGHT--0.0%
300 Consolidated Freightways, Inc. .......................... 7,950
300 Roadway Services, Inc. .................................. 14,663
300 Yellow Corp.(c).......................................... 3,713
-----------
26,326
-----------
Total Common Stocks
(Identified cost $42,697,809)........................... 58,132,899
-----------
SHORT-TERM INVESTMENT--0.8%
FACE
AMOUNT VALUE (a)
$481,000 Repurchase Agreement with State Street Bank & Trust
Co. dated 12/29/95 at 5.000% to be repurchased at
$481,267 on 1/02/96 collateralized by $425,000, U.S.
Treasury Notes 8.750% due 8/15/00, with a value of
$496,185............................................. $ 481,000
-----------
Total Short Term Investment
(Identified Cost $481,000)........................... 481,000
-----------
Total Investments---99.9%
(Identified Cost $43,178,809)(b)..................... 58,613,899
Cash and Receivables.................................. 164,890
Liabilities........................................... (108,167)
-----------
TOTAL NET ASSETS--100%................................ $58,670,622
===========
(a) See Note 1A.
(b) Federal Tax Information:
At December 31,1995 the net unrealized appreciation on investments based on
cost of $43,311,699 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............................................. $16,007,152
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value........................................... (704,952)
-----------
Net unrealized appreciation........................... $15,302,200
===========
(c) Non-income producing security.
(d) An American Depository Receipt (ADR) is a certificate issued by a U.S.
bank representing the right to receive securities of the foreign issuer
described. The values of ADR's are significantly influenced by trading on
exchanges not located in the United States or Canada.
See accompanying notes to financial statements.
47
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1995
ASSETS
Investments at value.................................... $58,613,899
Cash.................................................... 201
Receivable for:
Fund shares sold........................................ 47,719
Dividends and interest.................................. 116,412
Foreign taxes........................................... 206
Due from advisor........................................ 352
-----------
LIABILITIES 58,778,789
Payable for:
Fund shares redeemed.................................... $28,583
Accrued expenses:
Management fees......................................... 4,953
Deferred trustees' fees................................. 33,492
Other expenses.......................................... 41,139
-------
108,167
-----------
$58,670,622
===========
NET ASSETS
Net Assets consist of:
Capital paid in......................................... $43,247,821
Undistributed net investment income..................... 20,255
Accumulated net realized losses......................... (32,544)
Unrealized appreciation on investments.................. 15,435,090
-----------
NET ASSETS............................................... $58,670,622
===========
Computation of offering price:
Net asset value and redemption price per share
($58,670,622 divided by 586,173 shares of beneficial in-
terest)................................................. $ 100.09
===========
Identified cost of investments........................... $43,178,809
===========
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
INVESTMENT INCOME
Dividends............................................ $ 1,212,104(a)
Interest............................................. 54,033
-----------
1,266,137
EXPENSES
Management fees...................................... $122,359
Trustees' fees and expenses.......................... 24,480
Custodian............................................ 67,024
Audit and tax services............................... 11,400
Legal................................................ 7,727
Printing............................................. 27,426
Registration......................................... 7
Miscellaneous........................................ 3,933
--------
Total expenses...................................... 264,356
Less expenses assumed by the investment adviser..... (68,581) 195,775
-------- -----------
NET INVESTMENT INCOME................................. 1,070,362
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on investments--net.................... 775,273
Unrealized appreciation on investments--net.......... 13,212,050
-----------
Net gain on investment transactions................... 13,987,323
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS............ $15,057,685
===========
(a) Net of foreign taxes of: $7,954
See accompanying notes to financial statements.
48
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
FROM OPERATIONS
Net investment income............................. $ 861,746 $ 1,070,362
Net realized gain on investments.................. 85,627 775,273
Unrealized appreciation (depreciation) on
investments...................................... (489,644) 13,212,050
------------ ------------
INCREASE IN NET ASSETS FROM OPERATIONS............ 457,729 15,057,685
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income............................. (861,687) (1,050,107)
Net realized gain on investments.................. (74,418) (673,888)
Paid in capital................................... (28,861) 0
------------ ------------
(964,966) (1,723,995)
------------ ------------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares...................... 18,433,352 17,851,781
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income.......... 861,687 1,050,107
Distributions from net realized gain.............. 74,418 673,888
Distributions from paid in capital................ 28,861 0
------------ ------------
19,398,318 19,575,776
Cost of shares redeemed........................... (10,543,643) (11,403,132)
------------ ------------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE
TRANSACTIONS..................................... 8,854,675 8,172,644
------------ ------------
TOTAL INCREASE IN NET ASSETS...................... 8,347,438 21,506,334
NET ASSETS
Beginning of the year............................. 28,816,850 37,164,288
------------ ------------
End of the year................................... $ 37,164,288 $ 58,670,622
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year............................. $ (2,244) $ 0
============ ============
End of the year................................... $ 0 $ 20,255
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................... 241,694 202,803
Issued in connection with the reinvestment of:
Distributions from net investment income.......... 11,363 10,562
Distributions from net realized gain.............. 983 6,778
Distributions from Paid-in Capital................ 421
------------ ------------
254,461 220,143
Redeemed.......................................... (138,029) (127,215)
------------ ------------
Net change........................................ 116,432 92,928
============ ============
FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31,
-------------------------------------------
1991 1992 1993 1994 1995
------- ------- ------- ------- -------
Net Asset Value, Beginning of
Year............................. $108.49 $137.39 $ 72.00 $ 76.48 $ 75.35
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income............ 3.56 8.35 1.54 1.80 1.88
Net Realized and Unrealized Gain
(Loss) on Investments........... 29.29 2.02 5.18 (0.92) 25.89
------- ------- ------- ------- -------
Total From Investment Operations. 32.85 10.37 6.72 0.88 27.77
------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Distributions From Net Investment
Income.......................... (3.56) (8.35) (1.36) (1.82) (1.85)
Distributions in Excess of Net
Investment Income............... 0.00 0.00 (0.18) 0.00 0.00
Distributions From Net Realized
Capital Gains................... (0.39) (67.41) (0.55) (0.16) (1.18)
Distributions in Excess of Net
Realized Capital Gains.......... 0.00 0.00 (0.15) 0.00 0.00
Distributions From Paid-in
Capital......................... 0.00 0.00 0.00 (0.03) 0.00
------- ------- ------- ------- -------
Total Distributions.............. (3.95) (75.76) (2.24) (2.01) (3.03)
------- ------- ------- ------- -------
Net Asset Value, End of Year...... $137.39 $ 72.00 $ 76.48 $ 75.35 $100.09
======= ======= ======= ======= =======
TOTAL RETURN (%).................. 30.37 7.30 9.72 1.14 36.88
Ratio of Operating Expenses to
Average Net Assets (%)........... 0.36 0.35 0.34 0.33 0.40
Ratio of Net Investment Income to
Average Net Assets (%)........... 2.86 2.63 2.52 2.59 2.20
Portfolio Turnover Rate (%)....... 2 17 12 2 5
Net Assets, End of Year (000)..... $20,496 $10,172 $28,817 $37,164 $58,671
The ratios of expenses to average
net assets without giving effect
to the voluntary expense
limitations described in Note 4
to the Financial Statements would
have been (%).................... -- -- -- -- 0.54
See accompanying notes to financial statements.
49
ZENITH LOOMIS SAYLES BALANCED SERIES
PORTFOLIO MANAGERS: MERI ANNE BECK AND DOUGLAS D. RAMOS; LOOMIS, SAYLES &
COMPANY
MARKET REVIEW
Photo Meri Photo Douglas D. Ramos
Anne Beck In a dramatic turnaround from 1994,
1995 proved to be an excellent year
for both stocks and bonds. Both
markets recorded their best
performance of the decade as measured
by the major indices. Driven by lower
interest rates, bonds produced a 19%
total rate of return as measured by
the Lehman Brothers
Government/Corporate Bond Index/4/.
Stocks benefited from both lower
interest rates and solid corporate
earnings growth, and produced a 37.6% total rate of return as measured by the
Standard & Poor's 500 Stock Index./1//9/
Against this backdrop, your Series delivered a 24.79% for the twelve months
ended December 31, 1995. This performance compared favorably to the return
posted by Lipper Variable Balanced Index/8/ of 24.29%.
The bond market put in its best yearly performance since 1985. The market's
psychology turned decidedly bullish early in the year as it became apparent
that the magnitude of interest rate increases experienced in 1994 would result
in slower economic growth during 1995. Slowing economic growth with benign
inflationary pressures and the lowering of interest rates twice by the Federal
Reserve contributed to the explosive 1995 bond market rally. Sectors that
contributed positively to performance included not only U.S. Treasuries, but
the airlines, media, travel, Yankee bonds (U.S. dollar obligations of foreign
issuers) and brokerage. Avalon Properties, Carnival Cruise and Columbia Health
Care were among the more positive individual contributors to performance.
During the second half of 1995, mortgage securities were purchased as
corporate spreads continued to narrow and became overvalued.
As highlighted above, stocks had an outstanding year, and one of the primary
drivers of performance in the year was the interest-rate sensitive sector of
the market. Lower interest rates help boost the performance of insurance and
financial service stocks, while bank stocks enjoyed a boost from the ongoing
consolidation in the banking industry. Holdings such as Ace Ltd., American
International Group, Fannie Mae, Freddie Mac, MBNA Corp., Chemical Bank and
First Interstate are prime examples of these developments. Other noteworthy
sectors include: industrials, helped by AMR Corp., Allied-Signal, and ITT
Corp.; capital goods, propelled by Case Corp., Lockheed Martin, Raytheon and
General Electric; and technology, aided by Intel Corp., Texas Instruments,
Hewlett Packard and Xerox. The drag on the portfolio during the year was the
energy sector with most of the Series' holdings concentrated in natural gas
(including El Paso Natural Gas and Mapco) and refining and marketing
(companies such as Sun Company and Ultramar).
OUTLOOK AND STRATEGY
Looking ahead to 1996, we expect a gradual increase in gross domestic
product, good news on the inflation front and a solid chance for lower
interest rates. One other factor that could have a positive influence on the
economy and the financial markets is the upcoming presidential election in
November. The one blemish which keeps us at a 60% equity weighting, slightly
below our long-term target of 65%, is the expected slowdown in corporate
earnings growth and the increased chance for earnings disappointments. This
could add to the volatility of the stock market in the first half of the year.
50
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: $18.8 million as of
December 31, 1995
MANAGERS: Douglas Ramos and Meri
Anne Beck have managed the Series
since its inception. Mr. Ramos
serves as a portfolio manager of
New England Balanced Fund and New
England Value Fund. Ms. Beck also
serves as portfolio manager of
New England Balanced Fund. Mr.
Ramos joined Loomis Sayles in
1985 and Ms. Beck joined Loomis
Sayles in 1986.
A $10,000 Investment Compared to an Index
Average Annual Total Return
Loomis Sayles Lipper Variable
Balanced Balanced Fund Average
1995 24.79% 24.29%
Since
Inception 20.79% --
[A graph representing the following:]
A $10,000 Investment Compared to an Index
Loomis Sayles Lehman
Balanced Series S&P 500(19) Gov't/Corp(4)
---------------- ------------ -------------
10/31/94 $10,000 $10,000 $10,000
1994 $ 9,990 $ 9,794 $10,048
1995 $12,457 $13,461 $11,981
Performance numbers are net of all fund operating expenses but do not include
any insurance, sales or administrative charges of the variable contracts; if
included, the returns 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 original cost.
51
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES BALANCED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--54.1% OF TOTAL NET ASSETS
SHARES VALUE (a)
AEROSPACE--2.2%
3,700 Lockheed Martin Corp. ................................... $ 292,300
2,600 Raytheon Co. ............................................ 122,850
-----------
415,150
-----------
AUTOMOBILES--2.4%
3,800 Chrysler Corp. .......................................... 210,425
4,500 General Motors Corp. .................................... 237,937
-----------
448,362
-----------
BANKS/SAVINGS & LOAN--2.8%
3,900 Chemical Banking Corp. .................................. 229,125
700 First Interstate Bancorp. ............................... 95,550
5,100 Fleet Financial Group, Inc. ............................. 207,825
-----------
532,500
-----------
CHEMICALS--3.9%
3,100 E.I. Du Pont de Nemours & Co. ........................... 216,613
2,000 Georgia Gulf Corp(c)..................................... 61,500
4,400 PPG Industries, Inc. .................................... 201,300
7,800 Praxair, Inc. ........................................... 262,275
-----------
741,688
-----------
ELECTRONIC COMPONENTS--2.7%
3,300 Intel Corp. ............................................. 187,275
3,200 Micron Technology, Inc. ................................. 126,800
3,700 Texas Instruments, Inc. ................................. 191,475
-----------
505,550
-----------
ELECTRICAL EQUIPMENT--1.5%
2,100 General Electric Co. .................................... 151,200
2,600 Honeywell, Inc. ......................................... 126,425
-----------
277,625
-----------
ENGINEERING & CONSTRUCTION--0.6%
4,800 McDermott International, Inc. ........................... 105,600
-----------
FINANCIAL SERVICES--2.7%
2,900 Federal Home Loan Mortgage Corp. ........................ 242,150
1,900 Federal National Mortgage Association.................... 235,837
700 MBNA Corp ............................................... 25,813
-----------
503,800
-----------
FREIGHT--TRANSPORTATION--3.3%
12,100 Canadian Pacific Ltd. ................................... 219,312
5,900 Consolidated Freightways, Inc. .......................... 156,350
3,400 Federal Express Corp.(c)................................. 251,175
-----------
626,837
-----------
HEALTH CARE--MEDICAL TECHNOLOGY--1.3%
7,400 C.R. Bard, Inc. ......................................... 238,650
-----------
SHARES VALUE (a)
HEALTH CARE--SERVICES--0.8%
14,100 Beverly Enterprises, Inc.(c).............................. $ 149,813
-----------
HOME PRODUCTS--1.2%
4,600 Premark International, Inc. .............................. 232,875
-----------
HOUSING & BUILDING MATERIALS--2.3%
3,400 Armstrong World Industries, Inc. ......................... 210,800
7,300 Masco Corp. .............................................. 229,038
-----------
439,838
-----------
INSURANCE--4.8%
5,900 Ace Ltd. ................................................. 234,525
1,650 American International Group Inc. ........................ 152,625
1,700 Chubb Corp. .............................................. 164,475
5,800 Providian Corp. .......................................... 236,350
4,700 Prudential Reinsurance Hldgs., Inc. ...................... 109,862
-----------
897,837
-----------
LEISURE--1.9%
4,800 American Greetings Corp. ................................. 132,600
9,600 Carnival Corp. ........................................... 234,000
-----------
366,600
-----------
MACHINERY--0.2%
900 Case Corp. ............................................... 41,175
-----------
MULTI-INDUSTRY--2.4%
4,700 Allied Signal, Inc. ...................................... 223,250
6,500 Philips Electronics NV.................................... 233,188
-----------
456,438
-----------
NATURAL GAS--PIPELINES--0.6%
900 El Paso Natural Gas Co. .................................. 25,538
1,600 Mapco Inc. ............................................... 87,400
-----------
112,938
-----------
OFFICE EQUIPMENT--2.7%
10,500 EMC Corp. ................................................ 161,437
1,400 International Business Machines........................... 128,450
1,600 Xerox Corp. .............................................. 219,200
-----------
509,087
-----------
OIL--MAJOR INTEGRATED--1.9%
7,100 Repsol S.A., ADR(d)....................................... 233,412
600 Sun, Inc. ................................................ 16,425
4,300 Ultramar Corp. ........................................... 110,725
-----------
360,562
-----------
PAPER PRODUCTS--1.5%
5,800 Crown Cork and Seal Co., Inc.(c) ......................... 242,150
800 Mead Corp. ............................................... 41,800
-----------
283,950
-----------
See accompanying notes to financial statements.
52
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES BALANCED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--(CONTINUED)
SHARES VALUE (a)
REAL ESTATE INVESTMENT TRUST--1.3%
6,800 Meditrust SBI........................................... $ 237,150
-----------
RETAIL--FOOD & DRUG--1.3%
5,400 Eckerd Corp............................................. 240,975
-----------
TELECOMMUNICATIONS--1.9%
5,200 GTE Corp................................................ 228,800
4,100 Telefonos de Mexico SA.................................. 130,687
-----------
359,487
-----------
TOBACCO--3.5%
2,900 Loews Corp.............................................. 227,288
2,200 Philip Morris Companies, Inc............................ 199,100
7,000 UST, Inc................................................ 233,625
-----------
660,013
-----------
UTILITIES--ELECTRIC--2.4%
7,800 Pacific Gas & Electric Co............................... 221,325
12,700 SCE Corp................................................ 225,425
-----------
446,750
-----------
Total Common Stocks
(Identified Cost $9,404,472)........................... 10,191,250
-----------
PREFERRED STOCK--0.5%
TOBACCO--0.4%
10,600 RJR Nabisco Holdings Corp............................... 67,575
-----------
OIL--MAJOR INTEGRATED--0.1%
300 Sun, Inc................................................ 8,325
-----------
Total Preferred Stock
(Identified Cost $73,537).............................. 75,900
-----------
MEDIUM & LONG TERM BONDS & NOTES--39.2%
FACE
AMOUNT
BANKS--1.1%
$100,000 Bankers Trust, NY Corp. 8.125%, 4/01/02................. 109,769
50,000 Chase Manhattan Corp. 9.050%, 2/01/02................... 51,556
50,000 Norwest Corp. 7.650%, 3/15/05........................... 55,374
-----------
216,699
-----------
CABLE & MEDIA--1.4%
250,000 TCI Communications, Inc.
7.390%, 8/28/01........................................ 261,913
-----------
ENERGY--0.9%
125,000 Coastal Corp. 8.125% 9/15/02............................ 136,721
25,000 Standard Oil Co. 9.000%, 6/01/19........................ 28,062
-----------
164,783
-----------
FACE
AMOUNT VALUE (a)
FINANCE--5.5%
$125,000 Associates Corp. NA 8.350%, 12/22/98................... $ 134,219
115,000 Avalon Propertys, Inc. 7.375%, 9/15/02................. 118,620
200,000 Ford Motor Credit Corp. 6.850%, 8/15/00................ 207,152
244,000 General Motors Acceptance Corp.
5.500%, 12/15/01...................................... 235,643
100,000 General Motors Corp. 9.125%, 7/15/01................... 114,008
50,000 International Lease Finance Corp.
8.040%, 12/01/97...................................... 52,096
100,000 Secured Finance Investment, Inc.
9.05%, 12/15/04....................................... 118,026
50,000 Standard Credit Card 8.625%, 1/07/02................... 52,736
-----------
1,032,500
-----------
GOVERNMENT--6.0%
200,000 U.S. Treasury Notes 5.875%, 5/31/96.................... 200,500
300,000 U.S. Treasury Notes 5.125%, 3/31/98.................... 299,484
25,000 U.S. Treasury Notes 8.250%, 7/15/98.................... 26,758
300,000 U.S. Treasury Notes 6.875%, 8/31/99.................... 315,282
100,000 U.S. Treasury Notes 7.500%, 10/31/99................... 107,359
175,000 U.S. Treasury Bonds 5.500%, 4/15/00.................... 176,449
-----------
1,125,832
-----------
GOVERNMENT AGENCY--2.3%
50,000 Federal Home Loan Banks 8.150%, 2/24/99................ 50,126
350,000 Federal Home Loan Banks 7.151%, 9/12/05................ 355,358
30,000 Federal National Mortgage Association Zero Coupon
10/10/01.............................................. 28,781
-----------
434,265
-----------
HEALTH CARE--0.3%
50,000 Columbia/HCA Healthcare Corp.
8.020%, 8/5/02........................................ 54,836
-----------
INDUSTRIAL--4.6%
175,000 Anheuser Busch Companies, Inc.
8.500%, 3/01/17....................................... 182,875
250,000 Coca Cola Enterprises, Inc.
8.750%, 4/01/17....................................... 262,375
200,000 Martin Marietta Corp. 6.500%, 4/15/03.................. 206,488
200,000 Tektronix, Inc. 7.625%, 8/15/02........................ 209,732
-----------
861,470
-----------
LEISURE & LODGING--1.1%
100,000 Carnival Corp. 7.050%, 5/15/05......................... 104,698
100,000 La Quinta Inns, Inc. 7.400%, 9/15/05................... 103,000
-----------
207,698
-----------
See accompanying notes to financial statements.
53
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES BALANCED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
MEDIUM & LONG TERM BONDS & NOTES--(CONTINUED)
FACE
AMOUNT VALUE (a)
MORTGAGED BACKED--3.4%
$200,000 Federal Home Loan Mortgage
8.000%, 7/15/21....................................... $ 211,624
50,000 G.E. Capital Mortgage Inc.
10.000%, 3/25/24...................................... 52,453
75,000 Paine Webber CMO Tr. 9.000%, 10/20/03.................. 77,344
75,000 Westam Mortgage Financial Corp.
8.950%, 8/01/18....................................... 80,555
200,000 Westam Mortgage Financial Corp.
9.400%, 12/01/18...................................... 213,312
-----------
635,288
-----------
RETAIL STORES--1.9%
170,000 Sears Overseas Finance Zero Coupon 7/12/98............. 147,368
200,000 Toys R US, Inc. 8.250%, 2/01/17........................ 209,956
-----------
357,324
-----------
SECURITIES--6.5%
200,000 Donaldson Lufkin & Jennrette
6.875%, 11/01/05...................................... 205,002
100,000 Lehman Bros. Inc. 5.750% 11/15/98 ..................... 99,108
200,000 Lehman Bros. Inc. 7.375% 5/15/07....................... 209,874
100,000 Merrill Lynch & Co. 8.375%, 2/09/00.................... 108,824
250,000 Paine Webber Group, Inc.
7.750%, 9/01/02....................................... 261,430
145,000 Salomon, Inc. 7.500%, 2/01/03.......................... 149,447
200,000 Smith Barney Holdings, Inc.
5.500%, 1/15/99....................................... 198,316
-----------
1,232,001
-----------
TELECOMMUNICATIONS--1.1%
200,000 Southern Bell Telephone & Telegraph Co. 7.625%,
3/15/13............................................... 205,664
-----------
TRANSPORTATION--0.8%
25,000 American Airlines 10.180%, 1/02/13..................... 29,944
100,000 AMR Corp 10.290%, 3/08/21.............................. 127,911
-----------
157,855
-----------
UTILITIES--2.0%
250,000 Cincinnati Gas & Electric Co.
7.375%, 11/01/01...................................... 253,780
130,000 General Telephone of California
7.125%, 12/01/98...................................... 130,720
-----------
384,500
-----------
YANKEE/SUPRANATIONAL--0.3%
50,000 SKF Aktiebolaget AB 7.625% 7/15/03 .................... 53,232
-----------
Total Bonds & Notes
(Identified Cost $7,147,215).......................... 7,385,860
-----------
SHORT-TERM INVESTMENTS--6.4%
FACE
AMOUNT VALUE (a)
413,000 American General Finance Corp.
5.550%, 1/02/96....................................... $ 413,000
800,000 Associates Corp. of North America
5.950%, 1/02/96....................................... 800,000
-----------
Total Short-Term Investments
(Identified Cost $1,213,000).......................... 1,213,000
-----------
Total Investments--100.2%
(Identified Cost $17,838,224)(b)...................... 18,866,010
Cash and Receivables................................... 410,926
Liabilities............................................ (454,260)
-----------
TOTAL NET ASSETS--100%................................. $18,822,676
===========
(a) See Note 1a.
(b) Federal Tax Information:
At December 31, 1995 the net unrealized appreciation on investments based on
cost of $17,838,224 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.............................................. $ 1,278,891
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value............................................ (251,105)
-----------
Net unrealized appreciation............................ $ 1,027,786
===========
(c) Non-income producing security.
(d) An American Depository Receipt (ADR) is a certificate issued by a U.S.
bank representing the right to receive securities of the foreign issuer
described. The values of ADRs are significantly influenced by trading on
exchanges not located in the United States or Canada.
See accompanying notes to financial statements.
54
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES BALANCED SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1995
ASSETS
Investments at value..................................... $18,866,010
Cash..................................................... 865
Receivable for:
Fund shares sold......................................... 67,963
Securities sold.......................................... 165,257
Dividends and interest................................... 152,428
Foreign taxes............................................ 275
Due from advisor......................................... 16,433
Unamortized organization expense......................... 7,705
-----------
19,276,936
LIABILITIES
Payable for:
Securities purchased..................................... $415,763
Fund shares redeemed..................................... 593
Withholding Taxes........................................ 126
Accrued expenses:
Management fees.......................................... 7,628
Other expenses........................................... 30,150
--------
454,260
-----------
$18,822,676
===========
NET ASSETS
Net Assets consist of:
Capital paid in.......................................... $17,655,390
Undistributed net investment income...................... 1,050
Accumulated net realized gains........................... 138,450
Unrealized appreciation on investments................... 1,027,786
-----------
NET ASSETS................................................ $18,822,676
===========
Computation of offering price:
Net asset value and redemption price per share
($18,822,676 divided by 1,575,093 shares of beneficial
interest)................................................ $ 11.95
===========
Identified cost of investments............................ $17,838,224
===========
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
INVESTMENT INCOME
Dividends.............................................. $ 124,041(a)
Interest............................................... 338,426
----------
462,467
EXPENSES
Management fees........................................ $65,752
Trustees' fees and expenses............................ 15,049
Custodian.............................................. 56,354
Audit and tax services................................. 20,694
Legal.................................................. 10,821
Printing............................................... 2,299
Registration........................................... 7
Amortization of organization expenses.................. 2,347
Miscellaneous.......................................... 2,604
-------
Total expenses........................................ 175,927
Less expenses assumed by the investment adviser....... (96,085) 79,842
------- ----------
NET INVESTMENT INCOME................................... 382,625
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on investments---net..................... 426,765
Unrealized appreciation on investments--net............ 1,029,622
----------
Net gain on investment transactions..................... 1,456,387
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS ............. $1,839,012
==========
(a)Net of foreign taxes of: $735
See accompanying notes to financial statements.
55
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES BALANCED SERIES)
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD
OCTOBER 31, 1994 (a)
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
-------------------- ------------
FROM OPERATIONS
Net investment income...................... $ 12,585 $ 382,625
Net realized gain on investments 0 426,765
Unrealized appreciation (depreciation) on
investments............................... (1,836) 1,029,622
---------- -----------
INCREASE IN NET ASSETS FROM OPERATIONS..... 10,749 1,839,012
---------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................... (12,334) (382,625)
In excess of net investment income......... 0 (1,297)
Net realized gain on investments........... 0 (288,315)
---------- -----------
(12,334) (672,237)
---------- -----------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares............... 2,157,989 18,594,352
Net asset value of shares issued in connec-
tion with the reinvestment of:
Distributions from net investment income... 12,335 383,922
Distributions from net realized gain....... 0 288,315
---------- -----------
2,170,324 19,266,589
Cost of shares redeemed.................... (446,397) (4,333,030)
---------- -----------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS........................ 1,723,927 14,933,559
---------- -----------
TOTAL INCREASE IN NET ASSETS............... 1,722,342 16,100,334
NET ASSETS
Beginning of the year...................... 1,000,000 2,722,342
---------- -----------
End of the year............................ $2,722,342 $18,822,676
========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year...................... $ 0 $ 251
========== ===========
End of the year............................ $ 251 $ 1,050
========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares............. 217,577 1,626,505
Issued in connection with the reinvestment
of:
Distributions from net investment income... 1,242 32,426
Distributions from net realized gain....... 0 24,351
---------- -----------
218,819 1,683,282
Redeemed................................... (44,926) (382,082)
---------- -----------
Net change................................. 173,893 1,301,200
========== ===========
(a) Commencement of Operations
FINANCIAL HIGHLIGHTS
OCTOBER 31, 1994*
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
-------------------- ------------
Net Asset Value, Beginning of Year.......... $ 10.00 $ 9.94
---------- -----------
Income From Investment Operations
Net Investment Income...................... 0.05 0.26
Net Realized and Unrealized Gain
(Loss) on Investments...................... (0.06) 2.20
---------- -----------
Total From Investment Operations........... (0.01) 2.46
---------- -----------
Less Distributions
Distributions From Net Investment Income... (0.05) (0.26)
Distributions From Net Realized Capital
Gains..................................... 0.00 (0.19)
---------- -----------
Total Distributions........................ (0.05) (0.45)
---------- -----------
Net Asset Value, End of Year................ $ 9.94 $ 11.95
========== ===========
TOTAL RETURN (%)............................ (0.10)*** 24.79
Ratio of Operating Expenses to Average Net
Assets (%)................................. 0.85** 0.84
Ratio of Net Investment Income to Average
Net Assets (%)............................. 4.16** 4.03
Portfolio Turnover Rate (%)................. 0** 72
Net Assets, End of Year (000)............... $ 2,722 $ 18,823
The ratios of expenses to average net assets
without giving effect to the voluntary
expense limitations described in Note 4 to
the Financial Statements would have been
(%)........................................ 3.73** 1.85
* Commencement of operations.
** Computed on an annualized basis.
*** Not computed on an annualized basis.
See accompanying notes to financial statements.
56
ZENITH BACK BAY ADVISORS MANAGED SERIES
PORTFOLIO MANAGER: PETER PALFREY; BACK BAY ADVISORS, L.P.(R)
MARKET REVIEW
Photo Peter
Palfrey I am very pleased to report that the Back Bay Advisors
Managed Series ended 1995 significantly ahead of its peer
group, with a total return of 31.26% versus 24.22% for the
Lipper Variable Product Flexible Portfolio Funds/9/, an
outperformance of 7.04%. The Series ranked six out of
sixty-eight funds in its Lipper peer group in 1995, and
now ranks among the top ten such funds for one, two and
three year returns.
1995 proved to be an exceptionally strong year in U.S.
financial markets, rewarding patient investors after a
tumultuous year in 1994. Stocks, as represented by the S&P
500/1//9/ (with dividends reinvested), were up 37.44%--the
best total return in over three decades.
Bonds, as represented by the Lehman Government/Corporate Index/4/, were up
19.24%--the best total return in a decade, and among the best years ever in
U.S. investment grade fixed income market. Not surprisingly, 1995 ranks as the
best year ever for a hypothetical 55% stock, 35% bond and 10% cash balanced
portfolio (based on data Ibbotson Associates covering the period since 1926).
Overall portfolio strategy during calendar 1995 was best summarized by the
phrase: "remain fully invested." We began to position the Series more
aggressively late in 1994 as financial markets showed early signs of
bottoming. The Series' cash position, which had been run as high as 15-20% of
total assets during much of the bear market of 1994, was reduced to less than
3% by early in 1995. The effective duration of the bond portfolio was
increased from 5.5 years in late 1994 to as much as 7.1 years early in 1995,
and was managed with an effective duration of 6.0-7.5 years throughout the
remainder of the year. With inflationary pressures remaining subdued, economic
growth slowing to a more sustainable pace and the Federal Reserve moving to a
less restrictive monetary stance, interest rates declined 200-250 basis points
across the yield curve during 1995. The long duration of the Series' bond
portfolio had a significant positive impact on the Series' strong relative
performance, given the sharp drop in interest rates during the year. In
addition, the Series was also overweight in corporate and Yankee paper (U.S.
dollar obligations of foreign issuers), two of the best performing bond
sectors during 1995.
The Series' allocation to stocks was increased from approximately 62% late
in 1994 to almost 80% going into the first quarter of 1995. With stocks
rallying nearly 10% during just the first three months of 1995, we elected to
lock-in a portion of the incremental gains from the overweight position in
stocks, bringing the Series closer to the normal "target" split of 65% stocks
and 35% bonds. With solid corporate earnings, coupled with lower interest
rates continuing to underpin the stock market's advance in subsequent
quarters, we maintained a slightly overweight allocation to stocks of 65-68%
for the remainder of the year. The Series' concentration in larger
capitalization, higher quality growth stocks helped its relative performance
in 1995, as investor preference continued to shift away from the small and
mid-capitalization, lower quality stocks favored in the earlier stages of the
U.S. economic recovery.
OUTLOOK AND STRATEGY
While market returns this year are unlikely to match those experienced in
1995, our outlook for both stocks and bonds in 1996 remains constructive--
although this will likely be accompanied by considerably more volatility,
particularly in stocks. Growth in GDP is expected to decline from
approximately 3% in 1995 to a more tepid pace of 1.5-2% in 1996, in a lagged
response to tighter monetary policy orchestrated by the Federal Reserve during
1994 and early 1995. Corporate profitability growth, which advanced more than
11% in 1995, will likely slow to a more modest 5% in 1996. Stocks may need to
do some "backing and filling" over the near term, to allow for earnings to
catch up to current high valuations, but should reward longer term investors
for their patience. We remain slightly overweighted in stocks at 67% of total
assets versus our long-term benchmark allocation of 65% stock/35% bond.
Bonds, which have benefited from moderating inflationary pressures, a
deceleration in the pace of economic growth and a less restrictive Fed
monetary policy, may also come under some near-term pressure over stalled
Federal budget negotiations and heavy new Treasury refunding supply early in
1996. Accordingly, We modestly reduced the Series' bond portfolio duration
going into 1996, with the expectation that there will likely be some near-term
upward pressure on interest rates, particularly in longer maturities. However,
with our longer term rate outlook still positive, we would view any
significant backup in rates from current levels as a buying opportunity.
57
FUND FACTS
GOAL: a favorable total return
through investment in diversified
portfolio. The Series' portfolio
is expected to include a mix of
(1) common stocks, (2) notes and
bonds and (3) money market
instruments.
START DATE: May 1, 1987
SIZE: $147.5 million as of
December 31, 1995
MANAGER: Peter Palfrey has
managed the Series since January
1994 and joined Back Bay Advisors
in June 1993.
A $10,000 Investment Compared to an Index
Average Annual Total Return
Back Bay Lipper Variable Flexible
Managed Portfolio Fund Average
1 year 31.26% 24.22%
5 years 12.99% 13.13%
Since
Inception 10.95% --
[A graph representing the following:]
A $10,000 Investment Compared to an Index
Back Bay Lehman
Managed Series S&P 500(19) Gov't/Corp(4)
---------------- ------------ -------------
5/1/87 $10,000 $10,000 $10,000
1987 $ 9,930 $ 8,750 $10,357
1988 $10,873 $10,194 $11,142
1989 $12,950 $13,414 $12,729
1990 $13,365 $12,995 $13,781
1991 $16,064 $16,938 $16,000
1992 $17,141 $18,227 $17,213
1993 $18,966 $20,061 $19,117
1994 $18,755 $20,334 $18,448
1995 $24,618 $27,947 $21,997
Performance numbers are net of all fund operating expenses but do not include
any insurance, sales or administrative charges of the variable contracts; if
included, the returns 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 original cost.
58
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--67.2% OF TOTAL NET ASSETS
SHARES VALUE (a)
AEROSPACE--1.0%
5,025 Boeing Co. ............................................... $ 393,834
14,600 Rockwell International Corp. ............................. 771,975
2,500 United Technologies Corp. ................................ 237,187
-----------
1,402,996
-----------
AIR TRANSPORT--0.0%
255 UAL, Inc.(c).............................................. 45,518
-----------
APPAREL--0.2%
7,400 Melville Corp. ........................................... 227,550
-----------
AUTOMOBILE & RELATED--1.3%
15,432 Chrysler Corp. ........................................... 854,547
4,600 Ford Motor Co. ........................................... 133,400
12,500 General Motors Corp. ..................................... 660,937
6,750 Genuine Parts Co. ........................................ 276,750
-----------
1,925,634
-----------
BANKS--3.2%
29,260 Banc One Corp. ........................................... 1,104,565
10,144 Bank America Corp. ....................................... 656,824
5,400 Bankers Trust New York Corp. ............................. 359,100
19,000 Citicorp.................................................. 1,277,750
10,900 J.P. Morgan & Co., Inc. .................................. 874,725
7,200 Nations Bank Corp. ....................................... 501,300
-----------
4,774,264
-----------
BUSINESS MACHINES--1.8%
8,500 Apple Computer............................................ 270,938
28,400 Digital Equipment Corp.(c)................................ 1,821,150
5,900 International Business Machines Corp. .................... 541,325
-----------
2,633,413
-----------
BUSINESS SERVICES--1.5%
28,500 Browing Ferris Industries, Inc. .......................... 840,750
10,000 Dun & Bradstreet Corp. ................................... 647,500
9,200 H & R Block, Inc. ........................................ 372,600
39,200 Rollins Environmental Services............................ 112,700
9,500 WMX Technologies.......................................... 283,812
-----------
2,257,362
-----------
CHEMICALS--2.9%
14,200 Allied-Signals, Inc. ..................................... 674,500
8,200 Dow Chemical Co. ......................................... 577,075
13,700 E.I. Du Pont de Nemours & Co. ............................ 957,288
11,200 Monsanto Co. ............................................. 1,372,000
15,600 PPG Industries, Inc. ..................................... 713,700
-----------
4,294,563
-----------
SHARES VALUE (a)
COMMUNICATION--5.8%
15,000 Airtouch Communications................................... $ 437,875
35,200 Ameritech Corp. .......................................... 2,076,800
27,261 AT&T Co. ................................................. 1,765,150
12,200 Bell Atlantic Corp. ...................................... 815,875
16,200 Bellsouth Corp. .......................................... 704,700
10,600 GTE Corp. ................................................ 466,400
14,600 NYNEX Corp. .............................................. 788,400
15,500 Pacific Telesis Group..................................... 521,188
7,200 SBC Comunications, Inc. .................................. 414,000
9,700 U.S. West, Inc. .......................................... 346,775
9,700 U.S. West, Inc. .......................................... 184,300
-----------
8,521,463
-----------
CONGLOMERATES--0.7%
2,200 ITT Corp. New............................................. 116,600
13,800 Minnesota Mining & Mfg. Co. .............................. 914,250
-----------
1,030,850
-----------
CONSTRUCTION--1.2%
28,600 Home Depot................................................ 1,369,225
14,900 Masco Corp. .............................................. 467,487
-----------
1,836,712
-----------
CONSUMER DURABLES--0.0%
800 Whirlpool Corp. .......................................... 42,600
-----------
DOMESTIC OIL--1.5%
2,400 Amoco Corp. .............................................. 172,500
2,700 Atlantic Richfield Co. ................................... 299,025
3,600 Halliburton Co. .......................................... 182,250
69,300 Oryx Energy Co. .......................................... 926,887
934 Santa Fe Energy, Inc.(c).................................. 8,990
3,601 Sun Company............................................... 98,577
800 Tenneco, Inc. ............................................ 39,700
15,600 Unocal Corp. ............................................. 454,350
-----------
2,182,279
-----------
DRUGS & MEDICINE--6.0%
8,800 Abbott Laboratories....................................... 367,400
11,000 American Home Products Corp. ............................. 1,067,000
37,100 Baxter International, Inc. ............................... 1,553,563
15,200 Eli Lilly & Co. .......................................... 855,000
5,200 Johnson & Johnson......................................... 445,250
31,500 Merck & Co., Inc. ........................................ 2,071,125
19,200 Pfizer, Inc. ............................................. 1,209,600
18,705 Pharmacia & Upjohn, Inc. ................................. 724,819
10,800 Schering Plough Corp. .................................... 591,300
-----------
8,885,057
-----------
See accompanying notes to financial statements.
59
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--(CONTINUED)
SHARES VALUE (a)
ELECTRONICS--3.7%
43,200 AMP, Inc. ................................................ $ 1,657,800
9,400 Emerson Electric Co. ..................................... 768,450
22,400 Hewlett-Packard........................................... 1,876,000
6,400 Motorola, Inc. ........................................... 364,800
15,400 Raytheon Co. ............................................. 727,650
-----------
5,394,700
-----------
ENERGY & UTILITIES--3.1%
18,300 American Electric Power, Inc. ............................ 741,150
11,700 Consolidated Edison Co. .................................. 374,400
45,700 Pacific Gas & Electric Co. ............................... 1,296,738
7,700 Public Service Enterprise Group........................... 235,812
40,200 SCE Corp. ................................................ 713,550
10,200 Southern Co. ............................................. 251,175
8,900 Texas Utilities Co. ...................................... 366,013
17,300 Unicom Corp. ............................................. 566,575
-----------
4,545,413
-----------
ENERGY RAW MATERIALS--1.0%
58,800 Occidental Petroleum Corp. ............................... 1,256,850
3,200 Schlumberger Ltd. ........................................ 221,600
-----------
1,478,450
-----------
ENTERTAINMENT--0.0%
2,200 ITT Industry, Inc. ....................................... 52,800
-----------
FINANCE--0.7%
11,600 Federal Home Loan Mortgage Corp. ......................... 968,600
-----------
FOOD & AGRICULTURE--4.6%
19,900 Coca Cola Co. ............................................ 1,477,575
5,000 General Mills, Inc. ...................................... 288,750
41,850 H. J. Heinz Co. .......................................... 1,386,281
24,600 Kellogg Co. .............................................. 1,900,350
8,100 Pepsico, Inc. ............................................ 452,587
13,300 Ralston Purina Co. ....................................... 829,587
16,000 Sara Lee Corp. ........................................... 510,000
-----------
6,845,130
-----------
GOLD--0.2%
18,434 Santa Fe Pac Gold Corp. .................................. 223,512
-----------
INSURANCE--2.3%
11,500 Aetna Life & Casualty Co. ................................ 796,375
10,568 Allstate Corp. ........................................... 434,609
14,400 American General Corp. ................................... 502,200
6,468 American International Group, Inc. ....................... 598,290
2,700 CIGNA Corp. .............................................. 278,775
4,300 General Reinsurance Corp. ................................ 666,500
2,200 ITT Hartford Group........................................ 106,425
-----------
3,383,174
-----------
SHARES VALUE (a)
INTERNATIONAL OIL--4.7%
11,000 Chevron Corp. ............................................ $ 577,500
9,400 Cooper Industries, Inc. .................................. 345,450
25,100 Exxon Corp. .............................................. 2,011,138
7,800 Mobil Corp. .............................................. 873,600
9,800 Royal Dutch Petroleum Co. ADR(d).......................... 1,383,025
21,200 Texaco, Inc. ............................................. 1,664,200
-----------
6,854,913
-----------
LIQUOR--0.4%
3,300 Anheuser-Busch Companies, Inc. ........................... 220,687
11,700 Seagram, Ltd. ............................................ 405,113
-----------
625,800
-----------
MEDIA--2.3%
21,000 Capital Cities/ABC, Inc. ................................. 2,590,875
3,000 Gannett Co., Inc. ........................................ 184,125
15,200 Tele Communications Inc., NE.............................. 302,100
3,800 Telecommunications Inc., NE............................... 102,125
7,200 Time Warner, Inc. ........................................ 272,700
-----------
3,451,925
-----------
MISCELLANEOUS FINANCE--1.3%
25,000 American Express Co. ..................................... 1,034,375
4,449 Dean Witter Discover & Co. ............................... 209,103
5,000 Lehman Brothers Holdings, Inc. ........................... 106,250
16,900 Salomon, Inc. ............................................ 599,950
-----------
1,949,678
-----------
NON-FERROUS METALS--0.7%
8,075 Alcan Aluminum Ltd. ...................................... 251,334
14,000 Aluminum Co. of America................................... 740,250
220 USX U.S. Steel Corp. ..................................... 6,765
-----------
998,349
-----------
OFFICE EQUIPMENT--1.6%
16,900 Xerox Corp. .............................................. 2,315,300
-----------
OPTICAL PHOTO, EQUIPMENT--0.2%
3,600 Eastman Kodak Co. ........................................ 241,200
-----------
PAPER & FOREST PRODUCTS--1.3%
12,640 Burlington Northern Santa Fe.............................. 985,920
3,600 Georgia-Pacific Corp. .................................... 247,050
11,800 International Paper Co. .................................. 446,925
1,400 Kimberly Clark Corp. ..................................... 115,850
4,050 Weyerhaeuser Co. ......................................... 175,162
-----------
1,970,907
-----------
PRODUCER OF GOODS--2.5%
5,600 Caterpillar, Inc. ........................................ 329,000
24,000 Deere & Co. .............................................. 846,000
34,400 General Electric Co. ..................................... 2,476,800
4,200 Westinghouse Electric Corp. .............................. 69,300
-----------
3,721,100
-----------
See accompanying notes to financial statements.
60
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
COMMON STOCKS--(CONTINUED)
SHARES VALUE (a)
RAILROADS & SHIPPING--0.4%
4,500 Norfolk Southern Corp. ................................. $ 357,187
4,200 Union Pacific Corp. .................................... 277,200
-----------
634,387
-----------
RESTAURANTS--0.3%
5,000 Darden Restaurants, Inc. ............................... 59,375
9,200 McDonald's Corp. ....................................... 415,150
-----------
474,525
-----------
RETAIL--2.7%
19,000 Albertsons, Inc. ....................................... 624,625
8,000 Dayton Hudson Corp. .................................... 600,000
15,600 J.C. Penney Company, Inc. .............................. 742,950
38,900 K-Mart Corp.(c)......................................... 282,025
5,400 Limited, Inc. .......................................... 93,825
7,800 May Department Stores Co. .............................. 329,550
11,400 Sears Roebuck and Co. .................................. 444,600
11,625 Toys R US(c)............................................ 252,844
29,200 Wal-Mart Stores, Inc. .................................. 653,350
-----------
4,023,769
-----------
SOAPS & COSMETICS--2.8%
6,260 Bristol-Myers Squibb Co. ............................... 537,577
18,400 Gillette Co. ........................................... 959,100
10,300 Procter & Gamble Co. ................................... 854,900
12,400 Unilever, N.V. ......................................... 1,745,300
-----------
4,096,877
-----------
STEEL--0.9%
64,700 USX Marathon Group...................................... 1,261,650
-----------
TOBACCO--1.1%
8,500 American Brands, Inc. .................................. 379,313
13,600 Philip Morris Companies, Inc. .......................... 1,230,800
140 Schweitzer Mauduit International, Inc. ................. 3,238
-----------
1,613,351
-----------
TRAVEL & RECREATION--1.3%
33,700 Walt Disney Productions................................. 1,988,300
-----------
Total Common Stock
(Identified cost $67,482,155).......................... 99,174,071
-----------
MEDIUM & LONG TERM BONDS & NOTES--31.6%
FACE
AMOUNT VALUE (a)
CORPORATE BONDS--16.8%
$ 2,000,000 Appalachian Power Co.
8.750%, 2/01/22.................................... $ 2,065,000
2,500,000 Banco de Comercio Exterior,
8.625%, 6/02/00.................................... 2,587,500
1,000,000 Boston Edison Co.
7.800%, 5/15/10.................................... 1,083,510
2,000,000 Cemex SA
8.875%, 6/10/98.................................... 1,928,750
2,000,000 Lehman Brothers Holdings, Inc.
8.500%, 5/01/07.................................... 2,244,240
1,730,000 Lehman Brothers Holdings, Inc.
8.800%, 3/01/15.................................... 2,005,485
1,000,000 Maxus Energy Corp.
9.375% 11/01/03.................................... 980,000
1,000,000 Paramount Communications, Inc.
8.250%, 8/01/22.................................... 1,033,130
1,485,000 Public Service Electric & Gas Co.
8.750%, 11/01/21................................... 1,592,455
2,100,000 Salomon, Inc.
6.700%, 12/01/98................................... 2,109,765
3,000,000 Tele Communications, Inc.
9.800%, 2/1/12..................................... 3,597,510
10,000,000 Time Warner Inc., Zero Coupon,
12/17/12........................................... 3,512,500
30,000 Viacom, Inc.
8.000%, 7/07/06.................................... 30,525
-----------
24,770,370
-----------
FOREIGN--4.4%
8,500,000 Government of Canada,
8.000%, 06/01/23(e)................................ 6,526,544
-----------
YANKEE--9.5%
3,000,000 Hydro Quebec,
9.400%, 2/01/21.................................... 3,807,690
2,000,000 Hydro Quebec,
8.050%, 7/07/24.................................... 2,283,520
5,000,000 News America Holdings, Inc.
9.250%, 2/01/13.................................... 5,889,200
1,500,000 Province of Manitoba,
9.125%, 1/15/18.................................... 1,943,310
-----------
13,923,720
-----------
U.S. GOVERNMENT BONDS--0.9%
564,805 Government National Mortgage Association,10.000%,
9/15/18............................................ 624,833
644,823 Government National Mortgage Association,11.500%
with various maturities to 2013.................... 736,674
-----------
1,361,507
-----------
Total Medium & Long Term Bonds & Notes
(Identified Cost $43,505,501)...................... 46,582,141
-----------
See accompanying notes to financial statements.
61
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
SHORT-TERM INVESTMENT--0.5%
FACE
AMOUNT VALUE (a)
755,000 Household Finance Corp.
5.650%, 1/02/96...................................... $ 754,882
------------
Short-Term Investments
(Identified Cost $754,882)........................... 754,882
------------
Total Investments--99.3%
(Identified Cost $111,742,538)(b).................... 146,511,094
Cash and Receivables.................................. 1,297,345
Liabilities........................................... (272,703)
------------
TOTAL NET ASSETS--100%................................ $147,535,736
============
(a) See Note 1A.
(b) Federal Tax Information:
At December 31, 1995 the net unrealized appreciation on investments based on
cost of $111,742,538 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............................................. $ 37,122,196
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value........................................... (2,353,640)
------------
Net unrealized appreciation........................... $ 34,768,556
============
(c) Non-income producing security.
(d) An American Depository Receipt (ADR) is a certificate issued by a U.S. bank
representing the right to receive securities of the foreign issuer
described. The values of ADRs are significantly influenced by trading on
exchanges not located in the United States or Canada.
(e) Denominated in Canadian dollars.
See accompanying notes to financial statements.
62
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1995
ASSETS
Investments at value.................................... $146,511,094
Cash.................................................... 135,411
Receivable for:
Fund shares sold........................................ 51,543
Dividends and interest.................................. 1,109,230
Foreign taxes........................................... 1,161
------------
147,808,439
LIABILITIES
Payable for:
Fund shares redeemed.................................... $117,533
Withholding taxes....................................... 263
Dividends declared...................................... 14
Accrued expenses:
Management fees......................................... 62,259
Deferred trustees' fees................................. 30,097
Other expenses.......................................... 62,537
--------
272,703
------------
$147,535,736
============
NET ASSETS
Net Assets consist of:
Capital paid in......................................... $112,364,892
Undistributed net investment income..................... 45,930
Accumulated net realized gains.......................... 356,254
Unrealized appreciation on investments and foreign
currency............................................... 34,768,660
------------
NET ASSETS............................................... $147,535,736
============
Computation of offering price:
Net asset value and redemption price per share
($147,535,736 divided by 902,267 shares of beneficial
interest)............................................... $ 163.52
============
Identified cost of investments........................... $111,742,538
============
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
INVESTMENT INCOME
Dividends.......................................... $ 2,472,077(a)
Interest........................................... 3,879,528
-----------
6,351,605
EXPENSES
Management fees.................................... $ 675,739
Trustees' fees and expenses........................ 34,040
Custodian.......................................... 63,948
Audit and tax services............................. 15,400
Legal.............................................. 12,300
Printing........................................... 58,064
Registration....................................... 7
Miscellaneous...................................... 4,504
-----------
Total expenses.................................... 864,002
864,002
-----------
NET INVESTMENT INCOME............................... 5,487,603
REALIZED AND UNREALIZED GAIN ON INVESTMENTS, FUTURES
CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS
Realized gain on:
Investments--net................................... 2,204,391
Futures contracts closed--net...................... 84,750
Foreign currency transactions--net................. 277,284
-----------
Total realized gain on investments and foreign
currency transactions............................ 2,566,425
-----------
Unrealized appreciation on:
Investments--net................................... 28,568,142
Foreign currency transactions--net 105
-----------
Total unrealized appreciation on investments and
foreign currency transactions.................... 28,568,247
-----------
Net gain on investment transactions................. 31,134,672
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS.......... $36,622,275
===========
(a) Net of foreign taxes of: $17,070
See accompanying notes to financial statements.
63
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
FROM OPERATIONS
Net investment income............................. $ 4,885,826 $ 5,487,603
Net realized gain (loss) on investments and for-
eign currency transactions....................... (1,227,890) 2,566,425
Unrealized appreciation (depreciation) on invest-
ments, and foreign currency transactions......... (4,971,428) 28,568,247
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS. (1,313,492) 36,622,275
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income............................. (4,847,688) (5,487,603)
In excess of net investment income................ 0 (212,274)
Net realized gain on investments.................. 0 (764,206)
------------ ------------
(4,847,688) (6,464,083)
------------ ------------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares...................... 38,433,190 22,221,525
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income.......... 4,847,688 5,699,877
Distributions from net realized gain.............. 0 764,206
------------ ------------
43,280,878 28,685,608
Cost of shares redeemed........................... (36,581,093) (33,185,396)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS DERIVED FROM
CAPITAL SHARE TRANSACTIONS....................... 6,699,785 (4,499,788)
------------ ------------
TOTAL INCREASE IN NET ASSETS...................... 538,605 25,658,404
NET ASSETS
Beginning of the year............................. 121,338,727 121,877,332
------------ ------------
End of the year................................... $121,877,332 $147,535,736
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year............................. $ 6,388 $ 85
============ ============
End of the year................................... $ 85 $ 45,930
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................... 285,556 150,563
Issued in connection with the reinvestment of:
Distributions from net investment income.......... 37,014 35,150
Distributions from net realized gain.............. 0 4,713
------------ ------------
322,570 190,426
Redeemed.......................................... (271,720) (223,554)
------------ ------------
Net change........................................ 50,850 (33,128)
============ ============
FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31,
----------------------------------------------
1991 1992 1993 1994 1995
------- ------- -------- -------- --------
Net Asset Value, Beginning of
Year.......................... $112.79 $127.87 $ 130.26 $ 137.18 $ 130.30
------- ------- -------- -------- --------
Income From Investment Opera-
tions
Net Investment Income......... 6.41 5.14 4.35 5.42 6.34
Net Realized and Unrealized
Gain (Loss) on Investments... 16.23 3.45 9.58 (6.92) 34.33
------- ------- -------- -------- --------
Total From Investment Opera-
tions........................ 22.64 8.59 13.93 (1.50) 40.67
------- ------- -------- -------- --------
Less Distributions
Distributions From Net Invest-
ment Income.................. (6.41) (5.13) (4.36) (5.38) (6.34)
Distributions in Excess of Net
Investment Income............ 0.00 0.00 0.00 0.00 (0.23)
Distributions From Net Real-
ized Capital Gains........... (1.15) (1.07) (2.65) 0.00 (0.88)
------- ------- -------- -------- --------
Total Distributions........... (7.56) (6.20) (7.01) (5.38) (7.45)
------- ------- -------- -------- --------
Net Asset Value, End of Year... $127.87 $130.26 $ 137.18 $ 130.30 $ 163.52
======= ======= ======== ======== ========
TOTAL RETURN (%)............... 20.17 6.70 10.65 (1.11) 31.26
Ratio of Operating Expenses to
Average Net Assets (%)........ 0.55 0.54 0.53 0.54 0.64
Ratio of Net Investment Income
to Average Net Assets (%)..... 5.45 5.32 3.65 3.98 4.06
Portfolio Turnover Rate (%).... 36 36 22 76 51
Net Assets, End of Year (000).. $49,995 $77,575 $121,339 $121,877 $147,536
See accompanying notes to financial statements.
64
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES
PORTFOLIO MANAGERS: STEVEN GUTERMAN, PETER J. WILBY AND DAVID SCOTT; SALOMON
BROTHERS ASSET MANAGEMENT INC
MARKET REVIEW
Photo Steven Photo Peter J. Wilby The U.S. fixed income markets staged
Guterman an impressive rally during 1995,
supported by signs of economic
weakness and an overall shift in
investor sentiment that the Federal
Reserve Board's next move would be to
ease short term rates. During the
year, the Series allocated its assets
among U.S. investment grade,
International Government, U.S. high
yield and emerging markets debt
sectors. The heaviest weighting was
given to the U.S. high yield sector,
as improvement in credit fundamentals
and near record cash flows into mutual funds continued to
provide strong support for this sector. The Series also
maintained about a 22% allocation to the emerging debt
market sector for most of the year. The emerging debt
markets did trade off in the early part of the year due to
the reaction to the Mexican peso devaluation. However, the
market rebounded as the outlook for sovereign risk
improved and better technical factors ensued. During the
year, Poland was awarded an investment grade rating,
marking a positive contribution to the Series. We continue
to believe that this sector offers attractive long term
total return opportunities.
Photo David
Scott
On the international government side, the Series
maintained an underweighting in
Japanese government bonds and an overweighting in German government bonds. The
non- dollar positions continued to be hedged to minimize currency risk. We
believe that prospects for growth for both Japan and Europe will be below
trend over the next six months. In addition, we expect the Bundesbank to ease
its discount rate in the next several months.
Finally, the U.S. investment grade sector made a positive contribution to
the Series as Treasuries rallied through out the year. Low inflation and
declining interest rates contributed to the overall positive returns for the
fixed income markets.
On a net asset value basis, the Series posted a 19.38% total return for the
one year period versus 18.47% for the Lehman Brothers Aggregate Index./3/
OUTLOOK AND STRATEGY
During the fourth quarter, yield spreads widened in the high yield sector.
We expect the market to snap back as credit fundamentals remain favorable and
spreads continue to look attractive. Improving credit quality from favorable
earnings and debt reduction as well as near-record flows into mutual funds may
continue to provide strong support to the high yield market. The emerging
markets sector continues to be viewed positively, as it appears problems in
Latin America will eventually be resolved and that governments will continue
to make significant progress in restoring investor confidence. The outlook for
the investment grade sector remains positive as well. We continue to be
sanguine about the prospects for a budget deal out of Washington, moderate
economic growth and continued low inflation that will allow the Federal
Reserve to lower short-term interest rates further. We anticipate bond yields
to remain stable under an environment of gradual Federal Reserve easing of
short-term rates and economic growth that will be positive but lackluster.
65
FUND FACTS
GOAL: a high level of total
return consistent with the
preservation of capital.
START DATE: October 31, 1994
SIZE: $9.5 million as of December
31, 1995
MANAGERS: Steven Guterman, Peter
Wilby and David Scott have
managed the Series since its
inception in October of 1994. Mr.
Guterman, Mr. Wilby and Mr. Scott
also have managed the Salomon
Brothers Investment Series--
Strategic Bond Fund since March
1995. They have also managed the
North American Funds--Strategic
Income Fund since March 1993. Mr.
Wilby also manages the Salomon
Brothers Investment Series--High
Yield Bond Fund.
A $10,000 Investment Compared to an Index
Average Annual Total Return
Salomon Brothers Lipper Variable General
Strategic Bond Bond Fund Average
Opportunities
1995 19.38% 17.92%
Since
Inception 14.99% --
[A graph representing the following:]
A $10,000 Investment Compared to an Index
Salomon Brothers Lehman
Strategic Brothers
Bond Opp. Aggregate
Series Bond Index(3)
--------------- -------------
10/31/94 $10,000 $10,000
1994 $ 9,860 $ 9,898
1995 $11,771 $11,835
Performance numbers are net of all fund operating expenses but do not include
any insurance, sales or administrative charges of the variable contracts; if
included, the returns 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 original cost.
66
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
BONDS & NOTES--80.4% OF TOTAL NET ASSETS
FACE
AMOUNT VALUE (a)
CORPORATE BONDS--31.6%
$ 150,000 American Safety Razor Co. 9.875%, 8/01/05........... $ 153,000
150,000 Bally's Park Place Funding 9.250%, 3/15/04.......... 151,875
100,000 Berry Plastics 12.250%, 4/15/04..................... 105,750
150,000 Borg Warner Sec. Corp.
9.125%, 5/01/03.................................... 135,187
150,000 Cole National Group, Inc. 11.250%, 10/01/01......... 150,750
100,000 Crown Paper Co. 11.000%, 9/01/05.................... 87,750
100,000 Empress River Casino Financial Corp. 10.750%,
4/01/02............................................ 103,250
150,000 Grand Casino, Inc.
10.125%, 12/01/03.................................. 156,750
150,000 Harris Chemical of North America, Inc. Zero Coupon,
7/15/01 (n)........................................ 144,000
100,000 Herff Jones, Inc. 11.000%, 8/15/05.................. 107,250
200,000 In Flight Phone Corp.
zero coupon, 5/15/02(j) (n)........................ 74,000
150,000 Jordan Industries, Inc.
10.375%, 8/01/03................................... 133,500
150,000 Katz Corp. 12.750%, 11/15/02 ....................... 158,063
250,000 Marcus Cable Co.
Zero Coupon, 12/15/05 (n).......................... 170,000
150,000 Pathmark Stores, Inc. 9.625%, 5/01/03............... 145,313
150,000 RBX Corp. 11.250%, 10/15/05......................... 148,125
150,000 Renco Metals, Inc. 12.000%, 7/15/00................. 151,500
150,000 Selmer, Inc. 11.000%, 5/15/05....................... 148,875
150,000 Sinclair Broadcast Group, Inc. 10.000%, 9/30/05..... 153,750
100,000 Specialty Retailers, Inc. 11.000%, 8/15/03.......... 91,000
150,000 Telex Communications, Inc. 12.000%, 7/15/04......... 154,875
100,000 United States Leasing International 8.450%, 1/25/05. 114,291
50,000 Waters Corp. 12.750%, 9/30/04....................... 56,625
-----------
2,995,479
-----------
FOREIGN CORPORATE BONDS--1.7%
300,000 International Semi Tech. Zero Coupon, 8/15/03 (n)... 163,500
-----------
FOREIGN GOVERNMENT BONDS--29.6%
400,000 Argentina (Republic of)
6.5000%, 3/31/05................................... 285,000
1,000,000 Belgium (Kingdom of) 6.500%, 3/31/05(c)............. 33,530
583,665 Brazil (Federal Republic of) C Bonds 4.000%,
4/15/14............................................ 334,878
190,000 Brazil (Federal Republic of) 6.6875%, 1/01/01....... 169,290
250,000 Brazil (Federal Republic of) 4.250%, 4/15/24........ 132,813
FACE
AMOUNT VALUE (a)
$ 500,000 Bulgaria (National Republic of) 2.000%, 7/28/12..... $ 132,500
14,000 Canada (Government of) 6.250%, 2/01/98(d)........... 10,304
28,000 Canada (Government of) 9.000%, 12/01/04(d).......... 23,110
30,000 Denmark (Kingdom of) 7.000%, 12/15/04(e)............ 5,381
60,000 Denmark (Kingdom of) 9.000%, 11/15/98(e)............ 11,771
50,000 Dutch (Government of) 6.250%, 7/15/98(f)............ 32,639
45,000 Dutch (Government of) 7.000%, 6/15/05(f)............ 29,992
500,000 Ecuador (Republic of) 3.000%, 2/28/25............... 181,563
210,000 Germany (Federal Republic of) 6.000%, 2/20/98(g).... 152,540
290,000 Germany (Federal Republic of) 8.375%, 5/21/01(g).... 231,413
120,000 Germany (Federal Republic of) 7.375%, 1/03/05(g).... 91,416
75,000,000 Italy (Republic of) 9.500%, 12/01/97(h)............. 46,730
30,000,000 Italy (Republic of) 9.500%, 1/01/05(h).............. 17,693
50,000 Indah Kiat International Finance Co.
12.500%, 6/15/06 .................................. 52,188
9,000,000 Japan 4.200%, 9/21/15(i)............................ 93,138
250,000 Mexico Par Series B 6.250%, 12/31/19(j)............. 163,750
700,000 Poland (Republic of) 3.750%, 10/27/14............... 451,500
430,000 Spain (Government of) 10.000%, 2/28/05(k)........... 3,595
2,320,000 Spain (Government of) 11.450%, 8/30/98(k)........... 20,098
65,000 UK Treasury 7.000%, 11/06/01(l)..................... 101,073
-----------
2,807,905
-----------
U.S. GOVERNMENT BONDS--17.5%
500,000 Federal Home Loan Bank 6.490%, 9/08/97.............. 509,735
375,000 Federal National Mortgage Association 7.520%,
8/26/05............................................ 381,900
300,000 Federal National Mortgage Association 6.500%,
1/01/99............................................ 296,343
90,000 United States Treasury Bond 6.125%, 5/31/97......... 91,139
100,000 United States Treasury Bond 5.625%, 11/30/00........ 100,996
100,000 United States Treasury Bond 6.500%, 8/15/05......... 106,615
150,000 United States Treasury Bond 6.875%, 8/15/25......... 169,171
-----------
1,655,899
-----------
Total Bonds & Notes
(Identified Cost $7,433,037)....................... 7,622,783
-----------
See accompanying notes to financial statements.
67
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
SHORT-TERM INVESTMENTS--19.7%
FACE
AMOUNT VALUE (a)
$ 1,869,000 Repurchase agreement with State Street Bank & Trust
Company dated 12/29/95 at 5.750% to be repurchased
at $1,870,194 on 1/2/96 collateralized by
$1,900,000. U.S. Treasury Note 5.125% due 4/30/98
with a value of $1,911,039........................ $ 1,869,000
-----------
Total Short-Term Investment
(Identified Cost $1,869,000)...................... 1,869,000
-----------
Total Investments--100.1%
(Identified Cost $9,302,037)(b)................... 9,491,783
Cash and Receivables(m)............................ 2,155,052
Liabilities........................................ (2,162,711)
-----------
TOTAL NET ASSETS--100%............................. $ 9,484,124
===========
(a) See Note 1a.
(b) Federal Tax Information:
At December 31, 1995 the net unrealized appreciation on investments based on
cost of $9,303,178 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..................................... $ 283,052
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value................................... (94,447)
-----------
Net unrealized appreciation........................ $ 188,605
===========
(c) Denominated in Belgium francs.
(d) Denominated in Canadian dollars.
(e) Denominated in Danish kroner.
(f) Denominated in Netherland guilden.
(g) Denominated in German marks.
(h) Denominated in Italian lire.
(i) Denominated in Japanese yen.
(j) Rights attached.
(k) Denominated in Spanish pesetas.
(l) Denominated in Great British pound sterling.
(m) Including deposits in foreign denominated currencies with a value of
$21,814 and a cost of $21,724.
(n) Debt obligation initially issued in zero coupon form which converts to
coupon form at a specified rate and date.
See accompanying notes to financial statements.
68
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1995
ASSETS
Investments at value:
Securities............................................. $ 7,622,783
Repurchase agreements.................................. 1,869,000
-----------
Total investments..................................... 9,491,783
Cash................................................... 145
Foreign cash at value.................................. 21,814
Receivable for:
Fund shares sold....................................... 120,471
Open forward currency contracts........................ 1,800,807
Accrued interest....................................... 187,837
Foreign taxes.......................................... 271
Due from advisor....................................... 16,000
Unamortized organization expense....................... 7,707
-----------
11,646,835
LIABILITIES
Payable for:
Securities purchased................................... $ 295,750
Open forward currency contracts........................ 1,837,293
Fund shares redeemed................................... 450
Withholding Taxes...................................... 288
Accrued expenses:
Management fees........................................ 2,288
Other expenses......................................... 26,642
----------
2,162,711
-----------
$ 9,484,124
===========
NET ASSETS
Net Assets consist of:
Capital paid in........................................ $ 9,260,335
Undistributed net investment income.................... 50,354
Accumulated net realized gains......................... 19,941
Unrealized appreciation on investments, forward
contracts and foreign currency........................ 153,494
-----------
NET ASSETS.............................................. $ 9,484,124
===========
Computation of offering price:
Net asset value and redemption price per share
($9,484,124 divided by 874,477 shares of beneficial
interest).............................................. $ 10.85
===========
Identified cost of investments.......................... $ 9,302,037
===========
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
INVESTMENT INCOME
Interest................................................ $506,785(a)
--------
506,785
EXPENSES
Management fees......................................... $ 35,085
Trustees' fees and expenses............................. 15,052
Custodian............................................... 47,259
Audit and tax services.................................. 19,800
Legal................................................... 10,821
Printing................................................ 1,550
Registration............................................ 7
Insurance............................................... 49
Amortization of organization expenses................... 2,345
Miscellaneous........................................... 2,033
--------
Total expenses......................................... 134,001
Less expenses assumed by the investment adviser........ (88,120) 45,881
-------- --------
NET INVESTMENT INCOME.................................... 460,904
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FORWARD CURRENCY CONTRACTS AND FOREIGN CURRENCY
TRANSACTIONS
Realized gain on:
Investments--net........................................ 238,818
Foreign currency transactions--net...................... 9,623
--------
Total realized gain on investments and foreign currency
transactions.......................................... 248,441
--------
Unrealized appreciation (depreciation) on:
Investments--net........................................ 222,618
Foreign currency transactions--net...................... (14,528)
--------
Total unrealized appreciation on investments, forwards
contracts and foreign currency transactions........... 208,090
--------
Net gain on investment transactions...................... 456,531
--------
NET INCREASE IN NET ASSETS FROM OPERATIONS............... $917,435
========
(a) Net of foreign taxes of: $889
See accompanying notes to financial statements.
69
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD
OCTOBER 31, 1994 (a) YEAR ENDED
THROUGH DECEMBER 31,
DECEMBER 31, 1994 1995
-------------------- ------------
FROM OPERATIONS
Net investment income...................... $ 40,922 $ 460,904
Net realized gain (loss) on investments and
foreign currency transactions............. (36,161) 248,441
Unrealized appreciation (depreciation) on
investments, and foreign currency transac-
tions..................................... (54,596) 208,090
----------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM OP-
ERATIONS.................................. (49,835) 917,435
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................... (40,922) (435,233)
In excess of investment income............. (1,078) 0
Net realized gain on investments........... 0 (170,001)
----------- -----------
(42,000) (605,234)
----------- -----------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares............... 1,060,215 9,873,846
Net asset value of shares issued in connec-
tion with the reinvestment of:
Distributions from net investment income... 42,000 435,233
Distributions from net realized gain....... 0 170,001
----------- -----------
1,102,215 10,479,080
Cost of shares redeemed.................... (1,060,215) (4,757,322)
----------- -----------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS........................ 42,000 5,721,758
----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS.... (49,835) 6,033,959
NET ASSETS
Beginning of the year...................... 3,500,000 3,450,165
----------- -----------
End of the year............................ $ 3,450,165 $ 9,484,124
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year...................... $ 0 $ 0
=========== ===========
End of the year............................ $ 0 $ 50,354
=========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares............. 106,727 919,222
Issued in connection with the reinvestment
of:
Distributions from net investment income... 4,325 40,562
Distributions from net realized gain....... 0 15,844
----------- -----------
111,052 975,628
Redeemed................................... (106,727) (455,476)
----------- -----------
Net change................................. 4,325 520,152
=========== ===========
(a) Commencement of Operations
FINANCIAL HIGHLIGHTS
OCTOBER 31, 1994 * YEAR ENDED
THROUGH DECEMBER 31,
DECEMBER 31, 1994 1995
------------------ ------------
Net Asset Value, Beginning of Year............. $10.00 $ 9.74
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income......................... 0.12 0.58
Net Realized and Unrealized Gain (Loss) on
Investments.................................. (0.26) 1.30
------ ------
Total From Investment Operations.............. (0.14) 1.88
------ ------
LESS DISTRIBUTIONS
Distributions From Net Investment Income...... (0.12) (0.55)
Distributions From Net Realized Capital Gains. 0.00 (0.22)
------ ------
Total Distributions........................... (0.12) (0.77)
------ ------
Net Asset Value, End of Year................... $ 9.74 $10.85
====== ======
TOTAL RETURN (%)............................... (1.40)*** 19.38
Ratio of Operating Expenses to Average Net
Assets (%).................................... 0.85 ** 0.84
Ratio of Net Investment Income to Average Net
Assets (%).................................... 7.05 ** 8.39
Portfolio Turnover Rate (%).................... 403 202
Net Assets, End of Year (000).................. $3,450 $9,484
The ratios of expenses to average net assets
without giving effect to the voluntary expense
limitations described in Note 4 to the
Financial Statements would have been (%)...... 2.01 ** 2.44
* Commencement of Operations
** Computed on an annualized basis.
*** Not computed on an annualized basis.
See accompanying notes to financial statements.
70
BACK BAY ADVISORS BOND INCOME SERIES
PORTFOLIO MANAGER: CATHY BUNTING; BACK BAY ADVISORS, L.P.(R)
MARKET REVIEW
Photo Cathy
Bunting The bond market staged a strong rally in 1995,
bouncing back from a disappointing 1994. Early in the
year it was clear that investors were optimistic about
the outlook for fixed-income securities. That optimism
was justified, as the Federal Reserve Board reversed
course and lowered rates in July and December.
Essentially, it was a year of slow but steady
economic growth and a low inflationary environment.
Combined with the actions of the Federal Reserve, all
conditions were right for an extremely robust bond
market.
Most fixed-income securities benefited. Corporate bonds fared particularly
well, outperforming both U.S. government securities and mortgage-backed
securities due in large part to rising corporate profits.
With its emphasis on corporate issues, Back Bay Advisors Bond Income Series
turned in a strong performance in 1995. For the year ending December 31, 1995,
the Series had a total return of 21.20%. This compares favorably with a return
of 15.31% for the Lehman Brothers Intermediate Government/Corporate Bond
Index/6/, and 19.31% for the Lipper Variable A-Rated Corporate Bond Fund
Average/7/ for the same period. We are pleased to report that your Series
ranked 5 out of 26 funds in its Lipper category, for the one-year period ended
December 31, 1995.
Many sectors of the corporate bond market contributed to the Series'
positive results. Several were star performers, especially the cable/media
industry, where we committed a considerable percentage of the portfolio's
assets. This sector profited from an improving corporate financial picture and
an overall ratings upgrade that took place over the course of the year.
Another strong portfolio performer was our investment in Canadian dollar-
denominated bonds. These bonds benefited both from currency appreciation and
the Canadian market's outperformance of the U.S. government market. The
Series' U.S. dollar-denominated Canadian bonds also fared well due to the
resolution of the Quebec secession issue in October.
Approximately 10% of the Series' assets were invested in oil, gas and paper.
Coastal Corp. and Oryx Energy offered especially good returns. Both have
improved their balance sheets and are potential upgrade candidates in 1996.
A significant portion of the portfolio was and continues to be invested in
utilities, including telephone companies. As a sector, utilities held their
own throughout 1995. Today they remain attractively priced, especially when
compared to bank obligations, industrials and financials. As utilities go
through a period of transition, selecting specific issues on a geographic
basis will be critical to success.
From a credit quality standpoint, we started the year by emphasizing BB and
BBB grade bonds, which outperformed higher rated corporate securities. For the
first half of 1995, we were well compensated for assuming the additional
credit risk associated with these bonds. During the early summer, we grew more
conservative and upgraded the portfolio's overall quality to the lower AA
range.
Duration also contributed to the Series' positive results. Duration measures
the sensitivity of a bond or bond fund to interest rate moves, taking into
account the amount and timing of interest payments as well as "maturity," or
how much time remains before return of principal is due. The longer the
duration, the more the holding will fluctuate in response to interest rate
moves. Low inflation prompted us to be bullish and to push the average out to
between 5.5 and 5.7 years--a year longer than the Lehman Aggregate Bond
Index/3/. The portfolio was intentionally structured toward the long end of
the yield curve, with emphasis on 10- to 30-year maturities. This positioning
worked to our advantage, as prices of long-term securities moved up
significantly.
71
OUTLOOK AND STRATEGY
We still foresee a declining interest rate picture in 1996, with low
inflation and slow growth. A recession in late 1996 or early 1997 is possible,
but the chances seem remote. As a result, we are emphasizing credit quality and
concentrating on sectors such as utilities, telephones, cable/media and oil and
gas which are less likely to be adversely affected if a recession does occur.
Corporate bonds closed out the year at historically tight spreads when
compared to U.S. Treasuries securities. That means that investors were not
picking up enough of a yield advantage in the corporate sector. This situation
led us to upgrade our overall credit quality. As spread gaps narrow further, we
will emphasize corporates in the A or AA category.
We still see further declines in interest rates ahead, which makes us
optimistic about the bond market in general. Accordingly, we intend to maintain
a duration of about 5.7 years: one year longer than our peer group as measured
by the Lehman Brothers Aggregate Bond Index/3/.
In conclusion, we do not expect to see a repeat of 1995's bond market rally,
but we do believe fixed-income investors will enjoy positive returns over the
course of the next year. As is our custom, we will continue to actively manage
the Series in pursuit of attractive income with reasonable risk to our
shareholders.
FUND FACTS
GOAL: a high level of current
income consistent with the
protection of capital and
moderate investment risk.
START DATE: August 26, 1983
SIZE: $162.7 Million as of
December 31, 1995
MANAGER: Catherine Bunting, since
1989. Also portfolio manager of
New England Bond Income Fund
since 1989, she joined Back Bay
Advisors in April 1987.
A $10,000 Investment Compared to an Index
Average Annual Total Return
Back Bay Lipper Variable
Bond Income A-Rated Corporate
Bond Fund Average
1 year 21.20% 19.31%
5 years 10.97% 9.62%
10 years 10.03% 9.23%
[A graph representing the following:]
A $10,000 Investment Compared to an Index
Back Bay Lehman
Bond Income Intermediate Cost of
Series Gov't/Corp.(6) Living(1)
---------------- -------------- -------------
12/31/85 $10,000 $10,000 $10,000
1986 $11,580 $11,312 $10,110
1987 $11,742 $11,727 $10,558
1988 $12,728 $12,522 $11,025
1989 $14,294 $14,120 $11,537
1990 $15,452 $15,415 $12,242
1991 $18,233 $17,670 $12,617
1992 $19,728 $18,937 $12,983
1993 $22,216 $20,602 $13,340
1994 $21,470 $20,204 $13,697
1995 $26,021 $23,297 $14,055
Performance numbers are net of all fund operating expenses but do not include
any insurance, sales or administrative charges of the variable contracts; if
included, the returns 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 original cost.
72
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS BOND INCOME SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
BONDS & NOTES--92.7% OF TOTAL NET ASSETS
FACE
AMOUNT VALUE (a)
CORPORATE BONDS AND NOTES--66.3%
BROADCASTING--1.0%
$1,500,000 Viacom Inc. 7.625%, 1/15/16.......................... $ 1,517,655
------------
CHEMICALS--3.5%
4,850,000 Dow Chemical Co.
8.550%, 10/15/09.................................... 5,745,260
------------
FINANCIAL--6.8%
4,000,000 American General Financing, 8.450%, 10/15/09......... 4,734,680
4,160,000 Associates Corp. of North America, 8.550%, 7/15/09... 4,995,203
1,275,000 Toronto Dominion Bank Ontario, 7.875%, 8/15/04....... 1,394,391
------------
11,124,274
------------
FOREIGN--4.1%
3,000,000 British Columbia Province Canada,
7.750%, 06/16/03.................................... 2,276,265
2,000,000 Government of Canada, 9.000%, 12/1/04(c)............. 1,650,751
2,250,000 Government of Canada, 7.500%, 09/01/00(c)............ 1,709,555
1,300,000 Ontario Hydro, 8.875%, 10/25/05(c)................... 1,025,815
------------
6,662,386
------------
LEISURE--2.5%
1,250,000 ITT Corp. 7.750%, 11/15/25........................... 1,281,250
2,500,000 Time Warner Inc. 9.150%, 2/01/23..................... 2,865,350
------------
4,146,600
------------
OIL AND GAS--4.7%
1,050,000 Coastal Corp. 10.000%, 2/01/01....................... 1,217,906
800,000 Oryx Energy Co. 10.000%, 6/15/99..................... 870,288
3,290,000 Oryx Energy Co. 10.000%, 4/01/01..................... 3,653,874
500,000 Oryx Energy Co. 8.000%, 10/15/03..................... 511,200
1,250,000 USX Marathon Group, 9.125%, 1/15/13.................. 1,437,175
------------
7,690,443
------------
PUBLISHING--4.0%
4,000,000 News America Holdings Inc. 9.500%, 7/15/24........... 4,952,680
2,150,000 Western Publishing Group, Inc. 7.650%, 9/15/02....... 1,526,500
------------
6,479,180
------------
FACE
AMOUNT VALUE (a)
TELECOMMUNICATIONS--7.7%
$3,250,000 AT&T Corp. 8.350%, 1/15/25........................... $ 3,706,723
3,335,000 Tele-Communications Inc. 9.250%, 1/15/23............. 3,643,387
4,500,000 US West Communication, 8.875%, 6/01/31............... 5,244,525
------------
12,594,635
------------
UTILITIES--(DIVERSIFIED)--10.2%
1,250,000 Arizona Public Service Co. 10.250%, 5/15/20.......... 1,448,950
1,950,000 Long Island Lighting Co. 8.900%, 7/15/19............. 1,998,555
1,250,000 New York State Electric & Gas Co. 9.875%, 2/01/20.... 1,326,250
4,250,000 New York State Electric & Gas Co. 8.875%, 11/01/21... 4,662,633
7,000,000 Tennessee Valley Authority, 6.125%, 7/15/03.......... 7,077,490
------------
16,513,878
------------
UTILITIES--(ELECTRIC)--8.9%
1,500,000 Alabama Power Co.
8.750%, 12/01/21.................................... 1,599,975
4,200,000 Arizona Public Service Co. 8.000%, 12/30/15.......... 4,512,186
3,244,000 Ohio Edison, 9.120%, 5/30/16......................... 3,331,750
300,000 Texas Utilities Electric Co. 10.150%, 3/01/99........ 335,748
1,700,000 Texas Utilities Electric Co. 8.875%, 2/01/22......... 2,016,829
2,400,000 Texas Utilities Electric Co. 8.500%, 8/01/24......... 2,711,784
------------
14,508,272
------------
UTILITIES--(GAS)--3.7%
3,000,000 ANR Pipeline Co. 7.000% 6/01/25...................... 3,179,880
2,400,000 Southern California Gas Co. 8.750%, 10/01/21......... 2,813,520
------------
5,993,400
------------
YANKEE--9.2%
900,000 British Columbia Hydro & Power, 12.500%, 9/01/13..... 1,082,088
1,750,000 Canadian Pac. Limited,
8.850%, 06/01/22(c)................................. 2,031,488
4,000,000 Hydro Quebec, 8.050%, 7/07/24........................ 4,585,160
600,000 Maxus Energy Corp. 10.190%, 5/09/96.................. 603,000
1,500,000 Maxus Energy Corp. 11.500%, 11/15/15................. 1,560,000
See accompanying notes to financial statements.
73
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS BOND INCOME SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
BONDS & NOTES--(CONTINUED)
FACE
AMOUNT VALUE (a)
YANKEE--(CONTINUED)
$1,125,000 Mexico (United Mexican State) 6.250%, 12/31/19(d)... $ 736,875
450,000 Petroleos Mexicanos,
7.988%, 4/07/97.................................... 451,125
3,100,000 Petroleos Mexicanos,
8.625%, 12/01/23................................... 2,297,875
1,500,000 Republic of Coumbia
8.750%, 10/06/99(c)................................ 1,586,625
------------
14,934,236
------------
Total Corporate Bonds and Notes (Identified Cost
$101,828,372)...................................... 107,910,219
------------
U.S. GOVERNMENT AND AGENCIES--26.4%
58,620 Federal Home Loan Bank, 9.000%, 5/01/01............. 61,222
22,724 Federal Home Loan Bank, 9.000%, 9/01/01............. 23,732
6,000,000 Federal National Mortgage Association, 7.850%,
9/10/04............................................ 6,369,780
8,512,707 Government National Mortgage Association,
7.000% with various maturities to 2025............. 8,621,754
7,031,415 Government National Mortgage Association,
7.500% with various maturities to 2025............. 7,237,998
2,361,666 Government National Mortgage Association,
8.5000% with various maturities to 2022............ 2,481,237
256,441 Government National Mortgage Association,
9.000%, 10/15/16................................... 271,907
2,500,000 Student Loan Marketing Association, 7.820%,
10/14/99........................................... 2,541,050
1,500,000 U.S. Treasury Notes,
6.375%, 7/15/99.................................... 1,551,810
2,500,000 U.S. Treasury Notes, 8.500%, 11/15/00............... 2,831,125
3,500,000 U.S. Treasury Notes,
8.000%, 5/15/01.................................... 3,920,665
7,000,000 U.S. Treasury Notes,
5.750%, 8/15/03.................................... 7,094,150
------------
Total U.S. Government and Agencies (Identified Cost
$42,534,087)....................................... 43,006,430
------------
Total Bonds and Notes
(Identified Cost $144,362,459)..................... 150,916,649
------------
SHORT-TERM INVESTMENTS--5.5%
FACE
AMOUNT VALUE (a)
COMMERCIAL PAPER--5.5%
$2,930,000 American Express Credit Corp. 5.000%, 1/02/96...... $ 2,929,593
6,000,000 Household Finance Corp. 5.65%, 1/02/96............. 5,999,058
------------
8,928,651
------------
Total Short-Term Investments (Identified Cost
$8,928,651)....................................... 8,928,651
------------
Total Investments--98.2%
(Identified Cost $153,291,110)(b)................. 159,845,300
Cash and Receivables............................... 3,181,792
Liabilities........................................ (315,142)
------------
TOTAL NET ASSETS--100%............................. $162,711,950
============
(a) See Note 1A.
(b) Federal Tax Information:
At December 31, 1995 the net unrealized appreciation on investments based on
cost of $153,322,185 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..................................... $ 7,425,469
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value................................... (902,354)
------------
Net unrealized appreciation........................ $ 6,523,115
============
As of December 1995, the Series had a net tax basis capital loss
carryforward as follows:
Expiring December 31, 2002......................... $ 362,321
(c) Denominated in Canadian dollars.
(d) Rights attached.
See accompanying notes to financial statements.
74
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS BOND INCOME SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1995
ASSETS
Investments at value.................................... $159,845,300
Cash.................................................... 7,615
Receivable for:
Fund shares sold........................................ 168,756
Accrued interest........................................ 3,005,421
------------
163,027,092
LIABILITIES
Payable for:
Fund shares redeemed.................................... 155,010
Withholding Taxes....................................... 157
Accrued expenses:
Management fees......................................... 54,164
Deferred trustees' fees................................. 33,695
Other expenses.......................................... 72,116
-------
315,142
------------
$162,711,950
============
NET ASSETS
Net Assets consist of:
Capital paid in......................................... $156,446,786
Undistributed net investment income..................... 53,292
Accumulated net realized losses......................... (341,858)
Unrealized appreciation on investments and foreign
currency............................................... 6,553,730
------------
NET ASSETS............................................... $162,711,950
============
Computation of offering price:
Net asset value and redemption price per share
($162,711,950 divided by 1,497,241 shares of beneficial
interest)............................................... $ 108.67
============
Identified cost of investments........................... $153,291,110
============
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
INVESTMENT INCOME
Interest.............................................. $11,118,852
-----------
11,118,852
EXPENSES
Management fees....................................... $ 572,279
Trustees' fees and expenses........................... 32,681
Custodian............................................. 77,692
Audit and tax services................................ 15,100
Legal................................................. 10,175
Printing.............................................. 69,031
Registration.......................................... 7
Miscellaneous......................................... 6,494
----------
Total expenses....................................... 783,459
-----------
NET INVESTMENT INCOME.................................. 10,335,393
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, AND
FOREIGN CURRENCY TRANSACTIONS
Realized gain (loss) on:
Investments--net...................................... 1,968,574
Foreign currency transactions--net (408,762)
----------
Total realized gain on
investments and foreign currency transactions....... 1,559,812
----------
Unrealized appreciation on:
Investments--net...................................... 15,388,967
Foreign currency transactions--net.................... 3,212
----------
Total unrealized appreciation on investments and
foreign currency transactions....................... 15,392,179
----------
Net gain on investment transactions.................... 16,951,991
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS............. $27,287,384
===========
See accompanying notes to financial statements.
75
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS BOND INCOME SERIES)
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
FROM OPERATIONS
Net investment income............................. $ 8,708,335 $ 10,335,393
Net realized gain (loss) on investments and for-
eign currency transactions....................... (2,245,611) 1,559,812
Unrealized appreciation (depreciation) on invest-
ments, and foreign currency transactions......... (10,925,944) 15,392,179
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS. (4,463,220) 27,287,384
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income............................. (8,697,370) (9,888,438)
In excess of net investment income................ (6,472) 0
------------ ------------
(8,703,842) (9,888,438)
------------ ------------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares...................... 50,909,294 46,886,957
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income.......... 8,703,842 9,888,437
------------ ------------
59,613,136 56,775,394
Cost of shares redeemed........................... (51,454,492) (37,696,007)
------------ ------------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE
TRANSACTIONS..................................... 8,158,644 19,079,387
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS........... (5,008,418) 36,478,333
NET ASSETS
Beginning of the year............................. 131,242,035 126,233,617
------------ ------------
End of the year................................... $126,233,617 $162,711,950
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year............................. $ 0 $ 0
============ ============
End of the year................................... $ 0 $ 53,292
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................... 493,361 440,564
Issued in connection with the reinvestment of:
Distributions from net investment income.......... 90,987 91,832
------------ ------------
584,348 532,396
Redeemed.......................................... (499,476) (356,518)
------------ ------------
Net change........................................ 84,872 175,878
============ ============
FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31,
----------------------------------------------
1991 1992 1993 1994 1995
------- ------- -------- -------- --------
Net Asset Value, Beginning of
Year.......................... $ 97.61 $103.44 $ 103.47 $ 106.14 $ 95.53
------- ------- -------- -------- --------
Income From Investment Opera-
tions
Net Investment Income......... 8.53 7.96 5.70 7.05 7.34
Net Realized and Unrealized
Gain (Loss) on Investments... 8.90 0.51 7.38 (10.61) 12.85
------- ------- -------- -------- --------
Total From Investment Opera-
tions........................ 17.43 8.47 13.08 (3.56) 20.19
------- ------- -------- -------- --------
Less Distributions
Distributions From Net Invest-
ment Income.................. (9.47) (6.87) (6.20) (7.05) (7.05)
Distributions In Excess of Net
Investment Income............ 0.00 0.00 (0.05) 0.00 0.00
Distributions From Net Real-
ized Capital Gains........... (2.13) (1.57) (4.16) 0.00 0.00
------- ------- -------- -------- --------
Total Distributions........... (11.60) (8.44) (10.41) (7.05) (7.05)
------- ------- -------- -------- --------
Net Asset Value, End of Year... $103.44 $103.47 $ 106.14 $ 95.53 $ 108.67
======= ======= ======== ======== ========
TOTAL RETURN (%)............... 17.96 8.18 12.61 (3.36) 21.20
Ratio of Operating Expenses to
Average Net Assets (%)........ 0.45 0.44 0.43 0.44 0.55
Ratio of Net Investment Income
to Average Net Assets (%)..... 8.27 7.70 6.47 6.75 7.22
Portfolio Turnover Rate (%).... 193 71 177 82 73
Net Assets, End of Year (000).. $49,369 $83,057 $131,242 $126,234 $162,712
As of January 1, 1993, the Bond Income Series discontinued the use of
equalization accounting.
See accompanying notes to financial statements.
76
SALOMON BROTHERS U.S. GOVERNMENT SERIES
PORTFOLIO MANAGERS: STEVEN GUTERMAN AND ROGER LAVAN; SALOMON BROTHERS ASSET
MANAGEMENT INC
MARKET REVIEW
Photo Steven Photo Roger Lavan
Guterman The U.S. fixed income markets staged
an impressive rally during 1995,
supported by signs of economic weakness
and an overall shift in investor
sentiment that the Federal Reserve
Board's next move would be to ease
short term rates. As the year began, we
lengthened the Series' average duration
and concentrated investment in the
intermediate portion of the yield curve
to participate in the rally. We also
reduced the exposure to mortgage
securities to protect the Series from
prepayments resulting from increased refinancing activity. Moving into the
second half of the year, we shifted to a neutral duration position as economic
indicators revealed that a recession threat was subsiding. The Series decreased
its holdings of collateralized mortgage obligations and government agency
debentures as yield spreads on those securities (relative to U.S. Treasury
obligations) tightened. Proceeds from the liquidations were invested into
Treasuries and discount 15 year mortgage pass-through securities.
On a net asset value basis, the Series posted a 15.02% return for the one
year period. This compares favorably with the 14.43% return for the Lehman
Brothers Intermediate Government Bond Index./5/
OUTLOOK AND STRATEGY
We expect some steepening of the yield curve over the next several months and
continue to favor a bullet structure for the Fund to take advantage of this. We
continue to look for an economic environment characterized by slow growth and
low inflation.
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: $7.5 million
MANAGERS: Steven Guterman and
Roger Lavan have managed the
Series since its inception in
1994. Mr. Guterman and Mr. Lavan
have also managed the Salomon
Brothers Investment Series--U.S.
Government Income Fund since
March 1995 and the North American
Funds--U.S. Government Securities
Fund since 1992. They both joined
Salomon Brothers Asset Management
Inc in 1990.
A $10,000 Investment Compared to an Index
Average Annual Total Return
Salomon Brothers Lipper Variable
U.S. Govt. US Mortgage and GNMA
Fund Average
1995 15.02% 15.03%
Since
Inception 13.32% --
[A graph representing the following:]
A $10,000 Investment Compared to an Index
Lehman
Salomon Brothers
Bros. Intermediate
US Gov't Government(5)
--------------- -------------
10/31/94 $10,000 $10,000
1994 $10,060 $10,047
1995 $11,571 $11,497
Performance numbers are net of all fund operating expenses but do not include
any insurance, sales or administrative charges of the variable contracts; if
included, the returns 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 original cost.
77
NEW ENGLAND ZENITH FUND
(SALOMON BROS. U.S. GOVERNMENT SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
BONDS & NOTES--92.0% OF TOTAL NET ASSETS
FACE
AMOUNT VALUE (a)
FEDERAL AGENCY--60.9%
$ 250,000 Federal Home Loan Banks
6.49%, 9/08/97.......................................... $ 254,867
300,000 Federal Home Loan Banks
5.94%, 6/13/00.......................................... 304,188
391,841 Federal Home Loan Mortgage
6.00%, 10/01/10......................................... 388,291
363,770 Federal Home Loan Mortgage
6.00%, 2/15/13.......................................... 362,977
1,999,998 Federal National Mortgage Association
6.50%, 12/01/10......................................... 2,012,498
132,095 Federal National Mortgage Association
11.50%, 02/01/20........................................ 148,648
450,000 Federal National Mortgage Association
Pool TBA
6.50%, 10/01/25......................................... 444,515
350,000 Government National Mortgage Association TBA
7.00%, 12/15/24......................................... 353,937
300,000 Student Loan Marketing Association
7.50%, 3/08/00.......................................... 321,537
----------
4,591,458
----------
U.S. TREASURY--31.1%
350,000 U.S. Treasury Bond
8.875%, 8/15/17......................................... 468,857
600,000 U.S. Treasury Notes
7.75%, 1/31/00.......................................... 652,350
200,000 U.S. Treasury Notes
6.75%, 4/30/00.......................................... 210,590
1,000,000 U.S. Treasury Notes
5.75%, 10/31/00......................................... 1,015,470
----------
2,347,267
----------
Total Bonds & Notes
(Identified Cost $6,744,361)............................ 6,938,725
----------
SHORT-TERM INVESTMENTS--17.4%
FACE
AMOUNT VALUE (a)
$1,314,000 Repurchase agreement with State Street Bank & Trust
Company dated 12/29/95 at 5.75% to be repurchased at
$1,314,840 on 1/2/96 collateralized by 1,335,000
U.S. Treasury Note 5.125% due 4/30/98 with a value
of $1,324,854....................................... $1,314,000
----------
Total Short-Term Investments
(Identified Cost $1,314,000)........................ 1,314,000
----------
Total Investments--109.4%
(Identified Cost $8,058,361)(b)..................... 8,252,725
Cash and Receivables................................. 110,456
Liabilities.......................................... (821,145)
----------
TOTAL NET ASSETS--100%............................... $7,542,036
==========
(a) See Note 1a.
(b) Federal Tax Information:
At December 31, 1995 the net unrealized appreciation on investments based on
cost of $8,059,236 for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all in-
vestments in which there is an excess of value over
tax cost............................................ $ 194,439
Aggregate gross unrealized depreciation for all in-
vestments in which there is an excess of tax cost
over value.......................................... (950)
----------
Net unrealized appreciation.......................... $ 193,489
==========
See accompanying notes to financial statements.
78
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS U.S. GOVERNMENT SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1995
ASSETS
Investments at value:
Securities................................................ $6,938,725
Repurchase Agreements..................................... 1,314,000
----------
Total Investments........................................ 8,252,725
Cash...................................................... 343
Receivable for:
Fund shares sold.......................................... 12,653
Accrued interest.......................................... 74,392
Due from advisor.......................................... 15,361
Unamortized organization expense.......................... 7,707
----------
8,363,181
LIABILITIES
Payable for:
Securities purchased...................................... $795,977
Fund shares redeemed...................................... 54
Accrued expenses:
Management fees........................................... 1,365
Other expenses............................................ 23,749
--------
821,145
----------
$7,542,036
==========
NET ASSETS
Net Assets consist of:
Capital paid in........................................... $7,332,248
Undistributed net investment income....................... 735
Accumulated net realized gains............................ 14,689
Unrealized appreciation on
investments.............................................. 194,364
----------
NET ASSETS................................................. $7,542,036
==========
Computation of offering price:
Net asset value and redemption price per share ($7,542,036
divided by 683,462 shares of beneficial interest)......... $ 11.04
==========
Identified cost of investments............................. $8,058,361
==========
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
INVESTMENT INCOME
Interest................................................... $240,412
--------
240,412
EXPENSES
Management fees............................................ $ 20,446
Trustees' fees and expenses................................ 15,049
Custodian.................................................. 39,052
Audit and tax services..................................... 19,700
Legal...................................................... 10,824
Printing................................................... 843
Registration............................................... 7
Insurance.................................................. 29
Amortization of organization expenses...................... 2,345
Miscellaneous.............................................. 2,351
--------
Total expenses............................................ 110,646
Less expenses assumed by the investment adviser........... (84,623) 26,023
-------- --------
NET INVESTMENT INCOME....................................... 214,389
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on investments--net.......................... 71,273
Unrealized appreciation on investments--net................ 195,460
--------
Net gain on investment transactions......................... 266,733
--------
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $481,122
========
See accompanying notes to financial statements.
79
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS U.S. GOVERNMENT SERIES)
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD
OCTOBER 31, 1994 (a)
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
-------------------- ------------
FROM OPERATIONS
Net investment income...................... $ 19,034 $ 214,389
Net realized gain (loss) on investments.... (6,247) 71,273
Unrealized appreciation (depreciation) on
investments............................... (1,096) 195,460
---------- -----------
INCREASE IN NET ASSETS FROM OPERATIONS..... 11,691 481,122
---------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................... (19,034) (214,389)
In excess of net investment income......... (966) (1,001)
Net realized gain on investments........... 0 (50,946)
---------- -----------
(20,000) (266,336)
---------- -----------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares............... 1,051,370 7,348,256
Net asset value of shares issued in connec-
tion with the reinvestment of:
Distributions from net investment income... 20,000 215,390
Distributions from net realized gain....... 0 50,946
---------- -----------
1,071,370 7,614,592
Cost of shares redeemed.................... (1,051,370) (2,299,033)
---------- -----------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS........................ 20,000 5,315,559
---------- -----------
TOTAL INCREASE IN NET ASSETS............... 11,691 5,530,345
NET ASSETS
Beginning of the year...................... 2,000,000 2,011,691
---------- -----------
End of the year............................ $2,011,691 $ 7,542,036
========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year...................... $ 0 $ 0
========== ===========
End of the year............................ $ 0 $ 735
========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares............. 111,982 671,863
Issued in connection with the reinvestment
of:
Distributions from net investment income... 2,008 19,652
Distributions from net realized gain....... 0 4,648
---------- -----------
113,990 696,163
Redeemed................................... (111,982) (214,709)
---------- -----------
Net change................................. 2,008 481,454
========== ===========
(a) Commencement of Operations
FINANCIAL HIGHLIGHTS
OCTOBER 31, 1994*
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
-------------------- ------------
Net Asset Value, Beginning of Year.......... $ 10.00 $ 9.96
---------- -----------
Income From Investment Operations
Net Investment Income...................... 0.10 0.33
Net Realized and Unrealized Gain (Loss) on
Investments............................... (0.04) 1.16
---------- -----------
Total From Investment Operations........... 0.06 1.49
---------- -----------
Less Distributions
Distributions From Net Investment Income... (0.10) (0.33)
Distributions From Net Realized Capital
Gains..................................... 0.00 (0.08)
---------- -----------
Total Distributions........................ (0.10) (0.41)
---------- -----------
Net Asset Value, End of Year................ $ 9.96 $ 11.04
========== ===========
TOTAL RETURN (%)............................ 0.60*** 15.02
Ratio of Operating Expenses to Average Net
Assets (%)................................. 0.70** 0.70
Ratio of Net Investment Income to Average
Net Assets (%)............................. 5.70** 5.62
Portfolio Turnover Rate (%)................. 1,409** 415
Net Assets, End of Year (000)............... $ 2,012 $ 7,542
The ratios of expenses to average net assets
without giving effect to the voluntary ex-
pense limitations described in Note 4 to
the Financial Statements would have been
(%)........................................ 2.54** 2.90
* Commencement of operations.
** Computed on an annualized basis.
*** Not computed on an annualized basis.
See accompanying notes to financial statements.
80
ZENITH BACK BAY ADVISORS MONEY MARKET SERIES
PORTFOLIO MANAGER: JOHN DONOVAN; BACK BAY ADVISORS, L.P.(R)
MARKET REVIEW
Photo John
Donovan In 1995 money market yields stabilized, after sharply
rising throughout 1994 as short term rates headed upward.
In 1994, the Federal Reserve Board hiked short term rates
seven times in an effort to slow down the economy. But by
mid 1995, economic growth had tapered off, easing
inflationary pressures and leading the markets to
anticipate possible interest rate cuts by the Fed. Long
term rates, which are market driven, dipped dramatically
throughout the first half of 1995, in anticipation of
imminent Fed easing. Finally, in July and then again in
December, the Fed moved to lower short term rates by one-
quarter of a percentage point,
signaling a reversal in its interest rate policy.
During the year, money market yields, which tend to lag short-term rates,
stabilized in a narrow range. Meanwhile, total assets in money market funds
continued to increase as investors sought out the safety and liquidity which
money market funds offer.
The 1995 return of the Series reflects the overall drop in interest rates
throughout the year. As of December 31, 1995, the yield for the Series was
5.64%. This yield compares favorably with the average money market deposit
accounts (MMDAs), which were yielding 3.23% at year end. (Source: Wall Street
Journal, 1/4/96).*
Throughout the year we correctly anticipated a prolonged period of low
inflation and declining interest rates. Consequently, we lengthened
considerably the average maturities of the Series to allow us to lock in the
higher yields for as long as possible. At year end, the average maturity of
the Series was about 76 days compared to 26 days at the end of 1994.
OUTLOOK AND STRATEGY
We believe that the combination of slow economic growth and benign inflation
will continue over the next several months, and that most likely the Federal
Reserve will engineer another interest rate cut early in 1996, to sustain the
current rate of growth. The balanced budget agreement, if achieved, should
lead to reduced growth in federal spending, helping to reduce inflationary
pressures. With this outlook, we will continue to run the portfolio at a
longer average maturity, to help sustain current income and minimize the
impact of declining interest rates.
No matter what the economic climate and portfolio maturity, we manage the
Series conservatively at all times, following strict investment guidelines to
seek high current income and stability.*
* Money Market Funds are not insured or guaranteed by the U.S. Government.
There can be no assurance that the Series will maintain a stable net asset
value of $100.00 per share. MMDAs are insured bank accounts. All performance
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 original cost.
Performance numbers are net of all fund operating expenses but do not
include any insurance, sales or administrative charges of the variable
contracts; if included, the returns would be lower.
FUND FACTS
GOAL: the highest possible level of current income consistent with the
preservation of capital.
START DATE: August 1, 1983
SIZE: $90.1 million as of December 31, 1995
MANAGER: John Donovan has served as portfolio manager since January 1995. Mr.
Donovan joined Back Bay Advisors in 1992.
81
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISERS MONEY MARKET SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
INVESTMENTS--98.7% OF TOTAL NET ASSETS
FACE INTEREST MATURITY
VALUE DESCRIPTION RATE DATE VALUE (a)
BANKERS ACCEPTANCE--1.1%
$1,000,000 Bank of Montreal................... 5.500% 04/18/96 $ 983,500
-----------
Total Bankers Acceptance
($983,500)......................... 983,500
-----------
CERTIFICATE OF DEPOSIT--11.1%
1,000,000 Societe Generale New York.......... 5.730% 01/16/96 999,966
1,000,000 Societe Generale New York.......... 5.670% 01/31/96 999,902
1,000,000 Banque Nationale de Paris.......... 5.780% 02/05/96 1,000,025
1,000,000 Banque Nationale de Paris.......... 5.840% 02/26/96 1,000,127
1,000,000 Radobank Nederland................. 6.660% 02/27/96 999,701
1,000,000 Royal Bank of Canada............... 5.735% 03/13/96 1,000,068
1,000,000 Radobank Nederland................. 5.780% 04/05/96 1,000,058
2,000,000 Union Bank of Switzerland.......... 5.530% 06/17/96 2,000,068
1,000,000 CIBC Yankee CD..................... 5.595% 10/23/96 1,000,000
-----------
9,999,915
-----------
Total Certificate of Deposit
($9,999,915)....................... 9,999,915
-----------
CERTIFICATE OF DEPOSIT-EURO
DOLLAR--1.1%
1,000,000 ABN Amro Euro...................... 5.630% 05/14/96 1,000,063
-----------
Total Certificate of Deposit Euro-
Dollar ($1,000,063)................ 1,000,063
-----------
COMMERCIAL PAPER--85.4%
AUTOMOTIVE--8.6%
1,000,000 General Motors Acceptance Corp..... 5.750% 01/03/96 999,681
1,400,000 General Motors Acceptance Corp..... 5.750% 01/09/96 1,398,211
1,300,000 Ford Motor Credit Corp............. 5.690% 01/12/96 1,297,740
1,000,000 Ford Motor Credit Corp............. 6.050% 01/12/96 998,151
500,000 General Motors Acceptance Corp..... 5.800% 01/22/96 498,308
1,100,000 General Motors Acceptance Corp..... 5.790% 01/25/96 1,095,754
1,445,000 Ford Motor Credit Corp. ........... 5.600% 03/06/96 1,430,389
-----------
7,718,234
-----------
BANKING--14.4%
1,000,000 UBS Finance Delaware, Inc.......... 5.850% 01/02/96 999,837
1,000,000 Dredsner US Finance................ 5.820% 01/04/96 999,515
600,000 Commerzbank US Finance............. 5.950% 01/08/96 599,306
1,500,000 Commerzbank US Finance............. 5.800% 01/11/96 1,497,583
1,000,000 Commerzbank US Finance............. 5.700% 01/12/96 998,258
1,045,000 Toronto Dominion Holdings.......... 5.690% 01/23/96 1,041,366
1,000,000 Morgan Stanley Securities.......... 5.700% 02/12/96 993,350
1,000,000 Norwest Corp....................... 5.670% 02/23/96 991,652
1,000,000 J.P Morgan Securities.............. 5.580% 03/05/96 990,080
900,000 Commerzbank US Finance............. 5.570% 03/15/96 889,695
1,000,000 ABN Amro North..................... 5.550% 04/29/96 981,654
1,000,000 Dredsner US Finance................ 5.440% 05/16/96 979,449
1,000,000 Morgan Guaranty Trust.............. 6.050% 08/21/96 1,000,000
-----------
12,961,745
-----------
DRUGS--2.2%
1,000,000 American Home Products Corp........ 5.720% 02/02/96 994,916
1,000,000 American Home Products Corp........ 5.720% 02/08/96 993,962
-----------
1,988,878
-----------
See accompanying notes to financial statements.
82
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MONEY MARKET SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
INVESTMENTS--(CONTINUED)
FACE INTEREST MATURITY
VALUE DESCRIPTION RATE DATE VALUE (a)
FINANCE--26.5%
$1,000,000 Transamerica Finance Group......... 5.700% 01/05/96 $ 999,367
500,000 Transamerica Finance Group......... 5.640% 01/12/96 499,138
1,000,000 General Electric Capital Corp...... 5.600% 01/16/96 997,667
1,000,000 Household Finance.................. 5.720% 01/19/96 997,140
900,000 Avco Financial Services............ 5.700% 01/22/96 897,007
1,230,000 Beneficial Corp.................... 5.620% 01/23/96 1,225,776
1,180,000 Avco Financial Services............ 5.730% 01/25/96 1,175,492
1,000,000 CIT Group Holdings................. 5.700% 01/30/96 995,408
1,415,000 Beneficial Corp.................... 5.620% 02/01/96 1,408,152
1,500,000 Transamerica Finance Group......... 5.570% 02/15/96 1,489,556
Associates Corporation North
1,250,000 America............................ 5.650% 02/16/96 1,240,976
1,000,000 Avco Financial Services............ 5.670% 02/20/96 992,125
Associates Corporation North
1,000,000 America............................ 5.690% 02/28/96 990,833
1,000,000 General Electric Capital Corp...... 5.560% 03/08/96 989,652
1,000,000 American Express................... 5.640% 03/13/96 988,720
1,100,000 Beneficial Corporation............. 5.550% 03/18/96 1,086,942
1,615,000 International Lease Finance........ 5.550% 03/29/96 1,593,090
700,000 American Express................... 5.550% 04/03/96 689,964
975,000 Transamerica Finance Group......... 5.530% 04/04/96 960,922
1,110,000 CIT Group Holdings................. 5.560% 04/12/96 1,092,514
400,000 American Express................... 5.550% 04/26/96 392,847
1,000,000 American Express................... 5.590% 05/06/96 980,435
1,100,000 General Electric Capital Corp...... 5.550% 06/28/96 1,069,645
150,000 American Express................... 5.360% 07/02/96 145,913
-----------
23,899,281
-----------
FOOD & TOBACCO--3.3%
500,000 Philip Morris Companies, Inc....... 5.850% 01/03/96 499,837
1,000,000 Pepsico, Inc....................... 5.280% 09/03/96 963,920
500,000 Coca Cola Co. ..................... 6.050% 01/11/96 499,160
1,000,000 Coca Cola Co. ..................... 6.100% 01/11/96 998,306
-----------
2,961,223
-----------
FORESTRY--0.5%
490,000 Weyerhaeuser NTG................... 5.800% 01/08/96 489,447
-----------
INSURANCE--4.1%
500,000 Prudential Funding Corp............ 5.920% 01/02/96 499,918
780,000 Prudential Funding Corp. .......... 5.750% 01/04/96 779,626
1,225,000 Prudential Funding Corp............ 5.780% 01/08/96 1,223,623
1,160,000 Prudential Funding Corp. .......... 5.790% 01/18/96 1,156,828
-----------
3,659,995
-----------
MANAGEMENT SERVICE--1.1%
1,000,000 PHH Corp........................... 5.740% 01/19/96 997,130
-----------
MULTI-SERVICE--1.1%
1,000,000 Hanson Finance..................... 5.640% 02/23/96 991,697
-----------
See accompanying notes to financial statements.
83
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MONEY MARKET SERIES)
INVESTMENTS AS OF DECEMBER 31, 1995
INVESTMENTS--(CONTINUED)
FACE INTEREST MATURITY
VALUE DESCRIPTION RATE DATE VALUE (a)
POLLUTION CONTROL--3.7%
$1,100,000 WMX Technologies, Inc. ............ 5.700% 02/27/96 $ 1,090,072
1,000,000 WMX Technologies, Inc. ............ 5.500% 06/04/96 976,319
1,270,000 WMX Technologies, Inc. ............ 5.340% 08/16/96 1,227,049
-----------
3,293,440
-----------
RETAIL--4.3%
370,000 Sears Roebuck Acceptance Corp. .... 5.780% 01/17/96 369,050
760,000 Sears Roebuck Acceptance Corp. .... 5.680% 01/18/96 757,962
1,000,000 Sears Roebuck Acceptance Corp. .... 5.770% 01/24/96 996,314
1,785,000 Sears Roebuck Acceptance Corp. .... 5.810% 01/29/96 1,776,934
-----------
3,900,260
-----------
SECURITIES--11.8%
1,180,000 Smith Barney, Inc.................. 5.800% 01/09/96 1,178,479
1,385,000 Merrill Lynch, Inc................. 5.720% 01/10/96 1,383,019
1,030,000 Merrill Lynch, Inc................. 5.720% 01/17/96 1,027,382
520,000 Smith Barney, Inc.................. 5.750% 01/24/96 518,090
1,000,000 Smith Barney, Inc.................. 5.720% 01/26/96 996,028
600,000 Merrill Lynch, Inc................. 5.710% 02/09/96 596,288
1,000,000 Merrill Lynch, Inc................. 5.600% 02/23/96 991,756
1,200,000 Goldman Sachs Group................ 5.550% 03/22/96 1,185,015
2,000,000 Goldman Sachs Group................ 5.600% 04/09/96 1,969,200
800,000 Goldman Sachs Group................ 5.500% 05/07/96 784,478
-----------
10,629,735
-----------
UTILITY--3.8%
3,000,000 Michigan Consolidated Gas.......... 5.680% 02/06/96 2,982,960
485,000 Michigan Consolidated Gas.......... 5.650% 02/07/96 482,184
-----------
3,465,144
-----------
Total Commercial Paper
(Cost $76,956,209)................ 76,956,209
-----------
Total Investments--98.7%
(Cost $88,939,687)(b)............. 88,939,687
Cash and Receivables............... 1,999,602
Liabilities........................ (791,130)
-----------
TOTAL NET ASSETS--100%............. $90,148,159
===========
(a) See Note 1A.
(b) The aggregate cost for federal income tax purposes was $88,939,687
See accompanying notes to financial statements.
84
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MONEY MARKET SERIES)
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1995
ASSETS
Investments at value..................................... $88,939,687
Cash..................................................... 5,185
Receivable for:
Fund shares sold......................................... 1,786,132
Accrued interest......................................... 208,285
-----------
90,939,289
LIABILITIES
Payable for:
Fund shares redeemed..................................... $285,178
Dividends declared....................................... 384,224
Accrued expenses:
Management fees.......................................... 56,834
Deferred trustees' fees.................................. 28,188
Other expenses........................................... 36,706
--------
791,130
-----------
$90,148,159
===========
NET ASSETS
Net Assets consist of:
Capital paid in.......................................... $90,148,159
-----------
NET ASSETS................................................ $90,148,159
===========
Computation of offering price:
Net asset value and redemption price per share
($90,148,159 divided by 901,482 shares of beneficial
interest)................................................ $ 100.00
===========
Cost of investments....................................... $88,939,687
===========
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
INVESTMENT INCOME
Interest................................................. $4,800,248
----------
4,800,248
EXPENSES
Management fees.......................................... $278,007
Trustees' fees and expenses.............................. 25,255
Custodian................................................ 49,932
Audit and tax services................................... 10,400
Legal.................................................... 7,727
Printing................................................. 27,004
Registration............................................. 7
Miscellaneous............................................ 7,353
--------
Total expenses........................................... 405,685
Less expenses assumed by the
investment adviser...................................... (8,532) 397,153
-------- ----------
NET INVESTMENT INCOME..................................... 4,403,095
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS................ $4,403,095
==========
See accompanying notes to financial statements.
85
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MONEY MARKET SERIES)
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
------------- -------------
FROM OPERATIONS
Net investment income........................... $ 2,614,216 $ 4,403,095
------------- -------------
Increase in net assets from operations.......... 2,614,216 4,403,095
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income........................... (2,614,206) (4,403,095)
------------- -------------
(2,614,206) (4,403,095)
------------- -------------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares.................... 149,478,320 141,012,985
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income........ 2,445,979 4,331,085
------------- -------------
151,924,299 145,344,070
Cost of shares redeemed......................... (137,007,701) (129,156,304)
------------- -------------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS............................. 14,916,598 16,187,766
------------- -------------
TOTAL INCREASE IN NET ASSETS.................... 14,916,598 16,187,766
NET ASSETS
Beginning of the year........................... 59,043,795 73,960,393
------------- -------------
End of the year................................. $ 73,960,393 $ 90,148,159
============= =============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................. 1,494,783 1,410,130
Issued in connection with the reinvestment of:
Distributions from net investment income........ 24,460 43,311
------------- -------------
1,519,243 1,453,441
Redeemed........................................ (1,370,077) (1,291,563)
------------- -------------
Net change...................................... 149,166 161,878
============= =============
FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31,
-------------------------------------------
1991 1992 1993 1994 1995
------- ------- ------- ------- -------
Net asset value at beginning of
year............................. $100.00 $100.00 $100.00 $100.00 $100.00
------- ------- ------- ------- -------
Income From Investment Operations
Net investment income............ 6.03 3.73 2.93 3.89 5.50
------- ------- ------- ------- -------
Total from Investment Operations. 6.03 3.73 2.93 3.89 5.50
Distributions from net investment
income.......................... (6.03) (3.73) (2.93) (3.89) (5.50)
------- ------- ------- ------- -------
Total Distribution............... (6.03) (3.73) (2.93) (3.89) (5.50)
------- ------- ------- ------- -------
Net asset value at end of year.... $100.00 $100.00 $100.00 $100.00 $100.00
======= ======= ======= ======= =======
TOTAL RETURN (%).................. 6.20 3.79 2.97 4.01 5.64
Ratio of operating expenses to av-
erage net assets (%)............. 0.38 0.38 0.38 0.40 0.50
Ratio of net investment income to
average net assets (%)........... 6.01 3.71 2.93 3.89 5.50
Net Assets, End of Year (000)..... $58,614 $61,607 $59,044 $73,960 $90,148
The ratios of expenses to average
net assets without giving effect
to the voluntary expense
limitations described in Note 4
to the Financial Statements would
have been (%).................... -- -- -- -- 0.51
See accompanying notes to financial statements.
86
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1995
1. New England Zenith Fund (the "Fund") is organized as a Massachusetts
business trust under the laws of the Commonwealth of Massachusetts pursuant to
an Agreement and Declaration of Trust dated December 16, 1986. The Fund
succeeded to the operations of The New England Zenith Fund, Inc. on February
27, 1987. The Fund is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company.
Shares in the Fund are not offered directly to the general public and,
currently, are available only to separate accounts established by New England
Variable Life Insurance Company ("NEVLICO"), New England Mutual Life Insurance
Company ("The New England") or its subsidiaries as an investment vehicle for
variable life insurance or variable annuity products, although not all Series
may be available to all separate accounts. In the future, however, such shares
may be offered to separate accounts of insurance companies unaffiliated with
NEVLICO or The New England.
The Fund's Agreement and Declaration of Trust permits the issuance of an
unlimited number of shares of beneficial interest, no par value, in separate
Series, with shares of each Series representing interests in a separate
portfolio of assets. Each Series is separately managed and has its own
investment objective and policies. The Fund (or its predecessor) began
offering shares of the Series on the dates set forth below:
Bond Income............. August 26, 1983
Capital Growth.......... August 26, 1983
Money Market............ August 26, 1983
Stock Index............. March 30, 1987
Managed................. May 1, 1987
Avanti Growth........... April 30, 1993
Value Growth............ April 30, 1993
Small Cap................ May 1, 1994
Balanced Series.......... October 31, 1994
International Equity Se-
ries.................... October 31, 1994
U.S. Government Series... October 31, 1994
Strategic Bond Opportuni-
ties Series............. October 31, 1994
Venture Value Series..... October 31, 1994
Equity Growth Series..... October 31, 1994
The following is a summary of significant accounting policies followed by the
Fund in the preparation of the Financial Statements of the Series. The
policies are in conformity with generally accepted accounting principles for
investment companies. The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
A. SECURITY VALUATION
MONEY MARKET SERIES--The Money Market Series employs the amortized cost
method of security valuation which, in the opinion of the Board of
Trustees, represents the fair market value of the particular security. The
Board monitors the deviations between the Series' net asset value per
share, as determined by using available market quotations, and its
amortized cost price per share. If the deviation exceeds 1/2 of 1%, the
board will consider what action, if any, should be initiated to provide
fair valuation of the Series.
BOND INCOME, MANAGED, BALANCED, U.S. GOVERNMENT AND STRATEGIC BOND
OPPORTUNITIES SERIES--Debt securities (other than short-term obligations)
are valued on the basis of valuations furnished by a pricing service,
authorized by the Board of Trustees, which service determines valuations
for normal, institutional-size trading units of such securities using
market information, transactions for comparable securities and various
relationships between securities which are generally recognized by
institutional traders. Short-term notes are stated at amortized cost which
approximates market value.
CAPITAL GROWTH, MANAGED, STOCK INDEX, AVANTI GROWTH, VALUE GROWTH, SMALL
CAP, BALANCED, INTERNATIONAL EQUITY, VENTURE VALUE AND EQUITY GROWTH
SERIES--Equity securities are valued on the basis of market valuations
furnished by a pricing service, authorized by the Board of Trustees. The
pricing service provides the last reported sale price for securities listed
on a national securities exchange or on the NASDAQ National Market System,
or if there is no reported sale during the day, and in the case of over-
the-counter securities not so listed, the last bid price. Securities for
which current market quotations are not readily available are taken at fair
value as determined in good faith by the Board of
87
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1995--(CONTINUED)
Trustees, although the actual calculations may be made by persons acting
pursuant to the direction of the Board. Short-term notes are stated at
amortized cost which approximates market value.
B. FOREIGN CURRENCY TRANSLATION--The books and records of the funds are
maintained in U.S. dollars. The value 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 fluctuations arising from changes in market prices of
the investment securities.
Net realized and unrealized gains and losses on foreign currency
transactions represent foreign exchange gains from the sale of short-term
securities and holdings of foreign currencies, foreign currency gains and
losses between trade dates and settlement dates on investment securities
transactions, and the difference between the amounts of daily interest
accruals on the books of the fund and the amounts actually received
resulting from changes in exchange rates on the payable date.
FORWARD FOREIGN CURRENCY CONTRACTS. The Fund may use foreign currency
contracts to facilitate transactions in foreign securities and to manage
the Fund's currency exposure. Contracts to buy generally are used to
acquire exposure to foreign currencies, while contracts to sell are used to
hedge the Fund's investments against currency fluctuations. Also, a
contract to buy or sell can offset a previous contract. These contracts
involve market risk in excess of the unrealized gain or loss reflected in
the Fund's Statement of Assets and Liabilities. The U.S. dollar value of
the currencies the Fund has committed to buy or sell is shown in the
schedule of investments under the caption "Forward Foreign Currency
Contracts." This amount represents the aggregate exposure to each currency
the Fund has acquired or hedged through currency contracts at period end.
Losses may arise from changes in the value of the foreign currency or if
the counterparties do not perform under the contracts terms. The U.S.
dollar value of forward foreign currency contracts is determined using
forward currency exchange rates supplied by a quotation service.
C. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME--Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Dividend income is recorded on the ex-dividend date and interest
income is recorded on the accrual basis. In determining gain or loss on
securities sold, the cost of securities has been determined on the
identified cost basis.
D. FUTURES CONTRACTS--The Value Growth, Stock Index, Managed, Balanced,
International Equity, U.S. Government, Strategic Bond Opportunities and
Venture Value Series may enter into futures contracts on the S&P 500 Index
or on interest-bearing securities or indices thereof, or on indices of
stock prices to hedge against changes in the values of securities the
Series owns or expects to purchase. Upon entering into a futures contract,
the Series is required to deposit with a broker an amount ("initial
margin") equal to a certain percentage of the purchase price indicated in
the futures contract. Subsequent payments ("variation margin") are made or
received by the Series each day, dependent on the daily fluctuations in the
value of the underlying security, and are recorded for financial reporting
purposes as unrealized gains or losses by the Series. When entering into a
closing transaction, the Series will realize, for book purposes, a gain or
loss equal to the difference between the value of the futures contract to
sell and the futures contract to buy. Futures contracts are valued at the
most recent settlement price, unless such price does not reflect the fair
market value of the contract, in which case the position will be valued by
or under the direction of the Trustees. Certain risks may arise upon
entering into futures contracts from the contingency of imperfect market
conditions. The potential risk to the fund is that the change in value of
futures contracts primarily corresponds with the value of underlying
instruments which may not correspond to the change in the value of the
hedged instruments. In addition, there is a risk that the fund may not be
able to close out its futures positions due to an illiquid secondary
market.
E. REPURCHASE AGREEMENTS--The Series, through their custodian, receive
delivery of the underlying securities collateralizing repurchase
agreements. It is the Series' policy that the market value of the
collateral be at least equal to 100% of the repurchase price. The adviser
is responsible for determining that the value of the collateral is at all
times at least equal to the repurchase price. In connection with
transactions in repurchase agreements, if the seller defaults and the value
of the collateral declines or if the seller enters an insolvency
proceeding, realization of the collateral by the Series may be delayed or
limited.
88
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1995--(CONTINUED)
F. SHORT SALES AGAINST THE BOX--The Equity Growth Series may hedge the
investments against changes in value by engaging in short sales against the
box. In a short sale against the box, the fund sells a borrowed security,
while at the same time either owning an identical security or having the
right to obtain such a security. By selling short against the box the
equity underlying one of its convertible holdings, the fund would seek to
offset the effect that a decline in the underlying equity might have on the
value of the convertible security. While the short sale is outstanding, the
fund will not dispose of the security hedged by the short sale. The fund is
required to establish a margin account with the broker lending the security
sold short. While the short sale is outstanding, the broker retains the
proceeds of the short sale and the fund instructs the custodian to maintain
in a separate account securities having a value at least equal to the
amount of the securities sold short. The Fund had no such transaction
during the year ended.
G. FEDERAL TAXES--Each Series, which is a separate taxable entity, intends to
meet the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute to its shareholders all of its
taxable income and any net realized capital gains at least annually.
Accordingly, no provision for federal income tax has been made.
H. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS--Money Market Series dividends
are declared daily to shareholders of record at the time and are paid
monthly. Dividends and distributions are recorded by all other Series on
the ex-dividend date. Net realized gains from security transactions are
distributed at least annually to shareholders. The timing and
characterization of certain income and capital gains distributions are
determined in accordance with federal tax regulations which may differ from
generally accepted accounting principles. Permanent book and tax basis
differences relating to shareholder distributions will result in
reclassification to paid in capital. These differences primarily relate to
tax equalization, investments in mortgage back securities and investments
in foreign securities.
I. OTHER--The Money Market Series invests primarily in a portfolio of money
market instruments maturing in 397 days or less whose ratings are within
the two highest ratings categories by a nationally recognized rating agency
or, if not rated, are believed to be of comparable quality. The weighted
average maturity of the Series is less than ninety days. The ability of the
issuers of the securities held by the Series to meet their obligations may
be affected by foreign economic, political and legal developments in the
case of foreign banks or of foreign branches or subsidiaries of U.S. banks
or domestic economic developments in a specific industry, state or region.
2. At December 31, 1995, The New England owned an aggregate of 11 shares of
the fourteen Series and held 12,567,940 shares in separate investment accounts
for annuity contracts offered by The New England. NEVLICO, a life insurance
subsidiary of The New England, held the remaining 5,382,165 shares then
outstanding in separate investment accounts for life insurance and annuity
contracts offered by NEVLICO.
As long as The New England owns (directly or through NEVLICO) more than 25% of
the Fund's outstanding shares, it will be presumed to be in control (as that
term is defined by the Investment Company Act of 1940, as amended) of the
Fund.
3. For the period ended December 31, 1995, purchases and sales of securities
(excluding short-term investments) for each of the Series were as follows:
PURCHASES SALES
------------------------------ ------------------------------
SERIES OTHER U.S. GOVERNMENT OTHER U.S. GOVERNMENT
------ -------------- --------------- -------------- ---------------
Bond Income............. $ 94,309,538 $18,399,214 $ 86,754,106 $ 6,825,139
Capital Growth.......... 1,948,934,590 -- 1,953,524,593 --
Stock Index............. 10,053,729 -- 2,412,819 --
Managed................. 60,871,228 7,288,867 54,355,580 18,598,516
Avanti Growth........... 35,078,791 -- 20,289,545 --
Value Growth............ 44,182,753 -- 30,305,881 --
Small Cap............... 28,278,054 -- 11,596,456 --
Balanced................ 16,060,167 3,485,704 3,652,680 2,550,154
International Equity.... 20,003,237 -- 7,565,727 --
U.S. Government......... -- 18,429,008 -- 12,951,464
Strategic Bond
Opportunities.......... 9,387,057 4,710,948 5,441,051 4,045,648
Venture Value........... 27,240,060 -- 3,308,605 --
Equity Growth........... 55,032,452 -- 21,154,236 --
89
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1995--(CONTINUED)
Purchases and sales of corporate short-term obligations for the Money Market
Series aggregated $569,077,546 and $557,178,427, respectively.
Transactions in index futures contracts for the Managed Series for the year
ended December 31, 1995 are summarized as follows:
PURCHASES OF FUTURES
CONTRACTS
----------------------
AGGREGATE
NUMBER OF FACE VALUE
CONTRACTS OF CONTRACTS
--------- ------------
Contracts opened........................................ 20 $ 5,329,000
Contracts closed........................................ (20) (5,329,000)
--- -----------
Open at December 31, 1995............................... 0 $ 0
=== ===========
4. During the four months ended April 30, 1995, the Fund incurred management
fees payable to the Fund's investment advisers for that period, Back Bay
Advisors, L.P., Capital Growth Management Limited Partnership, Loomis Sayles &
Company, L.P. and Westpeak Investment Advisors, L.P., certain officers and
directors of which are also officers and Trustees of the Fund. Back Bay
Advisors, L.P. and Westpeak Investment Advisors, L.P. are wholly owned
subsidiaries, Loomis Sayles & Company, L.P. is a majority-owned subsidiary and
Capital Growth Management Limited Partnership is a partially owned subsidiary
of New England Investment Companies, L.P., which is a subsidiary of The New
England. Effective May 1, 1995, TNE Advisers, Inc. became the adviser for all
series except Capital Growth with the aforementioned advisers being retained
as the sub-adviser for the respective series. Separate management agreements
for each Series provide for fees as set forth below:
MANAGEMENT
FEES
ANNUAL AVERAGE
FEES SUBADVISER/ PERCENTAGE NET ASSET
SERIES EARNED(A) ADVISER RATE VALUE LEVELS
------ --------- ----------- ---------- ------------
Money Market............ $ 167,334 Back Bay Advisors, L.P./ 0.35% the first $500 million
110,673 TNE Advisers, Inc. 0.30% the next $500 million
0.25% amount in excess of $1 billion
Bond Income............. 389,490 Back Bay Advisors, L.P./ 0.40% the first $400 million
182,789 TNE Advisers, Inc. 0.35% the next $300 million
0.30% the next $300 million
0.25% amounts in excess of $1 billion
Capital Growth.......... 5,232,562 Capital Growth Management 0.70% the first $200 million
Limited Partnership 0.65% the next $300 million
0.60% amounts in excess of $500 million
Stock Index............. 69,084 Westpeak Investment 0.25% All net assets
Advisors, L.P./
53,275 TNE Advisers, Inc.
Managed................. 411,768 Back Bay Advisors, L.P./ 0.50% All net assets
263,970 TNE Advisers, Inc.
Avanti Growth........... 193,740 Loomis Sayles & Company, 0.70% the first $200 million
L.P./ 0.65% the next $300 million
67,146 TNE Advisers, Inc. 0.60% amounts in excess of $500 million
Value Growth............ 181,131 Westpeak Investment 0.70% the first $200 million
Advisors, L.P./ 0.65% the next $300 million
61,497 TNE Advisers, Inc. 0.60% amounts in excess of $500 million
Small Cap............... 88,206 Loomis Sayles & Company, 1.00% All net assets
L.P./
58,898 TNE Advisers, Inc.
90
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1995--(CONTINUED)
a. Before reduction due to voluntary expense limitation, see below.
- - Pursuant to a voluntary expense agreement, effective from November 1, 1994
to May 1, 1995, relating to the Capital Growth, Back Bay Advisors Money
Market, Back Bay Advisors Bond Income, Back Bay Advisors Managed and the
Westpeak Stock Index Series and, beginning December 1, 1994, relating to the
Loomis Sayles Small Cap, Loomis Sayles Avanti Growth and the Westpeak Value
Growth Series, The New England agreed to bear the expenses (other than the
advisory fees and any brokerage costs, interest, taxes or extraordinary
expenses) of the Series (except the Loomis Sayles Small Cap Series) in excess
of 0.15% of the respective Series' average daily net assets. In the case of
the Loomis Sayles Small Cap Series, The New England agreed to bear such
expenses of the Series in excess of 1.00% of the Series' average daily net
assets. Beginning May 1, 1995, TNE Advisers voluntarily agreed to bear any
such excess expenses for all of the Series.
- - As a result of the Series expenses exceeding the voluntary expense
limitations for the period ending December 31, 1995, The New England and TNE
Advisers assumed expenses of the Series as follows:
EXPENSE WAIVER
DECEMBER 31, 1995
-----------------
Stock Index............................................ $ 68,581
Avanti Growth.......................................... 77,529
Value Growth........................................... 73,738
Small Cap.............................................. 135,845
Money Market........................................... 8,357
Prior to November 1, 1994, pursuant to an Expense Agreement between The New
England and the Fund, The New England had agreed to pay the charges and
expenses of preparing, printing and distributing prospectuses and reports to
shareholders, custodial and transfer agent charges and expenses, auditing,
accounting and legal fees and expenses in connection with affairs of the Fund
(except for fees of the independent trustees' outside counsel) and the
expenses of shareholders' and trustees' meetings. In addition, The New England
also paid registration, filing and other fees arising prior to the date the
Fund commenced operations and relating to registration and qualification of
each Series' shares.
TNE Advisers, Inc. is the investment adviser of the Loomis Sayles Balanced
Series, the Draycott International Equity Series, the Salomon Brothers U.S.
Government Series, the Salomon Brothers Strategic Bond Opportunities Series,
the Venture Value Series and the Alger Equity Growth Series and has entered
into subadvisory agreements for these Series with Loomis Sayles, Draycott,
Salomon Brothers Asset Management Inc., Davis Selected Advisers, L.P., and
Fred Alger Management, Inc., respectively.
TNE Advisers, Inc. is paid a management fee from the Series it manages as
shown below. Pursuant to an expense deferral arrangement in effect beginning
November 1, 1994, which TNE Advisers may terminate at any time, TNE Advisers
has agreed to pay operating expenses of the Series in excess of expense limits
stated below subject to the obligation of the Series to repay TNE Advisers
such expenses in future years, if any, when a Series' expenses fall below the
stated expense limit that pertains to that Series; such deferred expenses may
be charged to a Series in a subsequent year to the extent that the charge does
not cause the total expenses in such subsequent year to exceed the Series'
expense limit; provided, however, that no Series is obligated to repay any
expense paid by TNE Advisers more than two years after the end of the fiscal
year in which such expense was incurred.
91
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1995--(CONTINUED)
EXPENSE EXPENSE
MANAGEMENT MANAGEMENT LIMITATION DEFERRAL EXPENSE DEFERRAL
FEES EARNED FEES ANNUAL ANNUAL DECEMBER 31, 1995 DECEMBER 31, 1994
BY TNE PERCENTAGE PERCENTAGE (EXPIRES (EXPIRES
SERIES ADVISERS(a) RATE RATE DECEMBER 31, 1997) DECEMBER 31, 1996)
------ ----------- ----------- ---------- ------------------ ------------------
Balanced................ $65,752 0.70% 0.85% $96,085 $ 8,151
International Equity.... 85,666 0.90 1.30 176,796 11,312
U.S. Government......... 20,446 0.55 0.70 84,623 6,163
Strategic Bond
Opportunities.......... 35,085 0.65 0.85 88,120 6,799
Venture Value........... 131,989 0.75 0.90 108,971 9,339
Equity Growth........... 144,943 0.70 0.85 77,254 6,007
- -------
(a) Before reduction due to voluntary expense deferral.
TNE Advisers, Inc. pays each subadviser at the following rates for providing
advisory services to the Series:
ANNUAL
FEES PERCENTAGE
SUBADVISER SERIES EARNED RATE AVERAGE NET ASSET VALUE LEVELS
---------- ------ ------ ---------- ------------------------------
Loomis Sayles Balanced $46,966 0.500% the first $25 million
0.400% the next $75 million
0.300% amounts in excess of $100 million
Draycott International Equity $69,461 0.750% the first $10 million
0.600% the next $40 million
0.450% amounts in excess of $50 million
Salomon Brothers U.S. Government $ 8,364 0.225% the first $200 million
0.150% the next $300 million
0.100% amounts in excess of $500 million
Salomon Brothers Strategic Bond Opportunities $18,892 0.350% the first $50 million
0.300% the next $150 million
0.250% the next $300 million
0.200% amounts in excess of $500 million
Davis Selected Venture Value $79,181 0.450% the first $100 million
0.400% the next $400 million
0.350% amounts in excess of $500 million
Alger Equity Growth $87,139 0.450% the first $10 million
0.400% the next $90 million
0.350% the next $150 million
0.300% the next $250 million
0.250% amounts in excess of $500 million
5. The Fund does not pay any compensation to its officers or to any trustees
who are directors, officers or employees of The New England, NEVLICO, Back Bay
Advisors, L.P., Capital Growth Management Limited Partnership, Loomis Sayles &
Company, L.P., Westpeak Investment Advisors, L.P., New England Funds L.P. or
their affiliates, other than registered investment companies. Each
disinterested trustee is compensated by each Series as follows:
BOND CAPITAL MONEY STOCK AVANTI VALUE SMALL
INCOME GROWTH MARKET INDEX MANAGED GROWTH GROWTH CAP
------ ------- ------ ----- ------- ------ ------ -----
Annual Retainer......... $2,609 $2,609 $1,739 $870 $2,609 $870 $870 $870
Meeting Fee............. $ 133 $ 133 $ 133 $133 $ 133 $133 $133 $133
Committee Chairman
Annual Retainer
(Contract Review)...... $ 200 $ 200 $ 200 $200 $ 200 $200 $200 $200
Committee Chairman
Annual Retainer
(Audit)................ $ 133 $ 133 $ 133 $133 $ 133 $133 $133 $133
92
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1995--(CONTINUED)
STRATEGIC
INTERNATIONAL U.S. BOND VENTURE EQUITY
BALANCED EQUITY GOVERNMENT OPPORTUNITIES VALUE GROWTH
-------- ------------- ---------- ------------- ------- ------
Annual Retainer......... $870 $870 $870 $870 $870 $870
Meeting Fee............. $133 $133 $133 $133 $133 $133
Committee Chairman
Annual Retainer
(Contract Review)...... $200 $200 $200 $200 $200 $200
Committee Chairman
Annual Retainer
(Audit)................ $133 $133 $133 $133 $133 $133
In addition to the fees detailed above each of the independent Trustees
received a $5,000 "one time" stipend for their efforts in the restructuring of
the Board.
A deferred compensation plan is available to trustees on a voluntary basis.
Each participating trustee will receive deferred compensation in an amount
equal to the value that such compensation would have had if it had been
invested in the relevant Series on the normal payment date.
6. Shareholder Meeting (unaudited)
At a special shareholders' meeting of the New England Zenith Fund held on
April 10, 1995 shareholders of each Series voted for the following proposals:
1.To fix the number of and elect Trustees:
VOTED VOTED ABSTAINED TOTAL
FOR AGAINST VOTES VOTES
------------- ----------- ---------- -------------
Anne M. Goggin........... 8,318,478.710 162,922.290 8,481,401.000
Nancy Hawthorne.......... 8,317,317.980 164,083.020 8,481,401.000
Joseph M. Hinchey........ 8,320,448.490 160,952.510 8,481,401.000
Richard S. Humphrey,
Jr. .................... 8,306,832.710 174,568.290 8,481,401.000
Robert B. Kittredge...... 8,295,605.600 185,795.400 8,481,401.000
Laurens MacLure.......... 8,298,617.180 182,783.820 8,481,401.000
Dale Rogers Marshall..... 8,317,669.890 163,731.110 8,481,401.000
Joseph F. Turley......... 8,306,762.990 174,638.010 8,481,401.000
Frederick K. Zimmermann.. 8,318,916.500 162,484.500 8,481,401.000
====================================
With respect to the Money
Market Series only:
2. To approve a new
Advisory Agreement
with TNE Advisers;
and.................. 686,974.780 36,750.910 15,211.320 738,937.010
====================================
3. To approve a related
Sub-Advisory
Agreement between TNE
Advisers and Back Bay
Advisors............. 699,471.910 24,251.410 15,213.680 738,937.000
====================================
With respect to the Bond
Income Series only:
4. To approve a new
Advisory Agreement
with TNE Advisers;
and.................. 1,264,059.800 23,078.080 34,815.120 1,321,953.000
====================================
5. To approve a related
Sub-Advisory
Agreement between TNE
Advisers and Back Bay
Advisors............. 1,262,180.600 24,809.760 34,962.650 1,321,953.010
====================================
With respect to the
Managed Series only:
6. To approve a new
Advisory Agreement
with TNE Advisers;
and.................. 887,882.730 12,900.720 23,537.550 924,321.000
====================================
7. To approve a related
Sub-Advisory
Agreement between TNE
Advisers and Back Bay
Advisors............. 879,289.610 20,428.560 24,602.840 924,321.010
====================================
With respect to the
Avanti Growth Series
only:
8. To approve a new
Advisory Agreement
with TNE Advisers;
and.................. 223,300.970 4,143.640 6,415.390 233,860.000
====================================
9. To approve a related
Sub-Advisory
Agreement between TNE
Advisers and Loomis
Sayles............... 222,584.210 4,220.520 7,055.280 233,860.010
====================================
With respect to the Small
Cap Series only:
10. To approve a new
Advisory Agreement
with TNE Advisers;
and.................. 55,887.570 1,688.610 404.820 57,981.000
====================================
11. To approve a related
Sub-Advisory
Agreement between TNE
Advisers and Loomis
Sayles............... 55,867.920 1,688.610 424.460 57,980.990
====================================
93
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 1995--(CONTINUED)
VOTED VOTED ABSTAINED TOTAL
FOR AGAINST VOTES VOTES
----------- --------- ---------- -----------
With respect to the Value
Growth Series only:
12. To approve a new Advisory
Agreement with TNE
Advisers; and.............. 215,451.990 2,343.680 5,683.330 223,479.000
================================
13. To approve a related Sub-
Advisory Agreement between
TNE Advisers and Westpeak.. 215,149.750 2,500.290 5,828.950 223,478.990
================================
With respect to the Stock Index
Series only:
14. To approve a new Advisory
Agreement with TNE
Advisers; and.............. 482,379.070 8,201.040 11,538.880 502,118.990
================================
15. To approve a related Sub-
Advisory Agreement between
TNE Advisers and Westpeak.. 481,151.770 8,931.960 12,035.270 502,119.000
================================
At a special shareholders' meeting of the New England Zenith Fund held on
December 28, 1995 shareholders of each Series voted for the following
proposals:
1. To approve new
investment advisory
arrangements to be
effective upon the
merger of New
England Mutual Life
Insurance Company
into Metropolitan
Life Insurance
Company, such
arrangements to be
substantially
identical to the
investment advisory
arrangements for the
Series in effect
immediately prior to
such merger.........
SERIES
------
Bond Income............. 1,274,972.493 32,294.664 60,919.253 1,368,186.410
Capital Growth.......... 1,986,307.362 50,506.857 77,297.358 2,114,111.577
Stock Index............. 540,052.225 11,691.922 19,072.809 570,816.956
Money Market............ 788,545.319 43,320.234 38,096.673 869,962.226
Managed................. 831,901.435 11,697.036 29,745.435 873,343.906
Avanti Growth........... 287,934.212 4,669.516 14,668.919 307,272.647
Value Growth............ 288,267.977 3,174.085 10,252.891 301,694.953
Small Cap............... 180,449.675 2,261.222 4,215.528 186,926.425
Balanced................ 1,225,992.533 14,192.604 53,351.529 1,293,536.666
International Equity.... 1,221,859.512 17,625.779 38,712.452 1,278,197.743
U.S. Government......... 514,616.294 11,808.815 22,863.093 549,288.202
Strategic Bond
Opportunities.......... 622,689.667 11,483.159 22,044.017 656,216.843
Venture Value........... 2,024,999.920 28,772.401 67,930.188 2,121,702.509
Equity Growth........... 2,387,211.645 30,962.208 146,194.756 2,564,368.609
=====================================
With respect to the
International Equity
Series only:
2. To approve a new
Sub-Advisory
Agreement for the
Series between TNE
Advisers, Inc. ("TNE
Advisers"), the
Series' current
investment adviser,
and Draycott
Partners, Ltd.
("Draycott"), the
Series' current sub-
adviser, to be
effective upon the
sale of Draycott to
Cursitor Holdings
Ltd. U.K. ("Cursitor
Holdings"); and..... 1,203,510.020 18,030.440 56,657.283 1,278,197.743
=====================================
3. To approve a new
Sub-Advisory
Agreement for the
Series between TNE
Advisers and
Draycott, to be
effective upon the
acquisition of the
business of Cursitor
Holdings by Alliance
Capital Management
L.P. ............... 1,195,720.060 18,030.440 64,447.243 1,278,197.743
=====================================
With respect to the
Equity Growth Series
only:
4. To approve a new
Advisory Agreement
between the Series
and TNE Advisers,
the Series' current
investment adviser,
which would increase
the annual rate of
the advisory fee
payable by the
Series; and......... 2,284,911.674 179,064.985 100,391.951 2,564,368.610
=====================================
5. To approve a related
Sub-Advisory
Agreement between
TNE Advisers and
Fred Alger
Management, Inc.,
the Series' current
sub-adviser......... 2,337,631.370 91,720.864 135,016.376 2,564,368.610
=====================================
94
NEW ENGLAND ZENITH FUND
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of New England Zenith Fund:
We have audited the accompanying statements of assets and liabilities of New
England Zenith Fund (comprising, respectively, the Back Bay Advisors Bond
Income Series, Capital Growth Series, Back Bay Advisors Money Market Series,
Westpeak Stock Index Series, Back Bay Advisors Managed Series, Loomis Sayles
Avanti Growth Series, Westpeak Value Growth Series, Loomis Sayles Small Cap
Series, Loomis Sayles Balanced Series, Draycott International Equity Series,
Salomon Brothers U.S. Government Series, Salomon Brothers Strategic Bond
Opportunities Series, Venture Value Series, and Alger Equity Growth Series--
the "Series"), including the schedules of portfolio investments, as of
December 31, 1995, and the related statements of operations, changes in net
assets and financial highlights for the periods indicated herein. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1995, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective Series constituting New England Zenith Fund as of December
31, 1995, the results of their operations, the changes in their net assets,
and the financial highlights for the periods indicated herein, in conformity
with generally accepted accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
February 7, 1996
95
FOOTNOTES
- -------
(1) COL (Cost of Living) is based on the Consumer Price Index, a widely
recognized measure of the cost of goods and services in the United
States, calculated by the U.S. Bureau of Labor Statistics.
(2) EAFE-Morgan Stanley Capital International Europe, Australia, Far East
Index is an arithmetical average (weighted by market value) of the
performance (in U.S. dollars) of 1,036 companies representing the stock
markets of Europe, Australia, New Zealand and the Far East. The Index
performance has not been adjusted for ongoing management, distribution
and operating expenses and sale charges applicable to mutual fund
investments.
(3) Lehman Brothers Aggregate Bond Index includes most obligations of the
U.S. Treasury, agencies and quasi-federal corporations, most publicly
issued investment grade corporate bonds, and most bonds backed by
mortgage pools of GNMA, FNMA and FHLMC. The Index performance has not
been adjusted for ongoing management, distribution and operating expenses
and sales charges applicable to mutual fund investments.
(4) 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 performance has not been adjusted for ongoing
management, distribution and operating expenses and sales charges
applicable to mutual fund investments.
(5) Lehman Brothers Intermediate Government Bond Index includes most
obligations of the U.S. Treasury, agencies and quasi-federal corporations
having maturities of 1 to 10 years. The Index performance has not been
adjusted for ongoing management, distribution and operating expenses and
sales charges applicable to mutual fund investments.
(6) Lehman Brothers Intermediate Government/Corporate Bond Index is an
unmanaged index of investment grade bonds issued by the U.S. government
and U.S. corporations having maturities between one and ten years. The
Index performance has not been adjusted for ongoing management,
distribution and operating expenses and sales charges applicable to
mutual fund investments.
(7) Lipper Variable A-Rated Corporate Bond Fund Average is an average of the
total return performance (calculated on the basis of net asset value) of
funds with similar investment objectives as calculated by Lipper
Analytical Services, an independent mutual fund ranking service.
(8) Lipper Variable Balanced Fund Average is an average of the total return
performance (calculated on the basis of net asset level) of funds with
similar investment objectives as calculated by Lipper Analytical
Services, an independent mutual fund ranking service.
(9) Lipper Variable Flexible Portfolio Fund Average is an average of the
total return performance (calculated on the basis of net asset value) of
funds with similar investment objectives as calculated by Lipper
Analytical Services, an independent mutual fund ranking service.
(10) Lipper Variable General Bond Fund Average is an average of the total
return performance (calculated on the basis of net asset value) of funds
with similar investment objectives as calculated by Lipper Analytical
Services, an independent mutual fund ranking service.
(11) Lipper Variable Growth Fund Average is an average of the total return
performance (calculated on the basis of net asset value) of funds with
similar investment objectives as calculated by Lipper Analytical
Services, an independent mutual fund ranking service.
(12) Lipper Variable Growth and Income Fund Average is an average of the total
return performance (calculated on the basis of net asset value) of funds
with similar investment objectives as calculated by Lipper Analytical
Services, an independent mutual fund ranking service.
(13) Lipper Variable International Funds Average is an average of the total
return performance (calculated on the basis of net asset value) of funds
with similar investment objectives as calculated by Lipper Analytical
Services, an independent mutual fund ranking service.
(14) Lipper Variable Intermediate Investment Grade Debt Average is an average
of the total return performance (calculated on the basis of net asset
value) of funds with similar investment objectives as calculated by
Lipper Analytical Services, an independent mutual fund ranking service.
96
(15) Lipper Variable Small Company Fund Average is an average of the total
return performance (calculated on the basis of net asset value) of funds
with similar investment objectives as calculated by Lipper Analytical
Services, an independent mutual fund ranking service.
(16) Lipper Variable S&P 500 Index Fund Average is an average of the total
return performance (calculated on the basis of net asset value) of funds
with similar investment objectives as calculated by Lipper Analytical
Services, an independent mutual fund ranking service.
(17) Lipper Variable U.S. Mortgage and GNMA Fund Average is an average of the
total return performance (calculated on the basis of net asset value) of
funds with similar investment objectives as calculated by Lipper
Analytical Services, an independent mutual fund ranking service.
(18) Russell 2000 Index consists of 2000 small market capitalization stocks
having an average market cap of $160 million.
(19) Standard & Poor's 500 Index (S&P 500) is an unmanaged index representing
the performance of 500 major companies, most of which are listed on the
New York Stock Exchange. The S&P 500 performance has not been adjusted
for ongoing management, distribution and operating expenses and sales
charges applicable to mutual fund investments.
97
[THIS PAGE INTENTIONALLY LEFT BLANK]
98
(ART)
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
501 BOYLSTON STREET
BOSTON, MASSACHUSETTS 02116
Bulk Rate
U.S. Postage
PAID
Hudson, MA
Permit No. 19
EQUAL OPPORTUNITY EMPLOYER M/F
(C) 1996 NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(C) 1996 NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
This booklet has been prepared for variable contract owners of
New England Variable Life Insurance Company and of The New
England.
VL 1
(2_FIDELITY_LOGOS)
VARIABLE INSURANCE PRODUCTS
FUND
MONEY MARKET PORTFOLIO
HIGH INCOME PORTFOLIO
EQUITY-INCOME PORTFOLIO
GROWTH PORTFOLIO
OVERSEAS PORTFOLIO
ANNUAL REPORT
DECEMBER 31, 1995
CONTENTS
MARKET ENVIRONMENT VIPF-3 A REVIEW OF WHAT HAPPENED DURING THE PAST YEAR
MONEY MARKET PORTFOLIO VIPF-4 PERFORMANCE
VIPF-5 FUND TALK: THE MANAGER'S OVERVIEW
VIPF-6 INVESTMENTS
VIPF-9 FINANCIAL STATEMENTS
HIGH INCOME PORTFOLIO VIPF-11 PERFORMANCE AND INVESTMENT SUMMARY
VIPF-12 FUND TALK: THE MANAGER'S OVERVIEW
VIPF-13 INVESTMENTS
VIPF-19 FINANCIAL STATEMENTS
EQUITY-INCOME PORTFOLIO VIPF-21 PERFORMANCE AND INVESTMENT SUMMARY
VIPF-22 FUND TALK: THE MANAGER'S OVERVIEW
VIPF-23 INVESTMENTS
VIPF-27 FINANCIAL STATEMENTS
GROWTH PORTFOLIO VIPF-29 PERFORMANCE AND INVESTMENT SUMMARY
VIPF-30 FUND TALK: THE MANAGER'S OVERVIEW
VIPF-31 INVESTMENTS
VIPF-35 FINANCIAL STATEMENTS
OVERSEAS PORTFOLIO VIPF-37 PERFORMANCE AND INVESTMENT SUMMARY
VIPF-38 FUND TALK: THE MANAGER'S OVERVIEW
VIPF-39 INVESTMENTS
VIPF-44 FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS VIPF-46 NOTES TO THE FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS VIPF-50 THE AUDITORS' OPINION
DISTRIBUTIONS VIPF-51
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE FUNDS. THIS REPORT IS
NOT
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE FUNDS UNLESS
PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUNDS NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
MARKET ENVIRONMENT
Most stock and bond markets rebounded in 1995, after experiencing
volatility and inconsistent returns in 1994. Returns were fueled by
declining interest rates, moderate economic growth, sustained corporate
earnings growth and a relative absence of inflation. The U.S. stock market
outpaced counterparts in the developed world and those in emerging markets.
Returns from bond markets overseas generally topped those provided by the
U.S., although the U.S. bond market still was quite strong.
U.S. STOCK MARKETS
The Standard & Poor's Composite Index of 500 Stocks - a broad measure of
U.S. stock performance - rose 37.58% for the 12 months ended December 31,
1995, well above the market's long-term average annual return. The NASDAQ
Composite Index - a measure of small stock performance - rose 39.92%
(excluding dividends). The Dow Jones Industrial Average - an index of 30
blue-chip stocks - posted a return of 36.72%, closing above 5000 for the
first time in November.
Strong corporate earnings and a favorable interest rate environment helped
the U.S. stock market post robust returns. With inflation posing little
threat, interest rates fell during much of 1995. The Federal Reserve Board
cut short-term interest rates twice, in July and December. Lower interest
rates helped bolster earnings, as they reduced companies' borrowing costs.
A relatively weak dollar also helped sustain earnings, with American
products and services remaining fairly cheap overseas. Investor sentiment
toward the stock market was extremely positive, evidenced by a flurry of
successful initial public offerings throughout the year.
Market activity was marked by rapid sector rotation, with investors
reacting swiftly to breaking news. Technology was one of the best
performing market sectors until the fourth quarter, fueled by improving
earnings associated with strong growth in personal computers and related
products. Internet-related stocks posted extremely strong share price
gains. Although increases in cellular subscriptions helped semiconductor
stocks earlier in the year, that industry saw share price drops later in
the year due to concerns about over-capacity. Expanding inventories and
evidence of an economic slowdown hurt technology stocks later in the year.
Biotechnology issues saw a resurgence, partly because the sector had
struggled to the point where valuations - stock prices relative to other
measures such as earnings - appeared attractive. Consumer nondurables -
such as food, beverage and tobacco companies - health care and traditional
big-name growth stocks showed strength as investors sought companies that
traditionally have steady earnings growth regardless of the economic
environment.
Cyclical stocks - those that usually rise and fall with the economy -
provided subpar returns during 1995 as a result of over-capacity and
evidence the economy was slowing. Industrial commodities, such as chemicals
and paper, faltered due to decreased demand, despite the prospect for
renewed economic growth - and concurrent future earnings growth - resulting
from interest rate declines. On the other hand, lower interest rates and
continued merger and acquisition activity helped financial stocks perform
well. Regional Bell operating companies - RBOCs or "Baby Bells"-performed
well in the second half of the year, because they offered strong yields,
and because of their potential for growth as they enter new businesses.
FOREIGN STOCK MARKETS
Foreign stock markets showed mixed results in 1995. The Morgan Stanley EAFE
(Europe, Australasia, Far East) index was up 11.21%. Although interest
rates declined in most European countries, economies were generally
stagnant. While equity indexes in some countries posted strong returns, in
some cases these results were due to the strong performance of large
companies that made up a significant portion of the index, such as Nokia in
Finland and Ericsson in Sweden. The Morgan Stanley Europe Index rose 21.62%
in 1995. Japanese companies were hindered by a strong yen - which made
their products expensive overseas - and a weak economy earlier in the year.
However, in the fourth quarter of the year, both the Japanese market and
economy started to rebound. According to Morgan Stanley Capital
International, Japanese stocks rose 0.69% in U.S. dollars for the year.
Emerging markets struggled in 1995, hurt by a lack of capital inflows
caused by Mexico's peso devaluation in December 1994. This negative
sentiment contributed to the -5.21% return of the Morgan Stanley Emerging
Markets Free Index in 1995.
U.S. BOND MARKETS
U.S. bond markets posted strong returns in 1995. The Lehman Brothers
Aggregate Bond Index - a broad measure of U.S. taxable bonds - posted a
total return of 18.47% in 1995. A strong, year-long rally helped bonds
recover from the effects of the sharply rising interest rates seen in 1994.
Indications of a slowing economy and a relative absence of inflation
pressures encouraged bond investors, helping to push interest rates lower.
Prospects for a balanced budget agreement also helped to fuel optimism in
the markets. Monetary policy also played a role in the bond market's
performance. In an effort to thwart the possibility of a recession, the
Federal Reserve Board lowered the fed funds rates twice, in July and
December. Mortgage-backed securities also benefited from this environment,
as illustrated by the performance of the Salomon Brothers Mortgage Index,
which returned 16.77% during the year. The high-yield bond market also
turned in a strong performance in 1995, driven by generally good earnings,
strong demand for high-yield bonds among investors searching for high
current income and declining interest rates. The Merrill Lynch High Yield
Master Index rose 19.91%.
FOREIGN BOND MARKETS
Both developed and emerging fixed-income markets recorded strong returns in
1995. For the 12 months ended December 31, 1995, the Salomon Brothers World
Government Bond Index - a proxy of bond market performance in developed
nations including the U.S. - rose 19.04%. Bond markets in developed
countries benefited from slow economic growth and relatively low inflation
pressures. This led to a more favorable interest rate environment, as the
central banks of the U.S., Germany and Great Britain all lowered their
respective short-term interest rates. Emerging markets shrugged off the
fallout from December 1994's Mexican peso devaluation to record strong
returns. The J.P. Morgan Emerging Markets Bond Index posted a 27.54% return
for the year. The bulk of emerging markets' total return came from a
springtime rally following the announcement of a $50 billion bailout
package for Mexico by the U.S. Treasury and the International Monetary
Fund.
VARIABLE INSURANCE PRODUCTS FUND: MONEY MARKET PORTFOLIO
PERFORMANCE
To measure a money market fund's performance, you can look at either total
return or yield. Total return reflects both the change
in a fund's share price over a given period, and reinvestment of its
dividends (or income). Yield measures the income paid by a fund. Since a
money market fund tries to maintain a $1 share price, yield is an important
measure of performance.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED PAST 1 PAST 5 PAST 10
DECEMBER 31, 1995 YEAR YEARS YEARS
Money Market 5.87% 4.66% 6.09%
AVERAGE ANNUAL TOTAL RETURNS take the fund's actual (or cumulative) return
and show you what would have happened if the fund had achieved that return
by performing at a constant rate each year.
Recent U.S. Consumer Price Index information is not available from the U.S.
Department of Labor. Therefore, the CPI comparison has not been included in
this report.AVERAGETURNS
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE
ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL
CHARGES, THE TOTAL RETURNS WOULD HAVE BEEN LOWER.
If Fidelity had not reimbursed certain fund expenses, the past five and ten
year total returns would have been lower. Yield will vary.
YIELD
Row: 1, Col: 1, Value: 5.609999999999999
Row: 1, Col: 2, Value: 2.74
Row: 2, Col: 1, Value: 5.91
Row: 2, Col: 2, Value: 2.89
Row: 3, Col: 1, Value: 5.85
Row: 3, Col: 2, Value: 2.87
Row: 4, Col: 1, Value: 5.64
Row: 4, Col: 2, Value: 2.86
Row: 5, Col: 1, Value: 5.56
Row: 5, Col: 2, Value: 2.83
Money Market
MMDA
6% -
5% -
4% -
3% -
2% -
1% -
0%
12/28/94 3/29/95 6/28/95 9/27/95 12/27/95
Money Market 5.61% 5.91% 5.85% 5.64% 5.56%
MMDA 2.74% 2.89% 2.87% 2.86% 2.83%
YIELD refers to the income paid by the fund over a given period. Yields for
money market funds are usually for seven-day periods,
expressed as annual percentage rates. A yield that assumes income earned is
reinvested or compounded is called an effective yield. The chart above
shows the fund's current seven-day yield at quarterly intervals over the
past year. This is compared to similar yields for the average bank money
market deposit account (MMDA). The MMDA average is supplied by BANK RATE
MONITOR.(Trademark)
COMPARING PERFORMANCE
There are some important differences between
a bank money market deposit account (MMDA)
and a money market fund. First, the U.S.
government neither insures nor guarantees a
money market fund. In fact, there is no
assurance that a money fund will maintain a $1
share price. Second, a money market fund
returns to its shareholders income earned by the
fund's investments after expenses. This is in
contrast to banks, which set their MMDA rates
periodically based on current interest rates,
competitors' rates, and internal criteria.
(checkmark)
VARIABLE INSURANCE PRODUCTS FUND: MONEY MARKET PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
An interview with
Bob Litterst, Portfolio
Manager of Money
Market Portfolio
Q. BOB, HOW HAVE MARKET CONDITIONS CHANGED DURING THE PAST YEAR?
A. Ironically, the interest rate banks charge each other for overnight
loans-known as the federal funds rate-ended the year exactly where it
started, at 5.50%. But if we compare market conditions a year ago to those
that prevailed at the close of the period, the difference is like night and
day. As 1995 began, the Fed was still in a restrictive mode, raising
interest rates as a means of slowing down the economic growth rate and
preventing an outbreak of inflation. After a torrid fourth quarter-during
which the economy expanded at an annual rate of more than 5%-most market
participants expected growth to continue at a fast pace and interest rates
to keep rising in 1995. That view was apparently confirmed when the Fed
increased the federal funds rate again in February to 6.00%. As it turned
out, however, that was the last rate increase in the cycle. Already, signs
of weakness were appearing among the key economic indicators, heralding a
dramatic slowdown in the first half of 1995.
Q. HOW DID THE FED REACT TO CHANGING CONDITIONS?
A. By gradually lowering interest rates. When growth slowed to an annual
growth rate of 1.3% during the second quarter of 1995, from 2.7% during the
first quarter, warnings arose from some quarters that the economy was in
danger of slipping back into recession. Such warnings were undoubtedly a
factor in the Fed's decision to lower the federal funds rate one-quarter
percentage point on July 6, 1995. Growth picked up again in the third
quarter, when the economy expanded at an annual rate of 4.2%. But
indications are that the fourth quarter numbers, when they're released in
January, will show a return to slower growth. The Fed apparently thinks so.
It lowered the federal funds rate another one-quarter percentage point on
December 19, 1995, bringing it back down to 5.50%. At present, conditions
appear stable, characterized by moderate growth, stable to declining
interest rates and mild inflation.
Q. HOW DID YOU POSITION THE FUND DURING THE PERIOD?
A. The fund's average maturity a year ago December, when the period began,
was 39 days. That's a rather defensive number and reflects my expectation
at the time that interest rates were likely to go higher. However, after
the Fed rate increase in February, I began extending the fund's average
maturity out towards 60 days. By then, market expectations for higher rates
struck me as too severe, and therefore unlikely to be realized. I shortened
up slightly during the third quarter in response to a shift in the money
market yield curve that favored shorter trades over longer trades. By
year-end, however, I was back out around 70 days. That's anywhere from 10
to 15 days longer than most other funds in my competitive universe, and
reflects my view that short-term rates are more likely to fall than rise
over the next six months.
Q. HOW HAS THE COMPOSITION OF ASSETS CHANGED DURING THE PERIOD?
A. The percentage of variable rate instruments has risen slightly since
last fall to around 23%. Variable rate securities have interest rates that
reset at daily, weekly, monthly and quarterly intervals. Most of those the
fund invests in are pegged to traditional money market interest rates, such
as the federal funds rate, the prime rate and the London Interbank Offered
Rate, or LIBOR. In the current environment, with interest rates likely to
keep falling, I've tended to favor variable rate securities that reset
quarterly over those that reset more frequently.
Q. WHAT'S THE OUTLOOK?
A. Not at all what it was a year ago, at least for the short-term. I'm
basing my investment decisions on the likelihood of continued moderate
growth, stable to declining interest rates and mild inflationary pressures.
I think there's a good chance the Fed will lower interest rates at least
one more time, possibly if and when the warring parties in Washington
finally agree on a balanced budget. The Fed has long been an advocate of a
balanced budget, and would likely respond to a credible agreement with a
rate cut. On the other hand, with the economy expanding near the Fed's
target growth rate and little chance of a recession, I don't expect further
dramatic reductions in interest rates. That's why I'll likely keep the
fund's average around 60 days, possibly longer. That puts the fund in a
good position to benefit from stable to declining rates while leaving me
with some flexibility to respond if market conditions suddenly change.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
FUND FACTS
GOAL: income and share price stability by
investing in high quality, short-term instruments
START DATE: April 1, 1982
SIZE: As of December 31, 1995, more than
$808 million
MANAGER: Robert Litterst, since 1992; manager,
Capital Reserves Money Market, Fidelity Cash
Reserves, Fidelity Money Market Trust:
Retirement Money Market, since 1992; joined
Fidelity in 1991
(checkmark)
VARIABLE INSURANCE PRODUCTS FUND: MONEY MARKET PORTFOLIO
INVESTMENTS DECEMBER 31, 1995
Showing Percentage of Total Value of Investment in Securities
BANKERS' ACCEPTANCES - 0.3%
ANNUALIZED
YIELD AT
DUE TIME OF PRINCIPAL VALUE
DATE PURCHASE AMOUNT (NOTE 1)
DOMESTIC BANKERS' ACCEPTANCES
CHEMICAL BANK
1/31/96 5.94% $ 524,312 $ 521,619
3/26/96 5.88 2,000,000 1,972,354
TOTAL BANKERS' ACCEPTANCES 2,493,973
CERTIFICATES OF DEPOSIT - 22.2%
NEW YORK BRANCH, EURODOLLAR, DOMESTIC BANKS - 0.6%
BANK OF NEW YORK
5/9/96 5.65 5,000,000 5,009,008
NEW YORK BRANCH, YANKEE DOLLAR, FOREIGN BANKS - 11.6%
BANQUE NATIONALE DE PARIS
2/9/96 5.80 1,000,000 1,001,059
BAYERISCHE HYPOTHEKEN-UND WESCHEL
4/12/96 5.77 10,000,000 10,000,281
BAYERISCHE LANDESBANK GIROZENTRALE
10/30/96 5.87 10,000,000 10,000,000
BAYERISCHE VEREINSBANK A.G.
1/4/96 5.95 10,000,000 10,000,000
COMMERZBANK, GERMANY
3/8/96 5.80 5,000,000 5,007,235
DEUTSCHE BANK, A.G.
4/22/96 5.77 5,000,000 5,000,000
DRESDNER BANK, A.G.
3/15/96 5.87 3,000,000 3,003,713
3/15/96 6.44 1,000,000 1,000,257
ROYAL BANK OF CANADA
3/27/96 5.75 5,000,000 5,000,000
SOCIETE GENERALE
1/16/96 5.84 5,000,000 5,000,000
SWISS BANK CORP.
2/29/96 5.73 15,000,000 15,000,000
3/25/96 5.75 5,000,000 5,000,000
5/6/96 5.47 (c) 10,000,000 10,000,000
WESTDEUTSCHE LANDESBANK
4/3/96 5.78 5,000,000 5,009,308
WESTPAC BANKING CORP.
4/3/96 5.68 5,000,000 5,010,707
95,032,560
LONDON BRANCH, EURODOLLAR, DOMESTIC BANKS - 2.5%
CHEMICAL BANK
3/27/96 5.81 10,000,000 10,000,000
MORGAN GUARANTY TRUST CO.
2/7/96 5.78 5,000,000 5,000,104
4/4/96 5.74 5,000,000 5,000,564
20,000,668
LONDON BRANCH, EURODOLLAR, FOREIGN BANKS - 7.5%
ABN-AMRO BANK
3/13/96 5.72 3,000,000 3,000,975
4/22/96 5.70 1,000,000 1,000,104
ABBEY NATIONAL (UK), PLC
4/9/96 5.77 5,000,000 4,998,282
4/23/96 5.75 5,000,000 5,000,000
ANNUALIZED
YIELD AT
DUE TIME OF PRINCIPAL VALUE
DATE PURCHASE AMOUNT (NOTE 1)
BAYERISCHE HYPOTHEKEN-UND WESCHEL
2/26/96 5.74% $ 10,000,000 $ 10,000,115
2/28/96 5.74 5,000,000 5,000,081
DEUTSCHE BANK, A.G.
2/26/96 5.76 10,000,000 10,000,198
3/1/96 5.72 5,000,000 4,999,993
LANDESBANK HESSEN - THURINGEN
3/14/96 5.71 5,000,000 5,000,050
NORDDEUTSCHE LANDESBANK
4/29/96 5.70 2,000,000 2,000,324
ROYAL BANK OF SCOTLAND, PLC
3/18/96 5.71 5,000,000 5,000,000
TORONTO-DOMINION BANK
2/26/96 5.71 5,000,000 5,001,789
61,001,911
TOTAL CERTIFICATES OF DEPOSIT 181,044,147
COMMERCIAL PAPER - 54.4%
A.H. ROBINS COMPANY, INCORPORATED
2/6/96 5.80 5,740,000 5,705,343
AT&T CAPITAL CORP.
2/5/96 5.78 4,000,000 3,976,566
2/5/96 5.78 6,000,000 5,964,788
3/8/96 5.63 4,000,000 3,957,297
3/27/96 5.58 10,000,000 9,865,556
AVCO FINANCIAL SERVICES, INC.
3/5/96 5.76 5,000,000 4,948,025
AMERICAN EXPRESS CREDIT CORP.
3/1/96 5.80 5,000,000 4,951,433
3/13/96 5.72 5,000,000 4,942,342
AMERICAN HOME PRODUCTS
2/2/96 5.79 9,500,000 9,448,679
2/6/96 5.85 2,000,000 1,987,851
2/7/96 5.85 1,000,000 993,765
3/7/96 5.77 8,300,000 8,211,264
4/3/96 5.71 4,000,000 3,940,888
AMERICAN TELEPHONE & TELEGRAPH
3/14/96 5.75 5,000,000 4,941,354
3/14/96 5.80 5,000,000 4,941,146
3/25/96 5.77 10,000,000 9,865,745
ASSOCIATES CORP. OF NORTH AMERICA
3/14/96 5.72 5,000,000 4,941,562
3/15/96 5.75 7,000,000 6,916,210
4/8/96 5.67 5,000,000 4,922,778
4/11/96 5.64 5,000,000 4,920,890
BENEFICIAL CORP.
2/13/96 5.86 5,000,000 4,963,750
BRADFORD & BINGLEY BUILDING SOCIETY
2/6/96 5.76 3,000,000 2,982,014
2/8/96 5.75 10,000,000 9,937,000
CIT GROUP HOLDINGS, INC.
1/2/96 5.90 (a) 5,000,000 4,996,787
2/15/96 5.87 5,000,000 4,962,792
2/16/96 5.77 5,000,000 4,962,000
COMMERCIAL PAPER - CONTINUED
ANNUALIZED
YIELD AT
DUE TIME OF PRINCIPAL VALUE
DATE PURCHASE AMOUNT (NOTE 1)
CAISSE DES DEPOTS ET CONSIGNATIONS
1/26/96 5.80% $ 7,000,000 $ 6,969,813
CHEMICAL BANKING CORP.
3/15/96 5.69 5,000,000 4,940,890
CHRYSLER FINANCIAL CORPORATION
2/2/96 5.87 5,000,000 4,972,564
2/8/96 5.84 5,000,000 4,967,890
2/9/96 5.84 3,000,000 2,980,252
COMMERZBANK U.S. FINANCE, INC.
1/5/96 5.89 1,994,000 1,992,049
COMPAGNIE BANCAIRE
1/18/96 5.84 6,000,000 5,981,729
CORESTATES CAPITAL CORP.
1/2/96 5.84 (a) 5,000,000 5,000,000
1/8/96 5.83 (a) 5,000,000 5,000,000
1/8/96 5.86 (a) 5,000,000 4,999,827
DAKOTA
1/11/96 5.86 5,000,000 4,990,284
DU PONT (E.I.) DE NEMOURS & CO.
2/13/96 5.76 4,350,000 4,319,604
3/28/96 5.70 2,000,000 1,972,410
EIGER CAPITAL CORP.
1/30/96 5.85 5,000,000 4,975,006
ENTERPRISE FUNDING CORP.
1/19/96 6.02 2,144,000 2,136,853
FLEET FUNDING CORPORATION
1/18/96 5.84 1,045,000 1,041,801
FORD MOTOR CREDIT CORP.
2/15/96 5.77 5,000,000 4,962,792
4/4/96 5.77 4,000,000 3,939,947
GTE CORP.
1/17/96 5.91 5,000,000 4,985,326
GENERAL ELECTRIC CAPITAL CORP.
3/15/96 5.69 5,000,000 4,941,100
3/27/96 5.80 10,000,000 9,862,134
4/1/96 5.71 5,000,000 4,927,667
4/29/96 5.73 5,000,000 4,906,393
GENERAL MOTORS ACCEPTANCE CORP.
1/30/96 5.87 3,000,000 2,985,069
2/6/96 5.84 9,000,000 8,945,375
2/15/96 5.84 4,000,000 3,969,972
2/20/96 5.84 4,000,000 3,966,777
3/5/96 5.83 5,000,000 4,947,475
GLAXO WELLCOME, PLC
2/23/96 5.75 5,000,000 4,956,764
GOLDMAN SACHS GROUP, L.P. (THE)
3/18/96 5.75 9,000,000 8,888,412
HANSON FINANCE (UK), PLC
1/26/96 5.85 1,500,000 1,493,475
2/9/96 5.86 1,000,000 993,395
IBM CORP.
3/12/96 5.72 12,000,000 11,863,490
JOHN DEERE CAPITAL CORP.
4/26/96 5.73 5,000,000 4,908,714
LILLY (ELI) & CO.
4/8/96 5.54 5,000,000 4,924,305
5/6/96 5.53 8,000,000 7,845,831
ANNUALIZED
YIELD AT
DUE TIME OF PRINCIPAL VALUE
DATE PURCHASE AMOUNT (NOTE 1)
MERRILL LYNCH & CO., INC.
3/8/96 5.76% $ 9,250,000 $ 9,150,716
MORGAN STANLEY GROUP, INC.
1/2/96 6.08 10,000,000 9,994,933
1/25/96 5.83 12,000,000 11,950,167
5/16/96 5.95 5,000,000 4,890,807
NEW CENTER ASSET TRUST
2/16/96 5.81 5,000,000 4,961,667
2/28/96 5.82 5,000,000 4,952,083
NORWEST CORP.
3/13/96 5.71 5,000,000 4,942,445
NORWEST FINANCIAL
1/17/96 5.87 5,000,000 4,985,388
2/28/96 5.80 5,000,000 4,952,584
PHH CORP.
1/22/96 5.94 3,000,000 2,999,251
PREFERRED RECEIVABLES FUNDING CORP.
2/5/96 5.79 10,000,000 9,941,416
REXAM PLC
1/8/96 5.92 5,000,000 4,992,625
1/16/96 5.95 10,000,000 9,972,044
SEARS ROEBUCK ACCEPTANCE CORP.
2/7/96 5.80 8,000,000 7,950,427
2/21/96 5.81 5,000,000 4,958,042
SHERWOOD MEDICAL COMPANY
1/18/96 5.98 1,351,000 1,346,757
SOCIETE GENERALE NORTH AMERICA
3/4/96 5.75 10,000,000 9,898,167
TRANSAMERICA FINANCE CORP.
2/9/96 5.85 5,000,000 4,966,972
TEXTRON, INC.
1/10/96 5.98 2,000,000 1,996,364
WOOL INTERNATIONAL
2/27/96 5.84 4,250,000 4,210,507
TOTAL COMMERCIAL PAPER 443,616,572
FEDERAL AGENCIES (A) - 2.4%
FEDERAL FARM CREDIT BANK - AGENCY COUPONS - 0.6%
1/2/96 5.76 5,000,000 4,999,430
FEDERAL HOME LOAN BANK - AGENCY COUPONS - 1.2%
1/4/96 5.60 (c) 5,000,000 4,996,700
3/20/96 5.69 5,000,000 4,996,948
9,993,648
STUDENT LOAN MARKETING ASSOC. - AGENCY COUPONS - 0.6%
10/16/96 5.95 5,000,000 5,000,000
TOTAL FEDERAL AGENCIES 19,993,078
BANK NOTES - 7.6%
BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOC.
1/2/96 5.93 (a) 4,000,000 3,998,425
BANK OF NEW YORK - DELAWARE
10/30/96 5.88 (a) 8,000,000 8,000,000
BANK NOTES - CONTINUED
ANNUALIZED
YIELD AT
DUE TIME OF PRINCIPAL VALUE
DATE PURCHASE AMOUNT (NOTE 1)
BOATMEN'S NATIONAL BANK OF ST. LOUIS
3/22/96 5.84%(a) $ 5,000,000 $ 4,998,063
COMERICA BANK-DETROIT
3/1/96 5.83 (a) 5,000,000 4,997,517
5/28/96 5.83 5,000,000 5,006,677
HUNTINGTON NATIONAL BANK
10/30/96 5.87 (a) 10,000,000 10,000,000
NATIONSBANK OF TEXAS
10/17/96 5.78 10,000,000 9,993,870
PNC BANK, N.A.
1/20/96 5.93 (a) 5,000,000 4,997,642
SEATTLE FIRST NATIONAL BANK
1/4/96 5.97 (a) 5,000,000 4,994,482
WACHOVIA BANK OF NORTH CAROLINA
1/26/96 5.71 (a) 5,000,000 4,996,865
TOTAL BANK NOTES 61,983,541
MASTER NOTES (A) - 1.7%
J.P. MORGAN SECURITIES
1/16/96 5.94 3,000,000 3,000,000
1/22/96 5.93 6,000,000 6,000,000
NORWEST CORP.
1/2/96 5.86 5,000,000 5,000,000
TOTAL MASTER NOTES 14,000,000
MEDIUM-TERM NOTES (A) - 6.6%
ABBEY NATIONAL TREASURY SERVICES (B)
3/9/96 5.69 10,000,000 10,000,000
BEAR STEARNS COS., INC.
1/11/96 5.82 5,000,000 5,001,190
BENEFICIAL CORP.
2/3/96 5.85 3,000,000 2,998,186
DEAN WITTER, DISCOVER & CO.
1/17/96 5.92 5,000,000 5,001,138
GENERAL ELECTRIC CAPITAL CORP.
1/2/96 5.78 5,000,000 4,999,670
GENERAL MOTORS ACCEPTANCE CORP.
2/7/96 6.00 3,000,000 3,000,000
2/22/96 5.87 6,000,000 6,001,174
GOLDMAN SACHS GROUP, L.P. (THE) (B)
3/1/96 5.91 3,000,000 3,000,000
MERRILL LYNCH & CO., INC.
2/27/96 6.95 5,000,000 5,007,264
NORWEST CORP.
3/10/96 5.83 6,000,000 6,000,000
TRANSAMERICA LIFE INSURANCE & ANNUITY CO.
3/15/96 5.84 3,000,000 3,000,000
TOTAL MEDIUM-TERM NOTES 54,008,622
SHORT-TERM NOTES (A) - 4.6%
ANNUALIZED
YIELD AT
DUE TIME OF PRINCIPAL VALUE
DATE PURCHASE AMOUNT (NOTE 1)
CAPITAL ONE FUNDING CORP.
1/8/96 5.83% $ 6,000,000 $ 6,000,000
1/8/96 5.83 3,648,000 3,648,000
SMM TRUST COMPANY (1995-B) (B)
1/2/96 6.03 2,500,000 2,500,000
SMM TRUST COMPANY (1995-D) (B)
1/27/96 5.99 4,000,000 4,000,000
SMM TRUST COMPANY (1995-I) (B)
1/29/96 5.80 6,000,000 5,999,284
SMM TRUST COMPANY (1995-J) (B)
1/15/96 5.96 11,000,000 11,000,000
SMM TRUST COMPANY (1995-N) (B)
2/8/96 5.93 3,000,000 3,000,000
SMM TRUST COMPANY (1995-P) (B)
3/15/96 5.86 1,000,000 1,000,000
TOTAL SHORT-TERM NOTES 37,147,284
REPURCHASE AGREEMENTS - 0.2%
MATURITY
AMOUNT
In a joint trading account
(U.S. Government Obligations)
dated 12/29/95 due 1/2/96:
At 6.14% $ 1,938,322 1,937,000
TOTAL INVESTMENTS - 100% $ 816,224,217
Total Cost for Income Tax Purposes - $816,224,217
LEGEND
1. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end. The due date on these types of
securities reflects the next interest rate reset date or, when applicable,
the final maturity date.
2. Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $40,499,284 or 5.0% of net
assets.
3. Security purchased on a delayed delivery basis (see Note 2 of Notes to
Financial Statements).
INCOME TAX INFORMATION
At December 31, 1995, the fund had a capital loss carryforward of
approximately $78,000 which will expire on December 31, 2002.
VARIABLE INSURANCE PRODUCTS FUND: MONEY MARKET PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
ASSETS
Investment in securities, at value (including repurchase agreements of $1,937,000) - See accompanying $ 816,224,217
schedule
Cash 3,514,660
Receivable for investments sold 70,000
Delayed delivery
Interest receivable 4,269,714
TOTAL ASSETS 824,078,591
LIABILITIES
Payable for investments purchased $ 14,998,205
Delayed delivery
Accrued management fee 147,208
Other payables and accrued expenses 59,193
TOTAL LIABILITIES 15,204,606
NET ASSETS $ 808,873,985
Net Assets consist of:
Paid in capital $ 808,936,711
Accumulated net realized gain (loss) on investments (62,726
)
NET ASSETS, for 808,936,711 shares outstanding $ 808,873,985
NET ASSET VALUE, offering price $1.00
and redemption price per share ($808,873,985 (divided by) 808,936,711 shares)
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
INTEREST INCOME $ 46,489,428
EXPENSES
Management fee $ 1,881,213
Transfer agent fees 390,358
Accounting fees and expenses 107,886
Non-interested trustees' compensation 5,034
Custodian fees and expenses 64,835
Registration fees 20,803
Audit 28,200
Legal 4,046
Miscellaneous 2,687
TOTAL EXPENSES 2,505,062
NET INTEREST INCOME 43,984,366
NET REALIZED GAIN (LOSS) 16,876
ON INVESTMENTS
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 44,001,242
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
Operations $ 43,984,366 $ 25,859,424
Net interest income
Net realized gain (loss) 16,876 (80,853)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 44,001,242 25,778,571
Distributions to shareholders from net interest income (43,984,366) (25,859,424)
Share transactions at net asset value of $1.00 per share 1,212,453,074 1,187,546,448
Proceeds from sales of shares
Reinvestment of distributions from net interest income 43,984,366 25,859,424
Cost of shares redeemed (1,196,186,142) (817,822,836)
NET INCREASE (DECREASE) IN NET ASSETS AND SHARES RESULTING FROM SHARE TRANSACTIONS 60,251,298 395,583,036
TOTAL INCREASE (DECREASE) IN NET ASSETS 60,268,174 395,502,183
NET ASSETS
Beginning of period 748,605,811 353,103,628
End of period $ 808,873,985 $ 748,605,811
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA 1995 1994 1993 1992 1991
Net asset value, beginning of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Income from Investment Operations .057 .042 .032 .038 .059
Net interest income
Less Distributions (.057) (.042) (.032) (.038) (.059)
From net interest income
Net asset value, end of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
TOTAL RETURN A 5.87% 4.25% 3.23%B 3.90% 6.09%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000
omitted) $ 808,874 $ 748,606 $ 353,104 $ 301,002 $ 271,123
Ratio of expenses to average net
assets .33% .27% .22%C .24% .38%
Ratio of net interest income to
average net assets 5.72% 4.32% 3.16% 3.85% 5.93%
A TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE THE
TOTAL RETURNS.
B THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES HAD NOT
BEEN REDUCED DURING THE PERIOD.
C FMR VOLUNTARILY AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES
DURING THE PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO
WOULD HAVE BEEN HIGHER.
VARIABLE INSURANCE PRODUCTS FUND: HIGH INCOME PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance: total
percentage change in value, the average annual percentage change, or the
growth of a hypothetical $10,000 investment. A fund's total return includes
changes in a fund's share price, plus reinvestment of any dividends
(income) and capital gains (the profits the fund earns when it sells
securities that have grown in value).
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED PAST 1 PAST 5 PAST 10
DECEMBER 31, 1995 YEAR YEARS YEARS
HIGH INCOME 20.72% 18.92% 11.47%
Merrill Lynch High Yield Master Index 19.91% 17.17% 11.77%
AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and
show you what would have happened if the fund had performed at a constant
rate each year.
UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of
how it will do tomorrow. Bond prices, for
example, generally move in the opposite
direction of interest rates. In turn, the share price,
return, and yield of a fund that invests in bonds
will vary. That means if you sell your shares
during a market downturn, you might lose
money. But if you can ride out the market's ups
and downs, you may have a gain.
(checkmark)
You can compare the fund's returns to those of the Merrill Lynch High Yield
Master Index - a broad measure of the high yield bond market. This
benchmark includes reinvested dividends and capital gains, if any. Consumer
Price Index information is not available from the U.S. Department of Labor.
Therefore, the CPI comparison has not been included in this report.
Figures for more than one year assume a steady compounded rate of return
and are not the fund's year-by-year results, which fluctuated over the
periods shown.
If Fidelity had not reimbursed certain fund expenses, the fund's five and
ten year total returns would have been lower.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE
ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL
CHARGES, THE TOTAL RETURNS WOULD HAVE BEEN LOWER.
Past performance is no guarantee of future results. Principal and
investment return will vary and you may have a gain or loss when you
withdraw your money. The fund includes high yielding, lower-rated
securities which are subject to greater price volatility and may involve
greater risk of default. The market for these securities may be less
liquid.
$10,000 OVER 10 YEARS
VIP High IncomHigh Yield Maste
12/31/85 10000.00 10000
01/31/86 10123.85 10067.864366073
02/28/86 10466.32 10495.670585261
03/31/86 10724.48 10725.334976615
04/30/86 10906.45 10892.823284035
05/31/86 11072.99 11019.861585135
06/30/86 11212.15 11131.494122108
07/31/86 11178.06 10984.941853116
08/31/86 11223.19 11187.665908229
09/30/86 11318.50 11280.258500822
10/31/86 11656.67 11478.716344331
11/30/86 11694.04 11572.177980028
12/31/86 11767.99 11634.670079636
01/31/87 12197.01 11963.642396663
02/28/87 12408.07 12161.152193149
03/31/87 12521.09 12295.616862596
04/30/87 12129.79 12027.477562887
05/31/87 12017.03 11973.280874731
06/30/87 12276.56 12138.794084187
07/31/87 12289.69 12204.841360131
08/31/87 12391.50 12327.139426116
09/30/87 11960.00 12043.515358362
10/31/87 11388.07 11721.732397927
11/30/87 11723.48 12018.155100493
12/31/87 11911.11 12177.743016054
01/31/88 12302.71 12510.981544685
02/29/88 12671.05 12850.461382885
03/31/88 12580.01 12829.209328783
04/30/88 12678.07 12866.262166603
05/31/88 12659.22 12933.415497409
06/30/88 12924.54 13180.697762609
07/31/88 13059.08 13319.981671091
08/31/88 12996.70 13363.749841992
09/30/88 13100.89 13498.451523196
10/31/88 13243.51 13708.759954494
11/30/88 13192.94 13760.11250158
12/31/88 13297.78 13818.338389584
01/31/89 13617.33 14025.565668057
02/28/89 13684.31 14119.81734294
03/31/89 13508.47 14107.255719884
04/30/89 13358.87 14148.890784983
05/31/89 13605.70 14409.366704589
06/30/89 13995.39 14613.512830236
07/31/89 13903.25 14682.720262925
08/31/89 13822.61 14755.245860195
09/30/89 13338.96 14614.776892934
10/31/89 12767.11 14383.611427127
11/30/89 12777.86 14415.845025913
12/31/89 12742.84 14402.809379345
01/31/90 12461.16 14121.318417394
02/28/90 12269.28 13915.671217292
03/31/90 12139.83 14103.779547466
04/30/90 12175.79 14175.436101631
05/31/90 12425.97 14431.487801795
06/30/90 12621.71 14711.0826697
07/31/90 12816.66 15021.963089369
08/31/90 12602.26 14446.893565921
09/30/90 12303.44 13818.57540134
10/31/90 12004.88 13466.928959676
11/30/90 12286.47 13581.010618127
12/31/90 12458.27 13776.703324485
01/31/91 12722.59 13971.44798382
02/28/91 13427.45 15008.45341929
03/31/91 13903.22 15653.757426368
04/30/91 14396.62 16211.20907597
05/31/91 14608.07 16290.371002402
06/30/91 14925.26 16618.079256731
07/31/91 15489.14 17016.259006447
08/31/91 15700.60 17373.909745923
09/30/91 16053.02 17595.199721906
10/31/91 16599.28 18118.047655164
11/30/91 16740.25 18327.32903552
12/31/91 16828.36 18540.244596132
01/31/92 17727.05 19188.471748199
02/29/92 18370.68 19665.02338516
03/31/92 18964.52 19939.403994438
04/30/92 19098.61 20084.534192896
05/31/92 19328.48 20404.895082796
06/30/92 19539.20 20658.418657565
07/31/92 19922.32 21076.981418278
08/31/92 20343.76 21356.023258754
09/30/92 20554.47 21599.355328024
10/31/92 20247.98 21326.554797118
11/30/92 20497.01 21628.586777904
12/31/92 20726.88 21907.075590949
01/31/93 21282.41 22446.514347112
02/28/93 21645.44 22871.397421312
03/31/93 22144.95 23267.918088737
04/30/93 22290.64 23434.932372646
05/31/93 22623.65 23750.395019593
06/30/93 23206.41 24196.609151814
07/31/93 23435.35 24456.690051827
08/31/93 23685.11 24689.830615599
09/30/93 23768.36 24811.654658071
10/31/93 24330.31 25279.041840475
11/30/93 24559.25 25417.298698015
12/31/93 24954.69 25671.454304133
01/31/94 25787.21 26234.041208444
02/28/94 25756.30 26045.379850841
03/31/94 24888.62 25196.640753381
04/30/94 24637.45 24902.19314878
05/31/94 24683.12 24813.471748199
06/30/94 24591.78 24904.800278094
07/31/94 24683.12 25079.872961699
08/31/94 24683.12 25254.076602199
09/30/94 24865.78 25244.51712805
10/31/94 24637.45 25308.668309948
11/30/94 24431.95 25093.382631779
12/31/94 24546.11 25372.503476172
01/31/95 24820.12 25731.023258754
02/28/95 25671.99 26533.86107951
03/31/95 25991.66 26903.12539502
04/30/95 26753.95 27533.023637972
05/31/95 27442.47 28393.218303628
06/30/95 27516.24 28610.084060169
07/31/95 28180.17 28937.16028315
08/31/95 28401.48 29112.785994185
09/30/95 28868.69 29445.866514979
10/31/95 29139.18 29654.594867905
11/30/95 29286.72 29944.065225635
12/29/95 29630.98 30424.725066363
Let's say you invested $10,000 in High Income Portfolio on December 31,
1985. By December 31, 1995, your investment would have grown to $29,631 - a
196.31% increase. That compares to $10,000 invested in the Merrill Lynch
High Yield Master Index, which would have grown to $30,425 over the same
period - a 204.25% increase.
INVESTMENT SUMMARY
TOP FIVE HOLDINGS AS OF DECEMBER 31, 1995
(BY ISSUER, EXCLUDING REPURCHASE AGREEMENTS) % OF FUND'S
INVESTMENTS
PanAmSat Corp. (various issues) 4.3
American Financial Corp. (various issues) 3.9
Marvel Parent Holdings, Inc. (various issues) 3.4
Transtexas Gas Corp. (various issues) 2.7
Mother's Work, Inc. 12 5/8%, 8/1/05 2.2
TOP FIVE MARKET SECTORS AS OF DECEMBER 31, 1995
% OF FUND'S
INVESTMENTS
Media & Leisure 30.3
Retail & Wholesale 11.1
Basic Industries 10.6
Finance 7.5
Energy 6.4
QUALITY DIVERSIFICATION AS OF DECEMBER 31, 1995
(MOODY'S RATINGS) % OF FUND'S
INVESTMENTS
Aaa, Aa, A 0.0
Baa 0.0
Ba 8.9
B 48.5
Caa, Ca, C 9.6
Nonrated 10.8
TABLE EXCLUDES SHORT-TERM INVESTMENTS. UNRATED DEBT SECURITIES THAT ARE
EQUIVALENT TO BA AND BELOW AT DECEMBER 31, 1995, ACCOUNT FOR 6.6% OF THE
FUND'S INVESTMENTS.
VARIABLE INSURANCE PRODUCTS FUND: HIGH INCOME PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
An interview with Barry Coffman, Portfolio Manager of High Income Portfolio
Q. HOW HAS THE FUND PERFORMED, BARRY?
A. It did well relative to its peers and to its benchmark. For the 12
months ended December 31, 1995, the Merrill Lynch High Yield Master Index
returned 19.91%.
Q. WHAT KIND OF YEAR WAS 1995 FOR THE HIGH-YIELD MARKET?
A. 1995 was very strong in absolute terms, but it was unusual in that it
was the first time in several years that the high-yield bond market
underperformed both the Treasury and stock markets. Some of the same
factors that boosted the Treasury market - namely concerns about a slowing
economy and fears of a recession - kept high-yield bonds from performing as
well as Treasuries. That's because investors feared that a slowing economy
would translate into lower earnings and deteriorating credit quality for
some high-yield companies. In addition, a slight increase in the number of
companies that defaulted on their debt last year - and rising expectations
that the default rate will increase slightly in 1996 - caused the
high-yield market to underperform the stock market.
Q. WAS THERE ANY PARTICULAR REASON THE FUND OUTPERFORMED BOTH ITS PEERS AND
ITS BENCHMARK?
A. I think it's important to point out that the fund outperformed even
though it was underweighted, relative to the index, in securities rated Ba.
Those securities outperformed as a group due to their higher sensitivity to
interest rates and the widening of credit spreads during the year. The key
to the fund's better performance can be attributed to the strength of its
individual holdings and its lower exposure to some sectors - like retail -
which significantly underperformed. The fund's largest holding at the end
of the period - PanAmSat Corp., which operates an international satellite
communications system and provides satellite services to the broadcasting
and business communications market, performed quite well. The company
launched a third satellite and continued to have a large backlog of
contracted time from companies, including ESPN and Viacom, for its existing
and yet-to-be-launched satellites. Another of the fund's strong performers
was Big Flower Press, a large specialty printer of advertising inserts,
comics and television guides. I invested in the bonds and equity of this
company, both of which did well as its fortunes improved.
Q. HOW DID THE FUND'S GAMING HOLDINGS DO?
A. Performance was mixed. On one hand, there were few new jurisdictions
that approved gaming facilities in 1995. That lack of new competition and
good growth in the Atlantic City market, in particular, helped many of our
casino holdings. On the other hand, Harrah's Jazz was a disappointment. In
November, the company filed for bankruptcy protection. I sold the bonds
after the bankruptcy declaration. However, Harrah's problems don't appear
to have had any residual effects on other casino holdings.
Q. WHAT TYPES OF INVESTMENTS DID YOU ADD OVER THE PAST SIX MONTHS?
A. I focused on finding smaller companies that didn't have much visibility
in the market - meaning that few investors followed them. I bought
companies in which I developed a high degree of confidence regarding their
future business prospects. As an example, one recent addition to the fund
was Mother's Work, the largest retailer of maternity clothes. In 1995, the
company bought two of its primary competitors and now controls more than
half of the country's maternity stores.
Q. WHAT'S YOUR OUTLOOK?
A. The high-yield market's performance will obviously be dependent on the
health of the economy. And in my view, there's no way of knowing for sure
what the environment will be. So I'll continue to look at each company,
attempting to assess how it's likely to do in a variety of economic
environments. I'll focus on finding companies that are properly
capitalized, with sufficient financial flexibility and business
fundamentals that can withstand a downturn in the economy.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
FUND FACTS
GOAL: seeks high current income by investing in
high yielding, lower-rated fixed income
securities
START DATE: September 19, 1985
SIZE: as of December 31, 1995, more than
$1.0 billion
MANAGER: Barry Coffman, since 1990; joined
Fidelity in 1986
(checkmark)
VARIABLE INSURANCE PRODUCTS FUND: HIGH INCOME PORTFOLIO
INVESTMENTS DECEMBER 31, 1995
Showing Percentage of Total Value of Investment in Securities
CORPORATE BONDS - 77.6%
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (NOTE 1)
CONVERTIBLE BONDS - 0.2%
INDUSTRIAL MACHINERY & EQUIPMENT - 0.1%
ELECTRICAL EQUIPMENT - 0.1%
Ampex Corp., Series C
0%, 6/3 0/97 - $ 469,000 $ 584,329
RETAIL & WHOLESALE - 0.1%
GROCERY STORES - 0.1%
Farm Fresh, Inc.
7 1/2%, 3/1/10 B3 1,686,000 988,434
TOTAL CONVERTIBLE BONDS 1,572,763
NONCONVERTIBLE BONDS - 77.4%
AEROSPACE & DEFENSE - 0.7%
RHI Holdings, Inc.
11 7/8%, 3/1/99 B2 2,160,000 2,170,800
Wyman-Gordon Co.
10 3/4%, 3/15/03 B1 4,490,000 4,714,500
6,885,300
BASIC INDUSTRIES - 10.0%
CHEMICALS & PLASTICS - 2.6%
Acetex Corp.
9 3/4%, 10/1/03 (e) B1 1,860,000 1,934,400
American Pacific Corp.
11%, 2/21/02 (e) - 850,000 765,000
Atlantis Group, Inc.
11%, 2/15/03 B2 9,610,000 8,456,800
NL Industries, Inc.
11 3/4%, 10/15/03 B1 8,070,000 8,634,900
Pioneer Americas Acquisition
Corp. 13 3/8%, 4/1/05 (e) B2 5,960,000 6,183,500
Trans Resources, Inc.
14 1/2%, 9/1/96 B2 580,000 591,600
26,566,200
IRON & STEEL - 1.3%
Republic Engineered Steels, Inc.
9 7/8%, 12/15/01 B2 14,560,000 13,067,600
METALS & MINING - 1.9%
International Wire Group, Inc.
11 3/4%, 6/1/05 B3 5,850,000 5,630,625
Kaiser Aluminum & Chemical
Corp. 12 3/4%, 2/1/03 B2 12,050,000 13,194,750
18,825,375
PACKAGING & CONTAINERS - 0.4%
Crown Packaging Holdings Ltd.
0%, 11/1/03 (c) Caa 6,840,000 3,026,700
Gaylord Container
0%, 5/15/05 (c) Caa 600,000 586,500
3,613,200
PAPER & FOREST PRODUCTS - 3.8%
Rapp International Finance Co. BV
yankee 13 1/4%, 12/15/05 Ba3 12,280,000 12,065,100
Stone Container Corp.:
9 7/8%, 2/1/01 B1 2,950,000 2,868,875
10 3/4%, 10/1/02 B1 900,000 931,500
11 1/2%, 10/1/04 B1 1,120,000 1,120,000
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (NOTE 1)
Tembec Finance Corp. yankee
9 7/8%, 9/30/05 B1 $ 13,120,000 $ 12,939,600
Williamhouse Regency
Delaware, Inc.
13%, 11/15/05 (e) B3 8,500,000 8,903,750
38,828,825
TOTAL BASIC INDUSTRIES 100,901,200
CONGLOMERATES - 0.8%
Jordan Industries, Inc.:
10 3/8%, 8/1/03 B3 9,155,000 7,781,750
0%, 8/1/05 (c) Caa 1,955,000 1,114,350
8,896,100
CONSTRUCTION & REAL ESTATE - 1.1%
CONSTRUCTION - 0.9%
Continental Homes Holding
Corp. sr. notes
12%, 8/1/99 Ba3 3,000,000 3,232,500
UDC Homes, Inc.:
Series A, 12 1/2%, 5/1/00 - 800,000 756,000
Series B, 12 1/2%, 5/1/00 - 40,000 37,800
WCI Communities LP
17%, 7/24/98 (d) - 5,000,000 5,000,000
9,026,300
REAL ESTATE - 0.2%
Littlefield Co. 10%, 9/30/97 (d) - 2,750,000 1,988,525
TOTAL CONSTRUCTION & REAL ESTATE 11,014,825
DURABLES - 2.7%
AUTOS, TIRES, & ACCESSORIES - 1.0%
Harvard Industries, Inc.
11 1/8%, 8/1/05 B3 9,870,000 9,870,000
TEXTILES & APPAREL - 1.7%
Hat Brands, Inc.,:
Series B, 12 5/8%, 9/15/02 - 1,520,000 1,596,000
Series D, 12 5/8%, 9/15/02 - 680,000 714,000
Interface, Inc.
9 1/2%, 11/15/05 (e) Ba3 10,070,000 10,384,688
Leslie Fay Cos., Inc. (d)(g):
9.53%, 1/15/00 - 676,319 405,791
10.54%, 1/15/02 - 611,353 213,974
United States Leather, Inc.
10 1/4%, 7/31/03 B2 6,010,000 4,357,250
17,671,703
TOTAL DURABLES 27,541,703
ENERGY - 5.1%
OIL & GAS - 5.1%
Harcor Energy, Inc., Series B,
14 7/8%, 7/15/02 B3 15,000,000 14,536,079
Plains Resources, Inc.,
12%, 8/15/99 B3 2,257,000 2,369,850
Transamerican Refining Corp.
16 1/2%, 2/15/02 (f) Caa 7,590,000 7,134,600
Transtexas Gas Corp.
11 1/2%, 6/15/02 B2 23,235,000 23,873,963
Vintage Petroleum, Inc.
9%, 12/15/05 B1 3,500,000 3,552,500
51,466,992
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - 4.6%
INSURANCE - 4.0%
American Financial Corp.:
9 3/4%, 4/20/04 Ba3 $ 21,340,000 $ 22,220,276
American Life Holdings
11 1/4%, 9/15/04 B1 13,350,000 14,017,500
Americo Life, Inc.
9 1/4%, 6/1/05 Ba2 3,900,000 3,705,000
39,942,776
SAVINGS & LOANS - 0.6%
First Nationwide Holdings, Inc.
12 1/4%, 5/15/01 Ba3 5,790,000 6,426,900
SECURITIES INDUSTRY - 0.0%
ECM Corp. 14%, 6/1/02 (e) - 489,990 538,989
TOTAL FINANCE 46,908,665
HEALTH - 0.8%
MEDICAL EQUIPMENT & SUPPLIES - 0.8%
Wright Medical Technology, Inc.,
Series B, 10 3/4%, 7/1/00 B3 7,450,000 7,636,250
INDUSTRIAL MACHINERY & EQUIPMENT - 3.4%
INDUSTRIAL MACHINERY & EQUIPMENT - 2.5%
Howmet Corp.
10%, 12/1/03 (e) B3 1,910,000 2,005,500
MVE, Inc.
12 1/2%, 2/15/02 B3 5,595,000 5,511,075
Specialty Equipment Cos., Inc.
11 3/8%, 12/1/03 B3 10,640,000 10,799,600
Thermadyne Holdings Corp.:
10 1/4%, 5/1/02 B3 1,484,000 1,495,130
10 3/4%, 11/1/03 Caa 5,756,000 5,770,390
25,581,695
POLLUTION CONTROL - 0.9%
Norcal Waste System, Inc.
12 1/2%, 11/15/05 (e)(f) B3 8,890,000 8,978,900
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 34,560,595
MEDIA & LEISURE - 23.5%
BROADCASTING - 7.2%
Bell Cablemedia PLC
0%, 9/15/05 (c)(e) B2 14,500,000 9,098,750
Chancellor Broadcasting
12 1/2%, 10/1/04 B3 10,570,000 11,309,900
Citicasters, Inc.
9 3/4%, 2/15/04 B- 7,812,000 7,968,240
Cooke Media Group, Inc.
11 5/8%, 4/1/99 - 350,000 332,500
Diamond Cable Communications
PLC yankee 0%,
12/15/05 (c) B3 5,920,000 3,478,000
NWCG Holdings Corp.
0%, 6/15/99 Caa 18,695,000 12,806,075
Peoples Choice TV Corp.
Unit 0%, 6/1/04 (c) Caa 20,380,000 11,871,350
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (NOTE 1)
Robin Media Group, Inc.
11 1/8%, 4/1/97 - $ 12,340,000 $ 12,340,000
Telewest PLC
0%, 10/1/07 (c) B1 5,330,000 3,151,363
72,356,178
LEISURE DURABLES & TOYS - 1.3%
ICON Health and Fitness, Inc.
13%, 7/15/02 B3 5,890,000 6,361,200
IHF Holdings, Inc.
0%, 11/15/04 (c) Caa 10,250,000 6,457,500
12,818,700
LODGING & GAMING - 8.4%
Bally Gaming International, Inc.
10 3/8%, 7/15/98 - 3,000,000 3,090,000
Boyd Gaming Corp.
10 3/4%, 9/3/03 B2 3,320,000 3,481,850
Casino America, Inc.
11 1/2%, 11/15/96 B1 590,000 554,600
GNF Corp., Series B,
10 5/8%, 4/1/03 B2 2,840,000 2,648,300
Grand Casinos, Inc.
10 1/8%, 12/1/03 Ba3 14,690,000 15,314,325
HMH Properties, Inc., Series B,
9 1/2%, 5/15/05 (e) B1 13,470,000 13,739,400
Hollywood Casino Corp.
12 3/4%, 11/1/03 B2 8,500,000 7,735,000
Horseshoe Gaming LLC
12 3/4%, 9/30/00 (e) - 5,000,000 4,993,750
Maritime Group Ltd. pay-in-kind
14%, 2/15/97 (g) - 1,648,399 296,712
Mohegan Tribal Gaming
Authority 13 1/2%,
11/15/02 (e) - 8,880,000 9,634,800
Players International, Inc.
10 7/8%, 4/15/05 Ba3 18,180,000 17,043,750
President Riverboat Casinos
13%, 9/15/01 B1 8,210,000 6,732,200
85,264,687
PUBLISHING - 3.4%
Marvel Holdings, Inc., Series B
0%, 4/15/98 B3 25,350,000 18,125,250
Marvel Parent Holdings, Inc.
0%, 4/15/98 B3 22,440,000 16,280,220
34,405,470
RESTAURANTS - 3.2%
Cafeteria Operators LP:
11%, 6/30/98 (d) - 5,548,126 943,181
12%, 12/31/01 - 1,451,874 115,177
Host Marriott Travel Plazas, Inc.,
Series B, 9 1/2%, 5/15/05 B1 20,690,000 20,457,238
SC International Services, Inc.
13%, 10/1/05 B3 10,640,000 11,278,400
32,793,996
TOTAL MEDIA & LEISURE 237,639,031
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
NONDURABLES - 3.3%
FOODS - 1.4%
Specialty Foods Corp.:
10 1/4%, 8/15/01 B3 3,430,000 3,258,500
Series B
11 1/8%, 10/1/02 B3 6,780,000 6,576,600
11 1/4%, 8/15/03 Caa 4,610,000 4,102,900
13,938,000
HOUSEHOLD PRODUCTS - 1.9%
McAndrews & Forbes Group, Inc.
12 1/4%, 7/1/96 - 1,360,000 1,366,800
Revlon Consumer Products Corp.
10 1/2%, 2/15/03 B3 7,230,000 7,410,750
Revlon Worldwide Corp. secured
0%, 3/15/98 B3 14,140,000 10,481,275
19,258,825
TOTAL NONDURABLES 33,196,825
RETAIL & WHOLESALE - 10.6%
APPAREL STORES - 4.8%
Apparel Retailers, Inc.
0%, 8/15/05 (c) Caa 11,230,000 6,513,400
Lamonts Apparel, Inc.
10 1/4%, 11/1/99 (e)(g) - 2,201,000 550,250
Mother's Work, Inc.
12 5/8%, 8/1/05 B3 22,500,000 22,106,250
Specialty Retailers, Inc.:
10%, 8/15/00 B1 2,890,000 2,687,700
11%, 8/15/03 B3 12,220,000 10,875,800
Series D, 11%, 8/15/03 B- 6,750,000 6,007,500
48,740,900
GROCERY STORES - 4.1%
Food 4 Less Holdings, Inc.
0%, 7/15/05 (c) Caa 22,750,000 10,578,750
Ralph's Grocery Co. :
10.45%, 6/15/04 B1 6,470,000 6,567,050
11%, 6/15/05 B3 9,970,000 9,870,300
Star Markets, Inc.
13%, 11/1/04 B3 13,905,000 14,148,338
41,164,438
RETAIL & WHOLESALE, MISCELLANEOUS - 1.7%
Alliance Entertainment Corp.,
Series B, 11 1/4%, 7/15/05 B3 12,780,000 12,859,875
Barry's Jewelers, Inc.
11%, 12/22/00 - 1,139,000 1,116,220
Finlay Fine Jewelry Corp.
10 5/8%, 5/1/03 B1 3,460,000 3,287,000
17,263,095
TOTAL RETAIL & WHOLESALE 107,168,433
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (NOTE 1)
SERVICES - 5.0%
LEASING & RENTAL - 1.1%
GPA Delaware, Inc.:
8 1/2%, 3/3/97 - $ 3,500,000 $ 3,412,500
8 3/4%, 12/15/98 Caa 4,960,000 4,625,200
8 5/8%, 1/15/99 - 2,600,000 2,353,000
Scotsman Holdings, Inc.
pay-in-kind 11%, 3/1/04 - 1,258,343 1,099,339
11,490,039
PRINTING - 2.4%
Big Flower Press :
10 3/4%, 8/1/03 B2 4,865,000 5,205,550
Class A, 10 3/4%, 8/1/03 B3 3,219,000 3,444,330
Class B, 10 3/4%, 8/1/03 B2 967,000 1,034,690
Sullivan Graphics, Inc.
12 3/4%, 8/1/05 Caa 14,830,000 14,422,175
24,106,745
SERVICES - 1.5%
Protection One Alarm
Monitoring, Inc. 13 5/8%,
6/30/05 Caa 18,300,000 14,823,000
TOTAL SERVICES 50,419,784
TECHNOLOGY - 0.6%
COMMUNICATIONS EQUIPMENT - 0.6%
Echostar Communications Corp.
0%, 6/1/04 (c) Caa 9,000,000 6,030,000
TRANSPORTATION - 3.4%
AIR TRANSPORTATION - 2.1%
Trans World Airlines, Inc.
12%, 11/3/98 - 1,260,000 1,102,500
US Air Inc.:
Series 1993-A1 Pass Thru
Trust 8 5/8%, 9/1/98 B1 5,000,000 4,900,000
10 3/8%, 3/1/13 B1 15,975,000 15,016,500
21,019,000
RAILROADS - 1.2%
Transtar Holdings L.P./Transtar
Cap Corp., Series B,
0%, 12/15/03 (c) B- 17,941,000 12,199,880
TRUCKING & FREIGHT - 0.1%
Burlington Motor Holdings, Inc.
11 1/2%, 11/1/03 (g) Ca 4,750,000 855,000
TOTAL TRANSPORTATION 34,073,880
UTILITIES - 1.8%
CELLULAR - 0.7%
Comunicaciones Celulares SA
Unit 0%, 11/15/03 (c)(e) B3 12,000,000 6,810,000
USA Mobile Communications, Inc.
9 1/2%, 2/1/04 B3 210,000 207,900
7,017,900
ELECTRIC UTILITY - 0.1%
El Paso Funding Corp.
lease oblig. (g):
9 3/8%, 10/1/96 Ca 790,000 537,200
9.20%, 7/2/97 Ca 380,000 256,500
793,700
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - 1.0%
Winstar Communications, Inc.
Unit 0%, 10/15/05 (c)(e) - $ 6,550,000 $ 10,398,125
TOTAL UTILITIES 18,209,725
TOTAL NONCONVERTIBLE BONDS 782,549,308
TOTAL CORPORATE BONDS
(Cost $780,639,572) 784,122,071
COMMERCIAL MORTGAGE SECURITIES - 0.2%
Meritor Mortgage Security Corp.
commercial Series 1987-1
Class B, 9.40%, 2/1/00 (e)(g) - 1,350,000 243,000
SKW Real Estate LP commercial
Series II Class E, 11%,
4/15/05 (e) B 1,500,000 1,507,500
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $1,762,853) 1,750,500
COMMON STOCKS - 5.3%
SHARES
BASIC INDUSTRIES - 0.6%
METALS & MINING - 0.5%
Kaiser Aluminum Corp. (a) 383,500 4,985,500
PAPER & FOREST PRODUCTS - 0.1%
Mail-Well Holdings, Inc. (a)(e) 26,279 308,778
Repap Enterprises, Inc. (a) 300,000 1,319,310
1,628,088
TOTAL BASIC INDUSTRIES 6,613,588
DURABLES - 0.1%
HOME FURNISHINGS - 0.0%
Polyvision Corp. (a) 2,993 6,173
TEXTILES & APPAREL - 0.1%
Hat Brands, Inc. (warrants) (a)(d) 27,466 302,121
HM/Hat Brands Trust Class I Unit (a)(d) 340,000 340,000
642,121
TOTAL DURABLES 648,294
ENERGY - 0.9%
OIL & GAS - 0.9%
Flores & Rucks, Inc. (a) 341,400 4,950,300
Harcor Energy, Inc. (warrants) (a) 330,000 382,807
TransTexas Gas Corp. (a) 275,300 3,716,550
9,049,657
FINANCE - 1.7%
INSURANCE - 1.7%
American Financial Group, Inc. 565,800 17,327,625
SHARES VALUE (NOTE 1)
SECURITIES INDUSTRY - 0.0%
ECM Corp. LP (e) 3,000 $ 300,000
TOTAL FINANCE 17,627,625
HEALTH - 0.1%
MEDICAL EQUIPMENT & SUPPLIES - 0.1%
MVE, Inc. (warrants) (a) 10,555 158,325
Wright Medical
Technology, Inc. (warrants) (a) 1,976 335,970
494,295
HOLDING COMPANIES - 0.1%
SDW Holdings Corp.(a)
Unit (e) 4,450 1,335,000
(warrants) 3,720 18,600
1,353,600
INDUSTRIAL MACHINERY & EQUIPMENT - 0.1%
ELECTRICAL EQUIPMENT - 0.0%
Ampex Corp. Class A (warrants) (a) 57,599 230,396
INDUSTRIAL MACHINERY & EQUIPMENT - 0.1%
Terex Corp. (rights) (a)(d) 3,150 315
Thermadyne Holdings Corp. (a) 65,419 1,185,719
1,186,034
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 1,416,430
MEDIA & LEISURE - 1.1%
BROADCASTING - 0.3%
PanAmSat Corp. (a) 115,300 2,543,806
ENTERTAINMENT - 0.0%
Live Entertainment, Inc. (a)
$2.00 (warrant) (d) 232,000 11,600
$2.72 (warrant) (d) 221,765 11,088
22,688
LEISURE DURABLES & TOYS - 0.1%
IHF Capital, Inc.(a)(e):
Series H (warrants) 10,250 820,000
Series I (warrants) 5,890 147,250
967,250
LODGING & GAMING - 0.7%
Bally Gaming International, Inc.
(warrants)(a) 90,000 483,750
Horseshoe Gaming LLC (warrants) (a) 2,500,000 25,000
Host Marriott Corp. (a) 389,800 5,164,850
Maritime Group Ltd. (warrants) (a) 17,880 179
Motels of America, Inc. (a) 3,000 225,000
Sun International Hotels Ltd. (a) 30,570 1,008,810
Sun Internaitonal Hotels Ltd. Class B (a) 6,418 211,794
7,119,383
PUBLISHING - 0.0%
General Media, Inc. (warrants) (a) 1,310 6,550
TOTAL MEDIA & LEISURE 10,659,677
RETAIL & WHOLESALE - 0.4%
APPAREL STORES - 0.0%
Lamonts Apparel, Inc. (a) 35,870 2,242
Lamonts Apparel, Inc. (warrants) (a) 66,214 1
2,243
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
RETAIL & WHOLESALE - CONTINUED
GROCERY STORES - 0.4%
FF Holdings Corp. (a)(d) 33,900 $ 67,800
MAFCO (warrants) (a) 59 -
Food 4 Less Holdings, Inc.
(warrants) (a)(d) 9,348 283,712
Stop & Shop Companies, Inc. (a) 150,300 3,475,688
3,827,200
RETAIL & WHOLESALE, MISCELLANEOUS - 0.0%
Barry's Jewelers, Inc. (a) 45,576 182,304
Barry's Jewelers, Inc. (warrants) (a) 5,697 1,424
183,728
TOTAL RETAIL & WHOLESALE 4,013,171
SERVICES - 0.1%
LEASING & RENTAL - 0.0%
Scotsman Holdings, Inc. (a) 8,689 119,908
SERVICES - 0.1%
Protection One, Inc. (warrants) (a) 74,560 410,080
Vestar/LPA Investment Corp. (a) 5,177 93,186
503,266
TOTAL SERVICES 623,174
TECHNOLOGY - 0.1%
COMMUNICATIONS EQUIPMENT - 0.1%
Echostar Communications Corp. Class A 40,500 982,125
ELECTRONICS - 0.0%
Berg Electronics Holdings Corp. (a)(e) 20,853 125,118
TOTAL TECHNOLOGY 1,107,243
UTILITIES - 0.0%
ELECTRIC UTILITY - 0.0%
Eastern Utilities Associates 3 71
Northeast Utilities Associates (warrants) (a) 21,789 29,960
30,031
GAS - 0.0%
UGI Corp. (warrants) (a) 14,033 2,104
TOTAL UTILITIES 32,135
TOTAL COMMON STOCKS
(Cost $45,860,829) 53,638,889
PREFERRED STOCKS - 8.2%
CONVERTIBLE PREFERRED STOCKS - 0.3%
RETAIL & WHOLESALE - 0.0%
RETAIL & WHOLESALE, MISCELLANEOUS - 0.0%
Town & Country Corp. (a) 4,065 3,252
SERVICES - 0.3%
La Petite Holdings Corp. exchangeable (a) 160,800 3,216,000
TECHNOLOGY - 0.0%
ELECTRONICS - 0.0%
Alpine Group, Inc. 8% cumulative 1,594 71,730
UTILITIES - 0.0%
GAS - 0.0%
Columbia Gas System, Inc. 1,511 61,762
TOTAL CONVERTIBLE PREFERRED STOCKS 3,352,744
SHARES VALUE (NOTE 1)
NONCONVERTIBLE PREFERRED STOCKS - 7.9%
BASIC INDUSTRIES - 0.0%
PAPER & FOREST PRODUCTS - 0.0%
S D Warren Co. exchangeable
pay-in-kind 3,720 $ 117,180
DURABLES - 0.0%
AUTOS, TIRES, & ACCESSORIES - 0.0%
Harvard Industries, Inc. pay-in-kind $14.25 25,979 681,949
ENERGY - 0.4%
OIL & GAS - 0.4%
Gulf Canada Resources Ltd.,
Series 1, adj. rate 1,321,942 3,827,222
Gulf Canada Resources Ltd. (d) 31,009 89,151
3,916,373
FINANCE - 1.2%
SAVINGS & LOANS - 1.2%
First Nationwide Bank 11 1/2%, 103,582 11,627,080
INDUSTRIAL MACHINERY & EQUIPMENT - 0.1%
ELECTRICAL EQUIPMENT - 0.1%
Ampex Corp. 8% (a)(d) 1,589 1,015,927
MEDIA & LEISURE - 5.7%
BROADCASTING - 5.7%
Cablevision System Corp., Series G
exchangeable pay-in-kind (e) 159,107 16,467,575
PanAmSat Corp. 12 3/4% pay-in-kind 36,616 41,009,920
57,477,495
TECHNOLOGY - 0.5%
ELECTRONICS - 0.5%
Berg Electronics Holding Corp., Series E,
$3.4687 pay-in-kind 168,137 4,707,832
UTILITIES - 0.0%
GAS - 0.0%
Columbia Gas System, Inc. 2,467 60,750
TOTAL NONCONVERTIBLE PREFERRED STOCKS 79,604,586
TOTAL PREFERRED STOCKS
(Cost $77,990,307) 82,957,330
PURCHASED BANK DEBT - 0.1%
PRINCIPAL
AMOUNT
Leslie Fay Cos., Inc.:
term loan - $ 777,600 466,560
revolving loan - 685,856 411,514
TOTAL PURCHASED BANK DEBT
(Cost $1,190,771) 878,074
REPURCHASE AGREEMENTS - 8.6%
MATURITY VALUE
AMOUNT (NOTE 1)
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.91% dated
12/29/95 due 1/2/96 $ 87,453,390 $ 87,396,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $994,840,332) $ 1,010,742,864
LEGEND
1. Non-income producing
2. Standard & Poor's Corporation credit ratings are used in the absence of
a rating by Moody's Investors Service, Inc.
3. Debt obligation initially issued in zero coupon form which converts to
coupon form at a specified rate and date.
4. Restricted securities - Investment in securities not registered under
the Securities Act of 1933 (see Note 2 of Notes to Financial Statements).
Additional information on each holding is as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST
Ampex Corp. 8% 2/16/95 $ 834,225
Cafeteria Operators LP
11%, 6/30/98 6/24/93 $ 4,438,501
FF Holdings Corp. 10/2/92
to 1/14/94 $ 135,752
Food 4 Less Holdings, 12/30/92
Inc. (warrants) to 5/17/93 $ 229,281
Gulf Canada Resources Ltd. 10/15/93 $ 76,940
Hat Brands, Inc. (warrants) 9/2/92
to 2/23/94 $ -
HM/Hat Brands Trust
Class I Unit 2/22/94 $ 340,000
Leslie Fay Cos., Inc.:
9.53%, 1/15/00 7/19/93 $ 512,312
10.54%, 1/15/02 7/19/93
to 11/11/93 $ 404,156
Littlefield Co.
10%, 9/30/97 2/28/94 $ 2,750,000
Live Entertainment, Inc.
(warrants):
$2.00 3/23/93 $ 220,717
$2.72 3/23/93 $ 131,863
Terex Corp. (rights) 7/29/92 $ -
WCI Communities LP
17%, 7/24/98 7/24/95 $ 4,937,231
5. Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $116,174,023 or 11.2% of net
assets.
6. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
7. Non-income producing - issuer filed for protection under the Federal
Bankruptcy Code or is in default of interest payment.
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $1,312,680,785 and $949,022,493, respectively.
The fund placed a portion of its portfolio securities with brokerage firms
which are affiliates of Fidelity Management & Research Company. The
commissions paid to these affiliated firms were $21,896 for the period (see
Note 3 of Notes to Financial Statements).
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows (ratings are unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 0.0% AAA, AA, A 0.0%
Baa 0.0% BBB 0.0%
Ba 8.9% BB 16.6%
B 48.5% B 46.4%
Caa 9.4% CCC 2.4%
Ca, C 0.2% CC, C 0.0%
D 0.2%
The percentage not rated by either S&P or Moody's amounted to 6.6%
including long-term debt categorized as other securities. FMR has
determined that unrated debt securities that are lower quality account for
6.6% of the total value of investment in securities.
INCOME TAX INFORMATION
At December 31, 1995, the aggregate cost of investment securities for
income tax purposes was $996,121,824. Net unrealized appreciation
aggregated $14,621,040, of which $38,646,371 related to appreciated
investment securities and $24,025,331 related to depreciated investment
securities.
VARIABLE INSURANCE PRODUCTS FUND: HIGH INCOME PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
ASSETS
Investment in securities, at value (including repurchase agreements of $87,396,000) (cost $994,840,332) - $ 1,010,742,864
See accompanying schedule
Cash 254
Receivable for investments sold 6,165,833
Receivable for fund shares sold 7,120,279
Dividends receivable 517,158
Interest receivable 16,852,344
Other receivables 3,728
TOTAL ASSETS 1,041,402,460
LIABILITIES
Payable for investments purchased $ 495,248
Payable for fund shares redeemed 170,468
Accrued management fee 507,064
Other payables and accrued expenses 230,122
TOTAL LIABILITIES 1,402,902
NET ASSETS $ 1,039,999,558
Net Assets consist of:
Paid in capital $ 927,473,751
Undistributed net investment income 76,334,012
Accumulated undistributed net realized gain (loss) on investments and foreign 20,293,833
currency transactions
Net unrealized appreciation (depreciation) on investments 15,897,962
and assets and liabilities in foreign currencies
NET ASSETS, for 86,302,481 shares outstanding $ 1,039,999,558
NET ASSET VALUE, offering price and redemption price per share ($1,039,999,558 (divided by) 86,302,481 shares) $12.05
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
INVESTMENT INCOME $ 5,754,603
Dividends
Interest 76,991,507
TOTAL INCOME 82,746,110
EXPENSES
Management fee $ 4,956,133
Transfer agent fees 427,444
Accounting fees and expenses 266,623
Non-interested trustees' compensation 3,485
Custodian fees and expenses 12,918
Registration fees 126,417
Audit 43,210
Legal 35,431
Interest 2,621
Miscellaneous 2,484
Total expenses before reductions 5,876,766
Expense reductions (9,702 5,867,064
)
NET INVESTMENT INCOME 76,879,046
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities 21,707,506
Foreign currency transactions (1,190 21,706,316
)
Change in net unrealized appreciation (depreciation) on:
Investment securities 49,316,944
Assets and liabilities in (756 49,316,188
foreign currencies )
NET GAIN (LOSS) 71,022,504
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 147,901,550
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
Operations $ 76,879,046 $ 43,091,356
Net investment income
Net realized gain (loss) 21,706,316 (726,075)
Change in net unrealized appreciation (depreciation) 49,316,188 (49,793,238)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 147,901,550 (7,427,957)
Distributions to shareholders (43,871,918) (30,631,598)
From net investment income
From net realized gain - (15,525,605)
TOTAL DISTRIBUTIONS (43,871,918) (46,157,203)
Share transactions 747,404,302 498,543,147
Net proceeds from sales of shares
Reinvestment of distributions 43,871,918 46,157,203
Cost of shares redeemed (424,723,050) (385,629,739)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 366,553,170 159,070,611
TOTAL INCREASE (DECREASE) IN NET ASSETS 470,582,802 105,485,451
NET ASSETS
Beginning of period 569,416,756 463,931,305
End of period (including undistributed net investment income of $76,334,012 and
$42,834,969, respectively) $ 1,039,999,558 $ 569,416,756
OTHER INFORMATION
Shares
Sold 66,375,373 45,102,882
Issued in reinvestment of distributions 4,326,619 4,073,892
Redeemed (37,385,468) (34,899,979)
Net increase (decrease) 33,316,524 14,276,795
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA 1995 1994 1993 C 1992 1991
Net asset value, beginning of period $ 10.750 $ 11.990 $ 10.820 $ 9.550 $ 7.070
Income from Investment Operations .856 .770 .728 .790 .890
Net investment income
Net realized and unrealized gain (loss) 1.224 (.910) 1.332 1.290 1.590
Total from investment operations 2.080 (.140) 2.060 2.080 2.480
Less Distributions (.780) (.730) (.794) (.810) -
From net investment income
In excess of net investment income - - (.036) - -
From net realized gain - (.370) (.060) - -
Total distributions (.780) (1.100) (.890) (.810) -
Net asset value, end of period $ 12.050 $ 10.750 $ 11.990 $ 10.820 $ 9.550
TOTAL RETURN A, B 20.72% (1.64)% 20.40% 23.17% 35.08%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 1,040,000 $ 569,417 $ 463,931 $ 200,591 $ 70,060
Ratio of expenses to average net assets .71% .71% .64% .67% .97%
D
Ratio of net investment income to average net assets 9.32% 8.75% 8.69% 10.98% 12.94%
Portfolio turnover rate 132% 122% 155% 160% 154%
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
B TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE
THE TOTAL RETURNS SHOWN.
C EFFECTIVE JANUARY 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION
93-2, "DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT
PRESENTATION OF INCOME, CAPITAL GAIN,
AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES." AS A
RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK
TO TAX DIFFERENCES.
D FMR VOLUNTARILY REIMBURSED A PORTION OF THE FUND'S EXPENSES DURING
THE PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance: total
percentage change in value, the average annual percentage change, or the
growth of a hypothetical $10,000 investment. A fund's total return includes
changes in a fund's share price, plus reinvestment of any dividends
(income) and capital gains (the profits the fund earns when it sells
securities that have grown in value).
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED PAST 1 PAST 5 LIFE OF
DECEMBER 31, 1995 YEAR YEARS FUND
Equity-Income 35.09% 21.32% 13.33%
S&P 500 37.58% 16.60% 14.46%
AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and
show you what would have happened if the fund had performed at a constant
rate each year.
UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how
it will do tomorrow. The stock market, for
example, has a history of growth in the long run
and volatility in the short run. In turn, the share
price and return of a fund that invests in stocks
will vary. That means if you sell your shares
during a market downturn, you might lose
money. But if you can ride out the market's ups
and downs, you may have a gain.
(checkmark)
You can compare these figures to the performance of the Standard & Poor's
Composite Index of 500 Stocks - a common proxy for the U.S. stock market.
This benchmark includes reinvested dividends and capital gains, if any.
Figures for more than one year assume a steady compounded rate of return
and are not the fund's year-by-year results, which fluctuated over the
periods shown. The life of fund figures are from commencement of
operations, October 9, 1986.
If Fidelity had not reimbursed certain fund expenses, the fund's past five
year and life of fund total returns would have been lower.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE
ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL
CHARGES, THE TOTAL RETURNS WOULD HAVE BEEN LOWER.
Past performance is no guarantee of future results. Principal and
investment return will vary and you may have a gain or loss when you
withdraw your money.
$10,000 OVER LIFE OF FUND
VIP Equity IncomStandard & Poor'
10/09/86 10000.00 10000.00
10/31/86 10110.00 10329.97
11/30/86 10330.00 10580.99
12/31/86 10020.00 10311.18
01/31/87 11170.00 11700.09
02/28/87 11430.00 12162.25
03/31/87 11720.18 12513.74
04/30/87 11428.43 12402.36
05/31/87 11498.86 12510.26
06/30/87 11738.55 13142.03
07/31/87 12185.73 13808.33
08/31/87 12521.12 14323.38
09/30/87 12258.32 14009.70
10/31/87 9866.20 10992.01
11/30/87 9424.74 10086.27
12/31/87 9906.52 10853.84
01/31/88 10611.13 11310.78
02/29/88 11136.95 11837.86
03/31/88 10943.07 11472.07
04/30/88 11124.21 11599.41
05/31/88 11273.39 11700.33
06/30/88 11914.76 12237.37
07/31/88 11893.18 12190.87
08/31/88 11688.12 11776.38
09/30/88 12035.42 12278.06
10/31/88 12243.12 12619.39
11/30/88 12046.36 12438.93
12/31/88 12156.33 12656.61
01/31/89 12907.13 13583.07
02/28/89 12840.88 13244.86
03/31/89 13119.01 13553.46
04/30/89 13625.32 14256.89
05/31/89 14030.37 14834.29
06/30/89 14039.98 14749.73
07/31/89 14858.50 16081.64
08/31/89 15097.24 16396.84
09/30/89 14927.51 16329.61
10/31/89 14066.31 15950.76
11/30/89 14146.69 16276.16
12/31/89 14264.74 16666.78
01/31/90 13301.38 15548.44
02/28/90 13380.20 15749.02
03/31/90 13402.27 16166.37
04/30/90 12937.59 15762.21
05/31/90 13793.57 17299.02
06/30/90 13656.23 17181.39
07/31/90 13322.25 17126.41
08/31/90 12258.45 15578.18
09/30/90 11307.54 14819.52
10/31/90 11019.21 14755.80
11/30/90 11808.98 15709.03
12/31/90 12083.75 16147.31
01/31/91 12731.78 16851.33
02/28/91 13608.52 18056.20
03/31/91 13890.81 18493.16
04/30/91 13955.72 18537.54
05/31/91 14721.66 19338.37
06/30/91 14119.72 18452.67
07/31/91 14920.19 19312.56
08/31/91 15235.12 19770.27
09/30/91 15130.56 19440.11
10/31/91 15382.51 19700.60
11/30/91 14719.47 18906.67
12/31/91 15882.70 21069.59
01/31/92 16097.15 20677.70
02/29/92 16619.87 20946.51
03/31/92 16416.22 20538.05
04/30/92 16930.49 21141.87
05/31/92 17065.83 21245.47
06/30/92 16916.41 20928.91
07/31/92 17434.82 21784.90
08/31/92 17052.84 21338.31
09/30/92 17229.86 21590.10
10/31/92 17436.12 21665.67
11/30/92 18068.66 22404.47
12/31/92 18564.83 22680.04
01/31/93 19119.01 22870.55
02/28/93 19548.49 23181.59
03/31/93 20131.05 23670.73
04/30/93 20047.35 23097.89
05/31/93 20410.07 23716.92
06/30/93 20650.14 23785.70
07/31/93 20931.09 23690.55
08/31/93 21731.81 24588.43
09/30/93 21648.73 24399.09
10/31/93 21846.69 24904.16
11/30/93 21464.91 24667.57
12/31/93 21961.06 24966.04
01/31/94 22928.26 25814.89
02/28/94 22337.82 25115.31
03/31/94 21403.32 24020.28
04/30/94 22140.85 24327.74
05/31/94 22351.57 24726.71
06/30/94 22213.48 24120.91
07/31/94 22955.44 24912.07
08/31/94 24136.53 25933.47
09/30/94 23741.11 25298.10
10/31/94 24228.42 25867.31
11/30/94 23436.54 24925.22
12/31/94 23512.77 25294.86
01/31/95 23880.40 25950.76
02/28/95 24790.97 26962.06
03/31/95 25646.99 27757.71
04/30/95 26360.31 28575.17
05/31/95 27154.68 29717.32
06/30/95 27544.83 30407.65
07/31/95 28604.87 31415.97
08/31/95 28963.65 31494.83
09/30/95 29925.22 32823.91
10/31/95 29580.88 32706.73
11/30/95 30859.87 34142.55
12/29/95 31763.97 34800.14
Let's say you invested $10,000 in Equity-Income Portfolio on October 9,
1986, when the fund started. By December 31, 1995, your investment would
have grown to $31,764 - a 217.64% increase. That compares to $10,000
invested in the S&P 500, which would have grown to $34,800 over the same
period - a 248% increase.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF DECEMBER 31, 1995
% OF FUND'S
INVESTMENTS
Philip Morris Companies, Inc. 4.7
Federal National Mortgage Association 3.5
General Electric Co. 2.4
NYNEX Corp. 1.9
Citicorp 1.7
TOP FIVE MARKET SECTORS AS OF DECEMBER 31, 1995
% OF FUND'S
INVESTMENTS
Finance 19.2
Nondurables 10.0
Utilities 7.8
Industrial Machinery & Equipment 6.8
Health 6.6
ASSET ALLOCATION AS OF DECEMBER 31, 1995*
Row: 1, Col: 1, Value: 9.4
Row: 1, Col: 2, Value: 8.699999999999999
Row: 1, Col: 3, Value: 81.90000000000001
Stocks 81.9%
Bonds 8.7%
Short-term investments 9.4%
FOREIGN INVESTMENTS 3.4%
*
VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
An interview with Bettina Doulton, Portfolio Manager of Equity-Income
Portfolio
Q. HOW DID THE FUND PERFORM, BETTINA?
A. Compared to its peers, the fund did very well over the past 12 months.
However, it slightly trailed the performance of the Standard & Poor's
Composite Index for the 12-month period. The index had a total return of
37.58% for the 12 months ended December 31, 1995. The stock market rally in
1995 was narrow - led by the technology and finance sectors, as well as
large-cap and blue-chip stocks - and many funds did not beat the
performance of the index during the past 12 months.
Q. WHAT HELPED THE FUND'S PERFORMANCE?
A. The fund's performance came from a number of sectors, including finance
and telephone utilities, as well as from some of the larger holdings,
including the fund's largest investment, Philip Morris. This company's
business was propelled by gains in market share for its Marlboro brand
domestically, and by increased volumes and profits in its international
tobacco business.
Q. LET'S TAKE A LOOK AT YOUR INVESTMENTS IN THE FINANCE SECTOR. WHICH
STOCKS HAVE TURNED OUT WELL?
A. The fund's finance investments are fairly diverse. I pick the stocks for
the fund one-by-one, but many of the top performers over the past 12 months
came from this sector. Among them, Citicorp benefited from growth in its
emerging market credit card business. Fannie Mae - the Federal National
Mortgage Association - was helped by improved business conditions, a strong
supply of mortgages and widening spreads, such that profit growth was
solid. And American Express, having restructured in order to reduce costs,
posted strong and consistent earnings growth from improved marketing of its
existing and new credit card products. Beyond that, some of the fund's
insurance stocks - GenRe, American International Group, Aetna and CIGNA -
contributed well to the fund's return.
Q. HOW ABOUT TELEPHONE UTILITIES?
A. I've owned several of the regional Bell operating companies (RBOCs),
such as Ameritech, BellSouth, Bell Atlantic, NYNEX and SBC Communications.
The regulatory environment is improving on a state-by-state basis, allowing
these companies to focus more on profitability and competitiveness. They've
also been able to improve revenues by offering value-added services, such
as call waiting and caller identification, cellular services, and
additional access lines for computer modem use.
Q. WHICH STOCKS DIDN'T TURN OUT AS WELL AS YOU WOULD HAVE LIKED?
A. A couple of areas were disappointing. First, Wal-Mart struggled as it
went through a major transition. It was upgrading and expanding its older,
most profitable stores, converting them into so-called super centers -
general merchandise stores with grocery stores attached. The negative
impact on the company's profits associated with this process - as well as
the difficult retail environment - was worse and more prolonged than
anticipated. Second, despite better managing their account bases and
internal operations, WMX Technologies and Browning-Ferris Industries -
broadly based pollution control companies - were hurt by the weakening
economy, such that the pace of revenue and profit growth was not as strong
as expected.
Q. GENERAL ELECTRIC WAS ONE OF THE FUND'S TOP FIVE STOCKS AT THE END OF THE
PERIOD. WHY WAS IT ATTRACTIVE TO YOU?
A. GE offered a diverse business portfolio, shareholder-oriented management
and a consistent earnings history, qualities that appeared attractive given
the economic climate. I felt the same way about Emerson Electric and
Allied-Signal. These companies - through geographical expansion and
improvements in productivity - were able to sustain consistent earnings and
free cash flow. I believed the economy was weakening to an extent that the
relative performance expected from these companies would be rewarded.
Q. DOES THAT MEAN YOUR OUTLOOK IS COLORED BY CONCERNS FOR THE ECONOMY?
A. Yes it does. Economic indicators point out that the economy is slowing.
Wages have been stagnant and consumers' disposable income is down. Interest
rates will have to decline, in part so that capital will flow back into the
developing economies, believed to be a prime driver for future global
economic growth including U.S. exports. As it stands at the end of 1995,
economies outside of the U.S. also have slowed, leading me to believe that
demand for U.S. exports will wane. Given this backdrop, I have concerns
about corporate profitability in 1996 and think it will be a tough
investing environment. As a result, I'll be looking for companies with
aspects to their business that will enable them to sustain good earnings
growth despite a weakening economy.
FUND FACTS
GOAL: seeks high current income by investing in
high yielding, lower-rated fixed income
securities
START DATE: September 19, 1985
SIZE: as of December 31, 1995, more than
$1.0 billion
MANAGER: Barry Coffman, since 1990; joined
Fidelity in 1986
(checkmark)
VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO
INVESTMENTS DECEMBER 31, 1995
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 81.3%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 6.0%
AEROSPACE & DEFENSE - 3.3%
Alliant Techsystems, Inc. (a) 447,100 $ 22,634,438
Boeing Co. 344,600 27,008,025
Lockheed Martin Corp. 329,303 26,014,937
McDonnell Douglas Corp. 289,800 26,661,600
Rockwell International Corp. 634,000 33,522,750
Sundstrand Corp. 183,000 12,878,625
Thiokol Corp. 232,700 7,882,713
156,603,088
DEFENSE ELECTRONICS - 2.0%
Litton Industries, Inc. (a) 546,300 24,310,350
Loral Corp. 538,800 19,060,050
Raytheon Co. 1,164,600 55,027,350
98,397,750
SHIP BUILDING & REPAIR - 0.7%
General Dynamics Corp. 592,600 35,037,475
TOTAL AEROSPACE & DEFENSE 290,038,313
BASIC INDUSTRIES - 5.5%
CHEMICALS & PLASTICS - 4.3%
du Pont (E.I.) de Nemours & Co. 585,500 40,911,813
Ethyl Corp. 723,100 9,038,750
Great Lakes Chemical Corp. 179,800 12,945,600
Hercules, Inc. 521,400 29,393,925
Minnesota Mining &
Manufacturing Co. 516,000 34,185,000
Monsanto Co. 190,000 23,275,000
Nalco Chemical Co. 221,200 6,663,650
Raychem Corp. 248,400 14,127,750
Schulman (A.), Inc. 70,600 1,588,500
Union Carbide Corp. 1,013,700 38,013,750
210,143,738
IRON & STEEL - 0.2%
Nucor Corp. 177,000 10,111,125
METALS & MINING - 0.7%
Alcan Aluminium Ltd. 409,114 12,706,568
Aluminum Co. of America 375,000 19,828,125
32,534,693
PACKAGING & CONTAINERS - 0.1%
Crown Cork & Seal Co., Inc. (a) 98,500 4,112,375
PAPER & FOREST PRODUCTS - 0.2%
James River Corp. of Virginia 451,700 10,897,263
TOTAL BASIC INDUSTRIES 267,799,194
CONGLOMERATES - 3.1%
Allied-Signal, Inc. 748,700 35,563,250
ITT Industries, Inc. 292,600 7,022,400
Tyco International Ltd. 1,752,742 62,441,434
United Technologies Corp. 422,300 40,065,713
Whitman Corp. 152,200 3,538,650
148,631,447
CONSTRUCTION & REAL ESTATE - 0.3%
BUILDING MATERIALS - 0.3%
Cooper Cameron Corp. (a) 200,628 7,122,294
Sherwin-Williams Co. 196,900 8,023,675
15,145,969
SHARES VALUE (NOTE 1)
CONSTRUCTION - 0.0%
Castle & Cooke, Inc. 74,767 $ 1,252,331
TOTAL CONSTRUCTION & REAL ESTATE 16,398,300
DURABLES - 2.3%
AUTOS, TIRES, & ACCESSORIES - 1.7%
Chrysler Corp. 237,100 13,129,413
Dana Corp. 406,100 11,878,425
General Motors Corp. 683,376 36,133,506
Johnson Controls, Inc. 61,100 4,200,625
PACCAR, Inc. 55,300 2,329,513
Snap-on Tools Corp. 374,000 16,923,500
84,594,982
CONSUMER ELECTRONICS - 0.4%
Whirlpool Corp. 342,500 18,238,125
TEXTILES & APPAREL - 0.2%
Westpoint Stevens, Inc. Class A 358,900 7,200,431
TOTAL DURABLES 110,033,538
ENERGY - 5.6%
ENERGY SERVICES - 1.5%
Baker Hughes, Inc. 521,800 12,718,875
Dresser Industries, Inc. 158,700 3,868,313
Helmerich & Payne, Inc. 95,000 2,826,250
McDermott International, Inc. 348,400 7,664,800
Schlumberger Ltd. 646,900 44,797,825
71,876,063
OIL & GAS - 4.1%
Amerada Hess Corp. 910,200 48,240,600
British Petroleum PLC ADR 825,877 84,342,689
Canada Occidental Petroleum Ltd. 161,100 5,284,000
Coastal Corp. (The) 380,000 14,155,000
Kerr-McGee Corp. 118,400 7,518,400
Occidental Petroleum Corp. 1,047,000 22,379,625
Petro-Canada 1st Installment Receipt (b) 185,600 1,071,279
Total SA:
Class B 210,425 14,174,149
sponsored ADR 10,978 373,252
197,538,994
TOTAL ENERGY 269,415,057
FINANCE - 19.2%
BANKS - 6.6%
Bank of Boston Corp. 257,877 11,926,811
Barnett Banks, Inc. 86,800 5,121,200
Boatmen's Bancshares, Inc. 55,100 2,252,213
Chase Manhattan Corp. 205,460 12,456,013
Chemical Banking Corp. 604,400 35,508,500
Citicorp 1,262,400 84,896,400
First Bank System, Inc. 181,600 9,011,900
First Interstate Bancorp 372,500 50,846,250
First Union Corp. 393,990 21,915,694
Fleet Financial Group, Inc. 628,054 25,593,201
KeyCorp. 369,200 13,383,500
NationsBank Corp. 428,400 29,827,350
Wells Fargo & Co. 92,600 20,001,600
322,740,632
CREDIT & OTHER FINANCE - 2.2%
American Express Co. 1,974,572 81,697,917
Greenpoint Financial Corp. 327,900 8,771,325
Household International, Inc. 234,011 13,835,900
104,305,142
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
FINANCE - CONTINUED
FEDERAL SPONSORED CREDIT - 4.7%
Federal Home Loan
Mortgage Corporation 636,000 $ 53,106,000
Federal National
Mortgage Association 1,359,000 168,685,875
Student Loan Marketing Association 124,000 8,168,500
229,960,375
INSURANCE - 5.6%
Aetna Life & Casualty Co. 649,000 44,943,250
Allstate Corp. 893,900 36,761,638
American International Group, Inc. 423,000 39,127,500
CIGNA Corp. 308,800 31,883,600
General Re Corp. 320,000 49,600,000
ITT Hartford Group, Inc. 292,600 14,154,525
Loews Corp. 533,000 41,773,875
Prudential Reinsurance Holdings, Inc. 202,100 4,724,088
Travelers, Inc. (The) 147,933 9,301,287
272,269,763
SAVINGS & LOANS - 0.1%
Charter One Financial Corp. 149,000 4,563,125
TOTAL FINANCE 933,839,037
HEALTH - 6.3%
DRUGS & PHARMACEUTICALS - 4.3%
Allergan, Inc. 388,100 12,613,250
American Home Products Corp. 438,100 42,495,700
Bristol-Myers Squibb Co. 646,800 55,543,950
Lilly (Eli) & Co. 66,800 3,757,500
Merck & Co., Inc. 151,400 9,954,550
Pharmacia & Upjohn, Inc. 1,193,400 46,244,250
Schering-Plough Corp. 112,900 6,181,275
SmithKline Beecham PLC ADR 580,700 32,228,850
209,019,325
MEDICAL EQUIPMENT & SUPPLIES - 1.2%
Baxter International, Inc. 1,022,300 42,808,813
Hillenbrand Industries, Inc. 29,000 982,375
I-Stat Corporation (a) 149,400 4,855,500
Nellcor, Inc. (a) 188,324 10,922,792
59,569,480
MEDICAL FACILITIES MANAGEMENT - 0.8%
Columbia/HCA Healthcare Corp. 548,100 27,816,075
Tenet Healthcare Corp. (a) 137,600 2,855,200
U.S. Healthcare, Inc. 134,700 6,263,550
36,934,825
TOTAL HEALTH 305,523,630
INDUSTRIAL MACHINERY & EQUIPMENT - 6.8%
ELECTRICAL EQUIPMENT - 3.2%
Emerson Electric Co. 457,500 37,400,625
General Electric Co. 1,620,200 116,654,400
154,055,025
INDUSTRIAL MACHINERY & EQUIPMENT - 2.0%
Caterpillar, Inc. 335,800 19,728,250
Cooper Industries, Inc. 240,832 8,850,576
Deere & Co. 1,423,200 50,167,800
Ingersoll-Rand Co. 559,000 19,634,875
Varity Corp. (a) 62,700 2,327,738
100,709,239
SHARES VALUE (NOTE 1)
POLLUTION CONTROL - 1.6%
Browning-Ferris Industries, Inc. 1,364,800 $ 40,261,600
WMX Technologies, Inc. 1,222,200 36,513,225
76,774,825
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 331,539,089
MEDIA & LEISURE - 2.1%
BROADCASTING - 0.8%
Viacom, Inc. Class B (non-vtg.) (a) 833,014 39,464,038
LODGING & GAMING - 0.6%
ITT Corp. 594,700 31,519,100
PUBLISHING - 0.6%
Knight-Ridder, Inc. 201,700 12,606,250
Meredith Corp. 224,600 9,405,125
Times Mirror Co. Class A 212,100 7,184,888
29,196,263
RESTAURANTS - 0.1%
Darden Restaurants, Inc. 332,900 3,953,188
TOTAL MEDIA & LEISURE 104,132,589
NONDURABLES - 9.9%
BEVERAGES - 2.1%
Anheuser-Busch Companies, Inc. 649,300 43,421,938
PepsiCo, Inc. 1,077,200 60,188,550
103,610,488
FOODS - 0.7%
ConAgra, Inc. 298,300 12,304,875
Dole Food, Inc. 224,300 7,850,500
Kellogg Co. 75,800 5,855,550
Nabisco Holdings Class A 232,500 7,585,313
33,596,238
HOUSEHOLD PRODUCTS - 1.4%
Avon Products, Inc. 423,880 31,949,955
Colgate-Palmolive Co. 223,600 15,707,900
First Brands Corp. 329,200 15,678,150
Rubbermaid, Inc. 231,000 5,890,500
69,226,505
TOBACCO - 5.7%
Imasco Ltd. 113,700 2,208,414
Philip Morris Companies, Inc. 2,521,100 228,159,550
RJR Nabisco Holdings Corp. 986,839 30,468,654
UST, Inc. 448,500 14,968,688
275,805,306
TOTAL NONDURABLES 482,238,537
RETAIL & WHOLESALE - 2.0%
APPAREL STORES - 0.3%
Limited, Inc. (The) 906,500 15,750,438
GENERAL MERCHANDISE STORES - 1.2%
Dayton Hudson Corp. 71,100 5,332,500
May Department Stores Co. (The) 93,500 3,950,375
Sears, Roebuck & Co. 403,000 15,717,000
Wal-Mart Stores, Inc. 1,596,300 35,717,213
60,717,088
GROCERY STORES - 0.3%
Great Atlantic & Pacific Tea Co., Inc. 312,700 7,192,100
Vons Companies, Inc. (a) 231,900 6,551,175
13,743,275
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
RETAIL & WHOLESALE - CONTINUED
RETAIL & WHOLESALE, MISCELLANEOUS - 0.2%
Home Depot, Inc. (The) 151,400 $ 7,248,275
Tandy Corp. 36,300 1,506,450
8,754,725
TOTAL RETAIL & WHOLESALE 98,965,526
SERVICES - 0.3%
ADT Ltd. (a) 711,600 10,674,000
National Service Industries, Inc. 80,400 2,602,950
13,276,950
TECHNOLOGY - 2.3%
COMPUTERS & OFFICE EQUIPMENT - 1.7%
International Business Machines Corp. 320,700 29,424,225
Pitney Bowes, Inc. 1,111,300 52,231,100
81,655,325
ELECTRONICS - 0.6%
AMP, Inc. 659,600 25,312,150
Thomas & Betts Corp. 81,200 5,988,500
31,300,650
TOTAL TECHNOLOGY 112,955,975
TRANSPORTATION - 1.8%
RAILROADS - 1.7%
Burlington Northern Santa Fe Corp. 625,940 48,823,320
CSX Corp. 390,600 17,821,125
Union Pacific Corp. 237,900 15,701,400
82,345,845
TRUCKING & FREIGHT - 0.1%
Roadway Services, Inc. 105,200 5,141,650
TOTAL TRANSPORTATION 87,487,495
UTILITIES - 7.8%
TELEPHONE SERVICES - 7.8%
Ameritech Corp. 1,067,900 63,006,100
Bell Atlantic Corp. 790,400 52,858,000
BellSouth Corp. 1,632,200 71,000,700
NYNEX Corp. 1,754,600 94,748,400
Pacific Telesis Group 639,500 21,503,188
Koninklijke PPT Nederland 236,700 8,581,847
Koninklijke PPT Nederland (d) 104,400 3,785,149
SBC Communications, Inc. 950,300 54,642,250
Southern New England
Telecommunications Corp. 251,900 10,013,025
TOTAL UTILITIES 380,138,659
TOTAL COMMON STOCKS
(Cost $3,211,246,320) 3,952,413,336
PREFERRED STOCKS - 0.6%
CONVERTIBLE PREFERRED STOCKS - 0.6%
BASIC INDUSTRIES - 0.1%
PAPER & FOREST PRODUCTS - 0.1%
James River Corp. cum, Series P 278,200 6,502,925
SHARES VALUE (NOTE 1)
ENERGY - 0.5%
OIL & GAS - 0.5%
Atlantic Richfield Co.
exchangeable $.5575 431,300 $ 10,135,550
Occidental Petroleum Corp.
Indexed $3.00 218,900 13,599,163
23,734,713
UTILITIES - 0.0%
GAS - 0.0%
Columbia Gas System, Inc. 403 16,473
TOTAL CONVERTIBLE PREFERRED STOCKS 30,254,111
NONCONVERTIBLE PREFERRED STOCKS - 0.0%
UTILITIES - 0.0%
ELECTRIC UTILITY - 0.0%
Gulf States Utilities Co., Series B,
adj. rate 586 28,128
GAS - 0.0%
Columbia Gas System, Inc. 658 16,203
TOTAL NONCONVERTIBLE PREFERRED STOCKS 44,331
TOTAL PREFERRED STOCKS
(Cost $34,163,788) 30,298,442
CORPORATE BONDS - 1.3%
MOODY'S RATINGS PRINCIPAL
(UNAUDITED) (C) AMOUNT
CONVERTIBLE BONDS - 0.3%
CONSTRUCTION & REAL ESTATE - 0.0%
REAL ESTATE INVESTMENT TRUSTS - 0.0%
Liberty Property exchangeable
8%, 7/1/01 - $ 750,000 769,688
HEALTH - 0.2%
DRUGS & PHARMACEUTICALS - 0.2%
Roche Holdings, Inc. liquid yield
option notes 0%, 4/20/10 (d) - 19,580,000 8,664,150
PRECIOUS METALS - 0.1%
Pegasus Gold, Inc. euro
6 1/4%, 4/30/02 (d) Baa3 1,860,000 2,055,300
SERVICES - 0.0%
ADT Operations, Inc. liquid yield
option notes 0%, 7/6/10 Ba3 3,670,000 1,752,425
UTILITIES - 0.0%
GAS - 0.0%
SFP Pipeline Holdings, Inc.
exchangeable 0%,
8/15/10 (e) Baa3 470,000 611,000
TOTAL CONVERTIBLE BONDS 13,852,563
NONCONVERTIBLE BONDS - 1.0%
AEROSPACE & DEFENSE - 0.0%
DEFENSE ELECTRONICS - 0.0%
Tracor, Inc.
10 7/8%, 8/15/01 B2 1,220,000 1,268,800
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
BASIC INDUSTRIES - 0.2%
PACKAGING & CONTAINERS - 0.0%
Owens Illinois, Inc.
10 1/4%, 4/1/99 B2 $ 350,000 $ 360,500
PAPER & FOREST PRODUCTS - 0.2%
Stone Container Corp.
9 7/8%, 2/1/01 B1 7,760,000 7,546,600
TOTAL BASIC INDUSTRIES 7,907,100
DURABLES - 0.2%
TEXTILES & APPAREL - 0.2%
Westpoint Stevens, Inc.:
8 3/4%, 12/15/01 B1 2,660,000 2,660,000
9 3/8%, 12/15/05 B3 7,850,000 7,732,250
10,392,250
FINANCE - 0.0%
BANKS - 0.0%
Signet Banking Corp. (e):
6%, 5/15/97 Baa2 340,000 337,753
6 1/8%, 4/15/98 Baa2 190,000 187,866
525,619
HEALTH - 0.1%
MEDICAL FACILITIES MANAGEMENT - 0.1%
Tenet Healthcare Corp.:
9 5/8%, 9/1/02 Ba2 1,760,000 1,925,000
8 5/8%, 12/1/03 Ba2 3,480,000 3,636,600
5,561,600
MEDIA & LEISURE - 0.4%
BROADCASTING - 0.4%
Viacom, Inc. 8%, 7/7/06 B1 18,890,000 19,220,575
NONDURABLES - 0.1%
BEVERAGES - 0.1%
Canandaigua Wine, Inc.
8 3/4%, 12/15/03 B1 5,700,000 5,671,500
TOTAL NONCONVERTIBLE BONDS 50,547,444
TOTAL CORPORATE BONDS
(Cost $59,279,783) 64,400,007
U.S. TREASURY OBLIGATIONS - 7.4%
5 3/4%, 8/15/03 Aaa 68,000,000 68,818,040
7 1/4%, 2/15/23 Aaa 17,690,000 20,227,442
6 1/4%, 8/15/23 Aaa 8,790,000 9,044,119
7 1/2%, 11/15/24 Aaa 15,390,000 18,499,242
7 5/8%, 2/15/25 Aaa 29,540,000 36,121,807
6 7/8%, 8/15/25 Aaa 35,210,000 39,710,190
Principal STRIPS:
0%, 11/15/18 Aaa 345,000,000 83,797,050
0%, 2/15/19 Aaa 350,000,000 83,699,000
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $332,219,484) 359,916,890
REPURCHASE AGREEMENTS - 9.4%
MATURITY VALUE
AMOUNT (NOTE 1)
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.91% dated
12/29/95 due 1/2/96 $ 455,467,894 $ 455,169,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $4,092,078,375) $ 4,862,197,675
LEGEND
1. Non-income producing
2. Purchased on an installment basis. Market value reflects only those
payments made through December 31, 1995. The remaining installments for
Petro-Canada, aggregating CAD 1,577,600, are due September 23, 1996 and
March 24, 1997.
3. Standard & Poor's Corporation credit ratings are used in the absence of
a rating by Moody's Investors Service, Inc.
4. Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $14,504,599 or 0.3% of net
assets.
5. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $4,313,419,496 and $2,742,014,794, respectively, of which U.S.
government and government agency obligations aggregated $409,364,645 and
$205,227,833, respectively.
The fund placed a portion of its portfolio transactions with brokerage
firms which are affiliates of Fidelity Management & Research Company. The
commissions paid to these affiliated firms were $2,077,039 for the period
(see Note 3 of Notes to Financial Statements).
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows (ratings are unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 7.4% AAA, AA, A 7.4%
Baa 0.1% BBB 0.0%
Ba 0.1% BB 0.6%
B 0.9% B 0.5%
Caa 0.0% CCC 0.0%
Ca, C 0.0% CC, C 0.0%
D 0.0%
The percentage not rated by either S&P or Moody's amounted to 0.2%. FMR has
determined that unrated debt securities that are lower quality account for
0.2% of the total value of investment in securities.
INCOME TAX INFORMATION
At December 31, 1995, the aggregate cost of investment securities for
income tax purposes was $4,098,146,199. Net unrealized appreciation
aggregated $764,051,476, of which $793,759,941 related to appreciated
investment securities and $29,708,465 related to depreciated investment
securities.
The fund hereby designates approximately $64,818,000 as a capital gain
dividend for the purpose of the dividend paid deduction.
VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
ASSETS
Investment in securities, at value (including repurchase agreements of $455,169,000) (cost $4,092,078,375) $ 4,862,197,675
- - See accompanying schedule
Cash 719
Receivable for investments sold 1,835,507
Receivable for fund shares sold 10,941,112
Dividends receivable 10,792,285
Interest receivable 5,307,245
Other receivables 126,974
TOTAL ASSETS 4,891,201,517
LIABILITIES
Payable for investments purchased $ 7,521,288
Payable for fund shares redeemed 1,339,589
Accrued management fee 2,004,252
Other payables and accrued expenses 901,707
TOTAL LIABILITIES 11,766,836
NET ASSETS $ 4,879,434,681
Net Assets consist of:
Paid in capital $ 3,883,373,607
Undistributed net investment income 8,997,355
Accumulated undistributed net realized gain (loss) on investments and foreign 216,938,284
currency transactions
Net unrealized appreciation (depreciation) on investments 770,125,435
and assets and liabilities in foreign currencies
NET ASSETS, for 253,263,397 shares outstanding $ 4,879,434,681
NET ASSET VALUE, offering price and redemption price per share ($4,879,434,681 (divided by) 253,263,397 shares) $19.27
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
INVESTMENT INCOME $ 74,462,683
Dividends
Interest 35,486,492
TOTAL INCOME 109,949,175
EXPENSES
Management fee $ 17,818,979
Transfer agent fees 1,660,720
Accounting fees and expenses 760,752
Non-interested trustees' compensation 13,087
Custodian fees and expenses 91,612
Registration fees 607,587
Audit 49,196
Legal 15,555
Interest 9,801
Miscellaneous 7,729
TOTAL EXPENSES 21,035,018
NET INVESTMENT INCOME 88,914,157
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities 220,993,365
Foreign currency transactions 4,100 220,997,465
Change in net unrealized appreciation (depreciation) on:
Investment securities 715,594,560
Assets and liabilities in (6,641 715,587,919
foreign currencies )
NET GAIN (LOSS) 936,585,384
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 1,025,499,541
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
Operations $ 88,914,157 $ 49,846,224
Net investment income
Net realized gain (loss) 220,997,465 121,898,471
Change in net unrealized appreciation (depreciation) 715,587,919 (61,690,963)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 1,025,499,541 110,053,732
Distributions to shareholders (84,729,039) (44,739,784)
From net investment income
From net realized gain (121,254,353) (68,533,800)
TOTAL DISTRIBUTIONS (205,983,392) (113,273,584)
Share transactions 1,784,340,253 1,048,772,904
Net proceeds from sales of shares
Reinvestment of distributions 205,981,922 113,273,584
Cost of shares redeemed (214,815,736) (192,914,992)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 1,775,506,439 969,131,496
TOTAL INCREASE (DECREASE) IN NET ASSETS 2,595,022,588 965,911,644
NET ASSETS
Beginning of period 2,284,412,093 1,318,500,449
End of period (including undistributed net investment income of $8,997,355 and $4,150,957,
respectively) $ 4,879,434,681 $ 2,284,412,093
OTHER INFORMATION
Shares
Sold 103,951,843 68,815,564
Issued in reinvestment of distributions 12,868,445 7,484,681
Redeemed (12,384,683) (12,882,315)
Net increase (decrease) 104,435,605 63,417,930
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA 1995 1994 1993 C 1992 1991
Net asset value, beginning of period $ 15.35 $ 15.44 $ 13.40 $ 11.85 $ 9.51
Income from Investment Operations
Net investment income .41 .41 .37 .40 .50
Net realized and unrealized gain (loss) 4.69 .64 2.06 1.57 2.43
Total from investment operations 5.10 1.05 2.43 1.97 2.93
Less Distributions (.40) (.37) (.35) (.42) (.59)
From net investment income
In excess of net investment income - - (.04) - -
From net realized gain (.78) (.77) - - -
Total distributions (1.18) (1.14) (.39) (.42) (.59)
Net asset value, end of period $ 19.27 $ 15.35 $ 15.44 $ 13.40 $ 11.85
TOTAL RETURN A, B 35.09% 7.07% 18.29% 16.89% 31.44%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 4,879,435 $ 2,284,412 $ 1,318,500 $ 592,880 $ 282,171
Ratio of expenses to average net assets .61% .60% .62% .65% .74%
Ratio of expenses to average net assets after expense
reductions .61% .58% .62% .65% .74%
D
Ratio of net investment income to average net assets 2.56% 2.83% 2.87% 3.52% 4.83%
Portfolio turnover rate 87% 134% 120% 74% 107%
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
B TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR
INSURANCE COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES
WOULD REDUCE THE TOTAL RETURNS SHOWN.
C EFFECTIVE JANUARY 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION
93-2, "DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT
PRESENTATION OF INCOME, CAPITAL GAIN,
AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES." AS
A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK
TO TAX DIFFERENCES.
D FMR HAS DIRECTED CERTAIN PORTFOLIO TRADES TO BROKERS WHO PAID A
PORTION OF THE FUND'S EXPENSES.
VARIABLE INSURANCE PRODUCTS FUND: GROWTH PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance: total
percentage change in value, the average annual percentage change, or the
growth of a hypothetical $10,000 investment. A fund's total return includes
changes in a fund's share price, plus reinvestment of any dividends
(income) and capital gains (the profits the fund earns when it sells
securities that have grown in value).
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED PAST 1 PAST 5 LIFE OF
DECEMBER 31, 1995 YEAR YEARS FUND
Growth 35.36% 20.78% 14.83%
S&P 500 37.58% 16.60% 14.46%
AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and
show you what would have happened if the fund had performed at a constant
rate each year.
UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how
it will do tomorrow. The stock market, for
example, has a history of growth in the long run
and volatility in the short run. In turn, the share
price and return of a fund that invests in stocks
will vary. That means if you sell your shares
during a market downturn, you might lose
money. But if you can ride out the market's ups
and downs, you may have a gain.
(checkmark)
You can compare these figures to the performance of the Standard & Poor's
Composite Index of 500 Stocks- a common proxy for the U.S. stock market.
This benchmark includes reinvested dividends and capital gains, if any.
Figures for more than one year assume a steady compounded rate of return
and are not the fund's year-by-year results, which fluctuated over the
periods shown. The life of fund figures are from commencement of
operations, October 9, 1986.
If Fidelity had not reimbursed certain fund expenses, the fund's life of
fund total return would have been lower.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE
ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL
CHARGES, THE TOTAL RETURNS WOULD HAVE BEEN LOWER.
Past performance is no guarantee of future results. Principal and
investment return will vary and you may have a gain or loss when you
withdraw your money.
$10,000 OVER LIFE OF FUND
VIP Growth (2Standard &
10/09/86 10000.00 10000.00
10/31/86 10000.00 10329.97
11/30/86 10220.00 10580.99
12/31/86 10030.00 10311.18
01/31/87 11100.00 11700.09
02/28/87 11650.00 12162.25
03/31/87 11839.97 12513.74
04/30/87 11839.97 12402.36
05/31/87 11920.10 12510.26
06/30/87 12270.69 13142.03
07/31/87 12761.52 13808.33
08/31/87 13142.16 14323.38
09/30/87 12991.91 14009.70
10/31/87 10137.09 10992.01
11/30/87 9425.90 10086.27
12/31/87 10397.53 10853.84
01/31/88 10623.12 11310.78
02/29/88 11484.46 11837.86
03/31/88 11381.92 11472.07
04/30/88 11525.47 11599.41
05/31/88 11422.93 11700.33
06/30/88 11997.15 12237.37
07/31/88 11935.63 12190.87
08/31/88 11648.52 11776.38
09/30/88 11976.65 12278.06
10/31/88 12007.41 12619.39
11/30/88 11894.61 12438.93
12/31/88 12017.66 12656.61
01/31/89 12879.00 13583.07
02/28/89 12612.39 13244.86
03/31/89 12993.68 13553.46
04/30/89 13680.85 14256.89
05/31/89 14170.19 14834.29
06/30/89 13982.78 14749.73
07/31/89 15232.18 16081.64
08/31/89 15492.47 16396.84
09/30/89 15627.82 16329.61
10/31/89 15190.53 15950.76
11/30/89 15440.41 16276.16
12/31/89 15804.81 16666.78
01/31/90 14888.59 15548.44
02/28/90 15030.81 15749.02
03/31/90 15214.51 16166.37
04/30/90 14771.47 15762.21
05/31/90 16078.97 17299.02
06/30/90 16413.95 17181.39
07/31/90 16154.61 17126.41
08/31/90 14490.52 15578.18
09/30/90 12999.33 14819.52
10/31/90 12534.68 14755.80
11/30/90 13550.42 15709.03
12/31/90 13950.23 16147.31
01/31/91 14879.53 16851.33
02/28/91 15989.61 18056.20
03/31/91 16472.15 18493.16
04/30/91 16318.61 18537.54
05/31/91 17283.69 19338.37
06/30/91 16000.57 18452.67
07/31/91 17524.96 19312.56
08/31/91 18303.60 19770.27
09/30/91 18446.17 19440.11
10/31/91 19016.45 19700.60
11/30/91 17930.73 18906.67
12/31/91 20299.56 21069.59
01/31/92 21538.81 20677.70
02/29/92 21989.40 20946.51
03/31/92 20641.73 20538.05
04/30/92 19833.13 21141.87
05/31/92 19664.67 21245.47
06/30/92 18901.00 20928.91
07/31/92 19630.98 21784.90
08/31/92 19091.92 21338.31
09/30/92 19428.83 21590.10
10/31/92 20181.28 21665.67
11/30/92 21528.94 22404.47
12/31/92 22191.55 22680.04
01/31/93 22629.54 22870.55
02/28/93 22163.03 23181.59
03/31/93 23046.80 23670.73
04/30/93 22805.77 23097.89
05/31/93 24504.44 23716.92
06/30/93 24756.94 23785.70
07/31/93 24688.08 23690.55
08/31/93 25927.65 24588.43
09/30/93 26409.70 24399.09
10/31/93 26662.20 24904.16
11/30/93 25583.32 24667.57
12/31/93 26490.04 24966.04
01/31/94 27155.74 25814.89
02/28/94 26875.65 25115.31
03/31/94 25654.59 24020.28
04/30/94 25813.32 24327.74
05/31/94 25215.00 24726.71
06/30/94 23932.88 24120.91
07/31/94 24763.21 24912.07
08/31/94 26167.43 25933.47
09/30/94 25849.96 25298.10
10/31/94 26900.07 25867.31
11/30/94 25825.53 24925.22
12/31/94 26484.91 25294.86
01/31/95 25984.27 25950.76
02/28/95 27060.36 26962.06
03/31/95 28042.58 27757.71
04/30/95 28987.98 28575.17
05/31/95 30117.54 29717.32
06/30/95 32781.83 30407.65
07/31/95 36023.18 31415.97
08/31/95 36465.18 31494.83
09/30/95 37410.57 32823.91
10/31/95 37029.96 32706.73
11/30/95 37005.40 34142.55
12/29/95 35851.29 34800.14
Let's say you invested $10,000 in Growth Portfolio on October 9, 1986, when
the fund started. By December 31, 1995, your investment would have grown to
$35,851 - a 258.51% increase. That compares to $10,000 invested in the S&P
500, which would have grown to $34,800 over the same period - a 248%
increase.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF DECEMBER 31, 1995
% OF FUND'S
INVESTMENTS
Oracle Systems Corp. 2.9
Cisco Systems, Inc. 2.5
Microsoft Corp. 2.4
AirTouch Communications, Inc. 2.2
General Electric Co. 1.7
TOP FIVE MARKET SECTORS AS OF DECEMBER 31, 1995
% OF FUND'S
INVESTMENTS
Technology 32.7
Utilities 9.4
Health 8.5
Retail & Wholesale 7.7
Finance 4.1
ASSET ALLOCATION AS OF DECEMBER 31, 1995*
Row: 1, Col: 1, Value: 15.4
Row: 1, Col: 2, Value: 1.7
Row: 1, Col: 3, Value: 82.90000000000001
Stocks 82.9%
Bonds 1.7%
Short-term investments 15.4%
FOREIGN INVESTMENTS 2.7%
*
VARIABLE INSURANCE PRODUCTS FUND: GROWTH PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
An interview with Lawrence Greenberg, Portfolio
Manager of Growth Portfolio
Q. LARRY, HOW DID THE FUND PERFORM?
A. Although the fund did well compared to its peers, it slightly lagged the
Standard & Poor's 500 Index, which returned 37.58% for the 12-month period
ended December 31, 1995.
Q. WHY WAS THE STOCK MARKET SO STRONG IN 1995?
A. In my opinion, two things really drive the equity market: strong
earnings and declining interest rates. During most of 1995, we had both.
This really played into the hands of the kinds of growth stocks the fund
owns. Many of these stocks represent fast-growing companies which are able
to grow faster than other companies in a slow but expanding economic
environment. They also can benefit more from a declining interest rate
environment.
Q. THE FUND'S TECHNOLOGY WEIGHTING HAS BEEN REDUCED, BUT, AT APPROXIMATELY
32.7%, IT REMAINED THE LARGEST SECTOR AS OF DECEMBER 31, 1995. DO YOU THINK
THIS AREA OF THE MARKET CAN KEEP UP THE TORRID PACE OF GROWTH WE SAW IN
1995?
A. Probably not. What we saw in 1995 was strength across the board. For the
most part, earnings grew as fast as the stock prices went up. Therefore,
despite good appreciation, price-to-earnings multiples didn't go up that
much. I don't think investors can expect the same level of growth in 1996
as they did in 1995. I think investors can expect to see more of an
environment of the haves and have-nots, with specific companies leaving
others behind.
Q. SO HOW WILL YOU MANAGE THE FUND'S TECHNOLOGY HOLDINGS GOING FORWARD?
A. I intend to approach the technology sector on a more selective basis,
looking at individual areas showing strength. For example, corporate
America's move from mainframe computing to client-server computing, along
with the rise of the Internet, may continue to benefit networking and
database companies. These companies provide the hardware and software for
the new corporate networks.
Q. WHAT WAS THE ATTRACTION TO UTILITY STOCKS, WHICH MADE UP 9.4% OF THE
FUND'S INVESTMENTS AT THE END OF DECEMBER?
A. All of the fund's utility holdings are in the telecommunications
industry. I believe the telecommunications industry offers excellent growth
opportunities both domestically and abroad as diversification,
privatization, globalization and proliferation of wireless communications
continue to create a strong demand outlook.
Q. IN THE FUND'S SEMIANNUAL REPORT, YOU DISCUSSED THAT YOU HAD CUT BACK ON
THE FUND'S HEALTH CARE EXPOSURE BECAUSE OF CONCERNS SURROUNDING FEDERAL
HEALTH CARE REFORM. WHAT'S HAPPENED SINCE THEN?
A. I slowly raised the fund's stake in health care stocks as values
presented themselves. Congress and the president continue to haggle over
the future of Medicare and Medicaid, but I anticipate that government
cutbacks in spending could force more Medicare users toward HMOs.
Therefore, I added more HMOs to the portfolio.
Q. WERE THERE ANY DISAPPOINTMENTS IN 1995?
A. Sure. Disappointments came on two fronts. First, in September, the
technology sector slowed somewhat as several corporate earnings
disappointments fueled investors' concerns that the sector had become
overvalued. As this occurred, investors moved to more defensive,
consumer-oriented stocks such as Coca-Cola, PepsiCo, Merck and Pfizer. In
hindsight, I wish I had been able to make this shift earlier. Second, the
underperformance of several of the fund's retail stocks hindered
performance. Building supply companies Home Depot and Lowe's, for example,
were hurt by falling lumber prices and a drop in demand with the slowdown
in the housing market.
Q. SO WHAT'S YOUR OUTLOOK?
A. As I mentioned earlier, the real fuel for a strong market - good
corporate earnings and declining interest rates - will probably not be as
strong in 1996 as it was in 1995. Given what we know now, though, I
believe, barring any unforeseen changes, the market environment may still
be constructive for stocks this year.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
FUND FACTS
GOAL: seeks high current income by investing in
high yielding, lower-rated fixed income
securities
START DATE: September 19, 1985
SIZE: as of December 31, 1995, more than
$1.0 billion
MANAGER: Barry Coffman, since 1990; joined
Fidelity in 1986
(checkmark)
VARIABLE INSURANCE PRODUCTS FUND: GROWTH PORTFOLIO
INVESTMENTS DECEMBER 31, 1995
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 82.7%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 0.9%
AEROSPACE & DEFENSE - 0.6%
C A E Industries Ltd. 535,900 $ 4,075,173
General Motors Corp. Class H 150,000 7,368,750
Rockwell International Corp. 225,000 11,896,875
Special Devices, Inc. (a) 246,700 3,207,100
26,547,898
DEFENSE ELECTRONICS - 0.3%
Loral Corp. 75,000 2,653,125
Raytheon Co. 165,000 7,796,250
10,449,375
TOTAL AEROSPACE & DEFENSE 36,997,273
BASIC INDUSTRIES - 1.5%
CHEMICALS & PLASTICS - 0.6%
Airgas, Inc. (a) 179,600 5,971,700
du Pont (E.I.) de Nemours & Co. 135,000 9,433,125
Minnesota Mining & Manufacturing Co. 100,000 6,490,900
Union Carbide Corp. 100,000 3,750,000
25,645,725
METALS & MINING - 0.9%
Alcan Aluminium Ltd. 100,000 3,105,875
Aluminum Co. of America 225,000 11,896,875
Freeport McMoRan Copper & Gold, Inc.
Class A 85,000 2,380,000
IMCO Recycling, Inc. 299,000 7,325,500
Inco Ltd. 175,000 5,788,013
Reynolds Metals Co. 125,000 7,078,125
37,574,388
TOTAL BASIC INDUSTRIES 63,220,113
CONGLOMERATES - 0.9%
Allied-Signal, Inc. 265,000 12,587,500
Harris Corp. 60,000 3,277,500
ITT Industries, Inc. 85,000 2,040,000
Tyco International Ltd. 350,000 12,468,750
United Technologies Corp. 65,000 6,166,875
36,540,625
CONSTRUCTION & REAL ESTATE - 0.6%
BUILDING MATERIALS - 0.1%
York International Corp. 60,000 2,820,000
CONSTRUCTION - 0.4%
Oakwood Homes Corp. 440,000 16,885,000
ENGINEERING - 0.1%
Fluor Corp. 85,000 5,610,000
TOTAL CONSTRUCTION & REAL ESTATE 25,315,000
DURABLES - 3.0%
AUTOS, TIRES, & ACCESSORIES - 2.1%
Chrysler Corp. 750,000 41,531,250
General Motors Corp. 825,146 43,629,595
Safety Components International, Inc. (a) 228,200 3,594,150
88,754,995
CONSUMER ELECTRONICS - 0.1%
Whirlpool Corp. 40,000 2,130,000
HOME FURNISHINGS - 0.1%
Leggett & Platt, Inc. 150,000 3,637,500
SHARES VALUE (NOTE 1)
TEXTILES & APPAREL - 0.7%
Adidas AG 71,400 $ 3,768,609
Adidas AG (a)(b) 45,600 2,406,843
NIKE, Inc. Class B 200,000 13,925,000
Tommy Hilfiger (a) 180,000 7,627,500
27,727,952
TOTAL DURABLES 122,250,447
ENERGY - 1.2%
ENERGY SERVICES - 0.3%
Schlumberger Ltd. 185,000 12,811,250
INDEPENDENT POWER - 0.2%
Thermo Electron Corp. (a) 175,000 9,100,000
OIL & GAS - 0.7%
Amerada Hess Corp. 225,000 11,925,000
Barrett Resources Corp. (a) 87,300 2,564,438
British Petroleum PLC ADR 75,000 7,659,375
Unocal Corp. 225,000 6,553,125
28,701,938
TOTAL ENERGY 50,613,188
FINANCE - 4.1%
BANKS - 0.8%
Banc One Corp. 350,000 13,212,500
BankAmerica Corp. 125,000 8,093,750
Chemical Banking Corp. 200,000 11,750,000
33,056,250
CREDIT & OTHER FINANCE - 0.5%
American Express Co. 435,000 17,998,125
Household International, Inc. 20,000 1,165,000
19,163,125
FEDERAL SPONSORED CREDIT - 1.6%
Federal National Mortgage Association 550,000 68,268,750
INSURANCE - 0.8%
Allstate Corp. 285,000 11,720,625
American International Group, Inc. 1,600 146,883
General Re Corp. 81,200 12,586,000
ITT Hartford Group, Inc. 85,000 4,111,875
Travelers, Inc. (The) 100,000 6,287,500
34,852,883
SECURITIES INDUSTRY - 0.4%
Alliance Entertainment Corp. (a) 684,800 6,505,600
Edwards (A.G.), Inc. 144,900 3,459,488
Merrill Lynch & Co., Inc. 100,000 5,100,000
15,065,088
TOTAL FINANCE 170,406,096
HEALTH - 8.5%
DRUGS & PHARMACEUTICALS - 2.4%
Amgen, Inc. (a) 225,000 13,359,375
Biogen, Inc. (a) 117,700 7,238,550
Bristol-Myers Squibb Co. 175,000 15,028,125
Dura Pharmaceuticals, Inc. (a) 125,000 4,343,750
Genentech, Inc. special (a) 125,000 6,625,000
Merck & Co., Inc. 300,000 19,725,000
Pharmacia & Upjohn, Inc. 400,000 15,500,000
Pfizer, Inc. 265,000 16,695,000
98,514,800
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
HEALTH - CONTINUED
MEDICAL EQUIPMENT & SUPPLIES - 2.6%
Abbott Laboratories 225,000 $ 9,393,750
Baxter International, Inc. 275,000 11,515,625
Biomet, Inc. (a) 185,000 3,306,875
Cardinal Health, Inc. 151,600 8,300,100
Conmed Corp. 7,700 192,500
Johnson & Johnson 120,000 10,275,000
Medtronic, Inc. 300,000 16,762,500
Millipore Corp. 175,000 7,196,875
Nellcor, Inc. 38,500 2,243,588
Oakley, Inc. (a) 100,000 3,400,000
Pall Corp. 235,000 6,315,625
Physician Sales & Service, Inc. (a) 300,000 8,550,000
St. Jude Medical, Inc. (a) 186,500 8,019,500
Thermedics, Inc. (a) 175,000 4,856,250
Thermo Cardiosystems, Inc. (a) 75,000 5,793,750
106,121,938
MEDICAL FACILITIES MANAGEMENT - 3.5%
American Medical Response 360,000 11,700,000
Columbia/HCA Healthcare Corp. 400,025 20,301,269
Foundation Health Corp. (a) 215,000 9,245,000
HEALTHSOUTH Rehabilitation Corp. (a) 1,000,000 29,125,000
Healthsource, Inc. (a) 95,000 3,420,000
Humana, Inc. 200,000 5,475,000
Multicare Companies, Inc. (a) 175,000 4,200,000
Oxford Health Plans, Inc. (a) 81,500 6,020,813
Physician Reliance Network, Inc. (a) 200,000 7,950,000
Sterling Healthcare Group, Inc. (a) 70,000 743,750
United HealthCare Corp. 260,000 17,030,000
U.S. Healthcare, Inc. 425,000 19,762,500
Vencor, Inc. (a) 360,025 11,700,813
146,674,145
TOTAL HEALTH 351,310,883
INDUSTRIAL MACHINERY & EQUIPMENT - 4.1%
ELECTRICAL EQUIPMENT - 2.8%
Avid Technology, Inc. (a) 225,050 4,275,950
Emerson Electric Co. 125,000 10,218,750
General Electric Co. 975,000 70,200,000
Glenayre Technologies, Inc. 350,175 21,798,373
Pinnacle Systems (a) 257,600 6,375,600
United Communication Industry
PCL (For. Reg.) 154,000 1,968,559
114,837,232
INDUSTRIAL MACHINERY & EQUIPMENT - 1.0%
Case Corp. 115,000 5,261,250
Caterpillar, Inc. 500,000 29,375,000
Global Industrial Technologies, Inc. (a) 65,800 1,241,975
Semitool, Inc. (a) 6,200 80,600
Singer Company 235,200 6,556,200
42,515,025
POLLUTION CONTROL - 0.3%
TETRA Technologies, Inc. (a) 200,000 3,475,000
WMX Technologies, Inc. 175,000 5,228,125
Zurn Industries, Inc. 125,000 2,671,875
11,375,000
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 168,727,257
SHARES VALUE (NOTE 1)
MEDIA & LEISURE - 2.6%
BROADCASTING - 0.1%
Emmis Broadcasting Corp. Class A (a) 25,900 802,900
Evergreen Media Corp. Class A (a) 88,800 2,841,600
3,644,500
ENTERTAINMENT - 0.2%
Disney (Walt) Co. 150,000 8,850,000
LEISURE DURABLES & TOYS - 0.1%
Mattel, Inc. 135,000 4,151,250
LODGING & GAMING - 1.4%
Doubletree Corp. (a) 285,900 7,504,875
HFS, Inc. (a) 525,000 42,918,750
ITT Corp. 85,000 4,505,000
Showboat, Inc. 150,000 3,956,250
58,884,875
RESTAURANTS - 0.8%
Applebee's International, Inc. 235,000 5,346,250
Apple South, Inc. 425,000 9,137,500
Lone Star Steakhouse Saloon (a) 235,000 9,018,125
Outback Steakhouse, Inc. (a) 245,000 8,789,375
Starbucks Corp. (a) 100,000 2,100,000
34,391,250
TOTAL MEDIA & LEISURE 109,921,875
NONDURABLES - 2.6%
AGRICULTURE - 0.1%
Pioneer Hi-Bred International, Inc. 70,000 3,893,750
BEVERAGES - 0.9%
Coca-Cola Company (The) 200,000 14,850,000
PepsiCo, Inc. 390,000 21,791,250
36,641,250
TOBACCO - 1.6%
Philip Morris Companies, Inc. 735,400 66,553,700
TOTAL NONDURABLES 107,088,700
PRECIOUS METALS - 0.5%
Barrick Gold Corp. 325,000 8,575,512
Firstmiss Gold, Inc. (a) 113,353 2,522,104
Newmont Mining Corp. 200,000 9,050,000
20,147,616
RETAIL & WHOLESALE - 7.7%
APPAREL STORES - 0.7%
Baby Superstore, Inc. (a) 75,000 4,275,000
Gap, Inc. 100,000 4,200,000
Just For Feet, Inc. (a) 575,000 20,556,250
29,031,250
APPLIANCE STORES - 0.4%
Cellstar Corp. (a) 710,000 18,460,000
DRUG STORES - 0.5%
General Nutrition Companies, Inc. (a) 735,000 16,905,000
Rite Aid Corp. 140,000 4,795,000
21,700,000
GENERAL MERCHANDISE STORES - 0.5%
Dollar General Corp. 260,050 5,396,038
Wal-Mart Stores, Inc. 681,700 15,253,038
20,649,076
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
RETAIL & WHOLESALE - CONTINUED
RETAIL & WHOLESALE, MISCELLANEOUS - 5.6%
Barnes & Noble, Inc. (a) 75,000 $ 2,175,000
Bed Bath & Beyond, Inc. (a) 250,000 9,703,125
Corporate Express (a) 400,000 12,050,000
Home Depot, Inc. (The) 425,000 20,346,875
Lowe's Companies, Inc. 1,275,000 42,712,500
Micro Warehouse, Inc. (a) 100,000 4,325,000
Officemax, Inc. (a) 950,000 21,256,250
Office Depot, Inc. (a) 300,000 5,925,000
Petco Animal Supplies, Inc. (a) 416,600 12,185,550
Petsmart, Inc. (a) 691,300 21,430,300
Staples, Inc. (a) 750,000 18,281,250
Sunglass Hut International, Inc. (a) 1,935,000 45,956,250
U.S. Office Products Co. (a) 235,000 5,346,250
Viking Office Products, Inc. (a) 175,000 8,137,500
229,830,850
TOTAL RETAIL & WHOLESALE 319,671,176
SERVICES - 1.3%
LEASING & RENTAL - 0.7%
Hollywood Entertainment Corp. (a) 1,345,400 11,267,725
Movie Gallery, Inc. (a) 500,000 15,250,000
26,517,725
SERVICES - 0.6%
Medaphis Corp. (a) 575,000 21,275,000
Zebra Technologies Corp. Class A (a) 120,000 4,080,000
25,355,000
TOTAL SERVICES 51,872,725
TECHNOLOGY - 32.5%
COMMUNICATIONS EQUIPMENT - 5.9%
Aspect Telecommunications Corp. (a) 110,000 3,685,000
Cisco Systems, Inc. (a) 1,400,000 104,475,000
DSC Communications Corp. (a) 1,800,000 66,375,000
Ericsson (L.M.) Telephone Co.
Class B ADR 178,500 3,480,750
Global Village Communication (a) 735,000 14,240,625
InterVoice, Inc. (a) 182,000 3,458,000
Jabil Circuit, Inc. (a) 235,700 2,651,625
Microtest, Inc. (a) 96,600 966,000
Microwave Power Devices, Inc. (a)(c) 253,000 2,814,625
U.S. Robotics Corp. 500,000 43,875,000
246,021,625
COMPUTER SERVICES & SOFTWARE - 14.2%
Access Health Marketing, Inc. (a) 50,000 2,212,500
Affiliated Computer Services Class A (a) 14,600 547,500
America Online, Inc. (a) 1,225,000 45,937,500
American Management Systems, Inc. (a) 240,800 7,224,000
Ascend Communications, Inc. (a) 400,000 32,450,000
Automatic Data Processing, Inc. 200,000 14,850,000
Broderbund Software, Inc. (a) 75,000 4,556,250
Business Objects SA sponsored ADR (a) 185,000 8,949,375
CUC International, Inc. (a) 665,000 22,693,125
Ceridian Corp. (a) 100,000 4,125,000
CompUSA, Inc. (a) 415,000 12,916,875
Computer Sciences Corp. (a) 250,000 17,562,500
DST Systems, Inc. (a) 100,000 2,850,000
Data Broadcasting Corp. (a) 203,800 2,522,025
Electronic Arts, Inc. (a) 195,800 5,115,275
FTP Software, Inc. (a) 250,000 7,250,000
SHARES VALUE (NOTE 1)
First Data Corp. 125,090 $ 8,365,394
General Motors Corp. Class E 435,000 22,620,000
HBO & Co. 250,000 19,156,250
Hummingbird Communications Ltd. (a) 140,000 5,746,326
Inso Corp. (a) 178,800 7,599,000
Macromedia, Inc. (a) 27,600 1,442,100
McAfee Associates, Inc. (a) 200,000 8,775,000
Medic Computer Systems, Inc. (a) 110,000 6,655,000
Metatools, Inc. (a) 4,000 104,000
Mercury Interactive Group Corp. (a) 329,800 6,018,850
Microsoft Corp. (a) 1,150,000 100,912,500
NETCOM On-Line Communication
Services, Inc. (a) 152,000 5,472,000
Netscape Communications Corp. (a) 15,000 2,085,000
Oracle Systems Corp. (a) 2,850,000 120,768,750
Parametric Technology Corp. (a) 125,000 8,312,500
Peoplesoft, Inc. (a) 779,300 33,509,900
Progress Software Corp. (a) 85,000 3,187,500
Project Software & Development, Inc. (a) 400 13,950
PsiNet, Inc. (a) 450,000 10,293,750
Stratacom, Inc. (a) 85,000 6,247,500
SunGard Data Systems, Inc. (a) 250,000 7,125,000
Systems & Computer Technology Corp. (a) 224,700 4,465,913
Technology Solutions, Inc. (a) 107,700 2,100,150
UUNET Technologies, Inc. (a) 40,000 2,520,000
585,258,258
COMPUTERS & OFFICE EQUIPMENT - 7.2%
Adaptec, Inc. (a) 625,000 25,625,000
Bay Networks, Inc. (a) 1,250,000 51,406,250
Compaq Computer Corp. (a) 1,425,000 68,400,000
Dell Computer Corp. (a) 350,000 12,118,750
Digital Equipment Corp. (a) 250,000 16,031,250
Discreet Logic, Inc. (a) 47,200 1,180,000
Gateway 2000, Inc. (a) 200,000 4,900,000
International Business Machines Corp. 153,500 14,083,625
Madge NV (a) 185,064 8,281,614
Pitney Bowes, Inc. 165,000 7,755,000
Read Rite Corp. (a) 250,026 5,813,105
SCI Systems, Inc. (a) 200,000 6,200,000
Seagate Technology (a) 225,000 10,687,500
Silicon Graphics, Inc. (a) 1,259,700 34,641,750
Sun Microsystems, Inc. (a) 320,000 14,600,000
Tech Data Corp. (a) 25,200 378,000
Western Digital Corp. (a) 440,000 7,865,000
Xerox Corp. 55,000 7,535,000
297,501,844
ELECTRONIC INSTRUMENTS - 0.0%
Cohu, Inc. 72,300 1,843,650
ELECTRONICS - 5.1%
Altera Corp. (a) 650,000 32,337,500
Analog Devices, Inc. (a) 572,300 20,245,113
Atmel Corp. (a) 725,000 16,221,875
Brightpoint, Inc. (a) 390,200 5,511,575
Cascade Communications Corp. (a) 35,000 2,983,750
Flextronics International (a) 50,000 1,500,000
International Rectifier Corp. (a) 175,000 4,375,000
Kemet Corp. (a) 250,000 5,968,750
LSI Logic Corp. (a) 835,030 27,347,233
Linear Technology Corp. 465,700 18,278,725
Marshall Industries (a) 4,100 131,713
Maxim Integrated Products, Inc. (a) 1,000,000 38,500,000
Microchip Technology, Inc. (a) 425,050 15,514,325
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
TECHNOLOGY - CONTINUED
ELECTRONICS - CONTINUED
Solectron Corp. (a) 150,000 $ 6,618,750
Xilinx, Inc. (a) 450,000 13,725,000
209,259,309
PHOTOGRAPHIC EQUIPMENT - 0.1%
3D Systems Corp. (Del) (a) 204,600 4,859,250
TOTAL TECHNOLOGY 1,344,743,936
TRANSPORTATION - 1.3%
AIR TRANSPORTATION - 0.5%
AMR Corp. (a) 90,000 6,682,500
America West Airlines, Inc. Class B (a) 200,000 3,400,000
Delta Air Lines, Inc. 55,000 4,063,125
Southwest Airlines Co. 200,000 4,650,000
Trans World Airlines, Inc. (a) 275,000 2,853,125
21,648,750
RAILROADS - 0.8%
Burlington Northern Santa Fe Corp. 140,025 10,921,950
CSX Corp. 302,400 13,797,000
Union Pacific Corp. 115,000 7,590,000
32,308,950
TOTAL TRANSPORTATION 53,957,700
UTILITIES - 9.4%
CELLULAR - 4.8%
AirTouch Communications, Inc. (a) 3,150,000 88,987,500
Arch Communications Group, Inc. (a) 250,043 6,001,032
BCE Mobile Communications, Inc. (a) 13,000 439,495
Metrocall, Inc. (a) 229,300 4,385,363
Mobile Telecommunications
Technologies, Inc. (a) 210,000 4,488,750
Mobilemedia Corp. (a) 128,600 2,861,350
Palmer Wireless, Inc. (a) 975,000 21,450,000
United States Cellular Corp. (a) 471,300 15,906,375
Vanguard Cellular Systems, Inc.
Class A (a)(c) 2,625,000 53,156,250
197,676,115
TELEPHONE SERVICES - 4.6%
AT&T Corp. 600,000 38,850,000
Ameritech Corp. 525,000 30,975,000
Bell Atlantic Corp. 450,000 30,093,750
BellSouth Corp. 600,000 26,100,000
Frontier Corp. 585,000 17,550,000
LCI International, Inc. (a) 324,300 6,648,150
Lincoln Telecommunications Co. 107,700 2,275,163
SBC Communications, Inc. 575,000 33,062,500
WorldCom, Inc. (a) 115,300 4,064,325
189,618,888
TOTAL UTILITIES 387,295,003
TOTAL COMMON STOCKS
(Cost $2,664,143,877) 3,420,079,613
NONCONVERTIBLE PREFERRED STOCKS - 0.2%
SHARES VALUE (NOTE 1)
TECHNOLOGY - 0.2%
COMPUTERS & OFFICE EQUIPMENT - 0.2%
Silicon Graphics CDA Ltd.
exchangeable (a)
(Cost $11,098,161) 280,080 $ 7,702,107
U.S. TREASURY OBLIGATION - 1.7%
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (NOTE 1)
6.25%, 8/15/23
(Cost $68,683,766) Aaa 67,700,000 69,657,211
REPURCHASE AGREEMENTS - 15.4%
MATURITY VALUE
AMOUNT (NOTE 1)
Investments in repurchase agreements
(U.S. Treasury obligations) in a
joint trading account at 5.91%
dated 12/29/95 due 1/2/96 $ 637,818,559 637,400,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $3,381,325,804) $ 4,134,838,931
LEGEND
1. Non-income producing
2. Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $2,406,843 or 0.1% of net
assets.
3. An affiliated company is a company in which the fund has ownership of at
least 5% of the voting securities. Transactions with companies that are or
were affiliates are as follows:
PURCHASES SALES DIVIDEND MARKET
AFFILIATE COST COST INCOME VALUE
Just For Feet, Inc. $ 2,342,009 $ 659,304 - $ -
Microwave Power Devices, Inc. - 216,000 - 2,814,625
Vanguard Cellular Systems, Inc.
Class A 12,954,211 - - 53,156,250
TOTAL $ 15,296,220 $ 875,304 $ - $ 55,970,875
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $3,908,904,414 and $3,139,228,624, respectively, of which U.S.
government and government agency obligations aggregated $68,683,766 and $0,
respectively.
The fund placed a portion of its portfolio transactions with brokerage
firms which are affiliates of Fidelity Management & Research Company. The
commissions paid to these affiliated firms were $1,250,453 for the period
(see Note 3 of Notes to Financial Statements).
INCOME TAX INFORMATION
At December 31, 1995, the aggregate cost of investment securities for
income tax purposes was $3,395,126,667. Net unrealized appreciation
aggregated $739,712,264, of which $816,952,982 related to appreciated
investment securities and $77,240,718 related to depreciated investment
securities.
The fund hereby designates approximately $188,205,000 as a capital gain
dividend for the purpose of the dividend paid deduction.
VARIABLE INSURANCE PRODUCTS FUND: GROWTH PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
ASSETS
Investment in securities, at value (including repurchase agreements of $637,400,000) (cost $3,381,325,804) $ 4,134,838,931
- - See accompanying schedule
Cash 470
Receivable for investments sold 111,607,416
Receivable for fund shares sold 9,321,438
Dividends receivable 2,825,313
Interest receivable 1,586,719
Other receivables 361,034
TOTAL ASSETS 4,260,541,321
LIABILITIES
Payable for investments purchased $ 94,809,749
Payable for fund shares redeemed 237,116
Accrued management fee 2,089,504
Other payables and accrued expenses 703,141
TOTAL LIABILITIES 97,839,510
NET ASSETS $ 4,162,701,811
Net Assets consist of:
Paid in capital $ 3,119,102,643
Undistributed net investment income 10,790,283
Accumulated undistributed net realized gain (loss) on investments and foreign 279,295,633
currency transactions
Net unrealized appreciation (depreciation) on investments 753,513,252
and assets and liabilities
in foreign currencies
NET ASSETS, for 142,576,497 shares outstanding $ 4,162,701,811
NET ASSET VALUE, offering price $29.20
and redemption price per
share ($4,162,701,811 (divided by) 142,576,497 shares)
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
INVESTMENT INCOME $ 19,321,500
Dividends
Interest 14,884,599
TOTAL INCOME 34,206,099
EXPENSES
Management fee $ 19,591,048
Transfer agent fees 1,536,285
Accounting fees and expenses 760,478
Non-interested trustees' compensation 15,959
Custodian fees and expenses 155,218
Registration fees 404,037
Audit 47,036
Legal 14,321
Miscellaneous 7,492
TOTAL EXPENSES 22,531,874
NET INVESTMENT INCOME 11,674,225
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities (including 361,330,988
realized gain of $736,446
on sales of investments in
affiliated issuers)
Foreign currency transactions (11,163 361,319,825
)
Change in net unrealized appreciation (depreciation) on:
Investment securities 474,991,138
Assets and liabilities in 125 474,991,263
foreign currencies
NET GAIN (LOSS) 836,311,088
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 847,985,313
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
Operations $ 11,674,225 $ 11,810,184
Net investment income
Net realized gain (loss) 361,319,825 (74,102,658)
Change in net unrealized appreciation (depreciation) 474,991,263 80,193,945
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 847,985,313 17,901,471
Distributions to shareholders (12,404,421) (7,589,523)
From net investment income
From net realized gain - (80,320,550)
TOTAL DISTRIBUTIONS (12,404,421) (87,910,073)
Share transactions 2,059,928,760 1,289,938,019
Net proceeds from sales of shares
Reinvestment of distributions 12,404,421 87,909,946
Cost of shares redeemed (887,081,596) (549,819,377)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 1,185,251,585 828,028,588
TOTAL INCREASE (DECREASE) IN NET ASSETS 2,020,832,477 758,019,986
NET ASSETS
Beginning of period 2,141,869,334 1,383,849,348
End of period (including undistributed net investment income of $10,790,283 and $11,472,202,
respectively) $ 4,162,701,811 $ 2,141,869,334
OTHER INFORMATION
Shares
Sold 76,302,442 60,676,019
Issued in reinvestment of distributions 568,749 4,039,985
Redeemed (33,037,870) (25,920,211)
Net increase (decrease) 43,833,321 38,795,793
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA 1995 1994 1993 E 1992 1991
Net asset value, beginning of period $ 21.69 $ 23.08 $ 19.76 $ 18.51 $ 12.91
Income from Investment Operations
Net investment income .08 .12 .12 .09 .09 C
Net realized and unrealized gain (loss) 7.55 (.12) D 3.64 1.64 5.72
Total from investment operations 7.63 - 3.76 1.73 5.81
Less Distributions (.12) (.12) (.11) (.05) (.21)
From net investment income
From net realized gain - (1.27) (.21) (.43) -
In excess of net realized gain - - (.12) - -
Total distributions (.12) (1.39) (.44) (.48) (.21)
Net asset value, end of period $ 29.20 $ 21.69 $ 23.08 $ 19.76 $ 18.51
TOTAL RETURN A, B 35.36% (.02)% 19.37% 9.32% 45.51%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 4,162,702 $ 2,141,869 $ 1,383,849 $ 749,837 $ 371,462
Ratio of expenses to average net assets .70% .70% .71% .75% .84%
Ratio of expenses to average net assets after expense reductions .70% .69% .71% .75% .84%
F
Ratio of net investment income to average net assets .37% .69% .72% .83% .56%
Portfolio turnover rate 108% 122% 159% 262% 261%
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
B TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR
INSURANCE COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES
WOULD REDUCE THE TOTAL RETURNS SHOWN.
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON
AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
D THE AMOUNT SHOWN FOR A SHARE OUTSTANDING DOES NOT CORRESPOND WITH
THE AGGREGATE NET GAIN ON INVESTMENTS FOR THE PERIOD ENDED DUE TO
THE TIMING OF SALES AND
REPURCHASES OF FUND SHARES IN RELATION TO FLUCTUATING MARKET VALUES
OF THE INVESTMENTS OF THE FUND.
E EFFECTIVE JANUARY 1, 1993, THE FUND ADOPTED STATEMENT OF
POSITION 93-2, "DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT
PRESENTATION OF INCOME, CAPITAL
GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED
TO BOOK TO TAX DIFFERENCES.
F FMR HAS DIRECTED CERTAIN PORTFOLIO TRADES TO BROKERS WHO PAID A
PORTION OF THE FUND'S EXPENSES.
VARIABLE INSURANCE PRODUCTS FUND: OVERSEAS PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance: total
percentage change in value, the average annual percentage change, or the
growth of a hypothetical $10,000 investment. A fund's total return includes
changes in a fund's share price, plus reinvestment of any dividends
(income) and capital gains (the profits the fund earns when it sells
securities that have grown in value).
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED PAST 1 PAST 5 LIFE OF
DECEMBER 31, 1995 YEAR YEARS FUND
OVERSEAS 9.74% 8.13% 7.31%
Morgan Stanley EAFE Index 11.21% 9.37% 7.53%
AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and
show you what would have happened if the fund had performed at a constant
rate each year.
UNDERSTANDING PERFORMANCE
Many markets around the globe offer the potential
for significant growth over time; however,
investing in foreign markets means assuming
greater risks than investing in the United States.
Factors like changes in a country's financial
markets, its local political and economic
climate, and the fluctuating value of its currency
create these risks. For these reasons an
international fund's performance may be more
volatile than a fund that invests exclusively in the
United States.
(checkmark)
You can compare the fund's figures to the performance of the Morgan Stanley
EAFE index - a broad measure of the performance of stocks in Europe,
Australia, and the Far East. This benchmark includes reinvested dividends
and capital gains, if any.
Figures for more than one year assume a steady compounded rate of return
and are not the fund's year-by-year results, which fluctuated over the
periods shown. The life of fund figures are from commencement of operations
January 28, 1987.
If Fidelity had not reimbursed certain fund expenses, the fund's life of
fund total return would have been lower.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE
ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL
CHARGES, THE TOTAL RETURNS WOULD HAVE BEEN LOWER.
Past performance is no guarantee of future results. Principal and
investment return will vary and you may have a gain or loss when you
withdraw your money. Foreign investments involve greater risks and
potential rewards than U.S. investments. These risks include political and
economic uncertainties of foreign countries, as well as the risk of
currency fluctuations.
$10,000 OVER LIFE OF FUND
VIP OverseasEurope, A
01/28/87 10000.00 10000
01/31/87 10000.00 9997.463
02/28/87 10010.00 10296.66
03/31/87 10460.00 11140.41
04/30/87 11220.00 12319.18
05/31/87 11060.00 12319.14
06/30/87 10520.00 11926.66
07/31/87 10400.00 11905.82
08/31/87 11320.00 12798.54
09/30/87 11070.00 12597.05
10/31/87 8760.00 10777
11/30/87 8840.00 10938.65
12/31/87 9462.16 11263.46
01/31/88 9138.32 11464.55
02/29/88 9381.20 12228.75
03/31/88 9806.24 12980.64
04/30/88 9968.16 13169.27
05/31/88 9786.00 12747.12
06/30/88 9613.96 12411.13
07/31/88 9543.12 12800.51
08/31/88 9209.16 11968.24
09/30/88 9603.84 12491.19
10/31/88 10028.88 13559.96
11/30/88 10211.04 14367.68
12/31/88 10231.28 14447.79
01/31/89 10534.87 14701.99
02/28/89 10717.03 14777.56
03/31/89 10707.38 14487.53
04/30/89 11023.50 14621.89
05/31/89 10615.60 13826.42
06/30/89 10574.81 13593.67
07/31/89 11563.97 15300.67
08/31/89 11482.39 14612.54
09/30/89 12196.21 15278.16
10/31/89 11533.38 14664.33
11/30/89 12155.42 15401.5
12/31/89 12920.24 15969.77
01/31/90 12746.88 15375.56
02/28/90 12449.36 14302.43
03/31/90 12919.92 12812.46
04/30/90 12991.52 12710.78
05/31/90 13840.58 14161.09
06/30/90 14147.46 14036.37
07/31/90 14863.53 14234.08
08/31/90 13349.56 12851.83
09/30/90 12081.09 11060.74
10/31/90 13206.34 12784.21
11/30/90 12797.16 12030.1
12/31/90 12705.10 12224.98
01/31/91 12827.85 12620.4
02/28/91 13260.02 13973.29
03/31/91 12872.18 13134.44
04/30/91 13155.20 13263.42
05/31/91 13186.64 13401.82
06/30/91 12463.37 12417.04
07/31/91 13081.82 13027.11
08/31/91 13123.75 12762.56
09/30/91 13658.34 13481.84
10/31/91 13752.68 13672.96
11/30/91 13260.02 13034.64
12/31/91 13721.24 13707.79
01/31/92 13888.95 13415
02/29/92 13599.52 12934.85
03/31/92 13323.28 12080.93
04/30/92 14152.01 12138.36
05/31/92 14768.23 12950.85
06/30/92 14491.99 12336.56
07/31/92 13567.65 12020.83
08/31/92 13450.78 12774.79
09/30/92 12908.92 12522.52
10/31/92 12027.08 11865.66
11/30/92 11963.33 11977.32
12/31/92 12250.20 12039.27
01/31/93 12600.81 12037.79
02/28/93 12847.62 12401.41
03/31/93 13738.91 13482.39
04/30/93 14651.94 14761.9
05/31/93 14967.16 15073.67
06/30/93 14597.60 14838.49
07/31/93 15173.67 15357.91
08/31/93 15988.88 16186.97
09/30/93 15901.92 15822.62
10/31/93 16478.00 16310.23
11/30/93 15782.36 14884.55
12/31/93 16825.82 15959.32
01/31/94 17923.63 17308.6
02/28/94 17607.51 17260.66
03/31/94 17170.60 16517.22
04/30/94 17738.58 17218.03
05/31/94 17520.13 17119.18
06/30/94 17334.44 17361.11
07/31/94 17793.20 17528.07
08/31/94 18000.73 17943.05
09/30/94 17531.05 17377.92
10/31/94 17891.50 17956.61
11/30/94 17214.29 17093.61
12/31/94 17115.99 17200.65
01/31/95 16406.01 16539.88
02/28/95 16449.17 16492.41
03/31/95 16955.64 17521.06
04/30/95 17440.09 18180
05/31/95 17682.31 17963.28
06/30/95 17847.46 17648.27
07/31/95 18640.19 18746.98
08/31/95 18122.72 18031.85
09/30/95 18386.96 18384.02
10/31/95 18023.62 17889.85
11/30/95 18232.82 18387.61
12/29/95 18783.33 19128.45
Let's say you invested $10,000 in Overseas Portfolio on January 28, 1987,
when the fund started. By December 31, 1995, your investment would have
grown to $18,783 - an 87.83% increase. That compares to $10,000 invested in
the Morgan Stanley EAFE Index, which would have grown to $19,128 over the
same period - a 91.28% increase.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF DECEMBER 31, 1995
% OF FUND'S
INVESTMENTS
C. S. Holdings (Reg.) 2.0
Unilever NV Ord. 1.3
Nomura Securities Co. Ltd. 1.2
ING Groep NV 1.1
Banco Bilbao Vizcaya SA Ord. (Reg.) 1.0
TOP FIVE MARKET SECTORS AS OF DECEMBER 31, 1995
% OF FUND'S
INVESTMENTS
Finance 26.4
Utilities 8.9
Nondurables 8.7
Durables 7.7
Basic Industries 5.4
GEOGRAPHIC DIVERSIFICATION AS OF DECEMBER 31, 1995
(BY LOCATION OF ISSUER) % OF FUND'S
INVESTMENTS
Japan 21.2
United Kingdom 12.9
Switzerland 8.0
Netherlands 6.4
France 5.1
VARIABLE INSURANCE PRODUCTS FUND: OVERSEAS PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
An interview with John Hickling, Portfolio Manager of Overseas Portfolio
Q. JOHN, HOW HAS THE FUND PERFORMED?
A. For the 12 months ended December 31, 1995, the fund's performance
slightly trailed that of the Morgan Stanley EAFE Index - a broad measure of
stocks in Europe, Australia and the Far East. The index had a total return
of 11.21% for the 12-month period.
Q. WHAT FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE?
A. I think the main factor was that I thought the effects of slowing
economic growth on earnings estimates would have an impact on stock prices
somewhat before their effect was really felt. For example, I avoided
cyclical stocks - those that tend to rise and fall with the economy, such
as paper and forest product companies - but they didn't start to come down
until the fourth quarter. Instead, I focused the fund on what I would call
defensive stocks. These investments included Unilever, a consumer
nondurable stock that tends to post solid earnings regardless of the
economic climate, and financial investments such as ING Groep, which
generally benefit from the interest rate declines we've seen during the
year. These stocks helped the fund, but not until the fourth quarter.
Q. LET'S TAKE A CLOSER LOOK AT HOW YOU POSITIONED THE FUND DURING THE PAST
YEAR.
A. Most of 1995 was frustrating because, historically, markets around the
world have shown a higher correlation to the U.S. market than we've seen
this year. In addition, foreign stock market performance generally did not
coincide with the strong performance seen in many bond markets. The
slowdown experienced by many economies led to lower interest rates, an
environment that generally is supportive for stock markets as well. That's
because lower rates can reduce companies' borrowing costs and make
alternatives to stock investing less attractive. Furthermore, the good
performance in several foreign markets was narrow, driven by the strength
of only a few stocks. Looking specifically at the fund, more investments
were in Japan than elsewhere -21.2% at the end of the period - although the
fund held less there than is included in the EAFE index. This is a market
that struggled through most of the year, although it rebounded in the
fourth quarter. The Japanese banking sector performed well through the
first part of the year and in the fourth quarter. However, the fund didn't
participate, because its Japanese investments were focused on exporters;
companies with electronics or technology-oriented businesses, such as
Matsushita Electric, Hitachi and Omron; retailers such as Ito-Yodako; and
financial stocks such as Nomura Securities. In the second half of the year,
though, some of these stocks rebounded, because the yen started to weaken
versus the dollar, making these companies' products less expensive abroad.
Q. YOU ALSO INVESTED A FAIR AMOUNT IN THE UNITED KINGDOM...
A. That's right, 12.9%, about as much as is included in the EAFE index.
This has been one of the best performing markets outside of the U.S., led,
for the most part, by financial stocks including Barclays and National
Westminster Bank. In the early part of 1995, a number of consumer
nondurable stocks helped the fund, including brewers Bass and Whitbread.
Q. LET'S TURN TO EMERGING MARKETS...
A. At the end of last year, when emerging markets dropped sharply after
Mexico's devaluation of the peso, I had minimal investments in emerging
markets. I started adding some emerging market stocks in May, including
Mexican banks as well as investments in Brazil, Chile and Southeast Asia.
One stock that turned in a very good performance was Sampoerna, an
Indonesian cigarette company. One of the main reasons I owned this stock
and Matahari, an Indonesian retailer, was that the standard of living for
many Indonesians has been on the rise. With wages and disposable income
growing, demand for items such as cigarettes, beer, toothpaste and clothing
has been increasing. The fund's investments in Unilever and Nestle also
gave it some exposure to this growth in consumer nondurable spending in
emerging markets.
Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SIX MONTHS?
A. At the end of the year, overseas markets started to catch up to the U.S.
market. Investors have started to become more actively interested in
opportunities abroad, attracted by, among other things, cheap stock
valuations. Prospects for foreign markets seem to be improving, in absolute
terms and relative to the U.S. After the mixed performance we've seen from
international markets over the past few years, a contrarian investor might
become more interested in foreign markets from a risk/reward perspective.
I'm hoping we'll see some signs of a rebound in overseas markets, with
investors finding better buys abroad than domestically.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
FUND FACTS
GOAL: seeks high current income by investing in
high yielding, lower-rated fixed income
securities
START DATE: September 19, 1985
SIZE: as of December 31, 1995, more than
$1.0 billion
MANAGER: Barry Coffman, since 1990; joined
Fidelity in 1986
(checkmark)
VARIABLE INSURANCE PRODUCTS FUND: OVERSEAS PORTFOLIO
INVESTMENTS DECEMBER 31, 1995
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 86.7%
SHARES VALUE (NOTE 1)
ARGENTINA - 0.8%
Buenos Aires Embotelladora SA
sponsored ADR 41,800 $ 862,130
Perez Companc Class B 308,452 1,634,550
Telecom Argentina sponsored ADR
Class B 83,400 3,971,925
Telecom Argentina Stet France
Telecom SA 263,600 1,251,912
YPF Sociedad Anonima sponsored
ADR representing Class D shares 150,500 3,254,563
10,975,080
AUSTRALIA - 2.2%
Amcor Ltd. 190,700 1,345,603
Brambles Industries Ltd. 276,500 3,080,556
FAI Insurance Ltd. Ord. 2,037,900 1,104,965
Fosters Brewing Group Ltd. 903,100 1,482,418
Lend Lease Corp. Ltd. 81,000 1,173,174
Pioneer International Ltd. 493,300 1,271,403
Qantas Airways Ltd. sponsored ADR (b) 48,400 810,700
TNT Ltd. 1,106,800 1,463,295
Western Mining Holdings Ltd. 414,100 2,657,429
Westpac Banking Corp. 2,912,700 12,893,911
Woolworths Ltd. 991,200 2,385,333
29,668,787
AUSTRIA - 0.3%
EVN (Energie-Versor Nieder) 12,200 1,671,729
VA Technologie AG 6,800 861,143
VA Technologie AG (b) 15,000 1,899,580
4,432,452
BELGIUM - 1.2%
Bekaert SA 11,255 9,272,120
Delhaize Freres & Cie Le Lion SA 135,300 5,617,835
Petrofina SA 5,100 1,566,600
Petrofina SA (warrants) (a) 595 7,254
16,463,809
BERMUDA - 0.0%
Consolidated Electric Power Asia Ltd.
sponsored ADR (b) 39,800 701,475
BRAZIL - 0.7%
Brahma (Cia Cervejaria) PN Class B
(Pfd. Reg.) 3,204,300 1,318,743
Coteminas PN 2,500,000 835,948
Telebras PN:
(Pfd. Reg.) 103,879,970 5,001,883
sponsored ADR (a) 52,500 2,487,188
9,643,762
CANADA - 0.4%
Midland Walwyn, Inc. 269,900 1,730,952
Noranda, Inc. 191,100 3,939,385
5,670,337
CHILE - 0.3%
Santa Isabel SA sponsored ADR (a) 90,900 2,181,600
Vina Concha Stet y Toro SA
sponsored ADR 81,300 1,463,400
3,645,000
SHARES VALUE (NOTE 1)
FINLAND - 0.7%
Cultor OY, Series 1 71,100 $ 2,933,908
Pohjola Class B 334,000 4,287,843
Valmet OY Class A 91,700 2,291,396
9,513,147
FRANCE - 5.1%
Accor SA 65,158 8,419,479
Alcatel Alsthom CGE 77,300 6,651,597
Axa SA 158,018 10,627,930
Club Mediterranee SA Ord. 28,200 2,247,264
Compagnie Bancaire Ord. 65,670 7,334,589
Elf Aquitaine 38,528 2,833,161
Generale des Eaux 60,582 6,036,592
IMETAL SA Ord. 40,700 4,852,644
Lafarge Coppee SA 41,590 2,674,339
Michelin SA Cie Generale des
Etablissements Class B 128,100 5,098,936
Total SA Class B 144,400 9,726,730
Vallourec SA (a) 60,000 2,127,790
68,631,051
GERMANY - 4.2%
Asko 2,900 1,512,517
Bayer AG 12,000 3,158,554
Bayerische Vereinsbank AG Ord. 99,500 2,947,636
Continental Gummi-Werke AG 256,000 3,560,501
Daimler-Benz AG Ord. 8,700 4,368,150
Deutsche Bank AG 273,300 12,918,081
Gildemeister AG 18 1,627
Hoechst AG Ord. 14,500 3,922,462
Kaufhof Holding AG 14,500 4,406,467
Mannesmann AG Ord. 16,400 5,208,540
Metallgesellschaft AG Ord. 88,300 1,928,108
Metallgesellschaft AG (b) 86,700 1,893,171
Veba AG Ord. 170,900 7,237,698
Volkswagen AG 8,900 2,968,317
56,031,829
HONG KONG - 2.9%
Amoy Properties Ltd. 2,208,000 2,198,720
Consolidated Electric Power Asia Ltd. 1,464,000 2,660,097
Dickson Concepts International Ltd. 2,578,000 2,400,449
Great Eagle Holdings Ltd. 948,000 2,451,988
HSBC Holdings PLC 834,000 12,619,205
Hong Kong Land Holdings Ltd. 2,544,000 4,706,400
Hong Kong Telecommunications Ltd. 1,838,000 3,280,233
Hopewell Holdings Ltd. 3,944,000 2,269,745
Hysan Development Co. Ltd. 1,383,000 3,657,595
Peregrine Investments Holdings Ltd. 832,000 1,075,978
Semi-Tech (Global) Ltd. 102,006 164,239
Sun Hung Kai Properties Ltd. (a) 153,000 1,251,503
38,736,152
INDIA - 0.1%
Reliance Industries Ltd. GDS 106,400 1,423,632
INDONESIA - 1.6%
Astra International PT (For. Reg.) 1,596,500 3,316,589
Bank International Indonesia PT Ord. 921,000 3,051,205
Bank Niaga PT 330,000 656,681
Gudang Garam PT Perusahaan 271,500 2,837,899
Jakarta International Hotels &
Development Ord. 1,541,000 1,887,078
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
INDONESIA - CONTINUED
Matahari Putra Prima PT (For. Reg.) 1,011,500 $ 1,780,578
Sampoerna Hanjaya Mandala (For. Reg.) 735,750 7,658,370
Semen Gresik (For. Reg.) 268,500 751,542
21,939,942
IRELAND - 0.9%
Bank of Ireland U.S. Holdings, Inc. 1,009,200 7,355,579
Fyffes PLC 1,358,000 2,169,096
Independent Newspapers PLC 521,050 3,151,271
12,675,946
ITALY - 1.7%
Assicurazioni Generali Spa 198,470 4,800,400
Benetton Group Spa 126,200 1,494,691
Bulgari Spa (a) 163,400 1,393,736
Fiat Spa 396,500 1,286,128
Istituto Mobiliare Italiano 301,400 1,897,985
Istituto Nazionale Delle Assicurazioni Spa 976,500 1,294,416
Italgas Spa 734,700 2,236,486
Magneti Marelli Spa 1,169,000 1,406,775
Montedison Spa Ord. (a) 1,604,600 1,075,123
Olivetti Ing C & Co. Spa Ord. 4,324,750 3,496,838
SAI Sta Assieuratrice Industriale Spa 211,200 2,156,554
22,539,132
JAPAN - 21.2%
ADO Electronic Industrial Co. Ltd. 19,000 486,944
Acom Co. Ltd. 1,000 41,779
Aida Engineering Ltd. Ord. 176,000 1,348,085
Amada Metrecs Co. Ltd. 86,000 1,372,340
Amadasonoike Co. Ltd. 282,000 1,808,182
Amway Japan Ltd. 78,100 3,293,192
Aoyama Trading Co. Ord. (a) 114,600 3,657,447
Bridgestone Corp. 339,000 5,376,789
Canon, Inc. 548,000 9,910,638
Citizen Watch Co. Ltd. Ord. 422,000 3,224,178
Daiwa House Industry Co. Ltd. 218,000 3,584,139
East Japan Railway Co. Ord. 700 3,398,453
Fanuc Ltd. 98,200 4,245,203
Fuji Bank 126,000 2,778,337
Fuji Photo Film Co. Ltd. 261,000 7,522,050
Fujitsu Ltd. 370,000 4,115,087
Futaba Industrial Co. Ltd. 126,000 2,059,381
Hanshin Department Store Ltd. 29,000 222,969
Hirose Electric Co. Ltd. 25,200 1,447,660
Hitachi Ltd. 1,126,000 11,325,339
Honda Motor Co. Ltd. 597,000 12,297,969
Ishihara Sangyo Kaisha Ltd. (a) 343,000 1,111,267
Isetan Co. Ltd. 289,000 4,751,451
Ito-Yokado Co. Ltd. 27,000 1,660,735
Izumi Co. Ord. 112,000 2,469,633
Japan Airlines Co. Ltd. (a) 302,000 2,000,677
Kao Corp. 114,000 1,411,219
Kobe Steel (a) 1,187,000 3,662,021
Komatsu Ltd. Ord. 410,000 3,370,406
Komatsu Seiren 30,000 275,629
Marubeni Corp. 339,000 1,832,698
Matsushita Electric Industrial Co. Ltd. 303,000 4,923,017
Marukyo Corp. 16,000 286,267
Minebea Co. Ltd. 546,000 4,572,882
Mitsubishi Estate Co. Ltd. 264,000 3,293,617
Mitsubishi Heavy Industries Ltd. 492,000 3,916,016
Mitsubishi Trust & Banking Corp. 191,000 3,177,176
SHARES VALUE (NOTE 1)
Mitsui Trust and Banking 449,000 $ 4,906,867
Mitsukoshi Ltd. 315,000 2,955,029
Murata Manufacturing Co. Ltd. 132,000 4,851,064
Nichido Fire & Marine
Insurance Co. Ltd. 591,000 4,744,004
Nikko Securities Co. Ltd. 521,000 6,701,451
Nintendo Co. Ltd. Ord. 46,000 3,492,263
Nissan Motor Co. Ltd. Ord. 468,000 3,589,207
Nitto Denko Corp. 97,000 1,500,967
Nomura Securities Co. Ltd. 711,000 15,471,470
Omron Corp. 139,000 3,199,420
Onward Kashiyama & Co. Ltd. 291,000 4,728,046
Orix Corp. 242,000 9,946,809
Rohm Co. Ltd. 120,000 6,765,958
Sakura Bank Ltd. 265,000 3,357,350
Sankyo Co. Ltd. 142,000 3,186,074
Seino Transpotation Co. Ltd. 144,000 2,409,284
Sekisui Chemical Co. Ltd. (a) 325,000 4,777,563
Sony Corp. 141,500 8,470,841
Sumitomo Marine and Fire
Insurance Co. Ltd. 420,000 3,444,487
Sumitomo Realty & Development Co. Ltd. 648,000 4,574,855
Sumitomo Trust & Banking Co. Ltd. 315,000 4,447,776
TDK Corp. 44,000 2,242,553
Takashimaya Co. Ltd. 322,000 5,138,298
Takeda Chemical Industries Ltd. 487,000 8,006,770
Tokio Marine & Fire
Insurance Co. Ltd. (The) 1,065,000 13,904,739
Toshiba Corp. 629,000 4,921,286
Toyota Motor Corp. 397,000 8,408,414
Tsugami Corp. 253,000 1,409,362
Uny Co. Ltd. 103,000 1,932,495
Yamanouchi Pharmaceutical Co. Ltd. 209,000 4,487,234
284,202,808
KOREA (SOUTH) - 0.9%
Cho Hung Bank Co. Ltd. 191,504 2,409,736
Korea Electric Power Corp. 147,470 6,329,338
Korea First Securities Co. Ltd. 16,203 194,248
Kyungki Bank 171,523 1,680,406
Seoul Securities Co. 74,592 903,854
11,517,582
MEXICO - 1.2%
Banacci SA de CV:
Class B 352,200 591,348
Class L 17,610 26,226
Cemex SA, Series B 1,152,800 4,194,724
Cifra SA Class C 1,559,100 1,580,374
Consorcio G Grupo Dina SA ADR 34,800 65,250
Empresas Ica Sociedad Controladora SA
de CV sponsored ADR representing Ord.
(participation certificates) 208,700 2,139,175
Grupo Carso SA de CV Class A-1 (a) 287,800 1,555,878
Grupo Dina sponsored ADR, Series L 12,543 17,247
Grupo Financiero Bancomer SA de CV (a):
Class B 5,151,800 1,439,424
Series L 216,879 56,369
sponsored ADR, Series C (b) 70,200 386,100
Telefonos de Mexico SA sponsored ADR
representing shares Ord. Class L 121,400 3,869,625
15,921,740
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
MALAYSIA - 0.9%
Kuala Lumpur Industries Holdings BHD (a) 290,000 $ 332,375
Magnum Corp. BHD 567,500 1,072,863
Malayan Banking BHD 133,000 1,120,993
Resorts World BHD 443,000 2,372,903
Telekom Malaysia BHD 792,000 6,176,290
Tenega Nasional BHD 251,000 988,578
Time Engineering BHD 161,000 374,124
12,438,126
NETHERLANDS - 6.4%
ABN-AMRO Holdings NV 46,500 2,113,899
AKZO NV 103,800 11,980,896
IHC Caland NV 93,200 3,129,851
ING Groep NV 228,108 15,207,200
KLM Royal Dutch Airlines Ord. 271,873 9,535,844
Koninklijke PPT Nederland 221,500 8,030,752
Oce Van der Grinten NV 136,700 8,297,214
Pirelli Tyre Holdings NV Ord.(a) 546,100 4,754,602
Royal Dutch Petroleum Co. Ord. 29,500 4,091,107
Unilever NV Ord. 122,000 17,108,831
Vendex International NV (b) 81,400 2,414,664
86,664,860
NORWAY - 2.2%
Bergesen Group:
Class A 35,500 705,031
Class B 301,600 5,894,710
Christiania Bank Free shares Ord. 1,475,000 3,417,581
Den Norske Bank Class A Free shares 1,146,800 2,964,428
Norsk Hydro AS 85,150 3,570,062
Orkla AS:
Class A Free shares 93,250 4,622,521
Class B (non-vtg.) 47,800 2,275,329
Saga Petroleum AS Class B 261,600 3,257,424
Unitor AS 192,300 2,636,987
29,344,073
PAKISTAN - 0.0%
Hub Power Co. Ltd. GDR (a) 36,200 629,880
PHILIPPINES - 0.2%
Philippine Long Distance Telephone Co.
sponsored ADR 51,400 2,782,025
POLAND - 0.1%
Bank Gdanski SA GDR (b) 92,600 900,998
SINGAPORE - 0.4%
Kim Engineering Holdings Ltd. 2,455,000 2,256,593
Overseas Union Bank Ltd. (For.) 265,000 1,826,875
Van Der Horst Ltd. 156,000 788,659
4,872,127
SOUTH AFRICA - 0.1%
De Beers Consolidated Mines Ltd. ADR 24,000 726,000
SPAIN - 4.9%
Banco Bilbao Vizcaya SA Ord. (Reg.) 389,200 13,974,807
Banco de Santander SA Ord. (Reg.) 51,000 2,551,990
Banco Intercontinental Espanol 59,550 5,773,715
Corporacion Mapfrecia International de
Reaseguros SA (Reg.) 183,400 10,232,003
Repsol SA Ord. 139,500 4,556,201
Tabacalera SA, Series A 205,200 7,755,803
Telefonica de Espana SA Ord. 971,750 13,413,910
Union Electrica Fenosa SA 1,152,700 6,914,021
65,172,450
SHARES VALUE (NOTE 1)
SWEDEN - 2.7%
Investor AB Class B Free shares 314,700 $ 10,356,174
Mo Och Domsjoe AB Class B 30,800 1,309,772
SKF AB Ord. 133,700 2,551,488
Skandia Foersaekrings AB 35,400 954,830
Skandinaviska Enskilda Banken
Class A Free shares 948,300 7,837,308
Volvo AB Class B 637,400 13,025,951
36,035,523
SWITZERLAND - 8.0%
Adia SA (Bearer) (a) 27,500 4,480,069
Alusuisse-Lonza Holding AG (Reg.) 12,739 10,089,641
Baloise Holding (Reg.) 3,802 7,907,106
CIBA-GEIGY AG (Reg.) 15,680 13,791,334
C.S. Holdings (Reg.) 258,405 26,478,675
Fischer (Georg) AG (Reg.) 11,600 2,915,078
Nestle SA (Reg.) 11,425 12,632,842
Roche Holdings Ltd. (participation
certificates) 1,700 13,442,374
Surveillance, Societe Generale (Bearer) 1,010 2,004,246
Swiss Bank Corp. (Bearer) 33,500 13,672,877
107,414,242
THAILAND - 1.4%
Bank of Asia PCL (For. Reg.) 354,310 815,799
Krung Thai Bank:
(Loc. Reg.) 179,300 740,262
(For. Reg.) 1,816,640 7,500,221
Ruang Khao Unit Trust (For. Reg.) 836,800 498,293
Siam City Bank PCL (For. Reg.) 6,882,800 7,923,827
Telecomasia Corp. PCL (For. Reg.) (a) 394,000 1,196,546
18,674,948
TURKEY - 0.1%
Aksigorta 350,000 27,918
Aksigorta (b) 1,190,000 94,922
Tofas Turk Otomobil Fabrikasi
AS ADR (b) 662,400 331,200
Tofas Turk Otomobil Fabrikasi AS 9,602,400 951,393
1,405,433
UNITED KINGDOM - 12.9%
Allied Lyons PLC 421,100 3,421,829
Argyll Group PLC Ord. 506,900 2,672,656
Avon Rubber 81,900 609,631
BTR PLC Ord. 625,100 3,179,546
Barclays PLC Ord. 980,300 11,219,078
Barratt Developments PLC 1,162,000 4,441,860
Bass PLC Ord. 576,600 6,424,554
Berkeley Group PLC 532,200 4,151,305
Booker PLC 364,200 2,050,163
Boots Co. PLC (The) 287,600 2,600,155
British Airways PLC Ord. 517,100 3,736,821
British Land Ord. 337,750 1,995,548
Burmah Oil 100,017 1,447,871
Cable & Wireless PLC Ord. 318,900 2,279,803
Cadbury-Schweppes PLC Ord. 955,700 7,877,105
Christies International PLC 50,200 162,702
De la Rue PLC 266,700 2,692,439
Dixons Group PLC 955,800 6,580,998
Glaxo Holdings PLC 363,400 5,156,414
Grand Metropolitan PLC 1,137,000 8,172,445
Great Universal Stores PLC Ord Class A 381,600 4,050,640
Guinness PLC Ord. 1,210,500 8,888,461
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
UNITED KINGDOM - CONTINUED
Hanson Trust PLC Ord. 674,000 $ 2,006,795
Lloyds Abbey Life PLC 549,600 3,835,315
Lloyds TSB Group PLC 554,620 2,851,155
London International Group PLC 2,111,000 4,222,987
MFI Furniture Group PLC 1,223,700 3,036,244
Mirror Group Newspaper PLC 1,440,500 3,931,585
National Westminster Bank PLC Ord. 891,820 8,968,689
North West Water Group PLC Ord. 337,700 3,225,920
Prudential Corp. PLC 702,000 4,512,357
Reuters Holdings PLC Ord. 409,200 3,740,772
Rolls Royce PLC Ord. 874,433 2,549,331
Royal Insurance Holdings PLC 992,600 5,872,332
Scottish Hydro-Electric PLC Ord. 723,700 4,034,589
Scottish Power PLC ADR 960,500 5,511,133
South West Water PLC Ord. 383,200 3,084,144
Telegraph (The) PLC 452,100 2,909,540
Tesco PLC Ord. 401,397 1,848,725
Unigate Ltd. Ord. 312,800 1,991,231
Vodafone Group PLC 1,250,204 4,478,521
Whitbread Co. PLC Class A 525,900 5,549,746
Wickes PLC 718,200 1,381,048
173,354,183
TOTAL COMMON STOCKS
(Cost $1,007,219,327) 1,164,748,531
NONCONVERTIBLE PREFERRED STOCKS - 2.0%
AUSTRIA - 0.4%
Creditanstalt Bankverein 105,900 5,427,277
GERMANY - 0.3%
Porsche AG Ord (a). 6,050 3,147,010
ITALY - 1.3%
Banco Ambro Veneto 1,197,000 1,539,216
Fiat Spa 1,350,600 2,462,209
SAI Sta Assicuratrice Industriale Spa 650,500 2,700,722
Stet (Societa Finanziaria Telefonica) Spa 5,173,500 10,542,473
17,244,620
KOREA (SOUTH) - 0.0%
Korea First Securities Co. Ltd. (a) 66,140 549,923
TOTAL NONCONVERTIBLE PREFERRED STOCKS
(Cost $25,830,942) 26,368,830
FOREIGN GOVERNMENT OBLIGATIONS (D) - 0.5%
MOODY'S RATINGS PRINCIPAL
(UNAUDITED) AMOUNT
ARGENTINA - 0.4%
Argentina Republic BOCON
5.8359%, 4/1/01 (c) B1 $ 6,173,130 4,841,146
BRAZIL - 0.1%
Brazil Federative Republic IDU
euro 6 3/8%, 1/1/01 (c) B1 2,517,500 2,161,903
TOTAL GOVERNMENT OBLIGATIONS
(Cost $6,510,574) 7,003,049
CLOSED-END INVESTMENT COMPANIES - 0.0%
SHARES VALUE (NOTE 1)
THAILAND - 0.0%
Ruam Pattana Fund II (For. Reg.)
(Cost $620,880) 1,117,000 $ 676,231
REPURCHASE AGREEMENTS - 10.8%
MATURITY VALUE
AMOUNT (NOTE 1)
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.91% dated
12/29/95 due 1/2/96 $ 144,975,138 144,880,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $1,185,061,723) $ 1,343,676,641
LEGEND
1. Non-income producing
2. Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $9,432,810 or 0.7% of net
assets.
3. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
4. Some foreign government obligations have not been individually rated by
S&P or Moody's. The ratings listed are assigned to securities by FMR, the
fund's investment adviser, based principally on S&P and Moody's ratings of
the sovereign credit of the issuing government.
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $571,464,933 and $579,186,586, respectively.
The fund placed a portion of its portfolio securities with brokerage firms
which are affiliates of Fidelity Management & Research Company. The
commissions paid to these affiliated firms were $250,227 for the period
(see Note 3 of Notes to Financial Statements).
INCOME TAX INFORMATION
At December 31, 1995, the aggregate cost of investment securities for
income tax purposes was $1,185,652,116. Net unrealized appreciation
aggregated $158,024,525, of which $205,005,861 related to appreciated
investment securities and $46,981,336 related to depreciated investment
securities.
The fund hereby designates approximately $18,341,000 as a capital gain
dividend for the purpose of the dividend paid deduction.
MARKET SECTOR DIVERSIFICATION (UNAUDITED)
As a Percentage of Total Value of Investment in Securities
Aerospace & Defense 0.2%
Basic Industries 5.4
Conglomerates 0.3
Construction & Real Estate 4.4
Durables 7.7
Energy 3.0
Finance 26.4
Government obligations 0.5
Health 3.6
Industrial Machinery & Equipment 2.8
Media & Leisure 2.2
Nondurables 8.7
Precious Metals 0.2
Retail & Wholesale 5.3
Services 1.8
Repurchase Agreements 10.8
Technology 5.3
Transportation 2.5
Utilities 8.9
100.0%
VARIABLE INSURANCE PRODUCTS FUND: OVERSEAS PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
ASSETS
Investment in securities, at value (including repurchase agreements of $144,880,000) (cost $1,185,061,723) $ 1,343,676,641
- - See accompanying schedule
Cash 209
Receivable for investments sold 7,686,625
Receivable for fund shares sold 1,628,036
Dividends receivable 3,238,530
Interest receivable 115,469
TOTAL ASSETS 1,356,345,510
LIABILITIES
Payable for investments purchased $ 10,926,264
Payable for fund shares redeemed 1,146,930
Accrued management fee 826,884
Other payables and accrued expenses 311,487
TOTAL LIABILITIES 13,211,565
NET ASSETS $ 1,343,133,945
Net Assets consist of:
Paid in capital $ 1,155,673,842
Undistributed net investment income 18,738,964
Accumulated undistributed net realized gain (loss) on investments and foreign 10,104,988
currency transactions
Net unrealized appreciation (depreciation) on investments 158,616,151
and assets and liabilities in foreign currencies
NET ASSETS, for 78,751,394 shares outstanding $ 1,343,133,945
NET ASSET VALUE, offering price $17.06
and redemption price per
share ($1,343,133,945 (divided by) 78,751,394 shares)
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
INVESTMENT INCOME $ 30,921,016
Dividends
Interest 8,867,312
39,788,328
Less foreign taxes withheld (3,740,466
)
TOTAL INCOME 36,047,862
EXPENSES
Management fee $ 9,837,952
Transfer agent fees 612,828
Accounting fees and expenses 551,039
Non-interested trustees' compensation 10,958
Custodian fees and expenses 656,865
Registration fees 46
Audit 51,981
Legal 58,187
Miscellaneous 2,343
TOTAL EXPENSES 11,782,199
NET INVESTMENT INCOME 24,265,663
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities 18,618,705
Foreign currency transactions (7,976,330 10,642,375
)
Change in net unrealized appreciation (depreciation) on:
Investment securities 86,115,339
Assets and liabilities in (983,694 85,131,645
foreign currencies )
NET GAIN (LOSS) 95,774,020
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 120,039,683
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
Operations $ 24,265,663 $ 14,354,948
Net investment income
Net realized gain (loss) 10,642,375 1,588,422
Change in net unrealized appreciation (depreciation) 85,131,645 (19,420,073)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 120,039,683 (3,476,703)
Distributions to shareholders (4,893,543) (4,465,195)
From net investment income
From net realized gain (1,797,170) -
In excess of net realized gain (3,096,373) -
TOTAL DISTRIBUTIONS (9,787,086) (4,465,195)
Share transactions 466,436,535 1,000,905,405
Net proceeds from sales of shares
Reinvestment of distributions 9,787,086 4,465,195
Cost of shares redeemed (541,043,324) (477,688,222)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS (64,819,703) 527,682,378
TOTAL INCREASE (DECREASE) IN NET ASSETS 45,432,894 519,740,480
NET ASSETS
Beginning of period 1,297,701,051 777,960,571
End of period (including undistributed net investment income of $18,738,964 and $10,987,509,
respectively) $ 1,343,133,945 $ 1,297,701,051
OTHER INFORMATION
Shares
Sold 29,090,043 62,240,900
Issued in reinvestment of distributions 652,472 274,107
Redeemed (33,802,732) (29,967,241)
Net increase (decrease) (4,060,217) 32,547,766
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA 1995 1994 1993 C 1992 1991
Net asset value, beginning of period $ 15.67 $ 15.48 $ 11.53 $ 13.09 $ 12.42
Income from Investment Operations
Net investment income .17 .19 .06 .16 .24
Net realized and unrealized gain (loss) 1.34 .08 B 4.16 (1.54) .74
Total from investment operations 1.51 .27 4.22 (1.38) .98
Less Distributions (.06) (.08) (.18) (.18) (.17)
From net investment income
In excess of net investment income - - (.04) - -
From net realized gain (.02) - - - (.14) D
In excess of net realized gain (.04) - (.05) - -
Total distributions (.12) (.08) (.27) (.18) (.31)
Net asset value, end of period $ 17.06 $ 15.67 $ 15.48 $ 11.53 $ 13.09
TOTAL RETURN A 9.74% 1.72% 37.35% (10.72)% 8.00%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 1,343,134 $ 1,297,701 $ 777,961 $ 180,837 $ 126,490
Ratio of expenses to average net assets .91% .92% 1.03% 1.14% 1.26%
Ratio of net investment income to average net assets 1.88% 1.28% 1.21% 1.86% 2.33%
Portfolio turnover rate 50% 42% 42% 61% 168%
A TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE
THE TOTAL RETURNS SHOWN.
B THE AMOUNT SHOWN FOR A SHARE OUTSTANDING DOES NOT CORRESPOND WITH
THE AGGREGATE NET GAIN ON INVESTMENTS FOR THE PERIOD ENDED DUE TO
THE TIMING OF SALES AND
REPURCHASES OF FUND SHARES IN RELATION TO FLUCTUATING MARKET VALUES
OF THE INVESTMENTS OF THE FUND.
C EFFECTIVE JANUARY 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION
93-2, "DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT
PRESENTATION OF INCOME, CAPITAL
GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED
TO BOOK TO TAX DIFFERENCES.
D INCLUDES AMOUNTS DISTRIBUTED FROM NET REALIZED GAINS ON FOREIGN
CURRENCY RELATED TRANSACTIONS TAXABLE AS ORDINARY INCOME.
NOTES TO FINANCIAL STATEMENTS
For the period ended December 31, 1995
1. SIGNIFICANT ACCOUNTING POLICIES.
The Money Market Portfolio, High Income Portfolio, Equity-Income Portfolio,
Growth Portfolio and Overseas Portfolio (the funds) are funds of Variable
Insurance Products Fund (the trust). The trust is registered under the
Investment Company Act of 1940, as amended (the 1940 Act), as an open-end
management investment company organized as a Massachusetts business trust.
Each fund is authorized to issue an unlimited number of shares. Shares of
each fund may only be purchased by insurance companies for the purpose of
funding variable annuity or variable life insurance contracts. The
following summarizes the significant accounting policies of the funds:
SECURITY VALUATION:
MONEY MARKET PORTFOLIO. As permitted under Rule 2a-7 of the 1940 Act, and
certain conditions therein, securities are valued initially at cost and
thereafter assume a constant amortization to maturity of any discount or
premium.
HIGH INCOME PORTFOLIO. Debt securities for which quotations are readily
available are valued by a pricing service at their market values as
determined by their most recent bid prices in the principal market (sales
prices if the principal market is an exchange) in which such securities are
normally traded. Equity securities for which quotations are readily
available are valued at the last sale price, or if no sale price, at the
closing bid price. Securities (including restricted securities) for which
market quotations are not readily available are valued at their fair value
as determined in good faith under consistently applied procedures under the
general supervision of the Board of Trustees. Short-term securities
maturing within sixty days of their purchase date are valued at amortized
cost or original cost plus accrued interest, both of which approximate
current value.
EQUITY-INCOME AND GROWTH PORTFOLIOS. Securities for which exchange
quotations are readily available are valued at the last sale price, or if
no sale price, at the closing bid price. Securities for which exchange
quotations are not readily available (and in certain cases debt securities
which trade on an exchange) are valued primarily using dealer-supplied
valuations or at their fair value as determined in good faith under
consistently applied procedures under the general supervision of the Board
of Trustees. Short-term securities maturing within sixty days of their
purchase date are valued at amortized cost or original cost plus accrued
interest, both of which approximate current value.
OVERSEAS PORTFOLIO. Securities for which quotations are readily available
are valued at the last sale price, or if no sale price, at the closing bid
price in the principal market in which such securities are normally traded.
Securities for which quotations are not readily available are valued
primarily
using dealer-supplied valuations or at their fair value as determined in
good faith under consistently applied procedures under the general
supervision of the Board of Trustees. Short-term securities maturing within
sixty days of their purchase date are valued at amortized cost or original
cost plus accrued interest, both of which approximate current value.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Purchases and
sales of securities, income receipts, and expense payments are translated
into U.S. dollars at the prevailing exchange rate on the respective dates
of the transactions.
Net realized gains and losses on foreign currency transactions represent
net gains and losses from sales and maturities of forward currency
contracts, disposition of foreign currencies, currency gains and losses
realized between the trade and settlement dates on securities transactions,
and the difference between the amount of net investment income accrued and
the U.S. dollar amount actually received. The effects of changes in foreign
currency exchange rates on investments in securities are included with the
net realized and unrealized gain or loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, the Money Market, High Income,
Equity-Income, Growth and Overseas Portfolios are not subject to income
taxes to the extent that each distributes substantially all of its taxable
income for the fiscal year. The Overseas Portfolio may be subject to
foreign taxes on income, gains on investments or currency repatriation. The
schedules of investments include information regarding income taxes under
the caption "Income Tax Information."
INVESTMENT INCOME:
MONEY MARKET PORTFOLIO. Interest income, which includes amortization of
premium and accretion of discount, is accrued as earned.
HIGH INCOME, EQUITY-INCOME, GROWTH AND OVERSEAS PORTFOLIOS. Dividend income
is recorded on the ex-dividend date, except certain dividends from foreign
securities where the ex-dividend date may have passed, are recorded as soon
as the funds are informed of the ex-dividend date. Interest income, which
includes accretion of original issue discount, is accrued as earned.
Investment income is recorded net of foreign taxes withheld where recovery
of such taxes is uncertain.
EXPENSES. Most expenses of the trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned between the
funds in the trust.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS. Dividends are declared daily and paid
monthly from net interest income for the Money Market Portfolio.
Distributions are recorded on the ex-dividend date for all other funds.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences, which may result in distribution
reclassifications, are primarily due to differing treatments for defaulted
bonds, foreign currency transactions, passive foreign investment companies
(PFIC), market discount, partnerships, non-taxable dividends, capital loss
carryforwards and losses deferred due to wash sales. Certain foreign
currency gains (losses) are taxable as ordinary income and, therefore,
increase (decrease) taxable ordinary income available for distributions
with respect to the Overseas Portfolio.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital and may
affect the per-share allocation between net investment income and realized
and unrealized gain (loss). Undistributed net investment income and
accumulated undistributed net realized gain (loss) on investments and
foreign currency transactions may include temporary book and tax basis
differences which will reverse in a subsequent period. Any taxable income
or gain remaining at fiscal year end is distributed in the following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.
2. OPERATING POLICIES.
FORWARD FOREIGN CURRENCY CONTRACTS. The funds, except the Money Market
Portfolio may use foreign currency contracts to facilitate transactions in
foreign securities and to manage the fund's currency exposure. Contracts to
buy generally are used to acquire exposure to foreign currencies, while
contracts to sell are used to hedge the fund's investments against currency
fluctuations. Also, a contract to buy or sell can offset a previous
contract. Losses may arise from changes in the value of the foreign
currency or if the counterparties do not perform under the contracts'
terms.
The U.S. dollar value of forward foreign currency contracts is determined
using forward currency exchange rates supplied by a quotation service.
Purchases and sales of forward foreign currency contracts having the same
settlement date and broker are offset and any realized gain (loss) is
recognized on the date of offset; otherwise, gain (loss) is recognized on
settlement date.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the funds, along with other affiliated
entities of Fidelity Management & Research Company (FMR), may transfer
uninvested cash balances into
one or more joint trading accounts. These balances are invested in one or
more repurchase agreements that mature in 60 days or less from the date of
purchase, and are collateralized by U.S. Treasury or Federal Agency
obligations.
REPURCHASE AGREEMENTS. The funds, through their custodian, receive delivery
of the underlying U.S. Treasury or Federal Agency securities, the market
value of which is required to be at least equal to the repurchase price.
For term repurchase agreement transactions, the underlying securities are
marked-to-market daily and maintained at a value at least equal to the
repurchase price. FMR, the funds' investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
DELAYED DELIVERY TRANSACTIONS. The funds may purchase or sell securities on
a when-issued or forward commitment basis. Payment and delivery may take
place a month or more after the date of the transaction. The price of the
underlying securities and the date when the securities will be delivered
and paid for are fixed at the time the transaction is negotiated. The
market value of the securities purchased or sold on a when-issued or
forward commitment basis is identified as such in the fund's schedule of
investments. The funds may receive compensation for interest forgone in the
purchase of a delayed delivery security. Losses may arise due to changes in
the market value of the underlying securities or if the counterparty does
not perform under the contract.
INDEXED SECURITIES. The funds (excluding the Money Market Portfolio) may
invest in indexed securities whose values are linked either directly or
inversely to changes in foreign currencies, interest rates, commodities,
indices, or other underlying instruments. The funds use these securities to
increase or decrease its exposure to different underlying instruments and
to gain exposure to markets that might be difficult to invest in through
conventional securities. Indexed securities may be more volatile than their
underlying instruments, but any loss is limited to the amount of the
original investment.
RESTRICTED SECURITIES. The funds are permitted to invest in securities that
are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from registration
or to the public if the securities are registered. Disposal of these
securities may involve time-consuming negotiations and expense, and prompt
sale at an acceptable price may be difficult. At the end of the period,
restricted securities (excluding 144A issues) amounted to $10,584,034 or
1.0% of net assets of the the High Income Portfolio.
3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As each fund's investment adviser, FMR receives a monthly
fee.
For the Money Market Portfolio, FMR receives a monthly fee that is
calculated on the basis of a basic fund fee rate of .03% of
3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
MANAGEMENT FEE - CONTINUED
the fund's average net assets, plus a fixed income group fee rate and an
income-based fee. The group fee rate is the weighted average of a series of
rates ranging from .1200% to .3700% and is based on the monthly average net
assets of all the mutual funds advised by FMR. The income-based fee is
added only when the fund's gross yield exceeds 5%. At that time the
income-based fee would equal 6% of that portion of the fund's gross income
that represents a gross yield of more than 5% per year. The maximum
income-based component is 0.24% of average net assets. For the period, the
management fee was equivalent to an annual rate of .24% of average net
assets.
For all other funds, FMR receives a monthly fee that is calculated on the
basis of a group fee rate plus a fixed individual fund fee rate applied to
the average net assets of the fund. The group fee rate is the weighted
average of a series of rates and is based on the monthly average net assets
of all the mutual funds advised by FMR. The rates ranged from .1200% to
.3700% for the High Income Portfolio and .2700% to .5200% for the
Equity-Income, Growth, and Overseas Portfolios for the period. In the event
that these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted in
the same or a lower management fee. The annual individual fund fee rates
are .45%, .20%, .30% and .45% for High Income, Equity-Income, Growth, and
Overseas Portfolios, respectively. For the period, the management fee was
equivalent to an annual rate of .60%, .51%, .61%, and .76% of average net
assets for the High Income, Equity-Income, Growth, and Overseas Portfolios,
respectively.
The Board of Trustees has approved a new group fee rate schedule with rates
ranging from .1100% to .3700% for the Money Market and High Income
Portfolios and .2500% to .5200% for the Equity-Income, Growth, and Overseas
Portfolios. Effective January 1, 1996, FMR voluntarily agreed to implement
this new group fee rate schedule as it results in the same or a lower
management fee.
SUB-ADVISER FEE. As the Money Market Portfolio's investment sub-adviser,
FMR Texas Inc., a wholly owned subsidiary of FMR, receives a fee from FMR
of 50% of the management fee payable to FMR. The fee is paid prior to any
voluntary expense reimbursements which may be in effect.
FMR, on behalf of the High Income and Overseas Portfolios, entered into
sub-advisory agreements with Fidelity Management & Research (U.K.) Inc.,
Fidelity Management & Research (Far East) Inc., and with respect only to
Overseas Fidelity International Investment Advisors (FIIA). In addition,
FIIA entered into a sub-advisory agreement with its subsidiary, Fidelity
International Investment Advisors (U.K.) Limited (FIIAL U.K.). Under the
sub-advisory arrangements, FMR may receive investment advice and research
services and may grant the sub-advisers investment management authority to
buy and sell securities. FMR pays its sub-advisers either a portion of its
management fee or a fee based on costs incurred for these services. FIIA
pays FIIAL U.K. a fee based on costs incurred for either service.
TRANSFER AGENT FEES. Fidelity Investments Institutional Operations Company
(FIIOC), an affiliate of FMR, is the funds' transfer, dividend disbursing
and shareholder servicing agent. FIIOC receives account fees and
asset-based fees that vary according to account size and type of account.
FIIOC pays for typesetting, printing and mailing of all shareholder
reports, except proxy statements. For the period, transfer agent fees were
equivalent to an annual rate of .05% of average net assets for each of the
funds.
ACCOUNTING FEES. Fidelity Service Co. (FSC), an affiliate of FMR, maintains
the funds' accounting records. The fee is based on the level of average net
assets for the month plus out-of-pocket expenses.
BROKERAGE COMMISSIONS. Certain funds placed a portion of their portfolio
transactions with brokerage firms which are affiliates of FMR. The
commissions paid to these affiliated firms are shown under the caption
"Other Information" at the end of each applicable fund's schedule of
investments.
4. BANK BORROWINGS.
The funds are permitted to have bank borrowings for temporary or emergency
purposes to fund shareholder redemptions. Each fund has established
borrowing arrangements with certain banks. Under the most restrictive
arrangement, each fund must pledge to the bank securities having a market
value in excess of 220% of the total bank borrowings. The interest rate on
the borrowings is the bank's base rate, as revised from time to time. For
the High Income and Equity-Income Portfolios, the maximum loans and the
average daily loan balances during the period for which loans were
outstanding amounted to $4,885,000 and $18,269,000, respectively. The
weighted average interest rate was 6.4% for both the High Income Portfolio
and the Equity-Income Portfolio.
5. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse the funds' operating expenses
(excluding interest, taxes, brokerage commissions and extraordinary
expenses) above an annual rate of 1.00% of average net assets for the High
Income Portfolio and 1.50% of average net assets for the Equity-Income,
Growth, and Overseas Portfolios. For the period, there was no reimbursement
under this arrangement.
FMR has directed certain portfolio trades of the High Income Portfolio to
brokers who paid a portion of the fund's expenses. For the period, the High
Income Portfolio's expenses were reduced by $9,702 under this arrangement.
6. BENEFICIAL INTEREST.
At the end of the period, Fidelity Investments Life Insurance Company
(FILI) and its subsidiaries, affiliates of FMR, were the record owners of
more than 5% of the outstanding shares and certain unaffiliated insurance
companies were record owners of approximately 10% or more of the total
outstanding shares of the following funds:
FILI UNAFFILIATED INSURANCE COMPANIES
FUND % OF OWNERSHIP # OF % OF OWNERSHIP
Money Market 52 1 14
High Income 18 1 42
Equity-Income 27 1 30
Growth 18 1 30
Overseas 15 1 39
7. PURCHASES AND SALES OF INVESTMENTS.
Information regarding purchases and sales of securities (other than
short-term securities) is included under the caption "Other Information" at
the end of each applicable fund's schedule of investments.
8. TRANSACTIONS WITH AFFILIATED COMPANIES.
Information regarding transactions with affiliated companies is included
under the caption "Other Information" at the end of each applicable fund's
schedule of investments.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Variable Insurance Products Fund and the Shareholders of
Money Market Portfolio, High Income Portfolio, Equity-Income Portfolio,
Growth Portfolio and Overseas Portfolio:
We have audited the accompanying statements of assets and liabilities of
Variable Insurance Products Fund: Money Market Portfolio, High Income
Portfolio, Equity-Income Portfolio, Growth Portfolio and Overseas
Portfolio, including the schedules of portfolio investments, as of December
31, 1995, and the related statements of operations for the year then ended,
the statements of changes in net assets for each of the two years in the
period then ended and the financial highlights for each of the five years
in the period then ended. These financial statements and financial
highlights are the responsibility of the fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
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, 1995 by correspondence with the
custodians and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Variable Insurance Products Fund: Money Market Portfolio, High Income
Portfolio, Equity-Income Portfolio, Growth Portfolio and Overseas Portfolio
as of December 31, 1995, the results of their operations for the year then
ended, the changes in their net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years
in the period then ended, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 6, 1996
DISTRIBUTIONS
The Board of Trustees of Variable Insurance Products Fund voted to pay on
February 2, 1996, to shareholders of record at the opening of business on
February 2, 1996, the following distributions derived from capital gains
realized from sales of portfolio securities, and dividends derived from net
investment income:
DIVIDENDS CAPITAL GAINS
High Income $.92 $.18
Equity-Income $.03 $.86
Growth $.08 $2.02
Overseas $.20 $.22
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
FMR Texas Inc., Irving, TX
MONEY MARKET PORTFOLIO
Fidelity Management & Research (U.K.) Inc.,
London, England
HIGH INCOME AND OVERSEAS PORTFOLIOS
Fidelity Management & Research (Far East) Inc.,
Tokyo, Japan
HIGH INCOME AND OVERSEAS PORTFOLIOS
Fidelity International Investment Advisors
Pembroke, Bermuda
OVERSEAS PORTFOLIO
Fidelity International Investment Advisors (U.K.) Limited
Kent, England
OVERSEAS PORTFOLIO
OFFICERS
Edward C. Johnson 3d, PRESIDENT
J. Gary Burkhead, SENIOR VICE PRESIDENT
William J. Hayes, VICE PRESIDENT
Fred L. Henning, Jr., VICE PRESIDENT
Robert A. Lawrence, VICE PRESIDENT
Lawrence Greenberg, VICE PRESIDENT
Barry J. Coffman, VICE PRESIDENT
Robert Litterst, VICE PRESIDENT
John R. Hickling, VICE PRESIDENT
Bettina Doulton, VICE PRESIDENT
Arthur S. Loring, SECRETARY
Kenneth A. Rathgeber, TREASURER
Robert H. Morrison, MANAGER, SECURITY TRANSACTIONS
John H. Costello, ASSISTANT TREASURER
Leonard M. Rush, ASSISTANT TREASURER
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox
Phyllis Burke Davis
Richard J. Flynn
Edward C. Johnson 3d
E. Bradley Jones
Donald J. Kirk
Peter S. Lynch
Edward H. Malone
Marvin L. Mann
Gerald C. McDonough
Thomas R. Williams
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Investments Institutional Operations Co.
Boston, MA
CUSTODIAN
The Bank of New York, New York, NY
MONEY MARKET AND HIGH INCOME PORTFOLIOS
The Chase Manhattan Bank, N.A., New York, NY
EQUITY-INCOME AND OVERSEAS PORTFOLIOS
Brown Brothers Harriman & Co., Boston, MA
GROWTH PORTFOLIO