NEW ENGLAND ZENITH FUND, 497, 1997-05-06

NEW ENGLAND ZENITH FUND
497, 1997-05-06

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<PAGE>

NEW ENGLAND ZENITH FUND

501 BOYLSTON STREET
BOSTON, MASSACHUSETTS 02116
(617) 267-6600

PROSPECTUS -- MAY 1, 1997

New England Zenith Fund (the "Fund") consists of fourteen investment
portfolios: the Loomis Sayles Small Cap Series, the Morgan Stanley
International Magnum Equity Series (formerly, the Draycott International
Equity Series), the Alger Equity Growth Series, the Capital Growth Series, the
Loomis Sayles Avanti Growth Series, the Davis Venture Value Series, the
Westpeak Growth and Income Series, the Westpeak Stock Index Series, the Loomis
Sayles Balanced Series, the Back Bay Advisors Managed Series, the Salomon
Brothers Strategic Bond Opportunities Series, the Back Bay Advisors Bond
Income Series, the Salomon Brothers U.S. Government Series and the Back Bay
Advisors Money Market Series (each a "Series"), with the following investment
objectives:

LOOMIS SAYLES SMALL CAP SERIES--long-term capital growth from investments in
common stocks or their equivalent.

MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES (FORMERLY, THE DRAYCOTT
INTERNATIONAL EQUITY SERIES)--long-term capital appreciation through
investment primarily in international equity securities.

ALGER EQUITY GROWTH SERIES--long-term capital appreciation.

CAPITAL GROWTH SERIES--long-term growth of capital.

LOOMIS SAYLES AVANTI GROWTH SERIES--long-term growth of capital.

DAVIS VENTURE VALUE SERIES--growth of capital.

WESTPEAK GROWTH AND INCOME SERIES--long-term total return through investment
in equity securities.

WESTPEAK STOCK INDEX SERIES--investment results that correspond to the
composite price and yield performance of United States publicly traded common
stocks.

LOOMIS SAYLES BALANCED SERIES--reasonable long-term investment return from a
combination of long-term capital appreciation and moderate current income.

BACK BAY ADVISORS MANAGED SERIES--a favorable total return through
investment in a diversified portfolio. The Series' portfolio is expected to
include a mix of (1) common stocks, (2) notes and bonds and (3) money market
instruments.

SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES--a high level of total
return consistent with preservation of capital. This Series may invest a
significant portion of its assets in lower rated bonds commonly known as junk
bonds. Investors should assess carefully the risks associated with investment
in this Series. See "Investment Objectives and Policies--Salomon Brothers
Strategic Bond Opportunities Series" and "Investment Risks--Lower Rated Fixed-
Income Securities."

BACK BAY ADVISORS BOND INCOME SERIES--a high level of current income
consistent with protection of capital and moderate investment risk.

SALOMON BROTHERS U.S. GOVERNMENT SERIES--a high level of current income
consistent with preservation of capital and maintenance of liquidity.

BACK BAY ADVISORS MONEY MARKET SERIES--the highest possible level of current
income consistent with preservation of capital. MONEY MARKET FUNDS ARE NEITHER
INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE
THAT THE SERIES WILL MAINTAIN A STABLE NET ASSET VALUE OF $100 PER SHARE.

This Prospectus concisely describes the information that prospective
investors ought to know before investing. Please read this Prospectus
carefully and keep it for future reference.

A Statement of Additional Information (the "Statement") dated May 1, 1997,
is available free of charge by writing to New England Securities Corporation
("New England Securities"), 399 Boylston Street, Boston, Massachusetts 02116.
The Statement, which contains more detailed information about the Fund, has
been filed with the Securities and Exchange Commission (the "SEC") and is
incorporated by reference in this Prospectus.

SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY, AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
----------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

B-1
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Highlights....................................................... B-3
The Fund................................................................... B-17
Investment Objectives and Policies......................................... B-17
Investment Risks........................................................... B-24
Performance Information.................................................... B-34
Investment Restrictions.................................................... B-36
Management................................................................. B-40
Sale and Redemption of Shares.............................................. B-47
Net Asset Values and Portfolio Valuation................................... B-47
Dividends and Capital Gain Distributions................................... B-48
Taxes...................................................................... B-48
Organization and Capitalization of the Fund................................ B-48
Transfer Agent............................................................. B-48
Voting Rights.............................................................. B-49
Appendix A................................................................. B-50
Appendix B................................................................. B-51
</TABLE>

B-2
<PAGE>

FINANCIAL HIGHLIGHTS

These tables have been examined by Coopers & Lybrand LLP, the Fund's
independent accountants, whose reports thereon for periods after 1991
accompany the financial statements incorporated by reference in the Statement
and may be obtained by shareholders. The tables should be read in conjunction
with the financial statements and notes thereto. For further performance
information about the Fund, please refer to the Fund's annual report, which is
available free of charge.

LOOMIS SAYLES SMALL CAP SERIES

<TABLE>
<CAPTION>
MAY 2(a)
TO YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net Asset Value, Begin-
ning of Period.......... $100.00 $ 96.61 $118.80
------- ------- -------
Income From Investment
Operations
Net Investment Income.... 0.14 0.85 1.05
Net Gains or Losses on
Investments (both
realized and
unrealized)............. (3.38) 26.93 35.03
------- ------- -------
Total From Investment
Operations.......... (3.24) 27.78 36.08
------- ------- -------
Less Distributions
Distributions From Net
Investment Income....... (0.15) (0.78) (1.03)
Distributions From Net
Realized Capital Gains.. 0.00 (4.81) (9.56)
------- ------- -------
Total Distributions.. (0.15) (5.59) (10.59)
------- ------- -------
Net Asset Value, End of
the Period.............. $ 96.61 $118.80 $144.29
======= ======= =======
Total Return (%)......... (3.23)(b) 28.88 30.67
Ratio of Operating Ex-
penses to Average Net
Assets (%)(d)........... 1.00 (c) 1.00 1.00
Ratio of Net Investment
Income to Average Net
Assets (%).............. 0.32 (c) 1.26 1.15
Portfolio Turnover Rate
(%)..................... 80 (c) 98 62
Average Commission Rate
Paid(e)................. -- -- $0.0568
Net Assets, End of Period
(000)................... $ 3,105 $27,741 $89,194
The Ratio of Operating
Expenses to Average Net
Assets without giving
effect to the voluntary
expense limitation
described in Footnote
(d) would have been (%). 2.31 (c) 1.91 1.29
</TABLE>
- --------
(a) Commencement of operations.

(b) Not computed on an annualized basis.

(d) During the periods presented, the Series' adviser voluntarily agreed to
reduce its fees and, if necessary, to assume expenses of the Series in
order to limit the Series' expenses to an annual rate of 1.00% of the
Series' average daily net assets.

(e) For fiscal years beginning on or after September 1, 1995, a Series is
required to disclose its average commission rate per share for trades on
which commissions are charged. This rate generally does not reflect mark-
ups, mark-downs, or spreads on shares traded on a principal basis.

B-3
<PAGE>

MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES (a)

<TABLE>
<CAPTION>
OCTOBER 31(b)
TO YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net Asset Value, Begin-
ning of Period.......... $10.00 $ 10.23 $ 10.73
------ ------- -------
Income From Investment
Operations
Net Investment Income.... 0.03 0.09 0.06
Net Gains or Losses on
Investments (both
realized and
unrealized)............. 0.23 0.53 0.68
------ ------- -------
Total From Investment
Operations.............. 0.26 0.62 0.74
------ ------- -------
Less Distributions
Distributions From Net
Investment Income....... (0.02) (0.09) (0.02)
Distributions in Excess
of Net Investment In-
come.................... 0.00 (0.03) 0.00
Distributions From Net
Realized Capital Gains.. 0.00 0.00 (0.16)
Distributions From Paid-
In Capital.............. (0.01) 0.00 0.00
------ ------- -------
Total Distributions.. (0.03) (0.12) (0.18)
------ ------- -------
Net Asset Value, End of
the Period.............. $10.23 $ 10.73 $ 11.29
====== ======= =======
Total Return (%)......... 2.60 (c) 6.03 6.67
Ratio of Operating Ex-
penses to Average Net
Assets (%)(e)........... 1.30 (d) 1.30 1.30
Ratio of Net Investment
Income to Average Net
Assets (%).............. 2.56 (d) 1.29 0.67
Portfolio Turnover Rate
(%)..................... 4 (d) 89 64
Average Commission Rate
Paid(f)................. -- -- $0.0204
Net Assets, End of Period
(000)................... $2,989 $16,268 $39,392
The Ratio of Operating
Expenses to Average Net
Assets without giving
effect to the voluntary
expense limitation de-
scribed in Footnote (e)
would have been (%)..... 5.38 (d) 3.12 1.66
</TABLE>
- --------
(a) On May 1, 1997, Morgan Stanley Asset Management Inc. ("MSAM") succeeded
Draycott Partners, Ltd. as investment subadviser to the Series.

(b) Commencement of operations.

(d) Computed on an annualized basis.

(e) Commencing November 1, 1994, TNE Advisers, Inc. agreed to pay operating
expenses of the Series in excess of an annual expense limit of 1.30% of
average assets, subject to the obligation of the Series to repay TNE
Advisers, Inc. such expenses in future years, if any, when the Series'
expenses fall below this stated expense limit; such deferred expenses may
be charged to the Series in a subsequent year to the extent that the
charge does not cause the total expenses in such subsequent year to exceed
the 1.30% expense limit; provided, however, that the Series is not
obligated to repay any expense paid by TNE Advisers, Inc. more than two
years after the end of the fiscal year in which such expense was incurred.

(f) For fiscal years beginning on or after September 1, 1995, a Series is
required to disclose its average commission rate per share for trades on
which commissions are charged. This rate generally does not reflect mark-
ups, mark-downs, or spreads on shares traded on a principal basis.

B-4
<PAGE>

ALGER EQUITY GROWTH SERIES

<TABLE>
<CAPTION>
OCTOBER 31(a)
TO YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $10.00 $ 9.56 $ 13.80
------ ------- --------
Income From Investment
Operations
Net Investment Income.... 0.02 0.01 0.04
Net Gains or Losses on
Investments (both
realized and
unrealized)............. (0.44) 4.65 1.78
------ ------- --------
Total From Investment
Operations.............. (0.42) 4.66 1.82
------ ------- --------
Less Distributions
Distributions From Net
Investment Income....... (0.02) (0.01) (0.04)
Distributions from Net
Realized Capital Gains.. 0.00 (0.41) 0.00
------ ------- --------
Total Distributions.. (0.02) (0.42) (0.04)
------ ------- --------
Net Asset Value, End of
the Period.............. $ 9.56 $ 13.80 $ 15.58
====== ======= ========
Total Return (%)......... (4.20)(b) 48.80 13.17
Ratio of Operating Ex-
penses to Average Net
Assets (%)(d)........... 0.85 (c) 0.85 0.90
Ratio of Net Investment
Income to Average Net
Assets (%).............. 1.07 (c) 0.14 0.24
Portfolio Turnover Rate
(%)..................... 32 (c) 107 78
Average Commission Rate
Paid(e)................. -- -- $ 0.0716
Net Assets, End of Period
(000)................... $1,917 $46,386 $120,456
The Ratio of Operating
Expenses to Average Net
Assets without giving
effect to the voluntary
expense limitation
described in Footnote
(d) would have been (%). 2.74 (c) 2.45 0.90
</TABLE>
- --------
(a) Commencement of operations.

(b) Not computed on an annualized basis.

(d) Commencing November 1, 1994, TNE Advisers, Inc. agreed to pay operating
expenses of the Series in excess of an annual expense limit of 0.85% of
average assets, subject to the obligation of the Series to repay TNE
Advisers, Inc. such expenses in future years, if any, when the Series'
expenses fall below this stated expense limit; such deferred expenses may
be charged to the Series in a subsequent year to the extent that the
charge does not cause the total expenses in such subsequent year to exceed
the 0.85% expense limit; provided, however, that the Series is not
obligated to repay any expense paid by TNE Advisers, Inc. more than two
years after the end of the fiscal year in which such expense was incurred.
Beginning January 1, 1996 the annual expense limit was increased to 0.90%
of average net assets.

B-5
<PAGE>

CAPITAL GROWTH SERIES

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------
1987 1988 1989 1990 (a) 1991 1992 1993 1994 1995 1996
------- ------- ------- -------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset value,
Beginning of the Year.. $264.48 $231.33 $201.14 $ 260.25 $ 249.04 $ 347.36 $ 322.23 $ 351.63 $ 312.30 $ 374.62
------- ------- ------- -------- -------- -------- -------- -------- -------- ----------
Income From Investment
Operations
Net Investment Income... 1.05 10.63 1.59 1.78 3.16 4.04 2.12 5.28 3.47 3.08
Net Gains or Losses on
Investments (both
realized and
unrealized)............ 109.33 (30.97) 60.11 (10.88) 130.75 (25.10) 46.21 (30.54) 114.91 74.80
------- ------- ------- -------- -------- -------- -------- -------- -------- ----------
Total From Investment
Operations............. 110.38 (20.34) 61.70 (9.10) 133.91 (21.06) 48.33 (25.26) 118.38 77.88
------- ------- ------- -------- -------- -------- -------- -------- -------- ----------
Less distributions
Distributions From Net
Investment Income...... (1.10) (9.55) (2.59) (2.11) (3.22) (4.07) (2.18) (5.15) (3.48) (3.08)
Distributions From Net
Realized Capital Gains. (142.43) (0.30) 0.00 0.00 (31.93) 0.00 (16.75) (8.92) (52.58) (22.34)
Distributions From Paid-
in Capital............. 0.00 0.00 0.00 0.00 (0.44) 0.00 0.00 0.00 0.00 0.00
------- ------- ------- -------- -------- -------- -------- -------- -------- ----------
Total Distributions... (143.53) (9.85) (2.59) (2.11) (35.59) (4.07) (18.93) (14.07) (56.06) (25.42)
------- ------- ------- -------- -------- -------- -------- -------- -------- ----------
Net Asset Value, End of
the Year............... $231.33 $201.14 $260.25 $ 249.04 $ 347.36 $ 322.23 $ 351.63 $ 312.30 $ 374.62 $ 427.08
======= ======= ======= ======== ======== ======== ======== ======== ======== ==========
Total Return (%)........ 52.7 (8.8) 30.8 (3.5) 54.0 (6.05) 14.97 (7.07) 38.03 21.08
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.57 0.75 0.72 0.73 0.70 0.70 0.68 0.67 0.71 0.69
Ratio of Net Investment
Income to Average Net
Assets (%)............. 0.75 6.20 1.21 0.93 1.22 1.53 0.67 1.61 0.92 0.79
Portfolio Turnover Rate
(%).................... 368 813 269 229 174 207 169 140 242 207
Average Commission
Rate(b)................ -- -- -- -- -- -- -- -- -- $ 0.0669
Net Assets, End of
Period (000)........... $29,626 $42,538 $90,377 $148,254 $343,965 $472,017 $644,384 $667,127 $921,444 $1,142,660
</TABLE>
- --------
(a) On March 1, 1990, the Capital Growth Management Division of Loomis Sayles
& Company, Incorporated was reorganized into Capital Growth Management
Limited Partnership, which assumed management of the Series.
(b) For fiscal years beginning on or after September 1, 1995, a Series is
required to disclose its average commission rate per share for trades on
which commissions are charged. This rate generally does not reflect mark-
ups, mark-downs, or spreads on shares traded on a principal basis.

B-6
<PAGE>

LOOMIS SAYLES AVANTI GROWTH SERIES

<TABLE>
<CAPTION>
APRIL 30(a) YEAR ENDED DECEMBER 31,
TO -------------------------
DECEMBER 31, 1993 1994 1995 1996
----------------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period........................... $100.00 $113.67 $112.77 $142.44
------- ------- ------- -------
Income From Investment Operations
Net Investment Income............. 0.18 0.59 0.42 0.11
Net Gains or Losses on Investments
(both realized and unrealized)... 14.56 (0.89) 33.80 24.88
------- ------- ------- -------
Total From Investment Operations.. 14.74 (0.30) 34.22 24.99
------- ------- ------- -------
Less Distributions
Distributions From Net Investment
Income........................... (0.18) (0.60) (0.40) (0.13)
Distributions From Net Realized
Capital Gains.................... (0.67) 0.00 (4.15) (9.42)
Distributions From Paid-In
Capital.......................... (0.22) 0.00 0.00 0.00
------- ------- ------- -------
Total Distributions........... (1.07) (0.60) (4.55) (9.55)
------- ------- ------- -------
Net Asset Value, End of the
Period........................... $113.67 $112.77 $142.44 $157.88
======= ======= ======= =======
Total Return (%).................. 14.74 (b) (0.27) 30.35 17.58
Ratio of Operating Expenses to
Average Net Assets (%)(d)........ 0.85 (c) 0.84 0.85 0.85
Ratio of Net Investment Income to
Average Net Assets (%)........... 0.46 (c) 0.67 0.37 0.08
Portfolio Turnover Rate (%)....... 21 (c) 67 58 65
Average Commission Rate Paid(e)... -- -- -- $0.0508
Net Assets, End of Period (000)... $11,972 $25,622 $48,832 $82,667
The Ratio of Expenses to Average
Net Assets without giving effect
to the voluntary expense
limitation described in Footnote
(d) would have been (%).......... 0.89 (c) 0.84 1.06 0.92
</TABLE>
- --------
(a) Commencement of operations.

(b) Not computed on an annualized basis.

(d) During the periods presented, the Series' adviser voluntarily agreed to
bear expenses (other than the advisory fees and any brokerage costs,
interest, taxes or extraordinary expenses) in excess of 0.15% of the
Series' average daily net assets.

B-7
<PAGE>

DAVIS VENTURE VALUE SERIES

<TABLE>
<CAPTION>
OCTOBER 31(a) YEAR ENDED DECEMBER 31,
TO -------------------------
DECEMBER 31, 1994 1995 1996
----------------- ----------- ------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Pe-
riod............................. $10.00 $ 9.62 $ 13.10
------ ----------- ------------
Income From Investment Operations
Net Investment Income............. 0.03 0.10 0.13
Net Gains or Losses on Investments
(both realized and unrealized)... (0.38) 3.68 3.26
------ ----------- ------------
Total From Investment Operations.. (0.35) 3.78 3.39
------ ----------- ------------
Less Distributions
Distributions From Net Investment
Income........................... (0.03) (0.10) (0.13)
Distributions From Net Realized
Capital Gains.................... 0.00 (0.20) (0.27)
------ ----------- ------------
Total Distributions........... (0.03) (0.30) (0.40)
------ ----------- ------------
Net Asset Value, End of the Peri-
od............................... $ 9.62 $ 13.10 $ 16.09
====== =========== ============
Total Return (%).................. (3.50)(b) 39.28 25.84
Ratio of Operating Expenses to Av-
erage Net Assets (%)(d).......... 0.90 (c) 0.90 0.90
Ratio of Net Investment Income to
Average Net Assets (%)........... 2.54 (c) 1.39 1.25
Portfolio Turnover Rate (%)....... 1 (c) 20 18
Average Commission Rate Paid(e)... -- -- $ 0.0599
Net Assets, End of Period (000)... $3,371 $ 35,045 $ 108,189
The Ratio of Operating Expenses to
Average Net Assets without giving
effect to the voluntary expense
limitation described in Footnote
(d) would have been (%).......... 3.97 (c) 1.51 0.96
</TABLE>
- --------
(a) Commencement of operations.

(b) Not computed on an annualized basis.

(d) Commencing November 1, 1994, TNE Advisers, Inc. agreed to pay operating
expenses of the Series in excess of an annual expense limit of 0.90% of
average assets, subject to the obligation of the Series to repay TNE
Advisers, Inc. such expenses in future years, if any, when the Series'
expenses fall below this stated expense limit; such deferred expenses may
be charged to the Series in a subsequent year to the extent that the
charge does not cause the total expenses in such subsequent year to exceed
the 0.90% expense limit; provided, however, that the Series is not
obligated to repay any expense paid by TNE Advisers, Inc. more than two
years after the end of the fiscal year in which such expense was incurred.

B-8
<PAGE>

WESTPEAK GROWTH AND INCOME SERIES

<TABLE>
<CAPTION>
APRIL 30(a) YEAR ENDED DECEMBER 31,
TO -------------------------
DECEMBER 31, 1993 1994 1995 1996
----------------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period........................... $100.00 $112.32 $109.03 $141.31
------- ------- ------- -------
Income From Investment Operations
Net Investment Income............. 0.92 1.90 1.77 1.78
Net Gains or Losses on Investments
(both realized and unrealized)... 13.33 (3.25) 37.91 23.69
------- ------- ------- -------
Total From Investment Operations.. 14.25 (1.35) 39.68 25.47
------- ------- ------- -------
Less Distributions
Distributions From Net Investment
Income........................... (0.92) (1.92) (1.71) (1.82)
Distributions From Net Realized
Capital Gains.................... (1.00) 0.00 (5.69) (13.19)
Distributions In Excess of Net Re-
alized Capital Gains............. (0.01) 0.00 0.00 0.00
Distributions From Paid In Capi-
tal.............................. 0.00 (0.02) 0.00 0.00
------- ------- ------- -------
Total Distributions........... (1.93) (1.94) (7.40) (15.01)
------- ------- ------- -------
Net Asset Value, End of the Peri-
od............................... $112.32 $109.03 $141.31 $151.77
======= ======= ======= =======
Total Return (%).................. 14.24 (b) (1.21) 36.46 18.10
Ratio of Operating Expenses to Av-
erage Net Assets (%)(d).......... 0.85 (c) 0.85 0.85 0.85
Ratio of Net Investment Income to
Average Net Assets (%)........... 2.16 (c) 2.30 1.63 1.40
Portfolio Turnover Rate (%)....... 49 (c) 133 92 104
Average Commission Rate Paid(e)... -- -- -- $0.0344
Net Assets, End of Period (000)... $ 9,082 $22,934 $48,129 $82,330
The Ratio of Expenses to Average
Net Assets without giving effect
to the voluntary expense limita-
tion described in Footnote (d)
would have been (%).............. 0.94 (c) 0.86 1.06 0.91
</TABLE>
- --------
(a) Commencement of operations.

(b) Not computed on an annualized basis.

(d) During the periods presented, the Series' adviser voluntarily agreed to
bear the Series' expenses (other than the advisory fees and any brokerage
costs, interest, taxes or extraordinary expenses) in excess of 0.15% of
the Series' average daily net assets.

B-9
<PAGE>

WESTPEAK STOCK INDEX SERIES

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------
MAR. 30(a)
TO
DEC. 31,
1987 1988 1989 1990 1991(A) 1992 1993* 1994 1995 1996
---------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the Year.. $100.00 $ 84.74 $ 94.36 $117.36 $108.49 $137.39 $ 72.00 $ 76.48 $ 75.35 $100.09
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income From Investment
Operations
Net Investment Income... 2.44 3.48 3.55 3.76 3.56 8.35 1.54 1.80 1.88 1.91
Net Gains or Losses on
Investments (both
realized and
unrealized)............ (15.06) 10.39 24.83 (8.64) 29.29 2.02 5.18 (0.92) 25.89 20.58
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total From Investment
Operations............. (12.62) 13.87 28.38 (4.88) 32.85 10.37 6.72 0.88 27.77 22.49
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Less distributions
Distributions From Net
Investment Income...... (2.23) (3.44) (3.74) (3.82) (3.56) (8.35) (1.36) (1.82) (1.85) (1.93)
Distributions in Excess
of Net Investment
Income................. 0.00 0.00 (0.18) 0.00 0.00 0.00
Distributions From Net
Realized Capital Gains. (0.41) (0.81) (1.64) 0.00 (0.39) (67.41) (0.55) (0.16) (1.18) (1.03)
Distributions in Excess
of Net Realized Capital
Gains.................. 0.00 0.00 0.00 0.00 0.00 0.00 (0.15) 0.00 0.00 0.00
Distributions From Paid-
in Capital............. 0.00 0.00 0.00 (0.17) 0.00 0.00 0.00 (0.03) 0.00 0.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions. (2.64) (4.25) (5.38) (3.99) (3.95) (75.76) (2.24) (2.01) (3.03) (2.96)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $ 84.74 $ 94.36 $117.36 $108.49 $137.39 $ 72.00 $ 76.48 $ 75.35 $100.09 $119.62
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total Return (%)........ (12.2) 16.3 30.2 (4.1) 30.4 7.30 9.72 1.14 36.88 22.47
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.31 0.36 0.34 0.36 0.36 0.35 0.34 0.33 0.40 0.40
Ratio of Net Investment
Income to Average Net
Assets (%)............. 3.36 3.92 3.31 3.36 2.86 2.63 2.52 2.59 2.20 1.84
Portfolio Turnover Rate
(%).................... 31 4 52 1 2 17 12 2 5 4
Average Commission
Rate Paid(c)........... -- -- -- -- -- -- -- -- -- $0.0309
Net Assets, End of
Period (000)........... $ 9,002 $11,073 $15,501 $15,122 $20,496 $10,172 $28,817 $37,164 $58,671 $80,764
The ratio of expenses
without giving effect
to the voluntary
expense limitations
described in Footnote
(b) would have been.... -- -- -- -- -- -- -- -- 0.54 0.50
</TABLE>
- --------
*Westpeak Investment Advisors, L.P. assumed responsibility for managing the
Series' portfolio on August 1, 1993.

(a) Commencement of operations.

(b) During the periods presented, the Series' adviser voluntarily agreed to
bear the Series' expenses (other than the advisory fees and any brokerage
costs, interest, taxes or extraordinary expenses) of the Series' average
daily net assets.

(c) For fiscal years beginning on or after September 1, 1995, a Series is
required to disclose its average commission rate per share for trades on
which commissions are charged. This rate generally does not reflect mark-
ups, mark-downs, or spreads on shares traded on a principal basis.

B-10
<PAGE>

LOOMIS SAYLES BALANCED SERIES

<TABLE>
<CAPTION>
OCTOBER 31(a) YEAR ENDED DECEMBER 31,
TO ------------------------
DECEMBER 31, 1994 1995 1996
----------------- ----------- -----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Pe-
riod............................. $10.00 $ 9.94 $ 11.95
------ ----------- -----------
Income From Investment Operations
Net Investment Income............. 0.05 0.26 0.27
Net Gains or Losses on Investments
(both realized and unrealized)... (0.06) 2.20 1.73
------ ----------- -----------
Total From Investment Operations.. (0.01) 2.46 2.00
------ ----------- -----------
Less Distributions
Distributions From Net Investment
Income........................... (0.05) (0.26) (0.27)
Distributions in Excess of Net Re-
alized Capital Gains............. 0.00 (0.19) (0.13)
------ ----------- -----------
Total Distributions........... (0.05) (0.45) (0.40)
------ ----------- -----------
Net Asset Value, End of the Peri-
od............................... $ 9.94 $ 11.95 $ 13.55
====== =========== ===========
Total Return (%).................. (0.10)(b) 24.79 16.91
Ratio of Operating Expenses to Av-
erage Net Assets (%)(d).......... 0.85 (c) 0.85 0.85
Ratio of Net Investment Income to
Average Net Assets (%)........... 4.16 (c) 4.03 3.08
Portfolio Turnover Rate (%)....... 0 (c) 72 59
Average Commission Rate Paid(e)... -- -- $ 0.0594
Net Assets, End of Period (000)... $2,722 $ 18,823 $ 58,525
The Ratio of Operating Expenses to
Average Net Assets without giving
effect to the voluntary expense
limitation described in Footnote
(d) would have been (%).......... 3.73 (c) 1.85 0.99
</TABLE>
- --------
(a) Commencement of operations.

(b) Not computed on an annualized basis.

B-11
<PAGE>

BACK BAY ADVISORS MANAGED SERIES

<TABLE>
<CAPTION>
MAY 1(a)
TO YEAR ENDED DECEMBER 31,
DEC. 31, -----------------------------------------------------------------------------------
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
-------- ------- ------- ------- ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the Year.. $100.00 $ 96.62 $100.17 $114.65 $112.79 $127.87 $ 130.26 $ 137.18 $ 130.30 $ 163.52
------- ------- ------- ------- ------- ------- -------- -------- -------- --------
Income From Investment
Operations
Net Investment Income... 2.80 5.13 4.31 5.47 6.41 5.14 4.35 5.42 6.34 6.43
Net Gains or Losses on
Investments (both
realized and
unrealized)............ (3.45) 4.04 14.77 (1.81) 16.23 3.45 9.58 (6.92) 34.33 18.21
------- ------- ------- ------- ------- ------- -------- -------- -------- --------
Total From Investment
Operations............. (0.65) 9.17 19.08 3.66 22.64 8.59 13.93 (1.50) 40.67 24.64
------- ------- ------- ------- ------- ------- -------- -------- -------- --------
Less distributions
Distributions From Net
Investment Income...... (2.73) (5.24) (4.22) (5.38) (6.41) (5.13) (4.36) (5.38) (6.34) (6.34)
Distributions in Excess
of Net Investment
Income................. 0.00 0.00 0.00 0.00 (0.23) 0.00
Distributions From Net
Realized Capital Gains. 0.00 (0.38) (0.38) 0.00 (1.15) (1.07) (2.65) 0.00 (0.88) (11.45)
Distributions From Paid-
in Capital............. 0.00 0.00 0.00 (0.14) 0.00 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------- ------- ------- -------- -------- -------- --------
Total Distributions... (2.73) (5.62) (4.60) (5.52) (7.56) (6.20) (7.01) (5.38) (7.45) (17.79)
------- ------- ------- ------- ------- ------- -------- -------- -------- --------
Net Asset Value, End of
the Year............... $ 96.62 $100.17 $114.65 $112.79 $127.87 $130.26 $ 137.18 $ 130.30 $ 163.52 $ 170.37
======= ======= ======= ======= ======= ======= ======== ======== ======== ========
Total Return (%)........ (0.7) 9.5 19.1 3.2 20.2 6.70 10.65 (1.11) 31.26 15.01
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.66 0.64 0.57 0.57 0.55 0.54 0.53 0.54 0.64 0.62
Ratio of Net Investment
Income to Average Net
Assets (%)............. 4.96 5.88 5.29 5.58 5.45 5.32 3.65 3.98 4.06 3.64
Portfolio Turnover Rate
(%).................... 1 1 1 1 36 36 22 76 51 72
Average Commission Rate
Paid(b)................ -- -- -- -- -- -- -- -- -- $ 0.0318
Net Assets, End of
Period (000)........... $ 7,694 $10,806 $23,622 $36,563 $49,995 $77,575 $121,339 $121,877 $147,536 $160,888
</TABLE>
- --------
(a) Commencement of operations.

(b) For fiscal years beginning on or after September 1, 1995, a Series is
required to disclose its average commission rate per share for trades on
which commissions are charged. This rate generally does not reflect mark-
ups, mark-downs, or spreads on shares traded on a principal basis.

B-12
<PAGE>

SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES

<TABLE>
<CAPTION>
OCTOBER 31(a) YEAR ENDED DECEMBER 31,
TO -----------------------
DECEMBER 31, 1994 1995 1996
----------------- ----------- ------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Pe-
riod............................. $10.00 $ 9.74 $ 10.85
------ ----------- ------------
Income From Investment Operations
Net Investment Income............. 0.12 0.58 0.51
Net Gains or Losses on Investments
(both realized and unrealized)... (0.26) 1.30 1.05
------ ----------- ------------
Total From Investment Operations.. (0.14) 1.88 1.56
------ ----------- ------------
Less Distributions
Distributions From Net Investment
Income........................... (0.12) (0.55) (0.60)
Distributions From Net Realized
Capital Gains.................... 0.00 (0.22) (0.19)
------ ----------- ------------
Total Distributions........... (0.12) (0.77) (0.79)
------ ----------- ------------
Net Asset Value, End of the Peri-
od............................... $ 9.74 $ 10.85 $ 11.62
====== =========== ============
Total Return (%).................. (1.40)(b) 19.38 14.36
Ratio of Operating Expenses to Av-
erage Net Assets (%)(d).......... 0.85 (c) 0.85 0.85
Ratio of Net Investment Income to
Average Net Assets (%)........... 7.05 (c) 8.39 7.79
Portfolio Turnover Rate (%)(a).... 403 (c) 202 176
Net Assets, End of Period (000)... $3,450 $ 9,484 $ 35,808
The Ratio of Operating Expenses to
Average Net Assets without giving
effect to the voluntary expense
limitation described in Footnote
(d) would have been (%).......... 2.01 (c) 2.44 1.19
</TABLE>
- --------
(a) Commencement of operations.

(b) Not computed on an annualized basis.

B-13
<PAGE>

BACK BAY ADVISORS BOND INCOME SERIES

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------
1987 1988 1989 1990 1991 1992 1993* 1994 1995 1996
------- ------- ------- ------- ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the Year.. $123.45 $ 95.47 $ 92.75 $ 97.23 $ 97.61 $103.44 $ 103.47 $ 106.14 $ 95.53 $ 108.67
------- ------- ------- ------- ------- ------- -------- -------- -------- --------
Income From Investment
Operations
Net Investment Income... 8.97 8.52 8.58 8.49 8.53 7.96 5.70 7.05 7.34 7.72
Net Gains or Losses on
Investments (both
realized and
unrealized)............ (7.14) (0.54) 2.81 (0.65) 8.90 0.51 7.38 (10.61) 12.85 (2.70)
------- ------- ------- ------- ------- ------- -------- -------- -------- --------
Total From Investment
Operations............. 1.83 7.98 11.39 7.84 17.43 8.47 13.08 (3.56) 20.19 5.02
------- ------- ------- ------- ------- ------- -------- -------- -------- --------
Less distributions
Distributions From Net
Investment Income...... (18.71) (10.70) (6.91) (7.46) (9.47) (6.87) (6.20) (7.05) (7.05) (7.74)
Distributions in Excess
of Net Investment
Income................. 0.00 0.00 0.00 0.00 0.00 0.00 (0.05) 0.00 0.00 0.00
Distributions From Net
Realized Capital Gains. (11.10) 0.00 0.00 0.00 (2.13) (1.57) (4.16) 0.00 0.00 (0.32)
------- ------- ------- ------- ------- ------- -------- -------- -------- --------
Total Distributions... (29.81) (10.70) (6.91) (7.46) (11.60) (8.44) (10.41) (7.05) (7.05) (8.06)
------- ------- ------- ------- ------- ------- -------- -------- -------- --------
Net Asset Value, End of
the Year............... $ 95.47 $ 92.75 $ 97.23 $ 97.61 $103.44 $103.47 $ 106.14 $ 95.53 $ 108.67 $ 105.63
======= ======= ======= ======= ======= ======= ======== ======== ======== ========
Total Return (%)........ 1.4 8.4 12.3 8.1 18.0 8.18 12.61 (3.36) 21.20 4.61
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.45 0.47 0.45 0.46 0.45 0.44 0.43 0.44 0.55 0.52
Ratio of Net Investment
Income to Average Net
Assets (%)............. 8.65 8.50 8.62 8.57 8.27 7.70 6.47 6.75 7.22 7.22
Portfolio Turnover Rate
(%).................... 331 104 69 106 193 71 177 82 73 98
Net Assets,
End of Period (000).... $17,449 $15,750 $26,156 $40,631 $49,369 $83,057 $131,242 $126,234 $162,712 $180,359
</TABLE>
- --------
*As of January 1, 1993, the Bond Income Series discontinued the use of
equalization accounting.

B-14
<PAGE>

SALOMON BROTHERS U.S. GOVERNMENT SERIES

<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31(a) DECEMBER 31,
TO ---------------
DECEMBER 31, 1994 1995 1996
----------------- ------ -------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period........ $10.00 $ 9.96 $ 11.04
------ ------ -------
Income From Investment Operations
Net Investment Income....................... 0.10 0.33 0.58
Net Gains or Losses on Investments (both
realized and unrealized)................... (0.04) 1.16 (0.21)
------ ------ -------
Total From Investment Operations............ 0.06 1.49 0.37
------ ------ -------
Less Distributions
Distributions From Net Investment Income.... (0.10) (0.33) (0.56)
Distributions From Net Realized Capital
Gains...................................... 0.00 (0.08) (0.02)
------ ------ -------
Total Distributions..................... (0.10) (0.41) (0.58)
------ ------ -------
Net Asset Value, End of the Period.......... $ 9.96 $11.04 $ 10.83
====== ====== =======
Total Return (%)............................ 0.60 (b) 15.02 3.31
Ratio of Operating Expenses to Average Net
Assets (%)(d).............................. 0.70 (c) 0.70 0.70
Ratio of Net Investment Income to Average
Net Assets (%)............................. 5.70 (c) 5.62 6.13
Portfolio Turnover Rate (%)................. 1,409 (c) 415 388
Net Assets, End of Period (000)............. $2,012 $7,542 $13,211
The Ratio of Operating Expenses to Average
Net Assets without giving effect to the
voluntary expense limitation described in
Footnote (d) would have been (%)........... 2.54 (c) 2.90 1.37
</TABLE>
- --------
(a) Commencement of operations.

(b) Not computed on an annualized basis.

(d) Commencing November 1, 1994, TNE Advisers, Inc. agreed to pay operating
expenses of the Series in excess of an annual expense limit of 0.70% of
average assets, subject to the obligation of the Series to repay TNE
Advisers, Inc. such expenses in future years, if any, when the Series'
expenses fall below this stated expense limit; such deferred expenses may
be charged to the Series in a subsequent year to the extent that the
charge does not cause the total expenses in such subsequent year to exceed
the 0.70% expense limit; provided, however, that the Series is not
obligated to repay any expense paid by TNE Advisers, Inc. more than two
years after the end of the fiscal year in which such expense was incurred.

B-15
<PAGE>

BACK BAY ADVISORS MONEY MARKET SERIES

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the Year.. $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $ 100.00
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
Income From Investment
Operations
Net Investment Income... 6.33 7.25 8.85 7.88 6.03 3.73 2.93 3.89 5.50 4.99
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
Total From Investment
Operations............. 6.32 7.25 8.85 7.88 6.03 3.73 2.93 3.89 5.50 4.99
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
Less distributions
Distributions From Net
Investment Income...... (6.32) (7.25) (8.85) (7.88) (6.03) (3.73) (2.93) (3.89) (5.50) (4.99)
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
Total Distributions. (6.32) (7.25) (8.85) (7.88) (6.03) (3.73) (2.93) (3.89) (5.50) (4.99)
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
Net Asset Value, End of
the
Year................... $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $ 100.00
======= ======= ======= ======= ======= ======= ======= ======= ======= ========
Total Return (%)........ 6.6 7.4 9.2 8.2 6.2 3.79 2.97 4.01 5.64 5.11
Ratio of Operating
Expenses to Average Net
Assets (%)(a).......... 0.38 0.38 0.38 0.38 0.38 0.38 0.38 0.40 0.50 0.50
Ratio of Net Investment
Income to Average Net
Assets (%)............. 6.37 7.26 8.85 7.87 6.01 3.71 2.93 3.89 5.50 4.99
Net Assets, End of
Period (000)........... $33,047 $38,929 $42,678 $60,071 $58,614 $61,607 $59,044 $73,960 $90,148 $116,999
The Ratio of Operating
Expenses to Average Net
Assets without giving
effect to the voluntary
expense limitations
described in Footnote
(a) would have been.... -- -- -- -- -- -- -- -- 0.51 0.50
</TABLE>
- --------
(a) During the periods presented, the Series' adviser voluntarily agreed to
bear expenses (other than advisory fees and any brokerage costs, interest,
taxes or extraordinary expenses) in excess of 0.15% of the Series' average
daily net assets.

B-16
<PAGE>

THE FUND

The Fund is a diversified, open-end management investment company organized
in 1987 as a Massachusetts business trust under the laws of Massachusetts. The
Fund is a series type company with fourteen investment portfolios: the Loomis
Sayles Small Cap Series, the Morgan Stanley International Magnum Equity
Series, the Alger Equity Growth Series, the Capital Growth Series, the Loomis
Sayles Avanti Growth Series, the Davis Venture Value Series, the Westpeak
Growth and Income Series, the Westpeak Stock Index Series, the Loomis Sayles
Balanced Series, the Back Bay Advisors Managed Series, the Salomon Brothers
Strategic Bond Opportunities Series, the Back Bay Advisors Bond Income Series,
the Salomon Brothers U.S. Government Series and the Back Bay Advisors Money
Market Series.

Shares in the Fund are not offered directly to the general public and,
currently, are available only to separate accounts established by New England
Life Insurance Company ("NELICO"), Metropolitan Life Insurance Company
("MetLife") or subsidiaries of MetLife 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 NELICO
or MetLife.

INVESTMENT OBJECTIVES AND POLICIES

LOOMIS SAYLES SMALL CAP SERIES

The Loomis Sayles Small Cap Series' investment objective is long-term
capital growth from investments in common stocks or their equivalents.

Loomis, Sayles & Company, L.P. ("Loomis Sayles"), the Series' subadviser,
manages the Series by investing primarily in stocks of small capitalization
companies with good earnings growth potential that Loomis Sayles believes are
undervalued by the market. Typically, such companies have market
capitalization of less than $1 billion, have better than average growth rates
at below average price/earnings ratios and have strong balance sheets and cash
flow. Loomis Sayles seeks to build a core small cap portfolio of solid growth
company stocks, with a smaller emphasis on special situations and turnarounds
(companies that have experienced significant business problems but which
Loomis Sayles believes have favorable prospects for recovery), as well as
unrecognized stocks.

Under unusual market conditions as determined by Loomis Sayles, all or any
portion of the Series may be invested, for temporary, defensive purposes, in
short-term debt instruments or in cash. In addition, under normal conditions,
a portion of the Series' assets may be invested in short-term assets for
liquidity purposes or pending investment in other securities. Short-term
investments may include U.S. Government securities, certificates of deposit,
commercial paper and other obligations of corporate issuers rated in the top
two rating categories by a major rating agency or, if unrated, determined to
be of comparable quality by the subadviser, and repurchase agreements that are
fully collateralized by cash, U.S. Government securities or high-quality money
market instruments.

MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES

The Morgan Stanley International Magnum Equity Series seeks long-term
capital appreciation by investing primarily in common and preferred stocks,
convertible securities, rights or warrants to purchase common stocks and other
equity securities of non-U.S. issuers, in accordance with the EAFE country (as
defined below) weightings determined by Morgan Stanley Asset Management Inc.
("MSAM"), the Series' subadviser. The production of any current income is
incidental to this objective. The equity securities in which the Series may
invest may be denominated in any currency.

The countries in which the Series will invest are those comprising the
Morgan Stanley Capital International EAFE Index (the "EAFE Index"), which
includes Australia, Japan, New Zealand, most nations located in Western Europe
and certain developed countries in Asia, such as Hong Kong and Singapore (each
an "EAFE country," and collectively the "EAFE countries"). Under normal
circumstances, at least 65% of the total assets of the Series will be invested
in equity securities of issuers in at least three countries outside the United
States.

Although the Series intends to invest primarily in equity securities listed
on a stock exchange in an EAFE country, the Series may invest without limit in
equity securities that are traded over the counter or that are not admitted to
listing on a stock exchange or dealt in on a regulated market. As a result of
the absence of a public trading market, such securities may pose liquidity
risks.

B-17
<PAGE>

MSAM's approach is to establish regional allocation strategies. By analyzing
a variety of macroeconomic and political factors, MSAM develops fundamental
projections on comparative interest rates, currencies, corporate profits and
economic growth among the various regions represented in the EAFE Index. These
projections will be used to establish regional allocation strategies. Within
these regional allocations, MSAM then selects equity securities among issuers
of a region.

MSAM's approach in selecting among equity securities within a region
comprised of EAFE countries is oriented towards individual stock selection and
is value driven. MSAM identifies those equity securities which it believes to
be undervalued in relation to the issuer's assets, cash flow, earnings and
revenues. In selecting investments, MSAM utilizes the research of a number of
sources, including Morgan Stanley Capital International, an affiliate of the
subadviser located in Geneva, Switzerland. The Series' holdings are regularly
reviewed and subjected to fundamental analysis to determine whether they
continue to conform to MSAM's investment criteria. Equity securities which no
longer conform to such investment criteria will be sold. See "Investment
Risks--Foreign Securities" below.

ALGER EQUITY GROWTH SERIES

The Alger Equity Growth Series' investment objective is to seek long-term
capital appreciation. The Series' assets will be invested primarily in a
diversified, actively managed portfolio of equity securities, primarily of
companies having a total market capitalization of $1 billion or greater. These
companies may still be in the developmental stage, may be older companies that
appear to be entering a new stage of growth progress, or may be companies
providing products or services with a high unit volume growth rate.

The Series' subadviser, Fred Alger Management, Inc. ("Alger Management"),
seeks to achieve its objective by investing in equity securities, such as
common or preferred stocks or securities convertible into or exchangeable for
equity securities, including warrants and rights. Except during temporary
defensive periods, the Series invests at least 85% of its net assets in equity
securities and at least 65% of its total assets in equity securities of
companies that, at the time of purchase of the securities, have total market
capitalization of $1 billion or greater; the Series may invest up to 35% of
its total assets in equity securities of companies that, at the time of
purchase, have total market capitalization of less than $1 billion. The Series
anticipates that it will invest primarily in companies whose securities are
traded on domestic stock exchanges or in the over-the-counter market.

The Series may invest in bank and thrift obligations, obligations issued or
guaranteed by the U.S. Government or by its agencies or instrumentalities,
foreign bank obligations and obligations of foreign branches of domestic
banks, and variable rate master demand notes.

The Series may also hold up to 15% of its net assets in money market
instruments and repurchase agreements, purchase restricted securities
(including Rule 144A securities [Rule 144A securities are privately offered
securities that can be resold only to certain institutional buyers]) and enter
into short sales "against the box."

The Series may lend securities it owns so long as such loans do not exceed
33 1/3% of the Series' total assets.

CAPITAL GROWTH SERIES

The Capital Growth Series, which is advised by Capital Growth Management
Limited Partnership ("CGM"), seeks long-term growth of capital through
investment primarily in equity securities of companies whose earnings are
expected to grow at a faster rate than the United States economy. Most of the
Series' investments are normally in common stocks, although the Series may
invest in any type of equity securities. Equity securities are common stocks
and securities convertible into common stocks. The Series does not consider
current income as a significant factor in selecting its investments. Equity
securities are volatile investments, subject to price declines as well as
advances, and involve greater risks than some other investment media.

LOOMIS SAYLES AVANTI GROWTH SERIES

The Loomis Sayles Avanti Growth Series seeks long-term growth of capital.
The Series ordinarily invests substantially all of its assets in equity
securities. Investments are selected based on their growth potential; current
income is not a consideration. The Series normally will invest primarily in
equity securities of companies with medium and large capitalization
(capitalization of $1 billion to $5 billion and over $5 billion,
respectively), but will also invest a portion of its assets in equity
securities of companies with relatively small market capitalization (under $1
billion). The Series may invest a limited portion of its assets in securities
of foreign issuers. See "Investment Risks--Foreign Securities" below.

B-18
<PAGE>

Loomis Sayles, the Series' subadviser, selects investments based upon
fundamental research and analysis of individual companies and industries. The
subadviser selects investments for the Series based on qualitative and
quantitative criteria including, among others, industry dominance and
competitive position, consistent earnings growth, a history of high
profitability, the subadviser's expectation of continued high profitability
and overall financial strength, although not every investment will have all of
these characteristics.

The Series may invest in convertible securities, including corporate bonds,
notes or preferred stocks that can be converted into common stocks or other
equity securities.

DAVIS VENTURE VALUE SERIES

The Davis Venture Value Series' investment objective is growth of capital.
The Series' subadviser is Davis Selected Advisers, L.P. ("Davis Selected").

The Series will primarily invest in domestic common stocks that Davis
Selected believes have capital growth potential due to factors such as
undervalued assets or earnings potential, product development and demand,
favorable operating ratios, resources for expansion, management abilities,
reasonableness of market price, and favorable overall business prospects. The
Series will generally invest predominantly in equity securities of companies
with market capitalizations of at least $250 million. It may also invest in
issues with smaller capitalizations.

The Series may invest in foreign securities, and may hedge currency
fluctuation risks related thereto. The Series may invest in U.S. registered
investment companies that primarily invest in foreign securities, provided
that no such investment may cause more than 10% of the Series' total assets to
be invested in such companies. The Series may invest in restricted securities,
which may include Rule 144A securities. Rule 144A securities are privately
offered securities that can be resold only to certain qualified institutional
buyers.

The Series may write covered call options on its portfolio securities, but
currently intends to invest in such options only to the extent that less than
5% of its net assets would be subject to the options.

The Series may lend securities it owns so long as such loans do not exceed
5% of the Series' net assets.

WESTPEAK GROWTH AND INCOME SERIES

The Series, for which Westpeak Investment Advisors, L.P. ("Westpeak") acts
as subadviser, seeks long-term total return (capital appreciation and dividend
income) through investment in equity securities. Emphasis will be given to
both undervalued securities ("value" style) and securities of companies with
growth potential ("growth" style). The Series will ordinarily invest
substantially all its assets in equity securities.

The Series may engage in transactions in futures contracts solely for the
purpose of maintaining full exposure of the portfolio to the movements of
broad equity markets at times when the Series holds a cash position pending
investment in stocks or in anticipation of redemptions. See "Futures and Other
Hedging Transactions" under "Investment Risks" below and "Futures" in the
Statement.

WESTPEAK STOCK INDEX SERIES

The Series, for which Westpeak acts as subadviser, seeks to provide
investment results that correspond to the composite price and yield
performance of United States publicly traded common stocks. The Series seeks
to achieve this investment objective by attempting to duplicate the composite
price and yield performance of the Standard & Poor's 500 Composite Stock Price
Index (the "S&P 500 Index").

The S&P 500 Index fluctuates with changes in the market value of the stocks
included in the S&P 500 Index. An investment in the Series involves risks
similar to the risks of investing directly in the stocks included in the S&P
500 Index.

The Series seeks to duplicate the composite price and yield performance of
the S&P 500 Index at lower cost, without investing in all of the 500 stocks
included in the S&P 500 Index by selecting stocks having a combination of
characteristics similar to the omitted stocks and, in order to minimize
"tracking error," adjusting the proportions of the stocks included in the
Series' portfolio relative to each stock's weighting in the S&P 500 Index.
("Tracking error" is a statistical measure of the difference

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between the investment results of the Series, before taking into account the
Series' expenses, and the investment results of the S&P 500 Index.)

Westpeak expects that, depending on its size, the Westpeak Stock Index
Series will ordinarily invest in approximately 300 of the 500 stocks included
in the S&P 500 Index. From time to time and over any period of time, this
number may be significantly higher or lower, depending on the size of the
Series and on Westpeak's judgment as to the appropriate number of stocks in
which to invest in order to approximate the composite price and yield
performance of the S&P 500 Index. In the future, however, the Series may,
without shareholder approval, select a stock index other than the S&P 500
Index as the standard of comparison for the Series' investments, or
discontinue the practice of using a stock index as the standard of comparison
for the common stock portion of the Series' portfolio. The Series may also
engage in futures transactions to reduce tracking error. See "Futures and
Other Hedging Transactions" under "Investment Risks" below and "Futures" in
the Statement.

LOOMIS SAYLES BALANCED SERIES

The Series' investment objective is reasonable long-term investment return
from a combination of long-term capital appreciation and moderate current
income.

The Series, for which Loomis Sayles acts as subadviser, is "flexibly
managed" in that sometimes it invests more heavily in equity securities and at
other times it invests more heavily in fixed-income securities, depending on
Loomis Sayles' view of the economic and investment outlook. Most of the
Series' investments are normally in dividend-paying common stocks of
recognized investment quality that are expected to achieve growth in earnings
and dividends over the long term. Fixed-income securities include notes,
bonds, non-convertible preferred stock and money market instruments. The
Series may invest in adjustable rate mortgage securities, asset-backed
securities, stripped mortgage securities (see "STRIPs" in the Statement) and
inverse floaters, subject to a limit of 5% of the Series' assets for each of
these instruments. The Series may invest in securities rated BB or Ba or lower
by Standard & Poor's Ratings Group ("Standard & Poor's" or "S&P") or Moody's
Investors Service, Inc. ("Moody's") (or in unrated securities that Loomis
Sayles determines to be of comparable quality). During the fiscal year ended
December 31, 1996, 2.7% of the average month-end net assets of the Series were
invested in fixed-income securities rated in the rating category (BB or Ba)
just below investment grade and no assets were invested in fixed-income
securities rated below this level. The Series invests at least 25% of its
assets in fixed-income senior securities and, under normal market conditions,
more than 50% of its assets in equity securities. The Series also may invest
in foreign securities. See "Investment Risks--Foreign Securities" below.

BACK BAY ADVISORS MANAGED SERIES

The investment objective of the Back Bay Advisors Managed Series is to
provide a favorable total investment return through investment in a
diversified portfolio of common stocks and fixed-income securities. These
investments will be made in proportions that Back Bay Advisors, L.P. ("Back
Bay Advisors"), the Series' subadviser, deems appropriate for an investor who
wishes to invest in a portfolio containing a diversified mix of assets.

It is expected that more often than not the investment portfolio of the
Series will contain a higher proportion of common stocks than of notes and
bonds, and a higher proportion of notes and bonds than of money market
instruments. However, Back Bay Advisors will make variations in the
proportions of each investment category in accordance with its assessment of
the outlook for the economy and the financial markets and its judgment about
the relative attractiveness of each asset type in light of economic
conditions. The Series may also engage in futures transactions to manage its
portfolio exposure to the risks of investment in common stocks or notes and
bonds. The Series will engage in futures transactions only to the extent
allowed by state law and regulations. See "Investment Risks--Futures and Other
Hedging Transactions" below and "Futures" in the Statement.

The investment practices with respect to the common stock portion of the
Series center upon selecting a portfolio of securities, drawn from the S&P
500, which taken as a group can be characterized as high capitalization growth
issues. A proprietary quantitative model is used to achieve an industry
sector-neutral investment approach. In addition, as conditions warrant, a
portion of the stock portfolio may be invested in "value" situations, as
identified by Back Bay Advisors' quantitative model. In the future, however,
the Series may, without shareholder approval, select a stock index other than
the S&P 500 Index as the standard of comparison for the Series' common stock
investments, or discontinue the practice of using a stock index as the
standard of comparison for the common stock portion of the Series' portfolio.
The Series may invest a limited portion of its assets in securities of foreign
issuers and may invest in convertible securities. See "Investment Risks--
Foreign Securities" below.

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The fixed-income portion of the Series' portfolio will be invested in bonds
of the types in which the Back Bay Advisors Bond Income Series is permitted to
invest. These may include securities rated BB or lower by S&P or Ba or lower
by Moody's (or unrated but determined to be of comparable quality by Back Bay
Advisors), are considered high yield, high risk securities and are commonly
known as "junk bonds." The Series will acquire no security rated below BB or
Ba (or unrated but determined to be of comparable quality by Back Bay
Advisors). If a security held by the Series is downgraded below BB or Ba, Back
Bay Advisors will determine at that time whether the Series will continue to
hold the security, taking into account the current conditions. During the
fiscal year ended December 31, 1996, 12.7% of the average month-end net assets
of the Series were invested in fixed-income securities rated in the rating
category (BB or Ba) just below investment grade and no assets were invested in
fixed-income securities rated below this level.

SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES

The investment objective of Salomon Brothers Strategic Bond Opportunities
Series is to seek a high level of total return consistent with preservation of
capital.

Based upon the assessment of Salomon Brothers Asset Management Inc ("SBAM"),
subadviser to the Series, of the relative risks and opportunities available in
various market segments, assets will be allocated among U.S. Government
obligations, mortgage backed securities, domestic and foreign corporate debt
and sovereign debt securities rated investment grade (BBB or higher by S&P or
Baa or higher by Moody's), or if unrated, deemed to be of comparable quality
in the subadviser's judgment, and domestic and foreign corporate debt and
sovereign debt securities rated below investment grade. The Series may invest
in fixed and floating rate loans ("Loans") arranged through private
negotiations between a foreign sovereign entity and one or more financial
institutions, in the form of participations in such Loans and assignments of
all or a portion of such loans from third parties. See "Investment Risks--Loan
Participations and Assignments" below.

Depending on market conditions, the Series may invest without limit in
securities rated below investment grade, which involve significantly greater
risks, including price volatility and risk of default in the payment of
interest and principal, than investments in higher-quality securities.
Although the Series' subadviser does not anticipate investing in excess of 75%
of the Series' assets in domestic and developing country debt securities that
are rated below investment grade, the Series may invest a greater percentage
in such securities when, in the opinion of the subadviser, the yield available
from such securities outweighs their additional risks. Certain of the debt
securities in which the Series may invest may be rated as low as "C" by
Moody's or "D" by S&P or, if unrated, determined to be of comparable quality
to securities so rated. Securities rated below investment grade quality are
considered high yield, high risk securities and are commonly known as "junk
bonds." See "Investment Risks--Lower Rated Fixed-Income Securities" below.
During the fiscal year ended December 31, 1996, 12% of the average month-end
net assets of the Series were invested in fixed-income securities rated in the
rating category (BB or Ba) just below investment grade and 46% of the Series
assets were invested in fixed-income securities below this level.

In addition, the Series may invest in securities issued or guaranteed as to
principal or interest by the U.S. Government or its agencies or
instrumentalities, including mortgage backed securities, and may also invest
in preferred stocks, convertible securities (including those issued in the
Euromarket), securities carrying warrants to purchase equity securities,
privately placed debt securities, stripped mortgage securities, zero coupon
securities and inverse floaters.

The Series may, and the subadviser anticipates that under certain market
conditions it will, invest up to 100% of its assets in foreign securities,
including Brady Bonds. Brady Bonds are debt obligations created through the
exchange of commercial bank loans for new obligations under a plan introduced
by former U.S. Treasury Secretary Nicholas Brady. See "Investment Risks--High
Yield/High Risk Foreign Sovereign Debt Securities" below. There is no limit on
the value of the Series' assets that may be invested in the securities of any
one country or in assets denominated in any one country's currency.

The Series may also invest in debt obligations issued or guaranteed by a
foreign sovereign government or one of its agencies or political subdivisions
and debt obligations issued or guaranteed by supranational entities.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the "World Bank"), the European Coal and Steel Community, the
Asian Development Bank and the Inter-American Development Bank. Such
supranational issued instruments may be denominated in multi-national currency
units.

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The Series currently intends to invest substantially all of its assets in
fixed-income securities. In order to maintain liquidity, the Series may invest
up to 20% of its assets in high-quality short-term money market instruments.

The Series' subadviser has the discretion to select the range of maturities
of the various fixed-income securities in which the Series will invest. The
weighted average life of the Series may vary substantially from time to time
depending on economic and market conditions.

The Series may purchase and sell (or write) exchange-listed and over-the-
counter put and call options on securities, financial futures contracts,
fixed-income indices and other financial instruments, enter into financial
futures contracts, enter into interest rate transactions and enter into
currency transactions. Interest rate transactions may take the form of swaps,
structured notes, caps, floors and collars, and currency transactions may take
the form of currency forward contracts, currency futures contracts, currency
swaps and options on currencies or currency futures contracts. See "Futures
and Other Hedging Transactions" under "Investment Risks" below and "Futures"
in the Statement.

The Series may lend securities it owns so long as such loans do not
represent more than 20% of the Series' total assets.

BACK BAY ADVISORS BOND INCOME SERIES

The investment objective of the Series is to provide a high level of current
income consistent with protection of capital and moderate investment risk
through investment primarily in U.S. Government and corporate bonds. In
general, fixed-income securities, such as the bonds in which the Series may
invest, are subject to credit risk (the risk that the obligor will default in
the payment of principal and/or interest) and to market risk (the risk that
the market value of the securities will change as a result of changes in
market rates of interest). The Series may also invest in convertible
securities. See "Investment Risks--Convertible Securities" below.

At least 80% of the Series' assets will consist of securities rated AAA, AA,
A or BBB by S&P or Aaa, Aa, A or Baa by Moody's, or unrated but determined by
Back Bay Advisors, the Series' subadviser, to be of comparable quality to
securities in those rating categories. The Series may not invest more than 10%
of its total net assets in obligations of foreign issuers. The Series will
invest in these securities only when Back Bay Advisors believes the associated
risks are minimal. See "Investment Risks--Foreign Securities" below.

Up to 20% of the Series' assets may be invested in securities rated BB or Ba
or lower (or in unrated securities that Back Bay Advisors determines to be of
comparable quality). During the fiscal year ended December 31, 1996, 19.5% of
the average month-end net assets of the Series were invested in fixed-income
securities rated in the rating category (BB or Ba) just below investment grade
and no assets were invested in fixed-income securities rated below this level.
Securities rated BB or lower by S&P or Ba or lower by Moody's (or unrated but
determined to be of comparable quality by Back Bay Advisors) are considered
high yield, high risk securities and are commonly known as "junk bonds." The
Series will acquire no security rated below BB or Ba (or unrated but
determined to be of comparable quality by Back Bay Advisors). If a security
held by the Series is downgraded below BB or Ba, Back Bay Advisors will
determine at that time whether the Series will continue to hold the security,
taking into account the current conditions.

The average maturity of the Back Bay Advisors Bond Income Series' portfolio
will usually be between five and fifteen years.

SALOMON BROTHERS U.S. GOVERNMENT SERIES

The Salomon Brothers U.S. Government Series' investment objective is to
provide a high level of current income consistent with preservation of capital
and maintenance of liquidity.

The Series seeks to achieve its objective by investing primarily in debt
obligations (including mortgage backed securities) issued or guaranteed by the
U.S. Government or its agencies, authorities or instrumentalities or
derivative securities (such as collateralized mortgage obligations) backed by
such securities.

At least 80% of the total assets of the Series will be invested in:

(1) mortgage backed securities guaranteed by the Government National
Mortgage Association ("GNMA") which are supported by the full faith and
credit of the U.S. Government. Such securities entitle the holder to
receive all interest and principal payments when due, whether or not
payments are actually made on the underlying mortgages;

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(2) U.S. Treasury obligations;

(3) debt obligations issued or guaranteed by agencies or
instrumentalities of the U.S. Government which are backed by their own
credit but are not necessarily backed by the full faith and credit of the
U.S. Government;

(4) mortgage-related securities guaranteed by agencies or
instrumentalities of the U.S. Government which are supported by their own
credit but not the full faith and credit of the U.S. Government, such as
the Federal Home Loan Mortgage Corporation and Federal National Mortgage
Association ("FNMA"), and

(5) collateralized mortgage obligations issued by private issuers for
which the underlying mortgage backed securities serving as collateral are
backed (i) by the credit of the U.S. Government agency or instrumentality
which issues or guarantees the mortgage backed securities, or (ii) by the
full faith and credit of the U.S. Government.

Under normal market conditions, at least 65% of the Series' total assets
will be invested in securities issued or guaranteed by the U.S. Government or
an agency, authority or instrumentality thereof. For purposes of this policy,
securities that are not issued or guaranteed by the U.S. Government or an
agency, authority or instrumentality will not count toward the 65% minimum,
even if they are backed by mortgages (or other collateral) that are so
guaranteed.

Any guarantee of the securities in which the Series invests runs only to
principal and interest payments on the securities and not to the market value
of such securities or the principal and interest payments on the underlying
mortgages. In addition, the guarantee runs to the portfolio securities held by
the Series and not to the purchase of shares of the Series.

The Series may purchase or write options on securities, options on
securities indices and options on futures contracts and may buy or sell
futures on financial instruments and securities indices.

Up to 20% of the total assets of the Series may be invested in marketable
debt securities of domestic issuers and of foreign issuers (payable in U.S.
dollars) rated at the time of purchase Baa or higher by Moody's or BBB or
higher by S&P, or, if unrated, deemed by SBAM to be of comparable quality,
convertible securities (including those issued in the Euromarket), securities
carrying warrants to purchase equity securities and privately placed debt
securities.

The Series may lend securities it owns so long as such loans do not
represent more than 20% of the Series' total assets.

BACK BAY ADVISORS MONEY MARKET SERIES

The Series seeks the highest possible level of current income consistent
with preservation of capital through investment in a managed portfolio of high
quality money market instruments including: (1) obligations backed by the full
faith and credit of the United States Government, such as bills, notes and
bonds issued by the U.S. Treasury or by such government agencies as the
Farmers' Home Administration or the Small Business Administration; (2) other
obligations issued or guaranteed by the United States Government or its
agencies, authorities or instrumentalities, such as obligations of the
Tennessee Valley Authority, Federal Land Banks and FNMA (together with full
faith and credit obligations, "U.S. Government Securities"); (3) commercial
paper and other corporate debt obligations rated in the highest rating
category by S&P or Moody's or, if unrated, of comparable quality as determined
by Back Bay Advisors, the Series' subadviser, under guidelines approved by the
Fund's Trustees; (4) repurchase agreements relating to any of the above and
(5) obligations of banks or savings and loan associations (such as bankers'
acceptances and certificates of deposit, including Eurodollar obligations of
foreign branches of U.S. banks and dollar denominated obligations of U.S. and
United Kingdom branches of foreign banks) whose net assets exceed
$100,000,000;

The Series may invest up to 100% of its assets in certificates of deposit,
bankers' acceptances and other bank obligations.

All the Series' money market instruments mature in less than 397 days and
its dollar-weighted average portfolio maturity is 90 days or less. The Series
calculates the maturity of repurchase agreements by reference to the
repurchase date, not by reference to the maturity of the underlying security.

By investing only in high quality, short-term securities, the Series seeks
to minimize credit risk and market risk. Credit risk is the risk that the
obligor will default in the payment of principal and/or interest. In a
repurchase agreement transaction, credit risk relates to the performance by
the other party of its obligation to repurchase the underlying security from
the Series. If the other party defaults on that obligation, the Series may
face various delays and risks of loss. Market risk is the risk that the market
value of the securities will change as a result of changes in market rates of
interest. The Series expects that those changes will be relatively small and
that the Series will be able to maintain the net asset value of its shares at
a constant level of $100, although this cannot be assured.

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The Eurodollar obligations of foreign branches of U.S. banks and U.S. and
United Kingdom branches of foreign banks in which the Series may invest may be
subject to certain risks which do not apply to investments in obligations of
domestic branches of U.S. banks. These risks may relate to foreign economic,
political and legal developments and to the fact that foreign banks and
foreign branches of U.S. banks may be subject to different regulatory
requirements.

ADDITIONAL INFORMATION

Except for the investment objective of the Loomis Sayles Small Cap, Capital
Growth, Loomis Sayles Avanti Growth, Westpeak Growth and Income , Westpeak
Stock Index, Back Bay Advisors Managed, Back Bay Advisors Bond Income and Back
Bay Advisors Money Market Series, or except as otherwise explicitly stated in
this Prospectus or the Statement, each Series' investment policies may be
changed at any time without shareholder approval.

Equity securities are securities that represent an ownership interest (or
the right to acquire such an interest) in a company, and include common and
preferred stocks and securities exercisable for or convertible into common or
preferred stocks (such as warrants, convertible debt securities and
convertible preferred stock).

The Loomis Sayles Small Cap, Morgan Stanley International Magnum Equity,
Alger Equity Growth, Capital Growth, Loomis Sayles Avanti Growth, Davis
Venture Value, Westpeak Growth and Income and Westpeak Stock Index Series seek
to attain their objectives by normally investing their assets primarily in
equity securities. When the particular Series' adviser or subadviser deems it
appropriate, however, any of these Series may, for temporary defensive
purposes, hold all or a substantial portion of its assets in cash or fixed-
income investments, including U.S. Government obligations, investment grade
(and comparable unrated) corporate bonds or notes, money market instruments,
bankers acceptances and repurchase agreements. In addition, the Morgan Stanley
International Magnum Equity Series may invest temporarily in foreign
government, agency or corporate debt obligations and any other instruments
denominated in any currency issued by international development agencies. No
estimate can be made as to when or for how long any Series will employ
defensive strategies.

INVESTMENT RISKS

. EQUITY SECURITIES (LOOMIS SAYLES SMALL CAP, MORGAN STANLEY INTERNATIONAL
MAGNUM EQUITY, ALGER EQUITY GROWTH, CAPITAL GROWTH, LOOMIS SAYLES AVANTI
GROWTH, DAVIS VENTURE VALUE, WESTPEAK GROWTH AND INCOME, WESTPEAK STOCK
INDEX, LOOMIS SAYLES BALANCED AND BACK BAY ADVISORS MANAGED SERIES)

Equity securities are more volatile and more risky than some other forms of
investment. Therefore, the value of your investment in a Series may sometimes
decrease instead of increase. Investments in companies with relatively small
capitalization may involve greater risk than is usually associated with more
established companies. These companies often have sales and earnings growth
rates which exceed those of companies with larger capitalization. Such growth
rates may in turn be reflected in more rapid share price appreciation.
However, companies with smaller capitalization often have limited product
lines, markets or financial resources and they may be dependent upon a
relatively small management group. The securities may have limited
marketability and may be subject to more abrupt or erratic movements in price
than securities of companies with larger capitalization or the market averages
in general. The net asset value of a Series that invests in companies with
smaller capitalization, therefore, may fluctuate more widely than market
averages.

. CONVERTIBLE SECURITIES (MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY, ALGER
EQUITY GROWTH, CAPITAL GROWTH, LOOMIS SAYLES AVANTI GROWTH, LOOMIS SAYLES
BALANCED, BACK BAY ADVISORS MANAGED, SALOMON BROTHERS STRATEGIC BOND
OPPORTUNITIES AND BACK BAY ADVISORS BOND INCOME SERIES)

Convertible securities include debt securities or preferred stock that are
convertible into stock as well as other securities, such as warrants, that
provide an opportunity for equity participation. Because convertible
securities can be converted into equity securities, their values will normally
increase or decrease as the values of the underlying equity securities
increase or decrease. The movements in the prices of convertible securities,
however, may be smaller than the movements in the value of the underlying
equity securities. Convertible debt and preferred stock usually provide a
higher yield than the underlying equity securities, however, so that the price
decline of a convertible security may sometimes be less substantial than that
of the underlying equity securities. The value of convertible securities that
pay dividends or interest, like the value of other fixed-income securities,
generally fluctuates inversely with changes in interest rates. Warrants have
no voting rights, pay no dividends and have no rights with respect to the
assets of the corporation issuing them. They do not represent ownership of the
securities for which they are exercisable, but only the right to buy such
securities at a particular price. The Loomis Sayles Avanti Growth Series will
purchase only convertible debt

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securities and convertible preferred stock that have been rated investment
grade at the time of acquisition by at least one major rating agency or that
are not rated but are determined to be of comparable quality by the Series'
subadviser.

. FIXED-INCOME SECURITIES (ALL SERIES)

Fixed-income securities include a broad array of short, medium and long term
obligations issued by the U.S. or foreign governments, government or
international agencies and instrumentalities, and corporate issuers of various
types. Some fixed-income securities represent uncollateralized obligations of
their issuers; in other cases, the securities may be backed by specific assets
(such as mortgages or other receivables) that have been set aside as
collateral for the issuer's obligation. Fixed-income securities generally
involve an obligation of the issuer to pay interest or dividends on either a
current basis or at the maturity of the security, as well as the obligation to
repay the principal amount of the security at maturity.

Fixed-income securities involve both credit risk and market risk. Credit risk
is the risk that the security's issuer will fail to fulfill its obligation to
pay interest, dividends or principal on the security. Market risk is the risk
that the value of the security will fall because of changes in market rates of
interest. Except to the extent values are affected by other factors such as
developments relating to a specific issuer, generally the value of a fixed-
income security can be expected to rise when interest rates decline and
conversely, the value of such a security can be expected to fall when interest
rates rise. Some fixed-income securities also involve prepayment or call risk.
This is the risk that the issuer will repay a Series the principal on the
security before it is due, thus depriving the Series of a favorable stream of
future interest or dividend payments. In addition, many fixed-income
securities contain call or buy-back features that permit their issuers to call
or repurchase the securities from their holders. Such securities may present
risks based on payment expectations. Although a Series would typically receive
a premium if an issuer were to redeem a security, if an issuer were to
exercise a "call option" and redeem the security during times of declining
interest rates, a Series may realize a capital loss on its investment if the
security was purchased at a premium and a Series may be forced to replace the
called security with a lower yielding security.

The short-term and medium-term fixed-income securities in which the Morgan
Stanley International Magnum Equity Series may invest consists of (a)
obligations of governments, agencies or instrumentalities of any member state
of the Organization for Economic Cooperation and Development ("OECD"),
including the United States; (b) bank deposits and bank obligations (including
certificates of deposit, time deposits and bankers' acceptances) of banks
organized under the laws of any member states of the OECD, including the
United States, denominated in any currency; (c) finance company and corporate
commercial paper and other short-term corporate debt obligations of
corporations organized under the laws of any member states of the OECD,
including the United States, meeting the Series' credit quality standards,
provided that no more than 20% of the Series' assets is invested in any one of
such issuers. The short-term and medium-term securities in which the Series
may invest will be rated investment grade, or if unrated, determined to be of
comparable quality by MSAM.

Because interest rates vary, it is impossible to predict the income for any
particular period of a Series that invests in fixed-income securities.
Fluctuations in the value of a Series' investments in fixed-income securities
will cause a Series' net asset value to increase or decrease.

. LOWER RATED FIXED-INCOME SECURITIES (LOOMIS SAYLES BALANCED, BACK BAY
ADVISORS MANAGED, SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES AND BACK BAY
ADVISORS BOND INCOME SERIES)

Fixed-income securities rated BB or lower by S&P or Ba or lower by Moody's
(and comparable unrated securities) are of below "investment grade" quality.
Lower quality fixed-income securities generally provide higher yields, but are
subject to greater credit and market risk than higher quality fixed-income
securities. Lower quality fixed-income securities are considered predominantly
speculative with respect to the ability of the issuer to meet principal and
interest payments. Achievement of the investment objective of a mutual fund
investing in lower quality fixed-income securities may be more dependent on
the Series' subadviser's own credit analysis than for a fund investing in
higher quality bonds. The market for lower quality fixed-income securities may
be more severely affected than some other financial markets by economic
recession or substantial interest rate increases, by changing public
perceptions of this market or by legislation that limits the ability of
certain categories of financial institutions to invest in these securities. In
addition, the secondary market may be less liquid for lower rated fixed-income
securities. This lack of liquidity at certain times may affect the valuation
of these securities and may make the valuation and sale of these securities
more difficult. Securities of below investment grade quality are considered
high yield, high risk securities and are commonly known as "junk bonds." For
more information, including a detailed description of the ratings assigned by
S&P and Moody's, please refer to "Appendix A--Ratings of Securities."

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. MORTGAGE-RELATED SECURITIES (LOOMIS SAYLES BALANCED, BACK BAY ADVISORS
MANAGED, SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES, BACK BAY ADVISORS
BOND INCOME AND SALOMON BROTHERS U.S. GOVERNMENT SERIES)

Mortgage-related securities, such as GNMA or FNMA certificates, differ from
traditional debt securities. Among the major differences are that interest and
principal payments are made more frequently, usually monthly, and that
principal may be prepaid at any time because the underlying mortgage loans
generally may be prepaid at any time. As a result, if a Series purchases these
assets at a premium, a faster-than-expected prepayment rate will reduce yield
to maturity, and a slower-than-expected prepayment rate will have the opposite
effect of increasing yield to maturity. If a Series purchases mortgage-related
securities at a discount, faster-than-expected prepayments will increase, and
slower-than-expected prepayments will reduce, yield to maturity. Prepayments,
and resulting amounts available for reinvestment by the Series, are likely to
be greater during a period of declining interest rates and, as a result, are
likely to be reinvested at lower interest rates. Accelerated prepayments on
securities purchased at a premium may result in a loss of principal if the
premium has not been fully amortized at the time of prepayment. When interest
rates rise, the value and liquidity of mortgage-backed securities may decline
sharply and generally will decline more than would be the case with other
fixed-income securities. However, because of the prepayment feature, the value
of mortgage-backed securities may not increase as much as other fixed-income
securities when interest rates decline.

. COLLATERALIZED MORTGAGE OBLIGATIONS (LOOMIS SAYLES BALANCED, BACK BAY
ADVISORS MANAGED, SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES, BACK BAY
ADVISORS BOND INCOME AND SALOMON BROTHERS U.S. GOVERNMENT SERIES)

A collateralized mortgage obligation ("CMO") is a debt security collateralized
by a portfolio of mortgages or mortgage securities held under a trust
indenture. In some cases, the underlying mortgages or mortgage securities are
issued or guaranteed by the U.S. Government or an agency or instrumentality
thereof, but the obligations purchased by a Series will in many cases not be
so issued or guaranteed. The issuer's obligation to make interest and
principal payments is secured by the underlying portfolio of mortgages or
mortgage securities. CMOs are issued with a number of classes or series which
have different maturities and which may represent interests in some or all of
the interest or principal on the underlying collateral or a combination
thereof. In the event of sufficient early prepayments on such mortgages, the
class or series of CMO first to mature generally will be retired prior to its
maturity. The early retirement of a particular class or series of CMO held by
a Series would have the same effect as the prepayment of mortgages underlying
a mortgage pass-through security.

. "STRIPPED" MORTGAGE SECURITIES (SALOMON BROTHERS STRATEGIC BOND
OPPORTUNITIES AND SALOMON BROTHERS U.S. GOVERNMENT SERIES)

"Stripped" mortgage securities are derivative multi-class mortgage securities.
"Stripped" mortgage securities may be issued by agencies or instrumentalities
of the U.S. Government or by private originators of, or investors in, mortgage
loans, including savings and loans, mortgage banks, commercial banks or
investment banks. Stripped mortgage securities are usually structured with two
classes that receive different proportions of the interest and principal
distribution on a pool of mortgage assets. In some cases, one class will
receive all of the interest (the interest-only or "IO" class), while the other
class will receive all of the principal (the principal-only or "PO" class).
Stripped mortgage securities have greater market volatility than other types
of mortgage securities. The yield to maturity on IOs and POs and other
mortgage-backed securities that are purchased at a substantial premium or
discount generally are sensitive to changes in prevailing interest rates and
to the rates of principal payments (including prepayment) on the underlying
mortgage assets. If the underlying mortgage assets experience greater than
anticipated payments of principal, the Series may fail to recoup fully its
investments in IOs. The staff of the SEC has indicated that it views stripped
mortgage securities as illiquid. Until further clarification of the matter is
provided by the staff, each Series will treat its investments in stripped
mortgage securities as illiquid, and as such, these investments, together with
any other illiquid investments, will not exceed 15% of a Series' net assets.

. ADJUSTABLE RATE MORTGAGE SECURITIES (LOOMIS SAYLES BALANCED, SALOMON
BROTHERS STRATEGIC BOND OPPORTUNITIES AND SALOMON BROTHERS U.S. GOVERNMENT
SERIES)

An adjustable rate mortgage security ("ARM"), like a traditional mortgage
security, is an interest in a pool of mortgage loans that provides investors
with payments consisting of both principal and interest as mortgage loans in
the underlying mortgage pool are paid off by the borrowers. Unlike fixed rate
mortgage securities, ARMs are collateralized by or represent interests in
mortgage loans with variable rates of interest. These interest rates are reset
at periodic intervals, usually by reference to some interest rate index or
market interest rate. Although the rate adjustment feature may act as a buffer
to reduce sharp changes in the value of

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adjustable rate securities, these securities are still subject to changes in
value based on changes in market interest rates or changes in the issuer's
creditworthiness. Because the interest rates are reset only periodically,
changes in the interest rate on ARMs may lag changes in prevailing market
interest rates. Also, some ARMs (or the underlying mortgages) are subject to
caps or floors that limit the maximum change in interest rate during a
specified period or over the life of the security. As a result, changes in the
interest rate on an ARM may not fully reflect changes in prevailing market
interest rates during certain periods. Because of the resetting of interest
rates, ARMs are less likely than non-adjustable rate securities of comparable
quality and maturity to increase significantly in value when market interest
rates fall.

. ASSET BACKED SECURITIES (LOOMIS SAYLES BALANCED, SALOMON BROTHERS STRATEGIC
BOND OPPORTUNITIES AND SALOMON BROTHERS U.S. GOVERNMENT SERIES)

The securitization techniques used to develop mortgage securities are also
being applied to a broad range of other assets. Through the use of trusts and
special purpose corporations, automobile and credit card receivables are being
securitized in pass-through structures similar to mortgage pass-through
structures or in a pay-through structure similar to the CMO structure.
Generally the issuers of asset backed bonds, notes or pass-through
certificates are special purpose entities and do not have any significant
assets other than the receivables securing such obligations. In general, the
collateral supporting asset backed securities is of shorter maturity than
mortgage loans. Instruments backed by pools of receivables are similar to
mortgage-backed securities in that they are subject to unscheduled prepayments
of principal prior to maturity. When the obligations are prepaid, the Series
will ordinarily reinvest the prepaid amounts in securities the yields of which
reflect interest rates prevailing at the time. Therefore, a Series' ability to
maintain a portfolio which includes high-yielding asset backed securities will
be adversely affected to the extent that prepayments of principal must be
reinvested in securities which have lower yields than the prepaid obligations.
Moreover, prepayments of securities purchased at a premium could result in a
realized loss. A Series will only invest in asset backed securities rated, at
the time of purchase, AA or better by S&P or Aa or better by Moody's or which,
in the opinion of the subadviser, are of comparable quality.

. INVERSE FLOATERS (LOOMIS SAYLES BALANCED, SALOMON BROTHERS STRATEGIC BOND
OPPORTUNITIES AND SALOMON BROTHERS U.S. GOVERNMENT SERIES)

The Series listed above may invest in inverse floaters, which are derivative
mortgage securities. Inverse floaters are structured as a class of security
that receives distributions on a pool of mortgage assets and whose yields move
in the opposite direction of short-term interest rates, sometimes, at an
accelerated rate. Inverse floaters may be issued by agencies or
instrumentalities of the U.S. Government, or by private issuers, including
savings and loan associations, mortgage banks, commercial banks, investment
banks and special purpose subsidiaries of the foregoing. Inverse floaters have
greater volatility than other types of mortgage securities in which the Series
invest (with the exception of stripped mortgage securities). Although inverse
floaters are purchased and sold by institutional investors through several
investment banking firms acting as brokers or dealers, the market for such
securities has not yet been fully developed. Accordingly, inverse floaters are
generally illiquid.

. REPURCHASE AGREEMENTS (ALL SERIES)

In a repurchase agreement, a Series buys securities from a seller, usually a
bank or brokerage firm, with the understanding that the seller will repurchase
the securities at a higher price at a later date. If the Series fails to
repurchase the securities, the Series has rights to sell the securities to
third parties. Repurchase agreements can be regarded as loans by the Series to
the seller, collateralized by securities that are the subject of the
agreement. Repurchase agreements afford an opportunity for a Series to earn a
return on available cash at relatively low market risk, although the Series
may be subject to various delays and risks of loss if the seller fails to meet
its obligation to repurchase.

. REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLL AGREEMENTS (SALOMON BROTHERS
STRATEGIC BOND OPPORTUNITIES AND SALOMON BROTHERS U.S. GOVERNMENT SERIES)

The Salomon Brothers Strategic Bond Opportunities Series and Salomon Brothers
U.S. Government Securities Series may enter into reverse repurchase agreements
and dollar roll agreements with banks and brokers to enhance return.

Reverse repurchase agreements involve sales by the Series of portfolio assets
concurrently with an agreement by the Series to repurchase the same assets at
a later date at a fixed price. During the reverse repurchase agreement period,
the Series continues to receive principal and interest payments on these
securities and also has the opportunity to earn a return on the collateral
furnished by the counterparties to secure its obligation to redeliver the
securities.

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Dollar rolls are transactions in which the Series sells securities for
delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type and coupon) securities on a specified future
date. During the roll period, the Series forgoes principal and interest paid
on both the securities sold and those to be purchased. The Series is
compensated by the difference between the current sales price and the forward
price for the future purchase (often referred to as the "drop") as well as by
the interest earned on the cash proceeds of the initial sale.

The Series will establish segregated accounts with the Fund's custodian in
which they will maintain certain assets equal in value to their obligations
with respect to reverse repurchase agreements and dollar rolls. Reverse
repurchase agreements and dollar rolls involve the risk that the market value
of the securities retained by the Series may decline below the price of the
securities the Series has sold but is obligated to repurchase under the
agreement. In the event the buyer of securities under a reverse repurchase
agreement or dollar roll files for bankruptcy or becomes insolvent, the
Series' use of the proceeds of the agreement may be restricted pending a
determination by the other party or its trustee or receiver whether to enforce
the Series' obligation to repurchase the securities. Reverse repurchase
agreements and dollar rolls are not considered borrowings by the Series for
purpose of the Series' fundamental investment restriction with respect to
borrowings.

. WRITING OPTIONS (MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY, DAVIS VENTURE
VALUE, SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES AND SALOMON BROTHERS
U.S. GOVERNMENT SERIES)

A Series may seek to increase its current return by writing covered call
options and covered put options, with respect to securities it holds or
intends to buy, through the facilities of options exchanges and directly with
market makers in the over-the-counter market. A Series receives a premium from
writing a call or put option, which increases the Series' current return if
the option expires unexercised or is closed out at a net profit. A put option
gives the purchaser of the option, upon payment of the premium, the right to
sell, and the writer of the obligation the right to buy, the underlying
security at the exercise price. A call option gives the purchaser of the
option, upon payment of the premium, the right to buy, and the seller the
obligation to sell, the underlying security at the exercise price.

At times when a Series has written call options on a substantial portion of
its portfolio, the Series' ability to profit and its risk of loss from changes
in market prices of portfolio securities will be limited. Appreciation in
securities underlying the options would likely be partially or wholly offset
by losses on the options. The termination of options positions under such
conditions would generally result in the realization of short-term capital
losses, which would reduce the Series' current return. Accordingly, a Series
may seek to realize capital gains to offset realized losses by selling
securities.

As described in the Statement, over-the-counter options involve certain
special risks (including liquidity and credit risks) not necessarily present
with exchange-listed options. A Series will treat as illiquid any over-the-
counter options and assets maintained as "cover" for over-the-counter options
that the Series has written.

The options markets of foreign countries are small compared to those of the
United States and consequently are characterized in most cases by less
liquidity than are the U.S. markets. In addition, foreign markets may be
subject to less detailed reporting requirements and regulatory controls than
U.S. markets. See "Foreign Securities" below.

. FUTURES AND OTHER HEDGING TRANSACTIONS (MORGAN STANLEY INTERNATIONAL MAGNUM
EQUITY, DAVIS VENTURE VALUE, WESTPEAK GROWTH AND INCOME, WESTPEAK STOCK
INDEX, LOOMIS SAYLES BALANCED, BACK BAY ADVISORS MANAGED, SALOMON BROTHERS
STRATEGIC BOND OPPORTUNITIES AND SALOMON BROTHERS U.S. GOVERNMENT SERIES)

Futures contracts are exchange-traded obligations to buy or sell a particular
commodity on a specified future date (or to pay or receive amounts based on
the value of a securities index or currency on that date).

The use of futures transactions entails certain special risks. In particular,
the variable degree of correlation between price movements of futures
contracts and price movements in the related securities or currency position
of a Series could create the possibility that losses on the futures contracts
are greater than gains in the value of the Series' position. In addition,
futures markets could be illiquid in some circumstances. As a result, in
certain markets, a Series might not be able to close out a transaction without
incurring substantial losses. Although a Series' use of futures transactions
for hedging should tend to minimize the risk of loss due to a decline in the
value of the hedged position, at the same time it will tend to limit any
potential gain to a Series that might result from an increase in value of the
position. The daily variation margin requirements for futures contracts create
a greater ongoing potential financial risk than would purchases of options, in
which case the exposure is limited to the cost of the initial premium.

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Each of the Series listed above may, in the discretion of its subadviser,
engage in foreign currency exchange transactions in connection with the
purchase and sale of portfolio securities, to protect the value of specific
portfolio positions or in anticipation of changes in relative values of
currencies in which current or future Series portfolio holdings are
denominated or quoted.

For hedging purposes, each of these Series may also buy put or call options on
securities that it holds or intends to buy. In addition to engaging in options
transactions on established exchanges, a Series may purchase over-the-counter
options from brokerage firms and other financial institutions.

Each of these Series may invest in options and futures contracts on various
securities indices to hedge against changes in the value of securities it
holds or expects to acquire. These Series may also invest in options on index
futures.

No Series will invest more than 5% of its net assets in futures or premiums
for options on futures that are traded on a U.S. commodities exchange.

Certain asset segregation requirements apply when a Series becomes obligated
under a hedging instrument. There is no assurance that a Series' hedging
strategies will be effective. These strategies involve costs and the risk of
loss to the Series. See the Statement for more information.

. SWAPS (MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY AND SALOMON BROTHERS
STRATEGIC BOND OPPORTUNITIES SERIES)

The Morgan Stanley International Magnum Equity and Salomon Brothers Strategic
Bond Opportunities Series may enter into interest rate, currency and index
swaps. The Series will enter into these transactions primarily to seek to
preserve a return or spread on a particular investment or portion of its
portfolio, to protect against currency fluctuations, as a duration management
technique or to protect against any increase in the price of securities the
Series anticipates purchasing at a later date. Interest rate swaps involve the
exchange by the Series with another party of their respective commitments to
pay or receive interest (for example, an exchange of floating rate payments
for fixed rate payments with respect to a notional amount of principal). A
currency swap is an agreement to exchange cash flows on a notional amount
based on changes in the relative values of the specified currencies. The
Series will maintain cash and/or cash equivalents in a segregated custodial
account to cover its current obligations under swap agreements. Because swap
agreements are not exchange-traded, but are private contracts into which the
Series and a swap counterparty enter as principals, the Series may experience
a loss or delay in recovering assets if the counterparty were to default on
its obligations.

. STRUCTURED NOTES (SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)

The Salomon Brothers Strategic Bond Opportunities Series is permitted to
invest in a broad category of instruments known as "structured notes." These
instruments are debt obligations issued by industrial corporations, financial
institutions or governmental or international agencies. Traditional debt
obligations typically obligate the issuer to repay the principal plus a
specified rate of interest. Structured notes, by contrast, obligate the issuer
to pay amounts of principal or interest that are determined by reference to
changes in some external factor or factors. For example, the issuer's
obligations could be determined by reference to changes in the value of a
commodity (such as gold or oil), a foreign currency, an index of securities
(such as the S&P 500 Index) or an interest rate (such as the U.S. Treasury
bill rate). In some cases, the issuer's obligations are determined by
reference to changes over time in the difference (or "spread") between two or
more external factors (such as the U.S. prime lending rate and the London
Inter-Bank Offering Rate). In some cases, the issuer's obligations may
fluctuate inversely with changes in an external factor or factors (for
example, if the U.S. prime lending rate goes up, the issuer's interest payment
obligations are reduced). In some cases, the issuer's obligations may be
determined by some multiple of the change in an external factor or factors
(for example, three times the change in the U.S. Treasury bill rate). In some
cases, the issuer's obligations remain fixed (as with a traditional debt
instrument) so long as an external factor or factors do not change by more
than the specified amount (for example, if the U.S. Treasury bill rate does
not exceed some specified maximum); but if the external factor or factors
change by more than the specified amount, the issuer's obligations may be
sharply increased or reduced.

Structured notes can serve many different purposes in the management of the
Series. For example, they can be used to increase the Series' exposure to
changes in the value of assets that the Series would not ordinarily purchase
directly (such as gold or oil). They can also be used to hedge the risks
associated with other investments the Series holds. For example, if a
structured note has an interest rate that fluctuates inversely with general
changes in market interest rates, the value of the structured note would
generally move in the opposite direction to the value of traditional debt
obligations, thus moderating the effect of interest rate changes in the value
of the Series' portfolio as a whole.

Structured notes involve special risks. As with any debt obligation,
structured notes involve the risk that the issuer will become insolvent or
otherwise default on its payment obligations. The risk is in addition to the
risk that the issuer's obligations

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(and thus the value of the Series' investment) will be reduced because of
changes in the external factor or factors to which the obligations are linked.
The value of structured notes will in many cases be more volatile (that is,
will change more rapidly or severely) than the value of traditional debt
instruments. Volatility will be especially high if the issuer's obligations
are determined by reference to some multiple of the change in the external
factor or factors. Many structured notes have limited or no liquidity, so that
the Series would be unable to dispose of the investment prior to maturity.
(The Series is not permitted to invest more than 15% of its net assets in
illiquid investments.) As with all investments, successful use of structured
notes depends in significant part on the accuracy of the subadviser's analysis
of the issuer's creditworthiness and financial prospects, and of the
subadviser's forecast as to changes in relevant economic and financial market
conditions and factors. In instances where the issuer of a structured note is
a foreign entity, the usual risks associated with investments in foreign
securities (described below) apply.

. FOREIGN SECURITIES (LOOMIS SAYLES SMALL CAP, MORGAN STANLEY INTERNATIONAL
MAGNUM EQUITY, ALGER EQUITY GROWTH, CAPITAL GROWTH, LOOMIS SAYLES AVANTI
GROWTH, DAVIS VENTURE VALUE, WESTPEAK GROWTH AND INCOME, LOOMIS SAYLES
BALANCED, BACK BAY ADVISORS MANAGED, SALOMON BROTHERS STRATEGIC BOND
OPPORTUNITIES, BACK BAY ADVISORS BOND INCOME AND SALOMON BROTHERS U.S.
GOVERNMENT SERIES)

Each of the Series listed above may invest in securities of issuers organized
or headquartered outside the United States or primarily traded outside the
United States ("foreign securities"). In the case of the Loomis Sayles Small
Cap, Back Bay Advisors Bond Income, Loomis Sayles Avanti Growth and Salomon
Brothers U.S. Government Series, the Series will not purchase a foreign
security if, as a result, the Series' holdings of foreign securities would
exceed 20% (10% in the case of the Back Bay Advisors Bond Income Series) of
the Series' total assets.

Although investing in foreign securities may increase a Series'
diversification and reduce portfolio volatility, foreign securities may
present risks not associated with investments in comparable securities of U.S.
issuers. There may be less information publicly available about a foreign
corporate or governmental issuer than about a U.S. issuer, and foreign
corporate issuers are not generally subject to accounting, auditing and
financial reporting standards and practices comparable to those in the United
States. The securities of some foreign issuers are less liquid and at times
more volatile than securities of comparable U.S. issuers. Foreign brokerage
commissions and securities custody costs are often higher than in the United
States. With respect to certain foreign countries, there is a possibility of
governmental expropriation of assets, confiscatory taxation, political or
financial instability and diplomatic developments that could affect the value
of investments in those countries. A Series' receipt of interest on foreign
government securities may depend on the availability of tax or other revenues
to satisfy the issuer's obligations.

A Series' investments in foreign securities may include investments in
countries whose economies or securities markets are not yet highly developed.
Special considerations associated with these investments (in addition to the
considerations regarding foreign investments generally) may include, among
others, greater political uncertainties, an economy's dependence on revenues
from particular commodities or on international aid or development assistance,
currency transfer restrictions, highly limited numbers of potential buyers for
such securities and delays and disruptions in securities settlement
procedures.

Since most foreign securities are denominated in foreign currencies or trade
primarily in securities markets in which settlements are made in foreign
currencies, the value of these investments and the net investment income
available for distribution to shareholders of a Series investing in these
securities may be affected favorably or unfavorably by changes in currency
exchange rates or exchange control regulations. Changes in the value relative
to the U.S. dollar of a foreign currency in which a Series' holdings are
denominated will result in a change in the U.S. dollar value of the Series'
assets and the Series' income available for distribution.

In addition, although part of a Series' income may be received or realized in
foreign currencies, the Series will be required to compute and distribute its
income in U.S. dollars. Therefore, if the value of a currency relative to the
U.S. dollar declines after a Series' income has been earned in that currency,
translated into U.S. dollars and declared as a dividend, but before payment of
the dividend, the Series could be required to liquidate portfolio securities
to pay the dividend. Similarly, if the value of a currency relative to the
U.S. dollar declines between the time a Series accrues expenses in U.S.
dollars and the time such expenses are paid, the amount of such currency
required to be converted into U.S. dollars will be greater than the equivalent
amount in such currency of such expenses at the time they were incurred.

Each Series may invest in foreign equity securities either by purchasing such
securities directly or by purchasing "depository receipts." Depository
receipts are instruments issued by a bank that represent an interest in equity
securities held by arrangement with the bank. Depository receipts can be
either "sponsored" or "unsponsored." Sponsored depository receipts are issued
by banks in cooperation with the issuer of the underlying equity securities.
Unsponsored depository receipts are arranged without involvement by the issuer
of the underlying equity securities. Less information about the issuer of the
underlying equity securities may be available in the case of unsponsored
depository receipts.

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. HIGH YIELD/HIGH RISK FOREIGN SOVEREIGN DEBT SECURITIES (SALOMON BROTHERS
STRATEGIC BOND OPPORTUNITIES SERIES)

Investing in fixed and floating rate high yield foreign sovereign debt
securities will expose the Salomon Brothers Strategic Bond Opportunities
Series to special risks in addition to those described under "Foreign
Securities" above. These bonds are typically issued by developing or emerging
countries, whose ability to pay principal and interest may be adversely
affected by many factors, including high rates of inflation, high interest
rates, currency exchange rate fluctuations or difficulties, political
uncertainty or instability, the country's cash flow position, the availability
of sufficient foreign exchange on the date a payment is due, the relative size
of its debt service burden to the economy as a whole, the policy of the
International Monetary Fund, the World Bank and other international agencies,
the obligor's balance of payments, including export performance, its access to
international credit and investments, fluctuations in the international prices
of commodities which it imports or exports and the extent of its foreign
reserves and access to foreign exchange. Currency devaluations may also
adversely affect the ability of a sovereign obligor to obtain sufficient
foreign exchange to service its external debt.

If a foreign sovereign obligor cannot generate sufficient earnings from
foreign trade to service its external debt, it may need to depend on
continuing loans and aid from foreign governments, commercial banks and
multilateral organizations, and inflows of foreign investment. The commitment
on the part of these entities to make such disbursements may be conditioned on
the government's implementation of economic reforms or other requirements.
Failure to meet such conditions may result in the cancellation of such third
parties' commitments to lend funds, which may further impair the obligor's
ability or willingness to timely service its debts.

Certain debt obligations, customarily referred to as "Brady Bonds," are
created through the exchange of existing commercial bank loans to foreign
entities for new obligations in connection with debt restructuring under a
plan introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady.
Brady Bonds have been issued only recently, and, accordingly, do not have a
long payment history. They may be collateralized or uncollateralized and
issued in various currencies (although most are dollar-denominated) and they
are actively traded in the over-the-counter secondary market.

The Series may purchase Brady Bonds with no or limited collateralization, and
will be relying for payment of interest and (except in the case of principal
collateralized Brady Bonds) principal primarily on the willingness and ability
of the foreign government to make payment in accordance with the terms of the
Brady Bonds. In the event of a default with respect to collateralized Brady
Bonds as a result of which the payment obligations of the issuer are
accelerated, the U.S. Treasury zero coupon obligations held as collateral for
the payment of principal will not be distributed to investors, nor will such
obligations be sold and the proceeds distributed. The collateral will be held
by the collateral agent to the scheduled maturity of the defaulted Brady
Bonds, which will continue to be outstanding, at which time the face amount of
the collateral will equal the principal payments which would have then been
due on the Brady Bonds in the normal course. In light of the residual risk of
the Brady Bonds and, among other factors, the history of default with respect
to commercial bank loans by public and private entities of countries issuing
Brady Bonds, investments in Brady Bonds are to be viewed as speculative.

Sovereign obligors in developing and emerging countries have in the past
experienced substantial difficulties in servicing their external debt
obligations, which has led to defaults on certain obligations and the
restructuring of certain indebtedness including among other things, reducing
and rescheduling interest and principal payments by negotiating new or amended
credit agreements or converting outstanding principal and unpaid interest to
Brady Bonds and obtaining new credit to finance interest payments. There can
be no assurance that the Brady Bonds and other foreign sovereign debt
securities in which the Series may invest will not be subject to similar
restructuring arrangements or to requests for new credit which may adversely
affect the Series' holdings.

. LOAN PARTICIPATIONS AND ASSIGNMENTS (SALOMON BROTHERS STRATEGIC BOND
OPPORTUNITIES SERIES)

The Salomon Brothers Strategic Bond Opportunities Series may invest in fixed
and floating rate loans ("Loans") arranged through private negotiations
between a foreign sovereign entity and one or more financial institutions
("Lenders"). The Series may invest in such Loans in the form of participations
in Loans ("Participations") and assignments of all or a portion of Loans from
third parties ("Assignments"). Participations typically will result in the
Series having a contractual relationship only with the Lender, not with the
borrower. The Series will have the right to receive payments of principal,
interest and any fees to which it is entitled only from the Lender selling the
Participation and only upon receipt by the Lender of the payments from the
borrower. In connection with purchasing Participations, the Series generally
will have no right to enforce compliance by the borrower with the terms of the
loan agreement relating to the Loan, nor any rights of set-off against the
borrower, and the Series may not benefit directly from any collateral
supporting the Loan in which it has purchased the Participation. As a result,
the Series will assume the credit risk of

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both the borrower and the Lender that is selling the Participation. In the
event of the insolvency of the Lender selling a Participation, the Series may
be treated as a general creditor of the Lender and may not benefit from any
set-off between the Lender and the borrower. When the Series purchases
Assignments from Lenders, the Series will acquire direct rights against the
borrower on the Loan, except that under certain circumstances such rights may
be more limited than those held by the assigning Lender.

The Series may have difficulty disposing of Assignments and Participations.
Because the market for such instruments is not highly liquid, the Series
anticipates that such instruments could be sold only to a limited number of
institutional investors. The lack of a highly liquid secondary market may have
an adverse impact on the value of such instruments and will have an adverse
impact on the Series' ability to dispose of particular Assignments or
Participations in response to a specific economic event, such as deterioration
in the creditworthiness of the borrower. The Series currently intends to treat
all investments in Participations and Assignments as illiquid.

. WHEN-ISSUED SECURITIES (MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY, ALGER
EQUITY GROWTH, DAVIS VENTURE VALUE, SALOMON BROTHERS STRATEGIC BOND
OPPORTUNITIES AND SALOMON BROTHERS U.S. GOVERNMENT SERIES)

If the value of a "when-issued" security being purchased falls between the
time a Series commits to buy it and the payment date, the Series may sustain a
loss. The risk of this loss is in addition to the Series' risk of loss on the
securities actually in its portfolio at the time. In addition, when the Series
buys a security on a when-issued basis, it is subject to the risk that market
rates of interest will increase before the time the security is delivered,
with the result that the yield on the security delivered to the Series may be
lower than the yield available on other, comparable securities at the time of
delivery. The Series will maintain assets in a segregated account in an amount
sufficient to satisfy its outstanding obligations to buy securities on a
"when-issued" basis.

. INVESTMENT COMPANY SECURITIES (MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY,
ALGER EQUITY GROWTH, CAPITAL GROWTH, LOOMIS SAYLES AVANTI GROWTH, DAVIS
VENTURE VALUE, WESTPEAK GROWTH AND INCOME , WESTPEAK STOCK INDEX AND BACK BAY
ADVISORS MANAGED SERIES)

Each of the Series listed above may invest up to 10% of its assets in
securities of other investment companies ("funds") including funds that are
advised by a subadviser to the Series. Because of restrictions on direct
investment by U.S. entities in certain countries, a Series may choose to
invest indirectly in such countries by purchasing shares of another fund that
is permitted to invest in such countries, which may be the most practical or
efficient way for the Series to invest in such countries. In other cases,
where the Series' adviser or subadviser desires to make only a relatively
small investment in a particular country, investing through a fund that holds
a diversified portfolio in that country may be more effective than investing
directly in issuers in that country. As an investor in another investment
company, a Series will bear its share of the expenses of that investment
company. These expenses are in addition to the Series' own costs of
operations. In some cases, investing in an investment company may involve the
payment of a premium over the value of the assets held in that investment
company's portfolio. The Davis Venture Value Series may only invest in
securities of investment companies investing primarily in foreign securities.

. LENDING OF PORTFOLIO SECURITIES (ALGER EQUITY GROWTH, CAPITAL GROWTH, DAVIS
VENTURE VALUE, MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY, WESTPEAK STOCK
INDEX, BACK BAY ADVISORS MANAGED, SALOMON BROTHERS STRATEGIC BOND
OPPORTUNITIES, BACK BAY ADVISORS BOND INCOME AND SALOMON BROTHERS U.S.
GOVERNMENT SERIES)

To the extent that any of the above-listed Series lend that Series' portfolio
securities, such lending must be fully collateralized by cash, letters of
credit or U.S. Government Securities at all times, but involves some credit
risk to the Series if the other party should default on its obligations and
the Series is delayed in or prevented from recovering the collateral.

. SHORT SALES "AGAINST THE BOX" (ALGER EQUITY GROWTH AND MORGAN STANLEY
INTERNATIONAL MAGNUM EQUITY SERIES)

A short sale is a transaction in which a party borrows a security and then
sells the borrowed security to another party. The Alger Equity Growth and the
Morgan Stanley International Magnum Equity Series may engage in short sales,
but only if the Series owns (or has the right to acquire without further
consideration) the security it has sold short, a practice known as selling
short "against the box." Short sales against the box may protect the Series
against the risk of losses in the value of its portfolio securities because
any unrealized losses with respect to such securities should be wholly or
partially offset by a corresponding gain in the short position. However, any
potential gains in such securities should be wholly or partially offset by a
corresponding loss in the short position. Short sales against the box may be
used to lock in a profit on a security when, for tax reasons or otherwise, a
subadviser does not want to sell the security.

B-32
<PAGE>

. ILLIQUID SECURITIES (ALL SERIES)

Each Series may invest up to 15% of its assets (10% in the case of the Back
Bay Advisors Money Market Series) in "illiquid securities," that is,
securities which are not readily resalable, including securities whose
disposition is restricted by federal securities laws. The Series may purchase
Rule 144A securities. These are privately offered securities that can be
resold only to certain qualified institutional buyers. Rule 144A securities
are treated as illiquid, unless the Series' adviser or subadviser has
determined, under guidelines established by the Fund's trustees, that the
particular issue of Rule 144A securities is liquid.

. ZERO COUPON SECURITIES (LOOMIS SAYLES BALANCED, BACK BAY ADVISORS MANAGED,
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES, BACK BAY ADVISORS BOND INCOME
AND SALOMON BROTHERS U.S. GOVERNMENT SERIES)

Each Series listed above may invest in zero coupon securities. Zero coupon
securities involve special risk considerations. Zero coupon securities include
debt securities that pay no cash income but are sold at substantial discounts
from their value at maturity. When such a zero coupon security is held to
maturity, its entire return, which consists of the amortization of discount,
comes from the difference between its purchase price and its maturity value.
The difference is known at the time of purchase, so that investors holding
zero coupon securities until maturity know at the time of their investment
what the return on their investment will be. Certain other zero coupon
securities which also are sold at substantial discounts from their maturity
value, provide for the commencement of regular interest payments at a deferred
date.

Zero coupon securities tend to be subject to greater price fluctuations in
response to changes in interest rates than are ordinary interest-paying debt
securities with similar maturities. The values of zero coupon securities
appreciate more during periods of declining interest rates and depreciates
more during periods of rising interest rates. Zero coupon securities may be
issued by a wide variety of corporate and governmental issuers. Although zero
coupon securities are generally not traded on a national securities exchange,
many such securities are widely traded by brokers and dealers and, if so, will
not be considered illiquid.

Current federal income tax law requires the holder of a zero coupon security
(as well as the holders of other securities, such as Brady Bonds, which may be
acquired at a discount) to accrue income with respect to these securities
prior to the receipt of cash payments. To maintain its qualification as a
regulated investment company and avoid liability for federal income and excise
taxes, the Series may be required to distribute income accrued with respect to
these securities and may have to dispose of portfolio securities under
disadvantageous circumstances in order to generate cash to satisfy these
distribution requirements.

PORTFOLIO TURNOVER

Portfolio turnover is not a limiting factor with respect to investment
decisions for any Series. For example, although the Capital Growth Series'
objective is long-term capital growth, it frequently sells securities to
reflect changes in market, industry or individual company conditions or
outlook, even though it may only have held those securities for a short
period. High portfolio turnover involves correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
relevant Series. For additional information about such costs see "Taxes" and
"Management" below and "Portfolio Transactions and Brokerage" in the
Statement. For information about the past portfolio turnover rates of all the
Series (other than the Back Bay Advisors Money Market Series), see "Financial
Highlights" above. Turnover in excess of 100% involves higher levels of
brokerage commissions and possibly increased realization of taxable gains, as
compared to many mutual funds.

RESOLVING MATERIAL CONFLICTS

Currently, shares in the Fund are available only to separate accounts
established by NELICO, MetLife or subsidiaries of MetLife as an investment
vehicle for variable life insurance or variable annuity products. In the
future, however, such shares may be offered to separate accounts of insurance
companies unaffiliated with NELICO or MetLife.

A potential for certain conflicts of interest exists between the interests
of variable life insurance contract owners and variable annuity contract
owners. Pursuant to conditions imposed in connection with related regulatory
relief granted by the SEC, the Fund's Board of Trustees has an obligation to
monitor events to identify conflicts that may arise from the sale of shares to
both variable life insurance and variable annuity separate accounts or to
separate accounts of insurance companies not affiliated with MetLife. Such
events might include changes in state insurance law or federal income tax law,
changes in investment management of any Series of the Fund or differences
between voting instructions given by variable life insurance and variable
annuity contract owners. Insurance companies investing in the Fund will be
responsible for proposing and executing any necessary remedial action and the
Board of Trustees has an obligation to determine whether such proposed action
adequately remedies any such conflicts.

B-33
<PAGE>

PERFORMANCE INFORMATION

Information about the performance of the Series is set forth below and, from
time to time, the Fund may use this information in advertisements. Performance
information about a Series is based on that Series' past performance and is
not intended to indicate future performance. The Fund serves as the underlying
investment vehicle for variable life insurance or variable annuity products
and its shares cannot be purchased directly. Therefore, such performance
information does not reflect any of the charges assessed against the insurance
company separate accounts or the variable life insurance or variable annuity
products for which the Fund serves as an investment vehicle. Where relevant,
performance information about those variable life insurance or variable
annuity products is contained in the prospectus applicable to those products.

Each Series may include its total return in advertisements or other written
material. Total return is measured by comparing the value of a hypothetical
$1,000 investment in the Series at the beginning of the relevant period to the
value of the investment at the end of the period (assuming immediate
reinvestment of any dividends or capital gains distributions). Total return
reflects the bearing or deferral of certain expenses by New England Mutual
Life Insurance Company ("The New England") (which merged into MetLife on
August 30, 1996) or TNE Advisers, Inc. pursuant to various arrangements that
are described below under "Management." If these arrangements had not been in
effect, each Series' total return would have been lower.

TOTAL RETURN

<TABLE>
<CAPTION>
AVERAGE
AVERAGE ANNUAL
AVERAGE ANNUAL TOTAL
ANNUAL TOTAL RETURN
TOTAL RETURN SINCE
RETURN FOR THE COMMENCE-
FOR THE FIVE MENT
YEAR ENDED DECEMBER 31, TEN YEARS YEARS OF OFFERING
------------------------------------------------------------------------- ENDING ENDING THROUGH
SERIES 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 12/31/96 12/31/96 12/31/96
- ------ ----- ---- ---- ---- ---- ---- ---- ---- ---- ---- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loomis Sayles
Small Cap
Series(1) -- -- -- -- -- -- -- (3.2)%(1) 28.9% 30.7% -- -- 20.1%(1)
Morgan Stanley
International
Magnum Equity
Series(2) -- -- -- -- -- -- -- 2.6 %(3) 6.0% 6.7% -- -- 7.2%
Alger Equity
Growth Series -- -- -- -- -- -- -- (4.2)%(3) 48.8% 13.2% -- -- 24.7%
Capital Growth
Series 52.7 % (8.8)% 30.8% (3.5)% 54.0% (6.1)% 15.0% (7.1)% 38.0% 21.1% 16.3% 10.9% 23.2%(4)
Loomis Sayles
Avanti Growth
Series(5) -- -- -- -- -- -- 14.7%(5) (0.3)% 30.4% 17.6% -- -- 16.5%(5)
Davis Venture
Value Series -- -- -- -- -- -- -- (3.5)%(3) 39.3% 25.8% -- -- 27.5%
Westpeak Growth
and Income
Series -- -- -- -- -- -- 14.2%(6) (1.2)% 36.5% 18.1% -- -- 17.7%(6)
Westpeak Stock
Index Series(7) (12.2)%(7) 16.3 % 30.2% (4.1)% 30.4% 7.3 % 9.7% 1.1 % 36.9% 22.5% -- 14.8% 13.2%(8)
Loomis Sayles
Balanced Series -- -- -- -- -- -- -- (0.1)%(3) 24.8% 16.9% -- -- 19.0%
Back Bay
Advisors
Managed Series (0.7)%(7) 9.5 % 19.1% 3.2 % 20.2% 6.7 % 10.7% (1.1)% 31.3% 15.0% -- 12.0% 11.4%(8)
Salomon Brothers
Strategic Bond
Opportunities
Series -- -- -- -- -- -- -- (1.4)%(3) 19.4% 14.4% -- -- 14.7%
Back Bay
Advisors Bond
Income Series 1.4 % 8.4 % 12.3% 8.1 % 18.0% 8.2 % 12.6% (3.4)% 21.2% 4.6% 8.9% 8.3% 10.4%(4)
Salomon Brothers
U.S. Government
Series -- -- -- -- -- -- -- 0.6 %(3) 15.0% 3.3% -- -- 8.6%
Back Bay
Advisors Money
Market Series 6.6 % 7.4 % 9.2% 8.2 % 6.2% 3.8 % 3.0% 4.0 % 5.6% 5.1% 5.9% 4.3% 6.6%(4)
S&P 500(9) 5.2 % 16.5 % 31.6% (3.1)% 30.3% 7.6 % 10.1% 1.3 % 37.4% 23.0% 15.3% 15.2% --
Lehman
Intermediate
Government/Corporate
Bond Index(10) 3.7 % 6.8 % 12.8% 9.2 % 14.6% 7.2 % 8.8% (2.0)% 15.3% 4.1% 7.9% 6.5% --
Consumer Price
Index(11) 4.4 % 4.4 % 4.7% 6.1 % 3.1% 2.9 % 2.8% 2.8 % 2.6% 3.3% 3.7% 2.8% --
Dow Jones
Industrial
Average(12) 5.5 % 16.1 % 32.2% (1.0)% 24.2% 7.4 % 16.9% 5.1 % 37.0% 28.9% 16.7% 18.4% --
</TABLE>
- --------
(1) For the period beginning May 2, 1994, when the Loomis Sayles Small Cap
Series commenced operations, but did not become publicly available.
Average annual total return for the period May 2, 1994 through December
31, 1994 is presented on an unannualized basis.
(2) Effective May 1, 1997, MSAM began managing the Series, succeeding
Draycott Partners, Ltd.
(3) Represents unannualized total return for the period beginning October 31,
1994 when the Morgan Stanley International Magnum Equity, Alger Equity
Growth, Davis Venture Value, Loomis Sayles Balanced, Salomon Brothers
Strategic Bond Opportunities and Salomon Brothers U.S. Government Series
commenced operations.

B-34
<PAGE>

(4) The Capital Growth Series, Back Bay Advisors Bond Income Series and Back
Bay Advisors Money Market Series commenced operations on August 26, 1983
and their Average Annual Total Returns From Commencement of Offering have
been calculated for the period beginning with that date. These returns
would not change if they had been calculated for the period beginning
with September 1, 1983, which is the period for which the Average Annual
Total Returns Since Commencement of Offering have been calculated for the
S&P 500, Lehman Intermediate Government/Corporate Bond Index, Consumer
Price Index and Dow Jones Industrial Average (unless otherwise
indicated).
(5) For the period beginning April 30, 1993, when the Loomis Sayles Avanti
Growth Series became publicly available. The total return information is
not annualized for the period ended December 31, 1993.
(6) For the period beginning April 30, 1993, when the Westpeak Growth and
Income Series became publicly available. The total return information is
not annualized for the period ended December 31, 1993.
(7) Operations commenced on March 30, 1987, but the Westpeak Stock Index
Series and Back Bay Advisors Managed Series did not become publicly
available until May 1, 1987. The total return information represents May
1, 1987 through December 31, 1987, unannualized.
(8) For the period beginning May 1, 1987 when the Back Bay Advisors Managed
Series and Westpeak Stock Index Series became publicly available.
(9) The S&P 500 is an unmanaged weighted index of the stock performance of
500 industrial, transportation, utility and financial companies.
Investment results shown assume the reinvestment of dividends.
(10) The Lehman Intermediate Government/Corporate Bond Index is a subset of
the Lehman Government/Corporate Bond Index covering all issues with
maturities between 1 and 10, years which is composed of taxable,
publicly-issued, non-convertible debt obligations issued or guaranteed by
the U.S. Government or its agencies, and another Lehman index that is
composed of taxable, fixed rate, publicly-issued, investment grade, non-
convertible corporate debt obligations.
(11) The Consumer Price Index, published by the U.S. Bureau of Labor
Statistics, is a statistical measure of changes, over time, in the prices
of goods and services.
(12) The Dow Jones Industrial Average is a market value-weighted and unmanaged
index of 30 large industrial stocks traded on the New York Stock
Exchange.

YIELD

Back Bay Advisors Money Market Series

The Back Bay Advisors Money Market Series may advertise its yield and
"effective" (or "compound") yield (and its total return). The yield of the
Back Bay Advisors Money Market Series is the income earned by the Series over
a seven-day period on an annualized basis, i.e. the income earned in the
period is assumed to be earned every seven days over a 52-week period and is
stated as a percentage of the investment. "Effective" (or "compound") yield is
calculated similarly but, when annualized, the income earned by the investment
is assumed to be reinvested in the Series' shares and thus compounded in the
course of a 52-week period. The effective yield will be higher than the yield
because of the compounding effect of this assumed reinvestment.

For the seven-day period ended December 31, 1996, the yield for the Back Bay
Advisors Money Market Series was 5.11%. The effective yield for the same
period was 5.23%.

Loomis Sayles Balanced, Salomon Brothers Strategic Bond Opportunities, Back
Bay Advisors Bond Income and Salomon Brothers U.S. Government Series

Each of the Series listed above may advertise its yield in addition to its
total return. The yield will be computed in accordance with the SEC's
standardized formula by dividing the net investment income per share earned
during a recent 30-day period by the net asset value of a Series share
(reduced by any earned income expected to be declared shortly as a dividend)
on the last trading day of the period. Yield calculations will reflect any
waiver of fees and/or bearing of expenses by The New England or TNE Advisers,
Inc. and its affiliates.

MORGAN STANLEY ASSET MANAGEMENT PAST PERFORMANCE

The data presented below under "Morgan Stanley International Magnum
Composite" represent the composite average annual total return of four
accounts managed by MSAM. These accounts include two separate accounts, one
mutual fund and a pooled trust.

The total returns shown below represent performance data furnished by MSAM.
Each account represented in the Morgan Stanley International Magnum Composite
has an investment objective substantially similar to that of the Series and
was managed

B-35
<PAGE>

using styles and strategies substantially similar (although not necessarily
identical) to those that will be employed by MSAM in managing the Series. The
Morgan Stanley International Magnum Composite includes all the accounts, with
assets in excess of $25 million, managed by MSAM in a substantially similar
style as the Series. The following information does not represent the Series'
performance. The Series' performance may be higher or lower than that shown
below.

Several of the accounts are not subject to the same types of expenses to
which the Series is subject, nor to the diversification requirements, specific
tax restrictions and investment limitations imposed on the Series by the
Investment Company Act of 1940 or subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). The performance numbers shown below might have
been less favorable had all of the accounts been subject to regulation as
investment companies under the relevant federal laws. Investors should not
consider this performance data as an indication of future performance of the
Morgan Stanley International Magnum Equity Series.

The Morgan Stanley International Magnum Composite data shown below were
calculated in accordance with recommended standards of the Association for
Investment Management and Research ("AIMR"), retroactively applied to all time
periods. The Morgan Stanley International Magnum Composite investment results
are unaudited and are not intended to predict or suggest the returns that
might be experienced by the Morgan Stanley International Magnum Equity Series.
Investors should also be aware that the use of methodology different from that
used below to calculate performance could result in different performance
data.

<TABLE>
<CAPTION>
MORGAN STANLEY INTERNATIONAL LIPPER INTERNATIONAL
MAGNUM COMPOSITE EQUITY FUND INDEX MSCI EAFE INDEX
---------------------------- -------------------- ---------------
<S> <C> <C> <C>
Total Return for the One
Year Ended
December 31, 1996...... 12.84% 14.48% 6.05%
Average Annual Total Re-
turn Since
Inception (June 1,
1995).................. 12.77% 13.15% 7.98%
</TABLE>

The Morgan Stanley International Magnum Composite has been adjusted to give
effect to the annualized expenses projected for the Morgan Stanley
International Magnum Equity Series. Pursuant to the Expense Deferral
Arrangement (described below) the Series expenses are expected to be 1.30% of
the Series net assets.

From time to time, articles about a Series regarding performance, rankings
and other Series characteristics may appear in national publications
including, but not limited to, The Wall Street Journal, Forbes, Fortune, CDA
Investment Technologies and Money Magazine. In particular, some or all of
these publications may publish their own rankings or performance reviews of
mutual funds, including the Fund. References to or reprints or portions of
reprints of such articles, which may include rankings that list the names of
other funds and their performance, may be used as Fund or variable contract
sales literature or advertising material.

INVESTMENT RESTRICTIONS

The following is a description of restrictions on the investments to be made
by the fourteen Series. Except as specifically listed below, and except for
restrictions marked with an asterisk, these restrictions may not be changed
without the approval of a majority of the outstanding voting securities of the
relevant Series.

INVESTMENT RESTRICTIONS APPLICABLE TO THE CAPITAL GROWTH, WESTPEAK STOCK
INDEX, BACK BAY ADVISORS MANAGED, BACK BAY ADVISORS BOND INCOME AND BACK BAY
ADVISORS MONEY MARKET SERIES

Each of the Series listed above will not:

(1) Purchase any securities (other than U.S. Government securities) if,
as a result, more than 5% of the Series' total assets (taken at current
value) would be invested in securities of a single issuer; provided,
however, that the Westpeak Stock Index Series and the Back Bay Advisors
Managed Series may each invest more than 5% (but not more than 25%) of its
total assets (taken at current value) in the securities of a single issuer
if securities of any such issuer represent more than 5%, capitalization
weighted, of the stock index that the Series attempts to track;

(2) Purchase any security (other than U.S. Government Securities) if, as
a result, more than 25% of the Series' total assets (taken at current
value) would be invested in any one industry. For purposes of this
restriction, telephone, gas and electric public utilities are each regarded
as separate industries and finance companies whose financing activities are
related primarily to the activities of their parent companies are
classified in the industry of their parents. In the case of the Back Bay
Advisors Money Market Series and Back Bay Advisors Managed Series, this
restriction does not apply to bank obligations;

B-36
<PAGE>

(3) Purchase securities on margin (but it may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities); or make short sales, except where, by virtue of ownership of
other securities, it has the right to obtain, without payment of further
consideration, securities equivalent in kind and amount to those sold; or
deposit or pledge more than 10% of its total assets (taken at current
value) as collateral for such sales. (Any deposit or payment by the
Westpeak Stock Index or Back Bay Advisors Managed Series of initial or
maintenance margin in connection with futures contracts shall not be
considered the purchase of a security on margin for the purposes of this
restriction);

(4) Acquire more than 10% of the total value of any class of the
outstanding securities of any issuer (taking all preferred stock issues of
an issuer as a single class and all debt issues of an issuer as a single
class) or acquire more than 10% of the outstanding voting securities of any
issuer;

(5) Borrow money, except as a temporary measure for extraordinary or
emergency purposes (but not for the purpose of investment) up to an amount
not in excess of 10% of its total assets (taken at cost), or 5% of its
total assets (taken at current value), whichever is lower; provided,
however, that the Back Bay Advisors Bond Income Series, the Capital Growth
Series and the Back Bay Advisors Managed Series may make loans of their
portfolio securities. (See "Loans of Portfolio Securities" above);

(6) Invest more than 5% of its total assets (taken at current value) in
securities of businesses (including predecessors) less than three years
old;

(7) Purchase or retain securities of any issuer if, to the knowledge of
the Fund, officers and trustees of the Fund or officers and directors of
any investment adviser of the Fund who individually own beneficially more
than 1/2 of 1% of the securities of that issuer, together own beneficially
more than 5% of the securities of that issuer;

(8) Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter
under the federal securities laws; or purchase any security restricted as
to disposition under the federal securities laws; provided, however, that,
subject to the Fund's limitation on illiquid investments stated below, each
of the Back Bay Advisors Bond Income, Capital Growth and Back Bay Advisors
Managed Series may invest up to 10% of its total assets (taken at current
value) in such restricted securities;

(9) Make investments for the purpose of exercising control or management;

(10) Participate on a joint or joint and several basis in any trading
account in securities. (The "bunching" of orders for the purchase or sale
of portfolio securities with MetLife or its affiliates, Back Bay Advisors,
CGM, Westpeak or accounts under their management to reduce acquisition
costs, to average prices among such accounts to facilitate such
transactions, is not considered participating in a trading account in
securities);

(11) Invest in the securities of other investment companies, except in
connection with a merger, consolidation or similar transaction, and except
that the Back Bay Advisors Bond Income, the Capital Growth, Westpeak Stock
Index and Back Bay Advisors Managed Series may invest in securities of
other investment companies by purchases in the open market involving only
customary broker's commissions. (Under the Investment Company Act of 1940
(the "1940 Act") each Series generally may not (a) invest more than 10% of
its total assets (taken at current value) in the securities of other
investment companies, (b) own securities of any one investment company
having a value in excess of 5% of that Series' total assets (taken at
current value), or (c) own more than 3% of the outstanding voting stock of
any one investment company);

(12) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts, commodities or commodity contracts (except that the Westpeak
Stock Index Series and the Back Bay Advisors Managed Series may buy or sell
futures contracts on stock indexes and the Back Bay Advisors Managed Series
may buy or sell interest rate futures contracts) or real estate. This
restriction does not prevent any Series from purchasing securities of
companies investing in real estate or of companies which are not
principally engaged in the business of buying or selling such leases,
rights or contracts;

(13) Pledge, mortgage or hypothecate more than 15% of its total assets
(taken at cost).

Restrictions (1) and (2) apply to securities subject to repurchase
agreements but not to the repurchase agreements themselves.

Each of the Series listed above will not purchase any illiquid security if,
as a result, more than 15% (10% in the case of the Back Bay Advisors Money
Market Series) of its net assets (taken at current value) would be invested in
such securities.

INVESTMENT RESTRICTIONS APPLICABLE TO INDIVIDUAL SERIES

In addition to the foregoing investment restrictions, the following
investment restrictions are applicable to individual Series as noted below.

B-37
<PAGE>

BACK BAY ADVISORS MONEY MARKET SERIES

The Back Bay Advisors Money Market Series will not:

(1) Make loans, except by purchase of debt obligations in which the
Series may invest consistently with its objective and investment policies.
This restriction does not apply to repurchase agreements.

(2) Write or purchase puts, calls or combinations thereof.

BACK BAY ADVISORS BOND INCOME SERIES

The Back Bay Advisors Bond Income Series will not:

(1) Make loans, except by purchase of bonds, debentures, commercial
paper, corporate notes and similar evidences of indebtedness which are part
of an issue to the public or to financial institutions, by entering into
repurchase agreements or by lending portfolio securities to the extent set
forth above under "Investment Risks--Lending of Portfolio Securities"
above;

(2) Write or purchase puts, calls or a combination thereof, except that
the Back Bay Advisors Bond Income Series may purchase warrants or other
rights to subscribe to securities of companies issuing such warrants or
rights, or of parents or subsidiaries of such companies, provided that such
warrants or other rights to subscribe are attached to, or a part of, a unit
offering involving other securities.

In order to comply with certain state requirements applicable to restriction
(13) above, as a matter of operating policy subject to change without
shareholder approval, the Series will not pledge more than 2% of its assets.

CAPITAL GROWTH SERIES; WESTPEAK STOCK INDEX SERIES

Neither the Capital Growth Series nor the Westpeak Stock Index Series will:

(1) Make loans, except by purchase of bonds, debentures, commercial
paper, corporate notes, and similar evidences of indebtedness which are a
part of an issue to the public or to financial institutions, by entering
into repurchase agreements or by lending portfolio securities to the extent
set forth under "Investment Risks--Lending of Portfolio Securities" above;

(2) Purchase options or warrants if, as a result, more than 1% of its
total assets (taken at current value) would be invested in such securities;

(3) Write options or warrants.

As a matter of operating policy subject to change without shareholder
approval, the Capital Growth Series will not make loans of its portfolio
securities. In order to comply with certain state requirements applicable to
restriction (13) above, as a matter of operating policy subject to change
without shareholder approval, neither the Capital Growth Series nor the
Westpeak Stock Index Series will pledge more than 2% of its assets.

BACK BAY ADVISORS MANAGED SERIES

The Back Bay Advisors Managed Series will not:

(1) Make loans, except by purchase of bonds, debentures, commercial
paper, corporate notes and similar evidences of indebtedness which are a
part of an issue to the public or to financial institutions, by entering
into repurchase agreements, or by lending portfolio securities to the
extent set forth under "Investment Risks--Lending of Portfolio Securities"
above;

(2) Purchase options or warrants if, as a result, more than 1% of its
total assets (taken at current value) would be invested in such securities;
provided, however, that the Back Bay Advisors Managed Series may, without
regard to the foregoing percentage limit, purchase warrants or other rights
to subscribe to securities of companies issuing such warrants or rights, or
of parents or subsidiaries of such companies, provided that such warrants
or other rights to subscribe are attached to, or a part of a unit offering
involving, other securities.

In order to comply with certain state requirements applicable to restriction
(13) above, as a matter of operating policy subject to change without
shareholder approval, the Back Bay Advisors Managed Series will not pledge
more than 2% of its assets.

INVESTMENT RESTRICTIONS APPLICABLE TO THE LOOMIS SAYLES SMALL CAP, MORGAN
STANLEY INTERNATIONAL MAGNUM EQUITY, ALGER EQUITY GROWTH, LOOMIS SAYLES AVANTI
GROWTH, DAVIS VENTURE VALUE, WESTPEAK GROWTH AND INCOME, LOOMIS SAYLES
BALANCED, SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES AND SALOMON BROTHERS
U.S. GOVERNMENT SERIES

Each of the Series listed above will not:

*(1) With respect to 75% of the Series' total assets, purchase any
security (other than U.S. Government obligations) if, as a result, more
than 5% of the Series' total assets (taken at current value) would then be
invested in securities of a

B-38
<PAGE>

single issuer or, with respect to all of the Series' total assets, purchase
any security (other than U.S. Government obligations) if, as a result, more
than 10% of such assets would then be invested in securities of a single
issuer;

(2) Purchase any security (other than U.S. Government securities) if, as
a result, more than 25% of the Series' total assets (taken at current
value) would be invested in any one industry (in the utilities category,
gas, electric, water and telephone companies will be considered as being in
separate industries, and each foreign country's government (together with
subdivisions thereof) will be considered to be a separate industry);

*(3) Purchase securities on margin (but it may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities), or make short sales except where, by virtue of ownership of
other securities, it has the right to obtain, without payment of further
consideration, securities equivalent in kind and amount to those sold; or
deposit or pledge more than 10% of its total assets (taken at current
value) as collateral for such sales. (For this purpose, the deposit or
payment by the Series of initial or variation margin in connection with
futures contracts or related options transactions is not considered the
purchase of a security on margin);

*(4) Acquire more than 10% of any class of securities of an issuer
(taking all preferred stock issues of an issuer as a single class and all
debt issues of an issuer as a single class) or acquire more than 10% of the
outstanding voting securities of an issuer;

(5) Borrow money in excess of 10% of its total assets (taken at cost) or
5% of its total assets (taken at current value), whichever is lower, and
then only as a temporary measure for extraordinary or emergency purposes;

*(6) Pledge more than 15% of its total assets (taken at cost). (For the
purpose of this restriction, collateral arrangements with respect to
options, futures contracts and options on futures contracts and with
respect to initial and variation margin are not deemed to be a pledge of
assets);

*(7) Invest more than 5% of its total assets (taken at current value) in
securities of businesses (including predecessors) less than three years
old;

*(8) Purchase or retain securities of any issuer if officers and trustees
of the Fund or officers and directors of any investment adviser of the Fund
who individually own more than 1/2 of 1% of the shares or securities of
that issuer together own more than 5%;

(9) Make loans, except by entering into repurchase agreements (including
reverse repurchase agreements) or by purchase of bonds, debentures,
commercial paper, corporate notes and similar evidences of indebtedness
which are a part of an issue to the public or to financial institutions, or
through the lending of the Series' portfolio securities to the extent set
forth under "Investment Risks--Lending of Portfolio Securities" above;

(10) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts, real estate or commodities or commodity contracts, except that
the Series may buy and sell futures contracts and related options. (This
restriction does not prevent the Series from purchasing securities of
companies investing in the foregoing);

(11) Act as underwriter, except to the extent that, in connection with
the disposition of portfolio securities, it may be deemed to be an
underwriter under certain federal securities laws;

*(12) Make investments for the purpose of exercising control or
management;

*(13) Participate on a joint or joint and several basis in any trading
account in securities. (The "bunching" of orders for the purchase or sale
of portfolio securities for a Series with that Series' adviser or
subadviser or accounts under their management to reduce brokerage
commissions, to average prices among them or to facilitate such
transactions is not considered a trading account in securities for purposes
of this restriction.);

*(14) Write, purchase or sell options or warrants or, in the case of the
Loomis Sayles Small Cap Series, combinations of both, except that the
Series may (a) acquire warrants or rights to subscribe to securities of
companies issuing such warrants or rights, or of parents or subsidiaries of
such companies, (b) write, purchase and sell put and call options on
securities or securities indices, and (c) enter into currency forward
contracts;

*(15) Purchase any illiquid security if, as a result, more than 15% of
its net assets (taken at current value) would be invested in such
securities;

*(16) Invest in the securities of other investment companies, except by
purchases in the open market involving only customary brokers' commissions.
Under the 1940 Act, the Series may not (a) invest more than 10% of its
total assets (taken at current value) in the securities of other investment
companies, (b) own securities of any one investment company having

B-39
<PAGE>

a value in excess of 5% of the total assets of the Series (taken at current
value), or (c) own more than 3% of the outstanding voting stock of any one
investment company; or

(17) Issue senior securities. (For the purpose of this restriction none
of the following is deemed to be a senior security: any pledge or other
encumbrance of assets permitted by restriction (6) above; any borrowing
permitted by restriction (5) above; any collateral arrangements with
respect to options, futures contracts and options on futures contracts and
with respect to initial and variation margin; the purchase or sale of
options, forward contracts, futures contracts or options on futures
contracts; and the issuance of shares of beneficial interest permitted from
time to time by the provisions of the Fund's Declaration of Trust and by
the 1940 Act, the rules thereunder, or any exemption therefrom.)

For purposes of restriction (5), reverse repurchase agreements are not
considered borrowings.

* Denotes investment restrictions which may be changed without shareholder
approval.

VARIABLE CONTRACT RELATED INVESTMENT RESTRICTIONS

Separate accounts supporting variable life insurance and variable annuity
contracts are subject to certain diversification requirements imposed by
regulations adopted under the Code. Because the Fund is intended as an
investment vehicle for variable life insurance and variable annuity separate
accounts, Section 817(h) of the Internal Revenue Code requires that the Fund's
investments, and accordingly the investments of each Series, be "adequately
diversified" in accordance with Regulations promulgated by the Department of
the Treasury. Failure to do so means the variable life insurance and variable
annuity contracts would cease to qualify as life insurance and annuities for
federal tax purposes. Regulations specifying the diversification requirements
have been issued by the Department of the Treasury. The Fund intends to comply
with these requirements. State insurance laws and regulations may impose
additional limitations on the Fund's investments, including the Fund's ability
to borrow, lend, and use options, futures, and other derivative instruments.
In addition, such laws and regulations may require that a Series' investments
meet additional diversification or other requirements.

MANAGEMENT

The Fund's Board of Trustees supervises the affairs of the Fund as conducted
by the Series' advisers and subadvisers. Pursuant to separate advisory
agreements, and subject in each case to the supervision of the Fund's Board of
Trustees, TNE Advisers, Inc. is the investment adviser of each of the Series
except the Capital Growth Series, for which CGM serves as investment adviser.

SERIES ADVISED BY TNE ADVISERS, INC.

With respect to each of the thirteen Series for which TNE Advisers, Inc.
serves as adviser, TNE Advisers, Inc. has sub-contracted day-to-day portfolio
management responsibility to a sub-adviser as follows:

<TABLE>
<CAPTION>
SERIES SUBADVISER
------ ----------
<S> <C>
Loomis Sayles Small Cap Series...... Loomis, Sayles & Company, L.P.
Morgan Stanley International Magnum Morgan Stanley Asset Management Inc.
Equity Series......................
Alger Equity Growth Series.......... Fred Alger Management, Inc.
Loomis Sayles Avanti Growth Series.. Loomis, Sayles & Company, L.P.
Davis Venture Value Series.......... Davis Selected Advisers, L.P.
Westpeak Growth and Income Series... Westpeak Investment Advisors, L.P.
Westpeak Stock Index Series......... Westpeak Investment Advisors, L.P.
Loomis Sayles Balanced Series....... Loomis, Sayles & Company, L.P.
Back Bay Advisors Managed Series.... Back Bay Advisors, L.P.
Salomon Brothers Strategic Bond Op- Salomon Brothers Asset Management Inc
portunities Series.................
Back Bay Advisors Bond Income Se- Back Bay Advisors, L.P.
ries...............................
Salomon Brothers U.S. Government Se- Salomon Brothers Asset Management Inc
ries...............................
Back Bay Advisors Money Market Se- Back Bay Advisors, L.P.
ries...............................
</TABLE>

TNE ADVISERS, INC., ("TNE Advisers"), 501 Boylston Street, Boston,
Massachusetts 02116, was organized in 1994. It is a wholly-owned subsidiary of
NELICO. NELICO in turn is a wholly-owned subsidiary of MetLife. TNE Advisers
oversees, evaluates and monitors the subadvisers' provision of investment
advisory services to the Series and provides general business management and
administration to the Series. TNE Advisers has contracted with New England
Funds, L.P. to provide certain administrative services to support the Series.

B-40
<PAGE>

Subject to the supervision of TNE Advisers, each subadviser manages its
Series in accordance with the Series' investment objectives and policies,
makes investment decisions for those Series, places orders to purchase and
sell securities for those Series and employs professional advisers and
securities analysts who provide research services to those Series. The Series
advised by TNE Advisers pay no direct fees to any of the subadvisers described
below.

Loomis Sayles, Westpeak and Back Bay Advisors are each independently
operated subsidiaries, and CGM is an independently operated affiliate, of New
England Investment Companies, L.P. ("NEIC"). The general partners of each of
Loomis Sayles, Westpeak and Back Bay Advisors are special purpose corporations
which are indirect wholly-owned subsidiaries of NEIC. NEIC's sole general
partner, New England Investment Companies, Inc., is a wholly-owned subsidiary
of MetLife, which also owns a majority of the limited partnership interest in
NEIC. NEIC is the owner of a majority limited partnership interest in CGM.
Consequently, the subadvisers (Loomis Sayles, Westpeak and Back Bay Advisors)
of eight Series of the Fund are wholly-owned subsidiaries of NEIC and an
additional Series is advised by a majority-owned subsidiary (CGM) of NEIC. The
subadvisers of the remaining five Series offered through this prospectus are
not affiliated with MetLife or NEIC.

LOOMIS, SAYLES & COMPANY, L.P. ("LOOMIS SAYLES"), One Financial Center,
Boston, Massachusetts 02111, subadviser to the Loomis Sayles Avanti Growth,
Loomis Sayles Small Cap and Loomis Sayles Balanced Series, was founded in 1926
and is one of the country's oldest and largest investment firms. Scott Pape,
Vice President of Loomis Sayles has served as co-portfolio manager of the
Loomis Sayles Avanti Growth Series since its inception in 1993. Bruce A. Ebel,
Vice President of Loomis Sayles has served as co-portfolio manager of the
Loomis Sayles Avanti Growth Series since June 30, 1996. Mr. Pape joined Loomis
Sayles in 1991. Mr. Ebel joined Loomis Sayles in 1994 and prior to that time
was Senior Vice President of Kemper Asset Management.

Jeffrey C. Petherick and Mary Champagne, Vice Presidents of Loomis Sayles,
have day-to-day management responsibility for the Loomis Sayles Small Cap
Series. Mr. Petherick has co-managed the Series since its inception and has
been employed by Loomis Sayles for more than five years. Ms. Champagne has co-
managed the Series since July 1995. Prior to joining Loomis Sayles in 1993,
Ms. Champagne served as a portfolio manager at NBD Bank for 10 years.

Douglas D. Ramos and Meri Anne Beck, Vice Presidents of Loomis Sayles, serve
as portfolio managers for the Loomis Sayles Balanced Series. Both Mr. Ramos
and Ms. Beck have been employed by Loomis Sayles for more than five years.

WESTPEAK INVESTMENT ADVISORS, L.P. ("WESTPEAK"), 1011 Walnut Street,
Boulder, Colorado 80302, subadviser to the Westpeak Growth and Income and
Westpeak Stock Index Series, was organized in 1991. Gerald H. Scriver,
President and Chief Executive Officer of Westpeak and Philip J. Cooper, CFA,
Senior Vice President of Portfolio Management of Westpeak, have served as the
portfolio managers of the Westpeak Growth and Income Series since its
inception in 1993 and as the portfolio managers of the Westpeak Stock Index
Series since August 1, 1993. Both Mr. Scriver and Mr. Cooper have been with
Westpeak since its inception in 1991.

BACK BAY ADVISORS(R), L.P. ("BACK BAY ADVISORS"), 399 Boylston Street,
Boston, Massachusetts 02116, subadviser to the Back Bay Advisors Money Market,
Back Bay Advisors Bond Income and Back Bay Advisors Managed Series, provides
discretionary investment management services to mutual funds and other
institutional investors. Catherine L. Bunting, Senior Vice President of Back
Bay Advisors, has served as the Back Bay Advisors Bond Income Series'
portfolio manager since January 1989. Peter Palfrey, Vice President of Back
Bay Advisors, has served as the Back Bay Advisors Managed Series' portfolio
manager since January 1994. Ms. Bunting has been employed by Back Bay Advisors
for more than five years. Mr. Palfrey, prior to joining Back Bay Advisors in
1993, was Investment Vice President with Mutual of New York.

MORGAN STANLEY ASSET MANAGEMENT INC. ("MSAM"), with principal offices at
1221 Avenue of the Americas, New York, New York 10020, conducts a worldwide
investment management business, providing a broad range of portfolio
management services to customers in the United States and abroad. MSAM is a
wholly-owned subsidiary of Morgan Stanley Group Inc. ("MSGI"), which is a
publicly owned financial services corporation listed on the New York, London
and Pacific stock exchanges. MSAM, a registered Investment Adviser under the
Investment Advisers Act of 1940, as amended, serves as investment adviser to
numerous open-end and closed-end investment companies.

Barton Biggs, Managing Director of MSGI, heads the Asset Allocation
Committee of MSAM in New York. This Committee makes decisions about regional
allocation based on projections of comparable interest rates, currencies,
corporate profits and economic growth among the various regions represented in
the EAFE Index. Francine J. Bovich acts as portfolio manager of the Morgan
Stanley International Magnum Equity Series. Ms. Bovich joined MSAM as a
Principal in 1993. Previously she was a Principal and Executive Vice President
of Westwood Management Corp., a registered investment adviser.

B-41
<PAGE>

On February 5, 1997, MSGI and Dean Witter, Discovery & Company announced
that they had entered into an Agreement and Plan of Merger to form a new
company to be named Morgan Stanley, Dean Witter, Discover & Co. Subject to
certain conditions, it is currently anticipated that the transaction will
close mid-1997. Thereafter, MSAM will be a subsidiary of Morgan Stanley, Dean
Witter, Discover & Co.

FRED ALGER MANAGEMENT, INC. ("ALGER MANAGEMENT"), 75 Maiden Lane, New York,
New York 10038, subadvises the Alger Equity Growth Series. Alger Management is
a wholly-owned subsidiary of Fred Alger & Company, Incorporated, which in turn
is a wholly-owned subsidiary of Alger Associates, Inc., a financial services
holding company. Fred M. Alger III and his brother, David D. Alger, are the
majority shareholders of Alger Associates, Inc. and may be deemed to control
that company and its subsidiaries. David D. Alger, Seilai Khoo and Ron Tartaro
are primarily responsible for the day-to-day management of the Alger Equity
Growth Series. David D. Alger has been employed by Alger Management as
Executive Vice President and Director of Research since 1971 and as President
since 1995 and he serves as portfolio manager for other mutual funds and
investment accounts managed by Alger Management. Ms. Khoo has been employed by
Alger Management since 1989 and as a Senior Vice President since 1995. Mr.
Tartaro has been employed by Alger Management since 1990 and as a Senior Vice
President since 1995. Each has served as portfolio manager of the Series since
its inception in October 1994.

DAVIS SELECTED ADVISERS, L.P. ("DAVIS SELECTED"), 124 East Marcy Street,
Santa Fe, New Mexico 87501, subadvises the Davis Venture Value Series. Venture
Advisers, Inc., which is controlled by Shelby M.C. Davis, is the sole general
partner of Davis Selected. Davis Selected provides advisory services to other
investment companies and institutions. Davis Selected may also delegate any of
its responsibilities to Davis Selected-NY ("DSA-NY"). DSA-NY, organized in
1996, is a wholly-owned subsidiary of Davis Selected located at 609 Fifth
Avenue, New York, New York 10017. Christopher C. Davis has been the portfolio
manager for the Series and other equity funds managed by Davis Selected since
February 19, 1997. He was co-portfolio manager of the Series with Shelby M.C.
Davis, from October 1, 1995 until February 1997. Prior to his responsibilities
as co-portfolio manager, Christopher C. Davis worked closely with Shelby M.C.
Davis as assistant portfolio manager and research analyst beginning in
September 1989.

Shelby M.C. Davis is Chief Investment Officer of Davis Selected Advisers,
L.P. As Chief Investment Officer, he is active in providing investment themes,
strategies and individual stock selections to the Series. He was the Series'
primary portfolio manager from its inception until February 19, 1997. He is a
director and officer of investment companies managed by Davis Selected. He has
been a director of Davis Selected's general partner since 1969.

SALOMON BROTHERS ASSET MANAGEMENT INC ("SBAM"), 7 World Trade Center, New
York, New York 10048, the subadviser to the Salomon Brothers U.S. Government
Series and the Salomon Brothers Strategic Bond Opportunities Series, is a
direct, wholly-owned subsidiary of Salomon Brothers Holding Company Inc, which
in turn is wholly-owned by Salomon Inc ("SI"). SBAM was incorporated in 1987
and, together with affiliates in London, Frankfurt and Hong Kong, provides a
full range of fixed-income and equity investment advisory services for
individuals and institutional clients around the world, including European and
Far Eastern central banks, pension funds, endowments, insurance companies, and
serves as investment adviser to various investment companies. In providing
such services, SBAM and its affiliates have access to more than 400
economists, mortgage, bond and sovereign analysts. As of December 31, 1996,
SBAM and its affiliates managed approximately $19.6 billion in assets.

In connection with SBAM's service as subadviser to the Strategic Bond
Opportunities Series, SBAM's London based affiliate, Salomon Brothers Asset
Management Limited ("SBAM Limited"), Victoria Plaza, 111 Buckingham Palace
Road, London SW1W, OSB, England, provides certain subadvisory services to SBAM
relating to currency transactions and investments in non-dollar denominated
debt securities for the benefit of the Salomon Brothers Strategic Bond
Opportunities Series. For these services, SBAM has agreed to compensate SBAM
Limited at the rate of one-third of the compensation payable to SBAM by TNE
Advisers. SBAM Limited is an indirect, wholly-owned subsidiary of Salomon
Brothers Holding Company Inc. SBAM Limited is a member of Investment
Management Regulatory Organization and is registered as an investment adviser
in the United States pursuant to the Investment Advisers Act of 1940, as
amended.

Steven Guterman is primarily responsible for the day-to-day management of
the Salomon Brothers U.S. Government Series and the mortgage-backed securities
and U.S. Government securities portions of the Salomon Brothers Strategic Bond
Opportunities Series. Mr. Guterman co-manages the Salomon Brothers U.S.
Government Series with Roger Lavan. Peter J. Wilby is primarily responsible
for the day-to-day management of the High Yield and Emerging Market Debt
Securities portions of the Salomon Brothers Strategic Bond Opportunities
Series. Beth Semmel assists Mr. Wilby in the day-to-day management of the
Strategic Bond Opportunities Series. David Scott is primarily responsible for
the portion of the Salomon Brothers Strategic Bond Opportunities Series
relating to currency transactions and investments in non-dollar denominated
debt securities.

B-42
<PAGE>

Mr. Guterman, who joined SBAM in 1990, is currently a Managing Director and
Senior Portfolio Manager of SBAM, responsible for SBAM's investment company
and institutional portfolios which invest primarily in mortgage-backed
securities and U.S. government issues. Mr. Guterman joined Salomon Brothers
Inc in 1983 working initially in the mortgage research group where he became a
Research Director and later traded derivative mortgage-backed securities has
acted as portfolio manager of the Series since October 1994. Mr. Lavan joined
SBAM in 1990 and is a Director and Portfolio Manager and has served as
portfolio manager of the Series since October 1994. Prior to joining SBAM, Mr.
Lavan spent four years analyzing portfolios for Salomon Brothers Inc's Fixed-
Income Sales Group and Product Support Divisions. Mr. Wilby joined SBAM in
1989 and has served as portfolio manager of the Series since October 1994. Mr.
Wilby is a Managing Director of Salomon Brothers Inc and SBAM and Senior
Portfolio Manager of SBAM, responsible for investment company and
institutional portfolio investments in high yield U.S. corporate debt
securities and high yield foreign sovereign debt securities. Ms. Semmel joined
SBAM in May of 1993 and is a Director and Portfolio Manager. Prior to joining
SBAM, Ms. Semmel spent four years as a high yield bond analyst at MSAM and has
served as portfolio manager of the Series since October 1994. Mr. Scott has
been with SBAM Limited since April 1994 and is a Director and Senior Portfolio
Manager and has served as portfolio manager of the Series since October 1994.
He manages currency transactions and investments in non-dollar denominated
securities. From 1990 to 1994, he was a portfolio manager for J.P. Morgan
Investment Management in London where he was responsible for global and non-
dollar portfolios.

FEES AND EXPENSES. TNE Advisers is paid a management fee from the Series it
manages as follows:

<TABLE>
<CAPTION>
ANNUAL MANAGEMENT FEE RATE PAID BY
SERIES TO TNE ADVISERS
SERIES (% OF AVERAGE DAILY NET ASSETS)
------ ------------------------------------------
<S> <C>
Loomis Sayles Small Cap Series. 1.00% of all assets
Morgan Stanley International
Magnum Equity Series.......... 0.90% of all assets
Alger Equity Growth Series..... 0.75% of all assets
Loomis Sayles Avanti Growth Se-
ries.......................... 0.70% of the first $200 million
0.65% of the next $300 million
0.60% of amounts in excess of $500 million
Davis Venture Value Series..... 0.75% of all assets
Westpeak Growth and Income Se-
ries.......................... 0.70% of the first $200 million
0.65% of the next $300 million
0.60% of amounts in excess of $500 million
Westpeak Stock Index Series.... 0.25% of all assets
Loomis Sayles Balanced Series.. 0.70% of all assets
Back Bay Advisors Managed Se-
ries.......................... 0.50% of all assets
Salomon Brothers Strategic Bond
Opportunities Series.......... 0.65% of all assets
Back Bay Advisors Bond Income
Series........................ 0.40% of the first $400 million
0.35% of the next $300 million
0.30% of the next $300 million
0.25% of amounts in excess of $1 billion
Salomon Brothers U.S. Govern-
ment Series................... 0.55% of all assets
Back Bay Advisors Money Market
Series........................ 0.35% of the first $500 million
0.30% of the next $500 million
0.25% of amounts in excess of $1 billion
</TABLE>

B-43
<PAGE>

SUBADVISORY FEES. TNE Advisers pays each subadviser at the following rates
for providing subadvisory services to the following Series:

<TABLE>
<CAPTION>
ANNUAL PERCENTAGE
RATES PAID
BY TNE
ADVISERS TO THE
RESPECTIVE AVERAGE DAILY NET ASSET
SERIES SUBADVISERS VALUE LEVELS
- ------ ----------------- ------------------------------------
<S> <C> <C>
Loomis Sayles Small Cap
Series................. 0.55% of the first $25 million
0.50% of the next $75 million
0.45% of the next $100 million
0.40% of amounts in excess of $200 million
Morgan Stanley Interna-
tional Magnum Equity
Series................. 0.75% of the first $30 million
0.60% of the next $40 million
0.45% of the next $30 million
0.40% of amounts in excess of $100 million
Alger Equity Growth Se-
ries................... 0.45% of the first $100 million
0.40% of the next $400 million
0.35% of amounts in excess of $500 million
Loomis Sayles Avanti
Growth Series.......... 0.50% of the first $25 million
0.40% of the next $75 million
0.35% of the next $100 million
0.30% of amounts in excess of $200 million
Davis Venture Value Se-
ries................... 0.45% of the first $100 million
0.40% of the next $400 million
0.35% of amounts in excess of $500 million
Westpeak Growth and In-
come Series............ 0.50% of the first $25 million
0.40% of the next $75 million
0.35% of the next $100 million
0.30% of amounts in excess of $200 million
Westpeak Stock Index Se-
ries................... 0.10% of all assets
Loomis Sayles Balanced
Series................. 0.50% of the first $25 million
0.40% of the next $75 million
0.30% of amounts in excess of $100 million
Back Bay Advisors Man-
aged Series............ 0.25% of the first $50 million
0.20% of amounts in excess of $50 million
Salomon Brothers Strate-
gic Bond Opportunities
Series................. 0.35% of the first $50 million
0.30% of the next $150 million
0.25% of the next $300 million
0.10% of amounts in excess of $500 million
Back Bay Advisors Bond
Income Series.......... 0.25% of the first $50 million
0.20% of the next $200 million
0.15% of amounts in excess of $250 million
Salomon Brothers U.S.
Government Series...... 0.225% of the first $200 million
0.150% of the next $300 million
0.100% of amounts in excess of $500 million
Back Bay Advisors Money
Market Series.......... 0.15% of the first $100 million
0.10% of amounts in excess of $100 million
</TABLE>

ADVISER OF THE CAPITAL GROWTH SERIES

CGM, One International Place, Boston, MA 02110, adviser to the Capital
Growth Series, is an investment advisory firm organized in 1989 which manages
seven mutual fund portfolios and advisory accounts for other clients. The sole
general partner of CGM is a corporation owned in equal shares by Robert L.
Kemp and G. Kenneth Heebner. Mr. Heebner, Senior Portfolio Manager of CGM, has
served as portfolio manager of the Capital Growth Series since August of 1983.

B-44
<PAGE>

The Capital Growth Series pays its adviser, CGM, a management fee at an
annual rate of 0.70% of the first $200 million of average daily net assets,
0.65% of the next $300 million of such assets and 0.60% of such assets in
excess of $500 million. For advisory services rendered during the fiscal year
ended December 31, 1996, CGM was paid 0.63% of the Capital Growth Series'
average net assets.

VOLUNTARY EXPENSE AGREEMENT

Pursuant to a voluntary expense agreement relating to the Loomis Sayles
Avanti Growth, Westpeak Growth and Income, Westpeak Stock Index, Back Bay
Advisors Managed, Back Bay Advisors Bond Income and Back Bay Advisors Money
Market Series, TNE Advisers bears the expenses (other than the advisory fees
and any brokerage costs, interest, taxes or extraordinary expenses) of the
Series in excess of 0.15% of the respective Series' average daily net assets.
In the case of the Loomis Sayles Small Cap Series, TNE Advisers bears all the
expenses (other than any brokerage costs, interest, taxes or extraordinary
expenses) of the Series in excess of 1.00% of the Series' average daily net
assets. Similar voluntary expense agreements with The New England had been in
effect with respect to the Capital Growth Series until April 30, 1996. As a
result of the current voluntary expense agreements (and assuming the Series
incur the same level of management fees as in 1996 and no taxes, interest or
extraordinary expenses), these Series' expense ratios during this prospectus'
effectiveness, assuming the continuation of the voluntary expense agreement,
are expected to be as follows:

<TABLE>
<CAPTION>
TOTAL EXPENSE RATIO
UNDER CURRENT VOLUNTARY
SERIES EXPENSE AGREEMENT
------ ------------------------
<S> <C>
Back Bay Advisors Money Market Series............. 0.50%
Back Bay Advisors Bond Income Series.............. 0.55%
Back Bay Advisors Managed Series.................. 0.64%
Westpeak Growth and Income Series................. 0.85%
Westpeak Stock Index Series....................... 0.40%
Loomis Sayles Small Cap Series.................... 1.00%
Loomis Sayles Avanti Growth Series................ 0.85%
</TABLE>

TNE Advisers may terminate these expense agreements at any time. If these
expense agreements were terminated, the expense ratios would be higher.

EXPENSE DEFERRAL ARRANGEMENT

Pursuant to an expense deferral arrangement relating to the Morgan Stanley
International Magnum Equity Series (formerly, Draycott International Equity
Series), the Alger Equity Growth Series, the Davis Venture Value Series, the
Loomis Sayles Balanced Series, the Salomon Brothers Strategic Bond
Opportunities Series and the Salomon Brothers U.S. Government Series, which
TNE Advisers may terminate at any time, TNE Advisers has agreed to pay the
expenses of the Series' operations (exclusive of any brokerage costs,
interest, taxes, or extraordinary expenses) in excess of stated expense
limits, which limits vary from Series to Series, 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' stated 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. These expense limits can be prospectively discontinued by TNE
Advisers but any expenses that were deferred while a Series' expense limit was
in place can never be charged to that Series unless that Series' expenses fall
below the limit. Such stated expense limits are as follows:

<TABLE>
<CAPTION>
EXPENSE LIMIT UNDER
SERIES DEFERRAL ARRANGEMENT
------ --------------------
<S> <C>
Morgan Stanley International Magnum Equity
Series........................................... 1.30%
Alger Equity Growth Series........................ 0.90%+
Davis Venture Value Series........................ 0.90%
Loomis Sayles Balanced Series..................... 0.85%
Salomon Brothers Strategic Bond Opportunities
Series........................................... 0.85%
Salomon Brothers U.S. Government Series........... 0.70%
</TABLE>
- --------

+ Prior to January 1, 1996, the expense limit was 0.85%.

B-45
<PAGE>

ADDITIONAL INFORMATION ABOUT EXPENSES

Each Series pay all expenses not borne by its adviser or subadvisers or New
England Securities, including, but not limited to, the charges and expenses of
each Series' custodian, independent auditors and legal counsel for the Fund
and its independent trustees, all brokerage commissions and transfer taxes in
connection with portfolio transactions, all taxes and filing fees, the fees
and expenses for registration or qualification of its shares under federal and
state securities laws, all expenses of shareholders' and trustees' meetings
and preparing, printing and mailing prospectuses and reports to shareholders,
and the compensation of trustees of the Fund who are not directors, officers
or employees of NELICO or its affiliates, other than affiliated registered
investment companies.

The Fund incurred total expenses during the year ended December 31, 1996 as
follows:

<TABLE>
<CAPTION>
TOTAL EXPENSES
(AS OF A PERCENTAGE OF
AVERAGE NET ASSETS)
FOR THE YEAR ENDED
SERIES DECEMBER 31, 1996
------ ----------------------
<S> <C>
Loomis Sayles Small Cap Series..................... 1.00%
Morgan Stanley International Magnum Equity Series.. 1.30%
Alger Equity Growth Series......................... 0.90%
Capital Growth Series.............................. 0.69%
Loomis Sayles Avanti Growth Series................. 0.85%
Davis Venture Value Series......................... 0.90%
Westpeak Growth and Income Series.................. 0.85%
Westpeak Stock Index Series........................ 0.40%
Loomis Sayles Balanced Series...................... 0.85%
Back Bay Advisors Managed Series................... 0.62%
Salomon Brothers Strategic Bond Opportunities Se-
ries.............................................. 0.85%
Back Bay Advisors Bond Income Series............... 0.52%
Salomon Brothers U.S. Government Series............ 0.70%
Back Bay Advisors Money Market Series.............. 0.50%
</TABLE>

If the voluntary expense agreement and expense deferral arrangement
described above had not been in effect, the Series' expenses for the year
ended December 31, 1996 would have been:

<TABLE>
<CAPTION>
TOTAL EXPENSES
(AS A PERCENTAGE OF NET ASSETS)
WITHOUT VOLUNTARY EXPENSE AGREEMENT
OR EXPENSE DEFERRAL ARRANGEMENT
FOR THE YEAR ENDED
SERIES DECEMBER 31, 1996
------ -----------------------------------
<S> <C>
Loomis Sayles Small Cap Series........ 1.29%
Morgan Stanley International Magnum
Equity Series........................ 1.66%
Alger Equity Growth Series............ 0.90%
Capital Growth Series................. 0.69%
Loomis Sayles Avanti Growth Series.... 0.92%
Davis Venture Value Series............ 0.96%
Westpeak Growth and Income Series..... 0.91%
Westpeak Stock Index Series........... 0.50%
Loomis Sayles Balanced Series......... 0.99%
Back Bay Advisors Managed Series...... 0.62%
Salomon Brothers Strategic Bond Oppor-
tunities Series...................... 1.19%
Back Bay Advisors Bond Income Series.. 0.52%
Salomon Brothers U.S. Government Se-
ries................................. 1.37%
Back Bay Advisors Money Market Series. 0.50%
</TABLE>

These expense figures do not include portfolio brokerage commissions, which
are not deducted from the Series' assets in the same manner as other charges
and expenses; rather, brokerage commissions are part of the purchase price
paid for portfolio securities and reduce the proceeds received on the sale of
portfolio securities.

B-46
<PAGE>

For the year ended December 31, 1996, brokerage commissions paid by each
Series were as follows:

<TABLE>
<CAPTION>
SERIES COMMISSIONS PAID % OF AVERAGE NET ASSETS
------ ---------------- -----------------------
<S> <C> <C>
Loomis Sayles Small Cap Series... $ 462,357 0.91%
Morgan Stanley International Mag-
num Equity Series............... 127,196 0.45
Alger Equity Growth Series....... 174,495 0.21
Capital Growth Series............ 4,053,238 0.40
Loomis Sayles Avanti Growth Se-
ries............................ 74,700 0.12
Davis Venture Value Series....... 81,002 0.12
Westpeak Growth and Income Se-
ries............................ 106,927 0.17
Westpeak Stock Index Series...... 9,955 0.02
Loomis Sayles Balanced Series.... 51,801 0.14
Back Bay Advisors Managed Series. 11,697 0.01
</TABLE>

The Alger Equity Growth, Morgan Stanley International Magnum Equity and
Davis Venture Value Series may pay brokerage commissions to brokerage firms
affiliated each Series respective subadviser. Portfolio transactions of the
Salomon Brothers Strategic Bond Opportunities Series, Back Bay Advisors Bond
Income Series, Salomon Brothers U.S. Government Series and Back Bay Advisors
Money Market Series and portfolio transactions of the Back Bay Advisors
Managed Series and the Loomis Sayles Balanced Series in bonds, notes and money
market instruments are generally effected on a net basis without a stated
commission.

MISCELLANEOUS ARRANGEMENTS

TNE Advisers has contracted with New England Funds, L.P. to provide
executive and other personnel for the administration of the affairs of the
Series advised by TNE Advisers. Subject to procedures adopted by the Fund's
Board of Trustees, Fund brokerage transactions may be executed by brokers that
are affiliated with any adviser or subadviser.

Fund shares are offered through New England Securities, 399 Boylston Street,
Boston, Massachusetts 02116, the principal underwriter for the Fund. New
England Securities is a wholly-owned subsidiary of NELICO.

SALE AND REDEMPTION OF SHARES

Shares of each Series are purchased or redeemed depending, among other
things, on the amount of premium payments invested and the surrender and
transfer requests effected on any given day pursuant to the variable life
insurance and variable annuity contracts supported by the Fund. Such
transactions can be made only on those days during which the New York Stock
Exchange ("NYSE") is open for trading. Purchases and redemptions of Fund
shares are effected at the net asset value per share determined as of the
close of regular trading on the NYSE (currently 4 p.m. Eastern time) on the
day such purchase order or redemption request is received.

The Fund may suspend the right of redemption for any Series and may postpone
payment for any period when the NYSE is closed for other than weekends or
holidays, or, if permitted by the rules of the SEC, during periods when
trading on the NYSE is restricted or during an emergency which makes it
impracticable for a Series to dispose of securities or fairly to determine the
value of its net assets, or during any other period permitted by the SEC for
the protection of investors.

NET ASSET VALUES AND PORTFOLIO VALUATION

Loomis Sayles, MSAM, Alger Management, CGM, Davis Selected, Westpeak, Back
Bay Advisors and SBAM, under the direction of the Fund's Board of Trustees,
determine the value of each Series' securities. The net asset value of each
Series' shares is determined as of the close of regular trading on the NYSE
each day it is open. Each Series' total net assets are divided by the number
of outstanding shares of that Series to determine the net asset value per
share for that Series.

The Back Bay Advisors Money Market Series' investment portfolio, and any
fixed-income securities with remaining maturities of 60 days or less held by
any other Series, are valued at amortized cost. Other portfolio securities of
each Series (other than the Back Bay Advisors Money Market Series) are valued
at market value where current market quotations are readily available and
otherwise are taken at fair value as determined in good faith by the Fund's
Board of Trustees, although the actual calculations may be made by persons
acting pursuant to the direction of the Board.

The Back Bay Advisors Money Market Series seeks to maintain a constant net
asset value per share of $100, although this cannot be assured. The net asset
value per share for the other Series will vary depending on the value of each
Series' investment portfolio.

B-47
<PAGE>

DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS

BACK BAY ADVISORS MONEY MARKET SERIES

The net investment income of the Back Bay Advisors Money Market Series is
declared daily and paid monthly as a dividend. Although the Back Bay Advisors
Money Market Series does not expect to realize any long-term capital gains, if
such gains are realized they will be distributed once a year.

OTHER SERIES

It is the policy of each Series other than the Back Bay Advisors Money
Market Series to pay annually as dividends substantially all net investment
income and to distribute annually all net realized capital gains, if any,
after offsetting any capital loss carryovers. See "Taxes." Dividends from net
investment income may be paid more or less often if the Fund's Board of
Trustees deems it appropriate.

Federal income tax law requires each Series to distribute prior to calendar
year-end virtually all of its ordinary income for such year and virtually all
of the capital gain net income realized by the Series in the one-year period
ending October 31 (or December 31, if the Series so elects) of such year and
not previously distributed.

Dividends and distributions of each Series are automatically reinvested in
shares of the respective Series.

TAXES

Each Series is treated as a separate entity for federal income tax purposes
and intends to qualify as a regulated investment company under the Code, as
amended. So long as a Series distributes all of its net investment income and
net capital gains to its shareholders, the Series itself does not pay any
federal income tax. Dividends from net investment income of each of the Series
and distributions of each Series' net short-term gains, if any, are treated as
ordinary income to its shareholders. Distributions of any Series' net realized
long-term capital gains, if any, are treated as long-term capital gains to its
shareholders. Whether or not taxes must be paid by the shareholders of a
Series on distributions received from that Series will depend on the tax
status of NELICO's or MetLife's separate accounts and the tax status of any
other shareholders. For the purposes of the foregoing, each Series'
shareholders are the separate accounts investing directly in the Fund and not
the owners of the variable life insurance or variable annuity contracts for
which the Fund serves as an investment vehicle. For a description of the tax
consequences for such contract owners, see the relevant prospectus applicable
to such contracts.

ORGANIZATION AND CAPITALIZATION OF THE FUND

The Fund was originally organized in 1983 as a Massachusetts corporation,
and was reorganized as a Massachusetts business trust on February 27, 1987.
The Fund is registered as a diversified, open-end management company under the
1940 Act, and is authorized to issue an unlimited number of shares of each
Series. Shareholders may address inquiries about the Fund to New England
Securities, 399 Boylston Street, Boston, Massachusetts 02116.

As of the date of this prospectus, all of the outstanding voting securities
of the Fund are owned by separate accounts of MetLife and/or NELICO, and may,
from time to time, be owned by those separate accounts and the general account
of MetLife. Therefore, MetLife and NELICO are presumed to be in control (as
that term is defined in the 1940 Act) of the Fund. However, the staff of the
SEC is presently of the view that MetLife and NELICO are each required to vote
their Fund shares that are held in a separate account that is a registered
investment company under the 1940 Act (and, to the extent voting privileges
are granted by the issuing insurance company, in unregistered separate
accounts) in the same proportion as the voting instructions received from
owners of the variable life insurance or variable annuity contracts issued by
the separate account, and that MetLife is required to vote any shares held in
its general account (or in any unregistered separate account that does not
have voting privileges) in the same proportion as all other Fund shares are
voted. MetLife and NELICO currently intend to vote their shares in a manner
consistent with this view.

The Fund does not generally hold annual meetings of shareholders and will
hold shareholders meetings only when required by law. Shareholders may remove
trustees from office by votes cast at a shareholder meeting or by written
consent.

TRANSFER AGENT

The transfer agent and the dividend paying agent for the Fund is NELICO, 501
Boylston Street, Boston, Massachusetts 02116.

B-48
<PAGE>

VOTING RIGHTS

Fund shareholders are entitled to one vote for each full share held (with
fractional votes for fractional shares held). NELICO and MetLife are the legal
owners of shares attributable to variable life insurance and variable annuity
contracts issued by their separate accounts, and have the right to vote those
shares. Pursuant to the current view of the SEC staff described above, NELICO
and MetLife will vote their shares in accordance with instructions received
from owners of variable life insurance and variable annuity contracts issued
by separate accounts that are registered under the 1940 Act. All Fund shares
held by separate accounts of NELICO and MetLife that are registered under the
1940 Act (and, to the extent voting privileges are granted by the issuing
insurance company, by unregistered separate accounts) for which no timely
instructions are received will be voted for, voted against or withheld from
voting on any proposition in the same proportion as the shares held in that
separate account for all contracts for which voting instructions are received.
All Fund shares held by the general investment account (or any unregistered
separate account that does not have voting privileges) of NELICO or MetLife
will be voted in the same proportion as the aggregate of (i) the shares for
which voting instructions are received and (ii) the shares that are voted in
proportion to such voting instructions.

B-49
<PAGE>

APPENDIX A

RATINGS OF SECURITIES

Description of Moody's Investors Service, Inc. corporate bond ratings:

Aaa, Aa, A -- Bonds which are rated AAA or Aa are judged to be of high
quality by all standards and are generally known as high grade bonds. Bonds
rated Aa are rated lower than Aaa securities because margins of protection may
not be as large as in the latter or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities. Bonds which are
rated A possess many favorable investment attributes and are to be considered
as upper medium grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future.

Baa -- Bonds which are rated Baa are considered medium grade obligations,
i.e., they are neither higher protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.

Ca -- Bonds which are rated Ca represent obligations which are speculative
in high degree. Such issues are often in default or have other marked
shortcomings.

C -- Bonds which are rated C are the lowest rated class of bonds and can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.

Description of Standard & Poor's Ratings Group corporate bond ratings:

AAA, AA, A -- Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong. Bonds rated AA have a very strong capacity to pay interest
and repay principal and differ from the highest rated issues only in small
degree. Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than bonds in high rated
categories.

BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to repay principal and pay
interest for bonds in this category than for bonds in higher rated categories.

BB-B-CCC-CC -- Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation.
BB indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

CI -- The rating CI is reserved for income bonds on which no income is being
paid.

D -- Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.

B-50
<PAGE>

APPENDIX B

AVERAGE MONTHLY PORTFOLIO COMPOSITION TABLE OF THE SALOMON BROTHERS STRATEGIC
BOND
OPPORTUNITIES SERIES FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996

<TABLE>
<CAPTION>
PERCENTAGE
OF NET
SECURITY ASSETS
- -------- ----------
<S> <C>
Preferred Stock...................................................... 0%
Short-term Obligations and Other Assets.............................. 0%
Common Stock......................................................... 0%
Debt -- Unrated...................................................... 17.21%
Debt -- Standard and Poor's Rating
AAA................................................................ 38.63%
AA................................................................. 1.64%
A.................................................................. 1.15%
BBB................................................................ 1.94%
BB................................................................. 7.51%
B.................................................................. 31.04%
CCC................................................................ 0.88%
</TABLE>

The chart above indicates the composition of the Salomon Brothers Strategic
Bond Opportunities Series for the fiscal year ended December 31, 1996, with
the debt securities rated by S&P separated into the indicated categories. The
percentages were calculated on a dollar-weighted average basis by determining
monthly the percentage of the Salomon Brothers Strategic Bond Opportunities
Series' net assets invested in each category as of the end of each month
during the year. Salomon Brothers does not rely primarily on ratings designed
by any rating agency in making investment decisions. The chart does not
necessarily indicate what the composition of the Series' portfolio will be in
subsequent fiscal years.

AVERAGE MONTHLY PORTFOLIO COMPOSITION TABLE OF THE
BACK BAY ADVISORS MANAGED SERIES FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996

<TABLE>
<CAPTION>
PERCENTAGE
OF NET
SECURITY ASSETS
- -------- ----------
<S> <C>
Preferred Stock...................................................... 0%
Short-term Obligations and Other Assets.............................. 2.0%
Common Stock......................................................... 68.2%
Debt -- Unrated...................................................... 0%
Debt -- Standard and Poor's Rating
AAA................................................................ 4.5%
AA................................................................. 1.8%
A.................................................................. 3.4%
BBB................................................................ 19.0%
BB................................................................. 6.7%
B.................................................................. 0%
CCC................................................................ 0%
CD................................................................. 0%
</TABLE>

The chart above indicates the composition of the Back Bay Advisors Managed
Series for the fiscal year ended December 31, 1996, with the debt securities
rated by S&P separated into the indicated categories. The percentages were
calculated on a dollar-weighted average basis by determining monthly the
percentage of the Back Bay Advisors Managed Series' net assets invested in
each category as of the end of each month during the year. Back Bay Advisors
does not rely primarily on ratings designed by any rating agency in making
investment decisions. The chart does not necessarily indicate what the
composition of the Series' portfolio will be in subsequent fiscal years.

B-51
<PAGE>

AVERAGE MONTHLY PORTFOLIO COMPOSITION TABLE OF THE

BAY BACK ADVISORS BOND INCOME SERIES FOR THE FISCAL YEAR ENDED DECEMBER 31,
1996

<TABLE>
<CAPTION>
PERCENTAGE
OF NET
SECURITY ASSETS
- -------- ----------
<S> <C>
Preferred Stock...................................................... 0%
Short-term Obligations and Other Assets.............................. 0.5%
Debt -- Unrated...................................................... 0%
Debt -- Standard and Poor's Rating
AAA................................................................ 26.3%
AA................................................................. 14.1%
A.................................................................. 8.8%
BBB................................................................ 30.8%
BB................................................................. 19.5%
B.................................................................. 0%
CCC................................................................ 0%
C/D................................................................ 0%
</TABLE>

The chart above indicates the composition of the Back Bay Advisors Bond
Income Series for the fiscal year ended December 31, 1996, with the debt
securities rated by S&P separated into the indicated categories. The
percentages were calculated on a dollar-weighted average basis by determining
monthly the percentage of the Back Bay Advisors Bond Income Series' net assets
invested in each category as of the end of each month during the year. Back
Bay Advisors does not rely primarily on ratings designed by any rating agency
in making investment decisions. The chart does not necessarily indicate what
the composition of the Series' portfolio will be in subsequent fiscal years.

B-52
<PAGE>

NEW ENGLAND ZENITH FUND

STATEMENT OF ADDITIONAL INFORMATION

May 1, 1997

This Statement of Additional Information is not a prospectus. This Statement of
Additional Information relates to the Prospectus dated May 1, 1997, and should
be read in conjunction therewith. A copy of the Prospectus may be obtained from
New England Securities Corporation, 399 Boylston Street, Boston, Massachusetts
02116.

1
<PAGE>

TABLE OF CONTENTS

Page
----
<S> <C>
Investment Objectives and Policies 3

Miscellaneous Investment Practices 8

Determination of Net Asset Values 20

Fund Performance 21

Trustees and Officers 27

Advisory Arrangements 31

Distribution Agreement 38

Other Services 38

Portfolio Transactions and Brokerage 39

Description of the Fund 41

Appendix A-1 (Description of Bond 44
Ratings)

Appendix A-2 (Description of Commercial 46
Paper Ratings)

Appendix B 47
</TABLE>

2
<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

The investment objectives and policies of each Series (collectively and
individually the "Series") of New England Zenith Fund (the "Fund") are
summarized on the front page of the Prospectus and in the text of the Prospectus
following the caption "Investment Objectives and Policies." There can be no
assurance that any of the Series will achieve its objective. The investment
policies of each Series set forth in the Prospectus and in this Statement of
Additional Information may be changed without shareholder approval, except for
any policy as to which the Prospectus or this Statement of Additional
Information explicitly indicates that such approval is required, and except for
the investment objectives of the Money Market, Bond Income, Capital Growth,
Growth and Income, Avanti Growth, Stock Index, Managed and Small Cap Series,
which have fundamental investment objectives.

The terms "shareholder approval" and "approval of a majority of the
outstanding voting securities," as used in the Prospectus and this Statement of
Additional Information, mean, with respect to a Series, approval by the lesser
of (i) 67% of the shares of the Series represented at a meeting at which more
than 50% of the outstanding shares of such Series are represented or (ii) more
than 50% of the outstanding shares of such Series.

Loomis Sayles Small Cap Series

As indicated in the Prospectus following the caption "Investment Objective
and Policies -- Loomis Sayles Small Cap Series," the Loomis Sayles Small Cap
Series seeks to attain its investment objective of long-term capital growth
through investments in common stocks or their equivalent.

Loomis Sayles, the Series' subadviser, manages the Series by investing
primarily in stocks of small cap companies with good earnings growth potential
that Loomis Sayles believes are undervalued by the market. Typically, such
companies have market capitalization of less than $1 billion, have better than
average growth rates at below average price/earnings ratios and have strong
balance sheets and cash flow. Loomis Sayles seeks to build a core small cap
portfolio of solid growth company stocks, with a smaller emphasis on special
situations and turnarounds (companies that have experienced significant business
problems but which Loomis Sayles believes have favorable prospects for
recovery), as well as unrecognized stocks.

Under unusual market conditions as determined by Loomis Sayles, all or any
portion of the Series may be invested, for temporary, defensive purposes, in
short-term debt instruments or in cash. In addition, under normal conditions, a
portion of the Series' assets may be invested in short-term assets for liquidity
purposes or pending investment in other securities. Short-term investments may
include U.S. Government securities, certificates of deposit, commercial paper
and other obligations of corporate issuers rated in the top two rating
categories by a major rating agency or, if unrated, determined to be of
comparable quality by the subadviser, and repurchase agreements that are fully
collateralized by cash, U.S. Government securities or high-quality money market
instruments.

Morgan Stanley International Magnum Equity Series (formerly, Draycott
International Equity Series)

As disclosed in the Prospectus under the caption "Investment Objectives and
Policies -- Morgan Stanley International Magnum Equity Series," the Morgan
Stanley International Magnum Equity Series seeks to attain its investment
objective of long-term capital appreciation primarily through investment in
international equity securities.

The Series will continue to invest primarily in international equity
securities; however, the Series' investment objective will be long-term capital
appreciation. The production of any current income will be incidental to this
objective. The countries in which the Series may invest are those represented
in the Morgan Stanley Capital International Index (the "EAFE Index"), which
includes Australia, Japan, New Zealand, most of the nations in Western Europe
and certain developed countries in Asia such as Hong Kong and Singapore. Under
normal circumstances at least 65% of the total assets of the Series will be
invested in equity securities of issuers in at least three different countries
outside the United States.

In managing the Series' portfolio, MSAM will first determine what percentage
of the Series' assets should be invested in each region represented in the EAFE
Index. This determination will be based on projections of

3
<PAGE>

comparative interest rates, currencies, corporate profits and economic growth
among the various regions represented in the EAFE Index. After these regional
allocations are determined, the portfolio manager for each region selects the
stocks of issuers in these respective region.

Alger Equity Growth Series

As disclosed in the Prospectus under the caption "Investment Objectives and
Policies -- Alger Equity Growth Series," the Alger Equity Growth Series seeks to
attain its investment objective of long-term capital appreciation by investing
primarily in a diversified, actively managed portfolio of equity securities,
principally in companies having a total market capitalization of $1 billion or
greater. These companies may still be in the developmental stage, may be older
companies that appear to be entering a new stage of growth progress, or may be
companies providing products or services with a high unit volume growth rate.

Capital Growth Series

As disclosed in the Prospectus under the caption "Investment Objectives and
Policies -- Capital Growth Series," the Capital Growth Series seeks to attain
its investment objective of long-term growth of capital through investment
primarily in equity securities of companies whose earnings are expected to grow
at a faster rate than the United States economy. The selection of common stocks
for the Capital Growth Series' investment portfolio is based on the assessment
of the Series' adviser, Capital Growth Management Limited Partnership ("CGM"),
that the common stock is attractively priced relative to its earnings and growth
potential.

The Series does not consider current income as a significant factor in
selecting its investments. However, during periods when management considers
that economic or market conditions make it desirable, the Series may take a
defensive position by investing a substantial portion of its assets in cash or
fixed-income securities (bonds, notes and money market instruments). No
estimate can be made as to when or for how long the Series will employ such
defensive strategies; however, in the past, such periods have been as long as
one year.

The Capital Growth Series does not currently intend to invest in restricted
securities, options or warrants although, subject to its investment
restrictions, it may do so in the future. See "Investment Restrictions."

Although the Capital Growth Series' objective is long-term capital growth, it
frequently sells securities to reflect changes in market, industry or individual
company conditions or outlook even though it may only have held those securities
for a short period. As a result of these policies, the Capital Growth Series,
under certain market conditions, may experience high portfolio turnover,
although specific portfolio turnover rates are impossible to predict. In recent
years, the portfolio turnover rate of the Capital Growth Series has fluctuated
considerably as a result of strategic shifts in portfolio holdings designed to
maintain an optimum portfolio structure in view of general market conditions and
movements in individual stock prices.

Loomis Sayles Avanti Growth Series

As disclosed in the Prospectus under the caption "Investment Objectives and
Policies -- Loomis Sayles Avanti Growth Series," the Loomis Sayles Avanti Growth
Series seeks to attain its investment objective of long-term growth of capital
through ordinarily investing substantially all of its assets in equity
securities. Investments are selected by the Series' subadviser, Loomis, Sayles
& Company, L.P. ("Loomis Sayles"), based on their growth potential; current
income is not a consideration.

Although the Loomis Sayles Avanti Growth Series' objective is long-term
capital growth, it may sell securities to reflect changes in Loomis Sayles'
assessment of the relative attractiveness of particular investments. As a
result, the Loomis Sayles Avanti Growth Series, under certain market conditions,
may experience high portfolio turnover. High portfolio turnover involves
correspondingly higher brokerage commissions than would be experienced by a
similar fund with lower turnover. In addition, the Series may invest cash
temporarily in money market instruments and related repurchase agreements, as
described below under "Miscellaneous Investment Practices--Money Market
Instruments."

4
<PAGE>

Davis Venture Value Series

As disclosed in the Prospectus under the caption "Investment Objectives and
Policies -- Davis Venture Value Series," the Davis Venture Value Series seeks to
attain its investment objective of growth of capital by investing in domestic
common stocks that the Series' subadviser believes have capital growth potential
due to factors such as undervalued assets or earnings potential, product
development and demand, favorable operating ratios, resources for expansion,
management abilities, reasonableness of market price, and favorable overall
business prospects. The Series will generally invest predominantly in equity
securities of companies with market capitalizations of at least $250 million.
It may also invest in issues with smaller capitalizations.

Westpeak Growth and Income Series

As disclosed in the Prospectus under the caption "Investment Objectives and
Policies -- Westpeak Growth and Income Series," the Westpeak Growth and Income
Series seeks long-term total return (capital appreciation and dividend income)
through investment in equity securities, both in securities that the Series'
subadviser, Westpeak Investment Advisors, L.P. ("Westpeak"), believes are
undervalued ("value" style) and securities of companies that Westpeak believes
have growth potential ("growth" style). The Westpeak Growth and Income Series
will ordinarily invest substantially all of its assets in equity securities.

Although the Westpeak Growth and Income Series' objective is long-term total
return, it may sell securities to reflect changes in Westpeak's assessment of
the relative attractiveness of particular investments. As a result, the
Westpeak Growth and Income Series, under certain market conditions, may
experience high portfolio turnover. High portfolio turnover involves
correspondingly higher brokerage commissions than would be experienced by a
similar fund with lower turnover.

The assets of the Westpeak Growth and Income Series that are not invested in
equity securities will be held in cash or invested as described below under
"Miscellaneous Investment Practices--Money Market Instruments."

Westpeak Stock Index Series
- ---------------------------

As disclosed in the Prospectus under the caption "Investment Objectives and
Policies -- Westpeak Stock Index Series," the Westpeak Stock Index Series uses
the Standard & Poor's 500 Composite Stock Index ("S&P 500 Index") as the
standard of performance comparison because that index currently represents a
significant percentage of the total market value of all United States publicly
traded common stocks, is well known to investors, and is commonly regarded as
representative of the performance of United States publicly traded common stocks
taken as a whole.

The S&P 500 Index is composed of 500 common stocks, most of which are listed
on the New York Stock Exchange. Standard & Poor's, which is not a sponsor of or
in any other way affiliated with the Series, chooses the 500 stocks included in
the S&P 500 Index on the basis of market value and industry diversification.
The S&P 500 Index assigns relative values to the stocks included in the index,
weighted according to each stock's total market value relative to the total
market value of the other stocks included in the index. The stocks included in
the S&P 500 Index may change from time to time.

The Westpeak Stock Index Series is not managed through traditional methods of
investment management, which typically attempt to use economic, financial and
market analysis to select undervalued stocks or stocks of companies that may
experience above-average growth, nor will the adverse financial situation of a
company necessarily result in the elimination of its stock from the Westpeak
Stock Index Series' portfolio. As described in the Prospectus, stocks will be
selected in an attempt to approximate the performance of the S&P 500 Index and
to minimize tracking error. From time to time, adjustments may be made in the
Westpeak Stock Index Series' investment portfolio, but such changes should be
infrequent compared to those of most management investment companies. Westpeak
currently expects that such adjustments will ordinarily be made on a monthly
basis, but such adjustments could be made more or less frequently, depending on
changes in the size of the Westpeak Stock Index Series, among other factors. As
a consequence of the relative infrequency of portfolio adjustments, brokerage
and other transaction costs are expected to be relatively low. However, these
costs and other expenses may cause the return of the Westpeak Stock Index Series
to be lower than the return of the S&P 500

5
<PAGE>

Index. In addition, the relative infrequency of portfolio adjustments may result
in increased tracking error, to the extent that new cash that has come into the
Series is held, or invested in money market instruments and repurchase
agreements, pending the next portfolio adjustment, rather than invested
immediately in common stocks included in the S&P 500 Index.

It is the Westpeak Stock Index Series' policy to be fully invested in common
stocks. However, the Westpeak Stock Index Series may hold a portion of its
assets, which will not exceed 5% (not including additional cash that has come
into the Series and is pending investment in common stocks), in cash to meet
redemptions and other day-to-day operating expenses. The Series may also engage
in futures transactions to reduce tracking error. In addition, the Westpeak
Stock Index Series may invest cash temporarily in money market instruments and
repurchase agreements, as described below under "Miscellaneous Investment
Practices -- Money Market Instruments". Such temporary investments will only be
made with cash held to maintain liquidity or pending investment, and will not be
made for defensive purposes in the event or in anticipation of a general decline
in the market prices of stocks in which the Series invests. A defensive
investment posture is precluded by the Westpeak Stock Index Series' investment
objective to provide investment results that correspond to the price and yield
performance of a universe of common stocks. Investors in the Westpeak Stock
Index Series therefore bear the risk of general declines in stock prices in the
stock markets.

The index that the Westpeak Stock Index Series uses as a standard of
comparison in seeking to achieve its objective may be changed without
shareholder approval. At some time in the future, another index may be selected
if such a standard of comparison is deemed more appropriate than the S&P 500
Index as an indicator of the performance of United States publicly traded common
stocks.

Loomis Sayles Balanced Series

As disclosed in the Prospectus under the caption "Investment Objectives and
Policies -- Loomis Sayles Balanced Series," the Loomis Sayles Balanced Series
seeks to attain its investment objective of reasonable long-term investment
return from a combination of long-term capital appreciation and moderate current
income.

The Series is "flexibly managed" in that sometimes it invests more heavily in
equity securities and at other times it invests more heavily in fixed-income
securities, depending on its subadviser's view of the economic and investment
outlook. Most of the Series' investments are normally in dividend-paying common
stocks of recognized investment quality that are expected to achieve growth in
earnings and dividends over the long-term. Fixed-income securities include
notes, bonds, non-convertible preferred stock and money market instruments. The
Series may invest in adjustable rate mortgage securities, asset-backed
securities, STRIPs and inverse floaters, subject to a limit of 5% of the Series'
assets for each of these types of instruments. The Series invests at least 25%
of its assets in fixed-income senior securities and, under normal market
conditions, more than 50% of its assets in equity securities. The Series also
may invest in foreign securities.

Back Bay Advisors Managed Series

As indicated in the Prospectus following the caption "Investment Objective and
Policies -- Back Bay Advisors Managed Series," the Back Bay Advisors Managed
Series' investment portfolio will generally contain a mix of (1) common stocks,
(2) notes and bonds and (3) money market instruments. Each of these categories
of investments involves certain risks.

The text of the Prospectus following the caption "Investment Objective and
Policies -- Back Bay Advisors Money Market Series," contains a description of
the money market instruments and related repurchase agreements in which the Back
Bay Advisors Managed Series may invest; for a fuller description, see
"Miscellaneous Investment Practices--Money Market Instruments," below.

The portion of the Back Bay Advisors Managed Series' investment portfolio
consisting of notes and bonds will be invested in bonds of the types in which
the Back Bay Advisors Bond Income Series is permitted to invest. These
investments may include both bonds in the four highest rating categories of
Moody's or Standard & Poor's (which are described in Appendix A-1 hereto) and
lesser rated or non-rated bonds (the risks associated with which are described
in the Prospectus under "Investment Objectives and Policies -- Back Bay Advisors
Bond Income Series"). The Series will purchase and sell securities for the bond
portion of its portfolio in

6
<PAGE>

anticipation of or in response to changes in yield relationships, markets or
economic conditions. The bond portion of the Series' investment portfolio will
also be invested to take advantage of temporary disparities in the relative
values of certain sectors of the market for fixed-income securities. As a result
of these policies, the bond portion of the Series' portfolio, under certain
market conditions, may experience high portfolio turnover.

Because the securities in its portfolio are subject to price declines as well
as price advances, at times the net asset value per Back Bay Advisors Managed
Series share may be less than a shareholder's original cost. There can be no
assurance that the Back Bay Advisors Managed Series' investment objective will
be attained.

Salomon Brothers Strategic Bond Opportunities Series

As disclosed in the Prospectus under the caption "Investment Objectives and
Policies -- Salomon Brothers Strategic Bond Opportunities Series," the Salomon
Brothers Strategic Bond Opportunities Series seeks to attain its investment
objective of a high level of total return consistent with preservation of
capital by assessing the relative risks and opportunities available in various
market segments and allocating assets primarily among U.S. Government
obligations, mortgage backed securities, domestic corporate debt and
international debt securities rated investment grade (BBB or higher by S&P or
Baa or higher by Moody's) and domestic and sovereign corporate debt and
international debt securities rated below investment grade.

Back Bay Advisors Bond Income Series

The text of the Prospectus following the caption "Investment Objectives and
Policies -- Back Bay Advisors Bond Income Series" gives a description of the
securities in which the Back Bay Advisors Bond Income Series may invest.
Although at least 80% of the Series' bond investments will carry investment
grade ratings (see Appendix A-1) from one of the recognized rating services,
the Series may purchase nonrated or lower-rated bonds, which may be traded only
over-the-counter. Nonrated bonds are so categorized because the bond's rating
has been suspended or because the issuer did not seek a rating of the bonds from
Moody's or Standard & Poor's.

As described in the Prospectus, the average maturity of the Back Bay Advisors
Bond Income Series' portfolio will usually be between five and fifteen years.
Depending on market conditions, the Back Bay Advisors Bond Income Series may
take a defensive position by investing a substantial portion of its assets in
the money market instruments eligible for purchase by the Back Bay Advisors
Money Market Series. No estimate can be made as to when or for how long the
Series would employ such defensive strategies.

The Back Bay Advisors Bond Income Series purchases and sells portfolio
investments in anticipation of or in response to changes in yield relationships,
markets or economic conditions. The Back Bay Advisors Bond Income Series also
invests to take advantage of temporary disparities in the relative values of
certain sectors of the market for fixed-income securities. As a result of these
policies, the Back Bay Advisors Bond Income Series, under certain market
conditions, may experience high portfolio turnover, although specific portfolio
turnover rates are impossible to predict.

Since levels of interest rates vary from time to time, there can be no
assurance as to the Back Bay Advisors Bond Income Series' current income for any
particular period. Moreover, since all securities are subject to price declines
as well as price advances, at times the net asset value per Back Bay Advisors
Bond Income Series share may be less than a shareholder's original cost. In
recent years, prices for fixed-income securities have generally been more
volatile than they were in prior periods, and this has increased the market risk
of holding such securities.

Salomon Brothers U.S. Government Series

As disclosed in the Prospectus under the caption "Investment Objectives and
Policies -- Salomon Brothers U.S. Government Series," the Salomon Brothers U.S.
Government Series seeks to attain its investment objective of providing a high
level of current income consistent with preservation of capital and maintenance
of liquidity by investing primarily in debt obligations and, to the extent
allowed by state law and regulation, in mortgage backed securities issued or
guaranteed by the U. S. Government its agencies, authorities or
instrumentalities or derivative securities such as collateralized mortgage
obligations ("CMOs") backed by such securities.

7
<PAGE>

Back Bay Advisors Money Market Series

The text of the Prospectus following the caption "Investment Objectives and
Policies -- Back Bay Advisors Money Market Series" gives a description of the
money market instruments in which the Back Bay Advisors Money Market Series may
invest. For a fuller description of those money market instruments and some of
the risks relating thereto, see "Money Market Instruments," below. The Back Bay
Advisors Money Market Series will invest only in securities which the Series'
subadvisers, Back Bay Advisors, L.P. ("Back Bay Advisors"), acting pursuant to
guidelines established by the Fund's Board of Trustees has determined are of
high quality and present minimal credit risk.

As indicated in the Prospectus, all the Back Bay Advisors Money Market Series'
money market instruments mature in less than 397 days and the average maturity
of the Back Bay Advisors Money Market Series' portfolio securities based on
their dollar value will not exceed 90 days at the time of each investment.
Money market instruments maturing in less than 397 days tend to yield less than
obligations of comparable quality having longer maturities. See "Valuation of
Portfolio Securities" and "Fund Performance." Where obligations of greater than
one year are used to secure the Back Bay Advisors Money Market Series'
repurchase agreements, the repurchase agreements themselves will have very short
maturities. If the disposition of a portfolio security results in a dollar-
weighted average portfolio maturity in excess of 90 days, the Back Bay Advisors
Money Market Series will invest its available cash in such a manner as to reduce
its dollar-weighted average portfolio maturity to 90 days or less as soon as
reasonably practicable.

In seeking to provide the highest possible level of current income consistent
with preservation of capital, the Back Bay Advisors Money Market Series may not
necessarily invest in money market instruments paying the highest available
yield at a particular time. The Back Bay Advisors Money Market Series,
consistent with its investment objective, attempts to maximize income by
engaging in portfolio trading and by buying and selling portfolio investments in
anticipation of or in response to changing economic and money market conditions
and trends. The Series may also invest to take advantage of what are believed
to be temporary disparities in the yields of different segments of the high
grade money market or among particular instruments within the same segment of
the market. These policies, as well as the relatively short maturity of
obligations to be purchased by the Series, may result in frequent changes in the
Series' investment portfolio of money market instruments.

The value of the securities in the Series' investment portfolio can be
expected to vary inversely to changes in prevailing interest rates. Thus, if
interest rates increase after a security is purchased, that security, if sold,
might be sold at less than cost. Conversely, if interest rates decline after
purchase, the security, if sold, might be sold at a profit. In either instance,
if the security were held to maturity, no gain or loss would normally be
realized as a result of these fluctuations. Substantial redemptions of shares
of the Back Bay Advisors Money Market Series could require the sale of portfolio
investments at a time when a sale might not be desirable.

MISCELLANEOUS INVESTMENT PRACTICES

The following information relates to some of the certain investment practices
in which certain Series may engage. The table indicates which Series may engage
in each of these practices.

Practices Series
- --------- ------
<S> <C>
Money Market Instruments All Series

U.S. Government Securities All Series

Convertible Securities Morgan Stanley International Magnum Equity Series
Alger Equity Growth Series
Capital Growth Series
Loomis Sayles Avanti Growth Series
Loomis Sayles Balanced Series
Back Bay Advisors Managed Series
Salomon Brothers Strategic Bond Opportunities
Series
Back Bay Advisors Bond Income Series
</TABLE>

8
<PAGE>

<S> <C>

Reverse Repurchase Salomon Brothers Strategic Bond Opportunities
Agreements and Series
Dollar Rolls Salomon Brothers U.S. Government Series

Lending of Alger Equity Growth Series
Portfolio Davis Venture Value Series
Securities Back Bay Advisors Managed Series
Salomon Brothers Strategic Bond Opportunities
Series
Back Bay Advisors Bond Income Series
Salomon Brothers U.S. Government Series
Morgan Stanley International Magnum Equity Series

Privately-Issued Salomon Brothers Strategic Bond Opportunities
Mortgage Securities Series
Salomon Brothers U.S. Government Series

Asset-Backed Loomis Sayles Balanced Series
Securities; Types Salomon Brothers Strategic Bond Opportunities
of Credit Support Series
Salomon Brothers U.S. Government Series

STRIPs Loomis Sayles Balanced Series
Salomon Brothers Strategic Bond Opportunities
Series
Salomon Brothers U.S. Government Series

Stripped Mortgage Salomon Brothers Strategic Bond Opportunities
Securities Series
Salomon Brothers U.S. Government Series
Loomis Sayles Balanced Fund

Swaps, Caps, Salomon Brothers Strategic Bond Opportunities
Floors, Collars, Series
Etc.

Eurodollar Futures Salomon Brothers Strategic Bond Opportunities
and Options Series
Salomon Brothers U.S. Government Series

High Yield/High Salomon Brothers Strategic Bond Opportunities
Risk Foreign Series
Sovereign Debt
Securities

Futures and Options Morgan Stanley International Magnum Equity Series
Davis Venture Value Series
Westpeak Growth and Income Series
Westpeak Stock Index Series
Loomis Sayles Balanced Series
Back Bay Advisors Managed Series
Salomon Brothers Strategic Bond Opportunities
Series
Salomon Brothers U.S. Government Series

Foreign Currency Morgan Stanley International Magnum Equity Series
Hedging Davis Venture Value Series
Transactions Salomon Brothers Strategic Bond Opportunities
Series
</TABLE>

Money Market Instruments - Obligations of foreign branches of U.S. banks and
- -------------------------
other foreign securities are subject to risks of foreign political, economic and
legal developments, which include foreign governmental restrictions adversely
affecting payment of principal and interest on the obligations, foreign
withholding and other taxes on interest income, and difficulties in obtaining
and enforcing a judgment against a foreign branch of a domestic bank. With
respect to bank obligations, different risks may result from the fact that
foreign banks are not necessarily subject to the same or similar regulatory
requirements that apply to domestic banks. For instance, such branches may not
be subject to the types of requirements imposed on domestic banks with respect
to mandatory reserves, loan limitations, examinations, accounting, auditing,
recordkeeping and the public

9
<PAGE>
05/02/97

availability of information. Obligations of such branches will be purchased by
the Series only when the Series' adviser or subadviser believes the risks are
minimal.

The following constitutes a description of the money market instruments which
may be purchased by the Back Bay Advisors Money Market Series, and by any of the
Series, some of which may only invest for temporary defensive purposes.

U.S. Government Securities -- are bills, certificates of indebtedness, notes
and bonds issued by agencies, authorities and instrumentalities of the U.S.
Government. Some obligations, such as those issued by the U.S. Treasury, the
Government National Mortgage Association, the Farmers' Home Administration and
the Small Business Administration, are backed by the full faith and credit of
the U.S. Treasury. Other obligations are backed by the right of the issuer to
borrow from the U.S. Treasury or by the credit of the agency, authority or
instrumentality itself. Such obligations include, but are not limited to,
obligations issued by the Tennessee Valley Authority, the Bank for Cooperatives,
Federal Home Loan Banks, Federal Intermediate Credit Banks, Federal Land Banks
and the Federal National Mortgage Association.

Repurchase Agreements -- are agreements by which a Series purchases a security
(usually a U.S. Government Security) and obtains a simultaneous commitment from
the seller (a member bank of the Federal Reserve System or, to the extent
permitted by the 1940 Act, a recognized securities dealer) to repurchase the
security at an agreed upon price and date. The resale price is in excess of the
purchase price and reflects an agreed upon market rate unrelated to the coupon
rate on the purchased security. Such transactions afford the Series the
opportunity to earn a return on temporarily available cash at minimal market
risk. While the underlying security may be a bill, certificate of indebtedness,
note or bond issued by an agency, authority or instrumentality of the United
States Government, the obligation of the seller is not guaranteed by the U.S.
Government and there is a risk that the seller may fail to repurchase the
underlying security. In such event, the Series may be able to exercise rights
with respect to the underlying security, including possible disposition of the
security in the market. However, the Series may be subject to various delays
and risks of loss, including (a) possible declines in the value of the
underlying security during the period while the Series seeks to enforce its
rights thereto, (b) possible reduced levels of income and lack of access to
income during this period and (c) inability to enforce rights and the expenses
involved in attempted enforcement.

Certificates of Deposit -- are certificates issued against funds deposited in
a bank, are for a definite period of time, earn a specified rate of return and
are normally negotiable.

Bankers' Acceptances -- are short-term credit instruments used to finance the
import, export, transfer or storage of goods. They are termed "accepted" when a
bank guarantees their payment at maturity.

Eurodollar Obligations -- are obligations of foreign branches of U.S. banks.

Commercial Paper -- refers to promissory notes issued by corporations in order
to finance their short-term credit needs. For a description of commercial paper
ratings see Appendix A-1.

U.S. Government Securities - The Series may invest in some or all of the
--------------------------
following U.S. Government Securities, as well as in other types of securities
issued or guaranteed by the U.S. Government or its agencies, authorities or
instrumentalities:

U.S. Treasury Bills - Direct obligations of the United States Treasury which
are issued in maturities of one year or less. No interest is paid on Treasury
bills; instead, they are issued at a discount and repaid at full face value when
they mature. They are backed by the full faith and credit of the United States
Government.

. U.S. Treasury Notes and Bonds - Direct obligations of the United States
Treasury issued in maturities that vary between one and 40 years, with interest
normally payable every six months. These obligations are backed by the full
faith and credit of the United States Government.

. "Ginnie Maes" - Debt securities issued by a mortgage banker or other mortgagee
which represent an interest in a pool of mortgages insured by the Federal
Housing Administration or the Farmer's Home Administration or guaranteed by the
Veterans Administration. The Government National Mortgage Association ("GNMA")

10
<PAGE>
05/02/97

guarantees the timely payment of principal and interest when such payments are
due, whether or not these amounts are collected by the issuer of these
certificates on the underlying mortgages. Mortgages included in single family
or multi-family residential mortgage pools backing an issue of Ginnie Maes have
a maximum maturity of up to 30 years. Scheduled payments of principal and
interest are made to the registered holders of Ginnie Maes (such as the Fund)
each month. Unscheduled prepayments may be made by homeowners, or as a result
of a default. Prepayments are passed through to the registered holder (such as
the Fund, which reinvests any prepayments) of Ginnie Maes along with regular
monthly payments of principal and interest.

. "Fannie Maes" - The Federal National Mortgage Association ("FNMA") is a
government-sponsored corporation owned entirely by private stockholders that
purchases residential mortgages from a list of approved seller/servicers.
Fannie Maes are pass-through securities issued by FNMA that are guaranteed as to
timely payment of principal and interest by FNMA but are not backed by the full
faith and credit of the United States Government.

. "Freddie Macs" - The Federal Home Loan Mortgage Corporation ("FHLMC") is a
corporate instrumentality of the United States Government. Freddie Macs are
participation certificates issued by FHLMC that represent an interest in
residential mortgages from FHLMC's National Portfolio. FHLMC guarantees the
timely payment of interest and ultimate collection of principal, but Freddie
Macs are not backed by the full faith and credit of the United States
Government.

As described in the prospectus, U.S. Government Securities do not involve the
credit risks associated with investments in other types of fixed-income
securities, although, as a result, the yields available from U.S. Government
Securities are generally lower than the yields available from corporate fixed-
income securities. Like other fixed-income securities, however, the values of
U.S. Government Securities change as interest rates fluctuate. Fluctuations in
the value of portfolio securities will not affect interest income on existing
portfolio securities but will be reflected in the Series' net asset value.
Since the magnitude of these fluctuations will generally be greater at times
when the Series' average maturity is longer, under certain market conditions, a
Series may, for temporary defensive purposes, accept lower current income from
short-term investments rather than investing in higher yielding long-term
securities.

Convertible Securities - The Series listed above may invest in convertible
----------------------
securities, including corporate bonds, notes or preferred stocks of U.S. or
foreign issuers that can be converted into (that is, exchanged for) common
stocks or other equity securities. Convertible securities also include other
securities, such as warrants, that provide an opportunity for equity
participation. Because convertible securities can be converted into equity
securities, their values will normally vary in some proportion with those of the
underlying equity securities. Convertible securities usually provide a higher
yield than the underlying equity, however, so that the price decline of a
convertible security may sometimes be less substantial than that of the
underlying equity security.

Reverse Repurchase Agreements and Dollar Roll Agreements - The Series may
--------------------------------------------------------
enter into reverse repurchase agreements and dollar roll agreements with
qualified institutions to seek to enhance returns.

The Series may enter into dollar rolls in which the Series sells securities
for delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type and coupon) securities on a specified future
date. During the roll period, the Series forgoes principal and interest paid on
the securities. The Series is compensated by the difference between the current
sales price and the forward price for the future purchase (often referred to as
the "drop") as well as by the interest earned on the cash proceeds of the
initial sale.

The Series will establish a segregated account with its custodian in which it
will maintain cash, U.S. Government securities or other liquid high-grade debt
obligations equal in value to its obligations in respect of reverse repurchase
agreements and dollar rolls. Reverse repurchase agreements and dollar rolls
involve the

11
<PAGE>
05/02/97

risk that the market value of the securities retained by the Series may decline
below the price of the securities the Series has sold but is obligated to
repurchase under the agreement. In the event the buyer of securities under a
reverse repurchase agreement files for bankruptcy or becomes insolvent, the
Series' use of the proceeds of the agreement may be restricted pending a
determination by the other party, or its trustee or receiver, whether to enforce
the Series' obligation to repurchase the securities. Reverse repurchase
agreements and dollar rolls are considered borrowings by the Series.

Lending of Portfolio Securities - The Series listed above may lend its
-------------------------------
portfolio securities to broker-dealers under contracts calling for cash
collateral equal to at least the market value of the securities loaned, marked
to market on a daily basis. (The Series (except the Salomon Brothers U.S.
Government Series) at the present time have no intention to engage in the
lending of portfolio securities.) The Series will continue to benefit from
interest or dividends on the securities loaned and will also receive interest
through investment of the cash collateral in short-term liquid investments,
which may include shares of money market funds subject to any investment
restriction described in the Prospectus. No loans will be made if, as a result,
the aggregate amount of such loans outstanding at any one time would exceed 15%
of the respective Series' total assets (taken at current value). Any voting
rights, or rights to consent, relating to securities loaned pass to the
borrower. However, if a material event affecting the investment occurs, such
loans will be called so that the securities may be voted by the Series. A
Series pays various fees in connection with such loans, including shipping fees
and reasonable custodian and placement fees.

Privately-Issued Mortgage Securities - The Series listed above may invest in
------------------------------------
privately-issued pass through securities that provide for the monthly principal
and interest payments made by individual borrowers to pass through to investors
on a corporate basis, and in privately issued collateralized mortgage
obligations ("CMOs"; see the general description under "Investment Risks" in the
Prospectus). Privately-issued mortgage securities are issued by private
originators of, or investors in, mortgage loans, including mortgage bankers,
commercial banks, investment banks, savings and loan associations and special
purpose subsidiaries of the foregoing. Since privately-issued mortgage
certificates are not guaranteed by an entity having the credit status of GNMA or
FHLMC, such securities generally are structured with one or more types of credit
enhancement. For a description of the types of credit enhancements that may
accompany privately-issued mortgage securities, see "Types of Credit Support"
below. A Series will not limit its investments to asset-backed securities with
credit enhancements.

Asset Backed Securities As with mortgage securities, asset-backed securities
-----------------------
are often backed by a pool of assets representing the obligation of a number of
different parties and use similar credit enhancement techniques. For a
description of the types of credit enhancement that may accompany privately-
issued mortgage securities, see "Types of Credit Support" below. A Series will
not limit its investments to asset-backed securities with credit enhancements.
Although asset-backed securities are not generally traded on a national
securities exchange, many such securities are widely traded by brokers and
dealers, and in such cases will not be considered illiquid securities for the
purposes of the investment policy that limits a Series' investments in illiquid
securities to 15% of net assets.

Types of Credit Support - Mortgage securities and asset-backed securities are
-----------------------
often backed by a pool of assets representing the obligations of a number of
different parties. To lessen the effect of failure by obligors on underlying
assets to make payments, such securities may contain elements of credit support.
Such credit support falls into two categories: (i) liquidity protection and
(ii) protection against losses resulting from ultimate default by an obligor on
the underlying assets. Liquidity protection refers to the provision of
advances, generally by the entity administering the pool of assets, to ensure
that the pass-through of payments due on the underlying pool occurs in a timely
fashion. Protection against losses resulting from ultimate default enhances the
likelihood of ultimate payment of the obligations on at least a portion of the
assets in the pool. Such protection may be provided through guarantees,
insurance policies or letters of credit obtained by the issuer or sponsor from
third parties, through various means of structuring the transaction or through a
combination of such approaches. A Series will not pay any additional fees for
such credit support, although the existence of credit support may increase the
price of a security.

The ratings of mortgage securities and asset-backed securities for which
third-party credit enhancement provides liquidity protection or protection
against losses from default are generally dependent upon the continued
creditworthiness of the provider of the credit enhancement. The ratings of such
securities could be

12
<PAGE>
05/02/97

subject to reduction in the event of deterioration in the creditworthiness of
the credit enhancement provider even in cases where the delinquency and loss
experience on the underlying pool of assets is better than expected.

Examples of credit support arising out of the structure of the transaction
include "senior subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal and
interest, with the result that defaults on the underlying assets are borne first
by the holders of the subordinated class), creation of "reserve funds" (where
cash or investments, sometimes funded from a portion of the payments on the
underlying assets, are held in reserve against future losses) and "over-
collateralization" (where the scheduled payments on, or the principal amount of,
the underlying assets exceed those required to make payment of the securities
and pay any servicing or other fees). The degree of credit support provided for
each issue is generally based on historical information with respect to the
level of credit risk associated with the underlying assets. Delinquency or loss
in excess of that which is anticipated could adversely affect the return on an
investment in such security.

STRIPs - In addition to the U.S. Government securities discussed above, the
------
Series listed above may invest in separately traded interest components of
securities issued or guaranteed by the United States Treasury. The interest
components of selected securities are traded independently under the Separate
Trading of Registered Interest and Principal of Securities program ("STRIPs").
Under the STRIPs program, the interest components are individually numbered and
separately issued by the United States Treasury at the request of depository
financial institutions, which then trade the component parts independently.

Stripped Mortgage Securities - Stripped mortgage securities are derivative
----------------------------
multiclass mortgage securities. Stripped mortgage securities may be issued by
agencies or instrumentalities of the U.S. Government, or by private issuers,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing. Stripped
mortgage securities have greater volatility than other types of mortgage
securities in which the Series invests. Although stripped mortgage securities
are purchased and sold by institutional investors through several investment
banking firms acting as brokers or dealers, the market for such securities has
not yet been fully developed. Accordingly, stripped mortgage securities are
generally illiquid.

Stripped mortgage securities are usually structured with two classes that
receive different proportions of the interest and principal distributions on a
pool of mortgage assets. A common type of stripped mortgage security will have
one class receiving some of the interest and most of the principal from the
mortgage assets, while the other class will receive most of the interest and the
remainder of the principal. In the most extreme case, one class will receive
all of the interest (the interest-only or "IO" class), while the other class
will receive all of the principal (the principal-only or "PO" class). The yield
to maturity on an IO class is extremely sensitive not only to changes in
prevailing interest rates but also the rate of principal payments (including
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on the Series' yield to
maturity. If the underlying mortgage assets experience greater than anticipated
prepayments of principal, the Series may fail to fully recoup its initial
investment in these securities even if the securities are rated in a top rating
category.

As interest rates rise and fall, the value of IOs tends to move in the same
direction as interest rates. The value of other mortgage securities, like other
debt instruments, will tend to move in the opposite direction of interest rates.
Accordingly, investing in IOs, in conjunction with the other mortgage securities
described herein, may reduce fluctuations in a Series' net asset value.

In addition to the stripped mortgage securities described above, the Series
listed above may invest in similar securities such as "Super POs," "Levered IOs"
and "IOettes," all of which are more volatile than conventional POs or IOs.
Risks associated with instruments such as Super POs are similar in nature to
those risks related to investments in POs. Risks connected with Levered IOs and
IOettes are similar in nature to those associated with IOs. The Series may also
invest in other similar instruments developed in the future that are deemed
consistent with the investment objectives, policies and restrictions of the
Series.

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<PAGE>

Under the Internal Revenue Code of 1986, as amended (the "Code"), POs may
generate taxable income from the current accrual of original issue discount,
without a corresponding distribution of cash to the portfolio.

Swaps, Caps, Floors, Collars, Etc. - The Series listed above may enter into
----------------------------------
interest rate, currency and index swaps, the purchase or sale of related caps,
floors and collars and other derivatives. A Series will enter into these
transactions primarily to seek to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities a portfolio anticipates purchasing at a
later date. A Series will use these transactions for non-speculative purposes
and will not sell interest rate caps or floors if it does not own securities or
other instruments providing the income the portfolio may be obligated to pay.
Interest rate swaps involve the exchange by a Series with another party of their
respective commitments to pay or receive interest (for example, an exchange of
floating rate payments for fixed rate payments with respect to a notional amount
of principal). The purchase of an interest rate cap entitles the purchaser to
receive payments on a notional principal amount from the party selling the cap
to the extent that a specified index exceeds a predetermined interest rate or
amount. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling the interest rate floor to the extent that a specified index falls below
a predetermined interest rate or amount. A collar is a combination of a cap and
a floor that preserves a certain return within a predetermined range of interest
rates or values. A currency swap is an agreement to exchange cash flows on a
notional amount based on changes in the values of the reference currencies.

A Series will usually enter into interest rate swaps on a net basis, that is,
two payment streams are netted out in a cash settlement on the payment date or
dates specified in the instrument, with the portfolio receiving or paying, as
the case may be, only the net amount of the two payments. To the extent that a
Series maintains in a segregated account with its custodian assets sufficient to
meet its obligations under swaps, caps, floors, collars and other similar
derivatives (see below) these investments will not constitute senior securities
under the Investment Company Act of 1940 (the "1940 Act"), as amended, and,
thus, will not be treated as being subject to the Series' borrowing
restrictions. A Series will not enter into any swap, cap, floor, collar or
other derivative transaction unless the counterparty is deemed creditworthy by
that Series' subadviser. If a counterparty defaults, the Series may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and, for that
reason, they are less liquid than swaps.

The liquidity of swap agreements will be determined by a Series' subadviser
based on various factors, including (1) the frequency of trades and quotations,
(2) the number of dealers and prospective purchasers in the marketplace, (3)
dealer undertakings to make a market, (4) the nature of the security (including
any demand or tender features), and (5) the nature of the marketplace for trades
(including the ability to assign or offset a portfolio's rights and obligations
relating to the investment). Such determination will govern whether a swap will
be deemed to be within the 15% restriction on investments in securities that are
not readily marketable.

Each Series will maintain cash and appropriate liquid assets in a segregated
custodial account to cover its current obligations under swap agreements. If a
Series enters into a swap agreement on a net basis, it will segregate assets
with a daily value at least equal to the excess, if any, of the Series' accrued
obligations under the swap agreement over the accrued amount the Series is
entitled to receive under the agreement. If a Series enters into a swap
agreement on other than a net basis, it will segregate assets with a value equal
to the full amount of the Series' accrued obligations under the agreement.

Eurodollar Futures and Options - The Series listed above may make investments
------------------------------
in Eurodollar instruments, which are typically dollar-denominated futures
contracts or options on those contracts that are linked to the London Interbank
Offered Rate ("LIBOR"), although foreign currency denominated instruments are
available from time to time. Eurodollar futures contracts enable purchasers to
obtain a fixed rate for the lending of funds and sellers to obtain a fixed rate
for borrowings. A Series might use Eurodollar futures contracts and options

14
<PAGE>

thereon to hedge against changes in LIBOR, to which many interest rate swaps and
fixed income instruments are linked.

High Yield/High Risk Foreign Sovereign Debt Securities - The Series listed
------------------------------------------------------
above may invest in the sovereign debt of foreign countries which have issued or
have announced plans to issue Brady Bonds, and expect that a substantial portion
of their investments in sovereign debt securities will consist of Brady Bonds.
Brady Bonds are debt securities issued under the framework of the Brady Plan, an
initiative announced by then U.S. Treasury Secretary Nicholas F. Brady in 1989
as a mechanism for debtor nations to restructure their outstanding external
commercial bank indebtedness. In restructuring its external debt under the
Brady Plan framework, a debtor nation negotiates with its existing bank lenders
as well as multilateral institutions such as the World Bank and the
International Monetary Fund (the "IMF"). The Brady Plan framework, as it has
developed, contemplates the exchange of commercial bank debt for newly issued
bonds (Brady Bonds). Brady Bonds may also be issued in respect of new money
being advanced by existing lenders in connection with the debt restructuring.
The World Bank and/or the IMF support the restructuring by providing funds
pursuant to loan agreements or other arrangements which enable the debtor nation
to collateralize the new Brady Bonds or to repurchase outstanding bank debt at a
discount. Under these arrangements with the World Bank or the IMF, debtor
nations have been required to agree to the implementation of certain domestic
monetary and fiscal reforms. Such reforms have included the liberalization of
trade and foreign investment, the privatization of state-owned enterprises and
the setting of targets for public spending and borrowing. These policies and
programs seek to promote the debtor country's economic growth and development.
Investors should recognize that the Brady Plan only sets forth general guiding
principles for economic reform and debt reduction, emphasizing that solutions
must be negotiated on a case-by-case basis between debtor nations and their
creditors. Investors should recognize that Brady Bonds have been issued only
recently, and accordingly do not have a long payment history.

Agreements implemented under the Brady Plan to date are designed to achieve
debt and debt-service reduction through specific options negotiated by a debtor
nation with its creditors. As a result, the financial packages offered by each
country differ. The types of options have included the exchange of outstanding
commercial bank debt for bonds issued at 100% of face value of such debt, which
carry a below-market stated rate of interest (generally known as par bonds),
bonds issued at a discount from face value of such debt (generally known as
discount bonds), bonds bearing an interest rate which increases over time and
bonds issued in exchange for the advancement of new money by existing lenders.
Regardless of the stated face amount and stated interest rate of the various
types of Brady Bonds, a Series will purchase Brady Bonds in secondary markets,
as described below, in which the price and yield to the investor reflect market
conditions at the time of purchase. Brady Bonds issued to date have traded at a
deep discount from their face value. Certain Brady Bonds have been
collateralized as to principal due at maturity (typically 30 years from the date
of issuance) by U.S. Treasury zero coupon bonds with a maturity equal to the
final maturity of such Brady Bonds, although the collateral is not available to
investors until the final maturity of the Brady Bonds. Collateral purchases are
financed by the IMF, the World Bank and the debtor nations' reserves. In
addition, interest payments on certain types of Brady Bonds may be
collateralized by cash or high-grade securities in amounts that typically
represent between 12 and 18 months of interest accruals on these instruments
with the balance of the interest accruals being uncollateralized. A Series may
purchase Brady Bonds with no or limited collateralization, and will be relying
for payment of interest and (except in the case of principal collateralized
Brady Bonds) principal primarily on the willingness and ability of the foreign
government to make payment in accordance with the terms of the Brady Bonds.
Brady Bonds issued to date are purchased and sold in secondary markets through
U.S. securities dealers and other financial institutions and are generally
maintained through European transnational securities depositories.

Futures and Options
- -------------------

Futures Contracts. A futures contract is an agreement between two parties to
buy and sell a commodity or financial instrument (e.g., an interest-bearing
security, a currency or, in the case of futures contracts on the S&P 500 Index,
the value of the basket of securities comprising the Index) for a specified
price on a specified future date. In the case of futures on an index, the
seller and buyer agree to settle in cash, at a future date, based on the
difference in value of the contract between the date it is opened and the
settlement date. The value of each contract is equal to the value of the index
from time to time multiplied by a specified dollar amount. For

15
<PAGE>

example, long-term municipal bond index futures trade in contracts equal to
$1000 multiplied by the Bond Buyer Municipal Bond Index.

When a trader, such as a Series, enters into a futures contract, it is
required to deposit with (or for the benefit of) its broker, as "initial
margin," an amount of cash or short-term high-quality securities (such as U.S.
Treasury Bills) equal to approximately 2% to 20% of the delivery or settlement
price of the contract (depending on applicable exchange rules). Initial margin
is held to secure the performance of the holder of the futures contract. As the
value of the contract changes, the value of futures contract positions increases
or declines. At the end of each trading day, the amount of such increase or
decline is received or paid respectively by and to the holders of these
positions. The amount received or paid is known as "variation margin" or
"maintenance margin." A Series with a long position in a futures contract will
establish a segregated account with the Series' custodian containing cash or
certain liquid assets equal to the purchase price of the contract (less any
margin on deposit). For short positions in futures contracts, a Series will
establish a segregated account with the custodian with cash or high grade liquid
debt assets that, when added to the amounts deposited as margin, equal the
market value of the instruments or currency underlying the futures contracts.

Although futures contracts by their terms may require actual delivery and
acceptance of securities, in most cases the contracts are closed out before
settlement. Closing out a futures sale is effected by purchasing a futures
contract for the same aggregate amount of the specific type of financial
instrument or commodity and with the same delivery date. Similarly, the closing
out of a futures purchase is effected by the purchaser selling an offsetting
futures contract.

Gain or loss on a futures position is equal to the net variation margin
received or paid over the time the position is held, plus or minus the amount
received or paid when the position is closed, minus brokerage commissions.

The Westpeak Stock Index Series may purchase and sell futures contracts on the
S&P 500 Index solely for the purpose of reducing the risk of tracking error
arising from holding cash from new investments in the Series or in anticipation
of shareholder redemptions. The Back Bay Advisors Managed Series may purchase
and sell futures contracts on interest-bearing securities or indices thereof, or
on indices of stock prices (such as the S&P 500 Index), to increase or decrease
its portfolio exposure to common stocks or to increase or decrease its portfolio
exposure to notes and bonds. The Westpeak Growth and Income Series may engage
in transactions in futures contracts solely for the purpose of maintaining full
exposure of the portfolio to the movements of broad equity markets at times when
the Series holds a cash position pending investment in stocks or in anticipation
of redemptions.

Options. An option on a futures contract obligates the writer, in return for
the premium received, to assume a position in a futures contract (a short
position if the option is a call and a long position if the option is a put), at
a specified exercise price at any time during the period of the option. Upon
exercise of the option, the delivery of the futures position by the writer of
the option to the holder of the option generally will be accompanied by delivery
of the accumulated balance in the writer's futures margin account, which
represents the amount by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option. The premium paid by the purchaser of an
option will reflect, among other things, the relationship of the exercise price
to the market price and volatility of the underlying contract, the remaining
term of the option, supply and demand and interest rates. Options on futures
contracts traded in the United States may only be traded on a United States
board of trade licensed by the Commodity Futures Trading Commission.

An option on a security entitles the holder to receive (in the case of a call
option) or to sell (in the case of a put option) a particular security at a
specified exercise price. An "American style" option allows exercise of the
option at any time during the term of the option. A "European style" option
allows an option to be exercised only at the end of its term. Options on
securities may be traded on or off a national securities exchange.

A call option on a futures contract written by a Series is considered by the
Series to be covered if the Series owns the security subject to the underlying
futures contract or other securities whose values are expected to move in tandem
with the values of the securities subject to such futures contract, based on
historical price movement volatility relationships. A call option on a security
written by a Series is considered to be covered if

16
<PAGE>

the Series owns a security deliverable under the option. A written call option
is also covered if the Series holds a call on the same futures contract or
security as the call written where the exercise price of the call held (a) is
equal to or less than the exercise price of the call written or (b) is greater
than the exercise price of the call written if the difference is maintained by
the Series in cash, Treasury bills or other high grade liquid obligations in a
segregated account with its custodian.

A put option on a futures contract written by a Series, or a put option on a
security written by a Series, is covered if the Series maintains cash, U.S.
Treasury bills or other high-grade liquid debt obligations with a value equal to
the exercise price in a segregated account with the Series' custodian, or else
holds a put on the same futures contract (or security, as the case may be) as
the put written where the exercise price of the put held is equal to or greater
than the exercise price of the put written.

If the writer of an option wishes to terminate its position, it may effect a
closing purchase transaction by buying an option identical to the option
previously written. The effect of the purchase is that the writer's position
will be canceled. Likewise, the holder of an option may liquidate its position
by selling an option identical to the option previously purchased.

Closing a written call option will permit the Series to write another call
option on the portfolio securities used to cover the closed call option.
Closing a written put option will permit the Series to write another put option
secured by the segregated cash, U.S. Treasury bills or other high-grade liquid
obligations used to secure the closed put option. Also, effecting a closing
transaction will permit the cash or proceeds from the concurrent sale of any
futures contract or securities subject to the option to be used for other Series
investments. If a Series desires to sell particular securities covering a
written call option position, it will close out its position or will designate
from its portfolio comparable securities to cover the option prior to or
concurrent with the sale of the covering securities.

The Series will realize a profit from closing out an option if the price of
the offsetting position is less than the premium received from writing the
option or is more than the premium paid to purchase the option; the Series will
realize a loss from closing out an option transaction if the price of the
offsetting option position is more than the premium received from writing the
option or is less than the premium paid to purchase the option. Because
increases in the market price of a call option will generally reflect increases
in the market price of the covering securities, any loss resulting from the
closing of a written call option position is expected to be offset in whole or
in part by appreciation of such covering securities.

Since premiums on options having an exercise price close to the value of the
underlying securities or futures contracts usually have a time value component
(i.e. a value that diminishes as the time within which the option can be
exercised grows shorter) an option writer may profit from the lapse of time even
though the value of the futures contract (or security in some cases) underlying
the option (and of the security deliverable under the futures contract) has not
changed. Consequently, profit from option writing may or may not be offset by a
decline in the value of securities covering the option. If the profit is not
entirely offset, the Series will have a net gain from the options transaction,
and the Series' total return will be enhanced. Likewise, the profit or loss
from writing put options may or may not be offset in whole or in part by changes
in the market value of securities acquired by the Series when the put options
are closed.

An over-the-counter option (an option not traded on a national securities
exchange) may be closed out only with the other party to the original option
transaction. While a Series will seek to enter into over-the-counter options
only with dealers who agree to or are expected to be capable of entering into
closing transactions with the Series, there can be no assurance that the Series
will be able to liquidate an over-the-counter option at a favorable price at any
time prior to its expiration. Accordingly, the Series might have to exercise an
over-the-counter option it holds in order to realize any profit thereon and
thereby would incur transactions costs on the purchase or sale of the underlying
assets. If the Series cannot close out a covered call option written by it, it
will not be able to sell the underlying security until the option expires or is
exercised. Furthermore, over-the-counter options are not subject to the
protections afforded purchasers of listed options by the Options Clearing
Corporation or other clearing organization.

The staff of the Securities and Exchange Commission (the "SEC") has taken the
position that over-the-counter options on U.S. Government Securities and the
assets used as cover for written over-the-counter

17
<PAGE>

options on U.S. Government Securities should generally be treated as illiquid
securities. However, if a dealer recognized by the Federal Reserve Bank of New
York as a "primary dealer" in U.S. Government Securities is the other party to
an option contract written by a mutual fund such as a Series, and such Series
has the absolute right to repurchase the option from the dealer at a formula
price established in a contract with the dealer, the SEC staff has agreed that
the Series only needs to treat as illiquid that amount of the "cover" assets
equal to the amount by which (i) the formula price exceeds (ii) any amount by
which the market value of the securities subject to the options exceeds the
exercise price of the option (the amount by which the option is "in-the-money").

Risks Related to Futures and Options. The use of futures contracts and
options involves risks. One risk arises because of the imperfect correlation
between movements in the price of futures contracts or options and movements in
the price of the underlying securities or index. The Series' use of futures
contracts or options will not be fully effective unless the Series can
compensate for such imperfect correlation. There is no assurance that the
Series will be able to effect such compensation.

The correlation between the price movement of a futures contract or option and
the related security (or index) may be distorted due to differences in the
nature of the markets. If the price of the futures contract or option moves
more than the price of the security or index, the Series would experience either
a loss or a gain on the future or option that is not completely offset by
movements in the price of the security or index. In an attempt to compensate
for imperfect price movement correlations, a Series may purchase or sell futures
contracts or options in a greater amount than the related securities or index
position if the volatility of the related securities or index is historically
greater than the volatility of the futures contracts or options. Conversely,
the Series may purchase or sell fewer contracts or options if the volatility of
the price of the securities or index is historically less than that of the
contracts or options.

There are many reasons why changes in the values of futures contracts or
options may not correlate perfectly with changes in the value of the underlying
security of index. For example, all participants in the futures market are
subject to margin deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through offsetting transactions, which could distort the normal relationship
between the index and futures markets. Secondly, the deposit requirements in
the futures market are less onerous than margin requirements in the securities
market, and as a result the futures market may attract more speculators than
does the securities market. In addition, trading hours for index futures or
options may not correspond perfectly to hours of trading on the exchange where
the underlying securities trade. This may result in a disparity between the
price of futures or options and the value of the underlying security or index
due to the lack of continuous arbitrage between the futures or options price and
the value of the underlying security or index. Hedging transactions using
securities indices also involve the risk that movements in the price of the
index may not correlate with price movements of the particular portfolio
securities being hedged (since a Series will typically not own all of the
securities included in a particular index.)

Price movement correlation also may be distorted by the limited liquidity of
certain futures or options markets and the participation of speculators in such
markets. If an insufficient number of contracts are traded, commercial users
may not deal in futures contracts or options because they do not want to assume
the risk that they may not be able to close out their positions within a
reasonable amount of time. In such instance, futures and options market prices
may be driven by different forces than those driving the market in the
underlying securities, and price spreads between these markets may widen. The
participation of speculators in the market generally enhances its liquidity.
Nonetheless, speculative trading spreads between futures markets may create
temporary price distortions unrelated to the market in the underlying
securities.

Positions in futures contracts and related options are established or closed
out only on an exchange or board of trade regulated by the Commodity Futures
Trading Commission. There is no assurance that a liquid market on an exchange
or board of trade will exist for any particular contract or at any particular
time. The liquidity of markets in futures contracts may be adversely affected
by "daily price fluctuation limits" established by commodity exchanges which
limit the amount of fluctuation in a futures price during a single trading day.
Once the daily limit has been reached in a contract, no trades may be entered
into at a price beyond the limit, which may prevent the liquidation of open
futures positions. Prices have in the past exceeded the daily limit on a number
of consecutive trading days. If there is not a liquid market at a particular
time, it may not be possible to

18
<PAGE>

close a futures position at such time, and, in the event of adverse price
movements, the Series would continue to be required to make daily cash payments
of variation margin. However, if futures or options are used to hedge portfolio
securities, an increase in the price of the securities, if any, may partially or
completely offset losses on the futures contract.

An exchange-traded option may be closed out only on a national securities or
commodities exchange which generally provides a liquid secondary market for an
option of the same series. If a liquid secondary market for an exchange-traded
option does not exist, it might not be possible to effect a closing transaction
with respect to a particular option, with the result that the Series would have
to exercise the option in order to realize any profit. If the Series that has
written an option is unable to effect a closing purchase transaction in a
secondary market, it will not be able to sell the underlying security until the
option expires or it delivers the underlying security upon exercise. Reasons
for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (v) the facilities of an exchange or
the Options Clearing Corporation or other clearing organization may not at all
times be adequate to handle current trading volume or (vi) one or more exchanges
could, for economic or other reasons, decide or be compelled at some future date
to discontinue the trading of options (or a particular class or series of
options), in which event the secondary market on that exchange (or in that class
or series of options) would cease to exist, although outstanding options on that
exchange that had been issued by the Options Clearing Corporation as a result of
trades on that exchange would continue to be exercisable in accordance with
their terms.

Because the specific procedures for trading foreign futures and options on
futures exchanges are still evolving, additional or different margin
requirements as well as settlement procedures may be applicable to foreign
futures and options at the time the Series purchases foreign futures or options.

The successful use of transactions in futures and options depends in part on
the ability of the Series to forecast correctly the direction and extent of
interest rate or securities price movements within a given time frame. To the
extent interest rates or securities prices move in a direction opposite to that
anticipated, a Series may realize a loss that is not fully or partially offset
by an increase in the value of portfolio securities. In addition, whether or
not interest rates or securities prices move during the period that the Series
holds futures or options positions, the Series will pay the cost of taking those
positions (i.e., brokerage costs). As a result, the Series' total return for
such period may be less than if it had not engaged in the futures or option
transaction.

Future Developments. The above discussion relates to the Series' proposed use
of futures contracts, options and options on futures contracts currently
available. The relevant markets and related regulations are still in the
developing stage. In the event of future regulatory or market developments, the
Series may also use additional types of futures contracts or options and other
similar or related investment techniques.

Foreign Currency Hedging Transactions - To protect against a change in the
-------------------------------------
foreign currency exchange rate between the date on which a Series contracts to
purchase or sell a security that settles in a foreign currency and the
settlement date for the purchase or sale, or to "lock in" the equivalent of a
dividend or interest payment in another currency, the Series might purchase or
sell a foreign currency on a spot (or cash) basis at the prevailing spot rate.
If conditions warrant, a Series may also enter into contracts with banks or
broker-dealers to purchase or sell foreign currencies at a future date ("forward
contracts"). The Series will maintain cash or high-quality debt obligations in
a segregated account with the custodian in an amount at least equal to (i) the
difference between the current value of the Series' liquid holdings that settle
in the relevant currency and the Series' outstanding net obligations under
currency forward contracts in that currency, or (ii) the current amount, if any,
that would be required to be paid to enter into an offsetting forward currency
contract which would have the effect of closing out the original forward
contract. The Series' use of currency hedging transactions may be limited by
tax considerations. The Series may also purchase or sell foreign currency
futures contracts traded on futures exchanges. Foreign currency futures
contract transactions involve risks similar to those of other futures
transactions. See "Futures and Options," above.

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<PAGE>

DETERMINATION OF NET ASSET VALUES

As described in the text of the Prospectus following the caption "Net Asset
Values and Portfolio Valuation," the value of each Series' portfolio assets is
determined by that Series' adviser (subadviser, in the case of Series that have
a subadviser). The net asset value of each Series' shares is determined as of
the close of regular trading on the New York Stock Exchange on each day the New
York Stock Exchange is open and there is a sufficient degree of trading in a
Series' portfolio securities that the current net asset value of a Series'
shares is materially affected. The New York Stock Exchange is currently
expected to be closed on weekend days and on the following holidays each year:
New Year's Day, Presidents Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Expenses of each Series are paid
or accrued each day.

Loomis Sayles Small Cap, Morgan Stanley International Magnum Equity, Alger
Equity Growth, Capital Growth, Loomis Sayles Avanti Growth, Davis Venture Value,
Westpeak Growth and Income, Westpeak Stock Index, Loomis Sayles Balanced,
Salomon Brothers Strategic Bond Opportunities, Salomon Brothers U.S. Government
Series

As described in the text of the Prospectus following the caption "Net Asset
Values and Portfolio Valuation," each of the Series listed above values its
portfolio securities (other than fixed-income securities maturing in 60 days or
less, which are valued using the amortized cost method) at market value where
current market quotations are readily available and otherwise values them at
fair value as determined in good faith by the Trustees or by the particular
Series' adviser or subadviser under the supervision of the Board of Trustees.
Each of the advisers and subadvisers has been authorized to delegate certain
price determinations to pricing services or facilities which they select.
Securities traded on a national securities exchange or exchanges are valued at
their last sale price on the principal exchange or, if there is no reported sale
during the day, and in the case of over-the-counter securities, at the last
reported bid price estimated by a broker.

Back Bay Advisors Managed Series

Equity securities traded on a national securities exchange or exchanges are
valued at their last sale price on the principal exchange or, if there is no
reported sale during the day, and in the case of over-the-counter securities, at
the last bid price. Debt securities are valued at market value where current
market quotations are readily available. Where current market quotations are
not readily available, a pricing service selected by Back Bay Advisors, acting
pursuant to the authorization of the Board of Trustees, values the securities at
fair value. The pricing service employed will be one that determines valuations
of normal institutional-sized trading units of long-term debt securities. Such
valuations are determined by using methods based on market transactions for
comparable securities and on various relationships between securities which are
generally recognized by institutional traders. Other securities for which
current market quotations are not readily available (including restricted
securities, if any) and all other assets are taken at fair value as determined
in good faith by Back Bay Advisors acting under the supervision of the Board of
Trustees, although the actual calculations may be made by a pricing service
selected by Back Bay Advisors acting pursuant to the direction of the Board.

Back Bay Advisors Bond Income Series

As described in the text of the Prospectus following the caption "Net Asset
Values and Portfolio Valuation," the Back Bay Advisors Bond Income Series values
certain portfolio securities (other than fixed-income securities maturing in 60
days or less, which are valued using the amortized cost method) at market value
where current market quotations are readily available. Where current market
quotations are not readily available, a pricing service selected by Back Bay
Advisors, pursuant to the authorization of the Board of Trustees, values the
securities at fair value. The pricing service employed will be one that
determines valuations of normal institutional-sized trading units of long-term
debt securities. Such valuations are determined by using methods based on
market transactions for comparable securities and on various relationships
between securities which are generally recognized by institutional traders.
Other securities for which current market quotations are not readily available
(including restricted securities, if any) and all other assets are taken at fair
value as determined in good faith by Back Bay Advisors acting under the
supervision of the Board of Trustees, although the actual calculations may be
made by a pricing service selected by Back Bay Advisors acting pursuant to the
direction of the Board. Securities traded on a national securities exchange or
exchanges are valued at their last sale price on

<PAGE>

the principal exchange, or if there is no reported sale, and in the case of
over-the-counter securities, at a bid price estimated by a broker.

Back Bay Advisors Money Market Series

As described in the text of the Prospectus following the caption "Net Asset
Values and Portfolio Valuation," the portfolio of the Back Bay Advisors Money
Market Series will be valued at amortized cost. Under the amortized cost method
of valuation, securities are valued at cost on the date of purchase. Thereafter
the values of securities purchased at a discount or premium are increased or
decreased incrementally each day so that at maturity the purchase discount or
premium is fully amortized and the value of the security is equal to its
principal amount. Due to fluctuations in interest rates, the amortized cost
value of the securities of the Back Bay Advisors Money Market Series may at
times be more or less than their market value.

By using amortized cost valuation, the Back Bay Advisors Money Market Series
seeks to maintain a constant net asset value of $100 per share despite minor
shifts in the market value of its portfolio securities. The yield on a
shareholder's investment may be more or less than that which would be recognized
if the net asset value per share of the Back Bay Advisors Money Market Series
were not constant and were permitted to fluctuate with the market value of the
portfolio securities of the Back Bay Advisors Money Market Series. However, as
a result of the following procedures, the Fund believes any difference will
normally be minimal. Quarterly, the Trustees monitor the deviation between the
net asset value per share of the Back Bay Advisors Money Market Series as
determined by using available market quotations and its amortized cost price per
share. Back Bay Advisors makes such comparisons at least weekly and will advise
the Trustees promptly in the event of any significant deviation. If the
deviation exceeds 1/2 of 1% for the Back Bay Advisors Money Market Series, the
Board of Trustees will consider what action, if any, should be initiated to
provide fair valuation of the portfolio securities of the Back Bay Advisors
Money Market Series and prevent material dilution or other unfair results to
shareholders. Such action may include selling portfolio securities prior to
maturity; withholding dividends; or utilizing a net asset value per share as
determined by using available market quotations.

FUND PERFORMANCE

Calculations of Yield and Return
- --------------------------------

Yield of the Back Bay Advisors Bond Income Series, the Salomon Brothers U.S.
----------------------------------------------------------------------------
Government Series and the Salomon Brothers Strategic Bond Opportunities Series.
- ------------------------------------------------------------------------------
As summarized in the Prospectus under the caption "Performance Information," the
yield of each of these Series will be computed in accordance with the SEC's
standardized formula by annualizing net investment income per share for a recent
30-day period and dividing that amount by a share's net asset value (reduced by
any earned income expected to be declared shortly as a dividend) on the last
trading day of that period. Net investment income will reflect amortization of
any market value premium or discount of fixed-income securities (except for
obligations backed by mortgages or other assets) and may include recognition of
a pro rata portion of the stated dividend rate of dividend paying portfolio
securities.

These Series' yield will vary from time to time depending upon market
conditions, the composition of the Series' portfolio and the operating expenses
of the Series. These factors and possible differences in the methods used in
calculating yield should be considered when comparing the Back Bay Advisors Bond
Income Series' yield to yields published for other investment companies and
other investment vehicles. Yield should also be considered relative to changes
in the value of the Series' shares and to the relative risks associated with the
investment objectives and policies of the Series. Yield information may be
useful in reviewing such Series' performance and providing a basis for
comparison with other investment alternatives, although the yields of the Series
do not take into account any of the fees imposed in connection with the purchase
of variable life insurance policies or variable annuity contracts offered by New
England Life Insurance Company ("NELICO") or Metropolitan Life Insurance Company
("MetLife"). Yield may be stated with or without giving effect to any expense
limitations in effect for the Series.

At any time in the future, yields may be higher or lower than past yields and
there can be no assurance that any historical results will continue.

21
<PAGE>

Investors are specifically advised that share prices, expressed as the net
asset value per share, will vary just as yields will vary. An investor's focus
on the yield of a Series to the exclusion of consideration of the share price
may result in the investor's misunderstanding the total return he or she may
derive from the Series.

Yield of the Back Bay Advisors Money Market Series. The Back Bay Advisors
--------------------------------------------------
Money Market Series' yield represents the net change, exclusive of capital
changes, in the value of a hypothetical account having a balance of one share at
the beginning of the period for which yield is determined (the "base period").
Current yield for the base period (for example, seven calendar days) is
calculated by dividing (i) the net change in the value of the account for the
base period by (ii) the number of days in the base period. The resulting number
is then multiplied by 365 in order to determine such net change on an annualized
basis. This amount is divided by the value of the account as of the beginning
of the base period, normally $100, in order to state the current yield as a
percentage. Yield may also be calculated on an "effective" or a "compound"
basis, which assumes continual reinvestment throughout an entire year of net
income earned at the same rate as net income is earned by the account for the
base period. Yield is calculated without regard to realized and unrealized
gains and losses. The yield of the Back Bay Advisors Money Market Series will
vary depending on prevailing interest rates, the operating expenses of the
Series and the quality, maturity and type of instruments held in the portfolio
of that Series. Yield information may be useful in reviewing such Series'
performance and providing a basis for comparison with other investment
alternatives, although the yield of the Back Bay Advisors Money Market Series
does not take into account any of the fees imposed in connection with the
purchase of variable insurance policies or variable annuity contracts offered by
NELICO or MetLife. However, unlike certain bank deposits or other investments
which pay a fixed yield for a stated period of time, money market fund yields
fluctuate. Consequently no yield quotation should be considered as
representative of what the yield of the Back Bay Advisors Money Market Series
may be for any specified period in the future.

Calculation of Total Return. As summarized in the Prospectus under the
---------------------------
heading "Performance Information," total return is a measure of the change in
value of an investment in a Series over the period covered, which assumes that
any dividends or capital gain distributions are automatically reinvested in the
Series rather than paid to the investor in cash. Total return may be higher or
lower than past performance and there can be no assurance that any historical
results will continue.

The formula for total return used by a Series includes three steps: (1) adding
to the total number of shares purchased by a hypothetical $1,000 investment in a
Series all additional shares that would have been purchased if all dividends and
distributions paid or distributed during the period had been automatically
reinvested; (2) calculating the value of the hypothetical initial investment as
of the end of the period by multiplying the total number of shares owned at the
end of the period by the net asset value per share on the last trading day of
the period; and (3) dividing this account value for the hypothetical investor by
the amount of the initial investment and annualizing the result for periods of
less than one year. Total return reflects the bearing or deferral of certain
expenses by New England Mutual Life Insurance Company ("The New England") or TNE
Advisers, Inc.. Total return would be lower for these Series if these expense
arrangements had not been in effect. Total return does not reflect charges
assessed against the insurance company separate accounts or the variable life
insurance or variable annuity products for which the Fund serves as an
investment vehicle. Total return may be stated alone or may be accompanied by
investment return information for those separate accounts or the variable life
insurance or variable annuity products.

Performance Comparisons
- -----------------------

Yield and Total Return. Each Series may, from time to time, include its total
----------------------
return in advertisements or in other written information furnished to present
and prospective owners of the variable life insurance and variable annuity
contracts supported by the Fund. The Back Bay Advisors Bond Income Series, the
Salomon Brothers U.S. Government Series, the Salomon Brothers Strategic Bond
Opportunities Series and the Back Bay Advisors Money Market Series may, from
time to time, also include their yield in such advertisements or other written
information. These results may include comparisons to the yields of money
market funds reporting to IBC/Donoghue's Money Fund Report ("Donoghue's
Report"). In addition, each Series may, from time to time, provide a ranking of
such performance figures relative to similar figures for mutual funds whose
performance has been monitored by Lipper Analytical Services, Inc. ("Lipper").
Performance information about a Series is based on the Series' past performance
and is not intended to indicate future performance.

22
<PAGE>

Donoghue's Report is an independent service that collects data from over 1,000
money market funds weekly and reports on the assets, 7- and 30-day yields, 12-
month yields, average maturities and portfolio breakdowns of such funds. 12-
month yields represent total return assuming reinvestment of dividends for up to
one year.

Lipper is an independent service that monitors the performance of over 750
variable annuity and variable life mutual funds, calculates total return and, in
some cases, yield for such funds.

Total return (and yield in the case of the Back Bay Advisors Bond Income
Series, the Back Bay Advisors Money Market Series, the Salomon Brothers U.S.
Government Series and the Salomon Brothers Strategic Bond Opportunities Series)
may also be used to compare the performance of a Series against certain widely
acknowledged standards or indices for stock and bond market performance,
including, but not limited to, the S&P 500 Index, the Dow Jones Industrial
Average, the Lehman Government/Corporate Bond Index, the Lehman Intermediate
Government/Corporate Bond Index, the S&P/BARRA Growth Index, the S&P/BARRA Value
Index, the Lipper Variable Balanced Fund Average, the Lipper Variable Growth and
Income Average, the Lipper Variable A-Rated Corporate Bond Fund Average, the
Lipper Variable Flexible Portfolio Fund Average, the Lipper Variable General
Bond Fund Average, the Lipper Variable Growth Fund Average, the Lipper Variable
International Fund Average, the Lipper Variable Intermediate Investment Grade
Debt Fund Average, the Lipper Variable Small Company Fund Average, the Lipper
Variable S&P 500 Index Fund Average, the Lipper Variable U.S. Mortgage and GNMA
Fund Average, the Russell 2000 Index, the Lehman Brothers Aggregate Bond Index,
the Lehman Brothers Intermediate Government Bond Index and the Morgan Stanley
Capital International Europe, Australia, Far East Index, or against the U.S.
Bureau of Labor Statistics' Consumer Price Index.

The S&P 500 Index is a market value-weighted and unmanaged index showing the
changes in the aggregate market value of 500 stocks relative to the base period
1941-43. The S&P 500 Index is composed almost entirely of common stocks of
companies listed on the New York Stock Exchange, although the common stocks of a
few companies listed on the American Stock Exchange or traded over-the-counter
are included. The 500 companies represented include 385 industrial, 15
transportation, 55 financial services and 45 utilities concerns.

The Dow Jones Industrial Average ("DJIA") is a market value-weighted and
unmanaged index of 30 large industrial stocks traded on the New York Stock
Exchange.

The Lehman Government/Corporate Bond Index is a measure 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 Government/Corporate Bond Index, an
issue must have amounts outstanding in excess of $1 million, have at least one
year to maturity and be rated "Baa" or higher ("investment grade") by a
nationally recognized rating agency.

The Lehman 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 Consumer Price Index, published by the U.S. Bureau of Labor Statistics, is
a statistical measure of changes, over time, in the prices of goods and services
in major expenditure groups.

The S&P/BARRA Growth Index is an unmanaged index of more than 150 large
capitalization stocks that have high historical earnings growth and predicted
above average earnings growth. The S&P/BARRA Value Index is an unmanaged index
of more than 300 large capitalization stocks characterized by low price-to-book
ratios, high yield and low price-to-earnings ratios. Both the S&P/BARRA Growth
Index and the S&P/BARRA Value Index are compiled by BARRA.

The Lipper International Fund Index is an index of 30 international funds
which are determined to reflect the general movement of the entire universe of
international funds tracked by Lipper Analytical Services.

The Lipper Variable Balanced Fund Average is a measure of the performance of
the largest open-end balanced mutual funds.

23
<PAGE>

The Lipper Variable Growth and Income Average represents a grouping of funds
underlying annuity products which have growth and income as their investment
objectives.

The Lipper Variable A-Rated Corporate Bond Fund Average is an average of the
total return performance (calculated on net asset value) of funds with similar
investment objectives as calculated by Lipper Analytical Services.

Lipper Variable Flexible Portfolio Fund Average is an average of the total
return performance (calculated on net asset value) of funds with similar
investment objectives as calculated by Lipper Analytical Services.

The Lipper Variable General Bond Fund Average is an average of the total
return performance (calculated on net asset value) of funds with similar
investment objectives as calculated by Lipper Analytical Services.

Lipper Variable Growth Fund Average is an average of the total return
performance (calculated on net asset value) of funds with similar investment
objectives as calculated by Lipper Analytical Services.

The Lipper Variable International Fund Average is an average of the total
return performance (calculated on net asset value) of funds with similar
investment objectives as calculated by Lipper Analytical Services.

The Lipper Variable Intermediate Investment Grade Debt Fund Average is an
average of the total return performance (calculated on net asset value) of funds
with similar investment objectives as calculated by Lipper Analytical Services.

The Lipper Variable Small Company Fund Average is an average of the total
return performance (calculated on net asset value) of funds with similar
investment objectives as calculated by Lipper Analytical Services.

The Lipper Variable S&P 500 Index Fund Average is an average of the total
return performance (calculated on net asset value) of funds with similar
investment objectives as calculated by Lipper Analytical Services.

The Lehman Brothers Aggregate Bond Index is an index which 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 Lehman Brothers Intermediate Government Bond Index is an index which
includes most obligations of the U.S. Treasury, agencies and quasi-federal
corporations having maturities of one to ten years.

The Russell 2000 Index is an index which consists of 2000 small market
capitalization stocks having an average market cap of $160 million.

The Morgan Stanley Capital International Europe, AustralAsia, Far East Index
is an arithmetical average (weighted by market value) of the performance (in
U.S. dollars) of over 1,000 companies representing the stock markets of Europe,
Australia, New Zealand and the Far East.

From time to time, articles about a Series regarding performance, rankings
and other Series characteristics may appear in national publications including,
but not limited to, the Wall Street Journal, Forbes, Fortune, CDA Investment
Technologies and Money Magazine (see Appendix B). In particular, some or all of
these publications may publish their own rankings or performance reviews of
mutual funds, including the Fund. References to or reprints or portions of
reprints of such articles, which may be include rankings that list the names of
other funds and their performance, may be used as Fund or variable contract
sales literature or advertising material.

24
<PAGE>

The following table presents certain total return information for certain
Series and certain indexes and averages for periods ended December 31, 1996:

Total Return Total Return 5-Year 10-Year
For The For the 5-Year Average Average
Year Ended Period Ended Annual Annual
Dec. 31, 1996 Dec. 31, 1996 Total Return Total Return
-------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Loomis Sayles Small Cap Series 30.67% -- -- --

Morgan Stanley International Magnum
Equity Series(a) 6.67 -- -- --

Alger Equity Growth Series 13.17 -- -- --

Capital Growth Series 21.08 67.76% 10.90% 16.34%

Loomis Sayles Avanti Growth Series 17.58 -- --

Davis Venture Value Series 25.84 -- -- --

Westpeak Growth and Income Series 18.10 -- -- --

Westpeak Stock Index Series 22.47 99.60 14.82 --

Loomis Sayles Balanced Series 16.91 -- -- --

Back Bay Advisors Managed Series 15.01 76.25 12.00 --

Salomon Brothers Strategic Bond
Opportunities Series 14.36 -- -- --

Back Bay Advisors Bond Income Series 4.61 49.25 8.34 8.91

Salomon Brothers U.S. Government Series 3.31 -- -- --

Back Bay Advisors Money Market Series 5.11 -- -- --

S & P 500 22.96 103.05 15.22 15.29

Lehman Government/ Corporate Index 2.90 41.43 7.18 8.38

Consumer Price Index 3.32 15.01 2.84 3.68

DJIA 28.91 132.91 18.42 16.66

</TABLE>

(a) On May 1, 1997, Morgan Stanley Asset Management Inc. succeeded Draycott
Partners, Ltd. as subadviser to the Morgan Stanley International Magnum
Equity Series.

No brokerage commissions or other fees were factored into the values of the
S&P 500, which is an index of an unmanaged group of common stocks. No
adjustments have been made for a shareholder's tax liability on dividends and
capital gains distributions.

Since commencing operations on May 1, 1994, the Loomis Sayles Small Cap
Series has made the following distributions of income: on 12/28/94 $0.15 per
share; on 12/29/95 $0.78 per share and on 9/16/96 $0.036 and on 12/31/96 $1.03
per share. Over the same period, the Loomis Sayles Small Cap Series had made the
following

25
<PAGE>

distributions of realized capital gains: none on 12/28/94; on 12/29/95 $4.81 per
share and on 9/16/96 $0.9580 and on 12/31/96 $8.60 per share.

Since commencing operations on October 31, 1994, the Morgan Stanley
International Magnum Equity Series has made the following distributions of
income: on 12/28/94 $ 0.02 per share; on 12/29/95 $0.12 per share and on
12/31/96 $0.015 per share. Over the same period, the Morgan Stanley
International Magnum Equity Series has made the following distributions of
realized capital gains: on 12/28/94, 12/29/95 and 12/31/96 no realized capital
gains, and paid-in capital of $0.01, none and $0.16, respectively.

Since commencing operations on October 31, 1994, the Alger Equity Growth
Series has made the following distributions of income: on 12/28/94 $0.02 per
share; on 12/29/95 $0.01 per share and on 12/31/96 $0.027 per share. Over the
same period, the Alger Equity Growth Series has made the following distributions
of realized capital gains: on 12/28/94 no realized capital gains and on 12/29/95
$0.41 per share and no realized capital gains on 12/31/96.

Since inception, the Capital Growth Series has made the following
distributions of income: on 1/20/84 $0.21 per share; on 1/25/85 $1.12 per share;
on 1/24/86 $0.90 per share; on 1/23/87 $0.44 per share; on 12/31/87 $0.66 per
share; on 12/29/88 $9.55 per share; on 9/14/89 $0.13 per share; on 12/29/89
$2.59 per share; on 12/28/90 $2.11 per share; on 12/27/91 $3.22 per share; on
12/29/92 $4.07; on 12/29/93 $2.18 per share; on 12/28/94 $5.15 per share; on
12/29/95 $3.48 and on 9/16/96 $0.012 per share and on 12/31/96 $3.07 per share.
Over the same period, the Capital Growth Series has made the following
distributions of realized capital gains: on 1/20/84 $0.49 per share; on 1/24/86
$45.74 per share; on 1/23/87 $122.84 per share; on 12/31/87 $19.59 per share; on
1/28/88 $0.30 per share; on 12/28/90 none; on 12/27/91 $32.37 per share; on
12/31/92 none; on 12/29/93 $16.75 per share; on 7/22/94 $0.41 per share; on
12/28/94 $8.92 per share; on 12/29/95 $52.58 per share and on 9/16/96 $8.339 and
on 12/31/96 $13.94 per share.

Since commencing the sale of shares on April 30, 1993, the Loomis Sayles
Avanti Growth Series has made the following distributions of income: on 12/29/93
$0.175 per share; on 12/28/94 $0.60 per share; on 12/29/95 $0.40 per share and
on 9/16/96 $0.016 and on 12/31/96 $0.10 per share. Over the same period, the
Loomis Sayles Avanti Growth Series has made the following distributions of
realized capital gains: on 12/29/93 $0.885 per share; on 12/28/94 none; on
12/29/95 $4.15 per share and on 9/16/96 $2.082 and on 12/31/96 $7.335 per share.

Since commencing operations on October 31, 1994, the Davis Venture Value
Series has made the following distributions of income: on 12/28/94 $0.03 per
share; on 12/29/95 $0.10 per share and on 9/16/96 $0.002 and on 12/31/96 $0.125
per share. Over the same period, the Series has made the following distributions
of realized capital gains: on 12/28/94 no realized capital gains; on 12/29/95
$0.20 per share and on 9/16/96 $0.018 and on 12/31/96 $0.25 per share.

Since commencing the sale of shares on April 30, 1993, the Westpeak Growth
and Income Series has made the following distributions of income: on 12/29/93
$0.92 per share; on 12/28/94 $1.92 per share; on 12/29/95 $1.71 per share and on
9/16/96 $0.032 and on 12/31/96 $1.79 per share. Over the same period, the
Westpeak Growth and Income Series has made the following distributions of
realized capital gains: on 12/29/93 $1.01 per share; on 12/28/94 no capital
gains but a distribution of paid-in capital was made on 12/28/94 of $0.02 per
share; on 12/29/95 capital gains of $5.69 per share and on 9/16/96 $1.068 on
12/31/96 $12.12 per share.

Since commencing the sale of shares on May 1, 1987, the Westpeak Stock Index
Series has made the following distributions of income: on 12/31/87 $2.23 per
share; on 12/29/88 $3.44 per share; on 12/27/89 $3.74 per share; on 12/28/90
$3.99 per share; on 12/27/91 $3.56 per share; on 12/29/92 $8.35 per share; on
12/29/93 $1.54 per share; on 12/28/94 $1.82 per share; on 12/29/95 $1.85 per
share and on 9/16/96$0.033 and on 12/31/96 $1.895 per share. Over the same
period, the Westpeak Stock Index Series has made the following distributions of
realized capital gains: on 12/31/87 $0.41 per share; on 12/29/88 $0.81 per
share; on 12/27/89 $1.64 per share; on 12/28/90 none; on 1/29/91 $0.05; on
12/27/91 $0.39 per share; on 12/29/92 $67.41 per share; on 5/20/93 $0.29 per
share; on 12/29/93 $0.695 per share and on 12/28/94 $0.16 per share and a
distribution of paid-in capital on 12/28/94 of $0.03 per share; on 12/29/95
$1.18 per share and on 9/16/96 $0.044 and on 12/31/96 $0.87 per share.

26
<PAGE>

Since commencing operations October 31, 1994, the Loomis Sayles Balanced
Series has made the following distributions of income: on 12/28/94 $0.05 per
share; on 12/29/95 $0.26 per share and on 9/16/96 $0.001 and on 12/31/96 $0.27
per share. Over the same period, the Loomis Sayles Balanced Series has made the
following distributions of realized capital gains: on 12/28/94 none; on 12/29/95
$0.19 per share and on 9/16/96 $0.044 and on 12/31/96 $0.10 per share.

Since commencing the sale of shares on May 1, 1987, the Back Bay Advisors
Managed Series has made the following distributions of income: on 12/31/87 $2.73
per share; on 12/29/88 $5.24 per share; on 12/27/89 $4.22 per share; on 12/28/90
$5.52 per share; on 12/27/91 $6.41 per share; on 12/29/92 $5.13 per share; on
5/20/93 $0.02 per share; on 12/29/93 $4.36 per share; on 12/28/94 $5.38 per
share; on 12/29/95 $6.57 per share and on 9/16/96 $0.059 and on 12/31/96 $6.38
per share. Over the same period, the Back Bay Advisors Managed Series has made
the following distributions of realized capital gains: on 12/29/88 $0.38; on
12/27/89 $0.38; on 12/28/90 none; on 12/27/91 $1.15 per share; on 12/29/92 $1.07
per share; on 12/29/93 $2.65 per share; on 12/28/94 none; on 12/29/95 $0.88 per
share and on 9/16/96 $0.409 and on 12/31/96 $11.045 per share.

Since commencing on October 31, 1994, the Salomon Brothers Strategic Bond
Opportunities Series has made the following distributions of income: on 12/28/94
$ 0.12 per share; on 12/29/95 $0.55 per share and on 9/16/96 $0.011 and on
12/31/96 $0.59 per share. Over the same period, the Series has made the
following distributions of realized capital gains: on 12/28/94 no realized
capital gains; on 12/29/95 $0.22 per share and on 9/16/96 $0.011 and on 12/31/96
$0.174 per share.

Since inception, the Back Bay Advisors Bond Income Series has made the
following distributions of income: on 1/20/84 $3.76 per share; on 1/25/85 $11.60
per share; on 1/24/86 $11.09 per share; on 1/23/87 $10.04 per share; on 12/31/87
$8.67 per share; on 12/29/88 $10.70 per share; on 12/27/89 $6.91 per share; on
12/28/90 $7.46 per share; on 12/27/91 $9.47 per share; on 12/29/92 $6.87 per
share; on 12/29/93 $6.25 per share; on 12/28/94 $7.05 per share; on 12/29/95
$7.05 per share and on 12/31/96 $7.70 per share. Over the same period, the Back
Bay Advisors Bond Income Series has made the following distributions of realized
capital gains: on 1/20/84 $0.11 per share; on 1/24/86 $1.67 per share; on
1/23/87 $11.10 per share; on 12/28/90 none; on 12/27/91 $2.13 per share; on
12/29/92 $1.57 per share; on 12/29/93 $4.16 per share; on 12/28/94 none; on
12/29/95 none and on 9/16/96 $0.035 per share and on 12/31/96 $0.315.

Since commencing operations on October 31, 1994, the Salomon Brothers U.S.
Government Series has made the following distributions of income: on 12/28/94 $
0.10 per share; on 12/29/95 $0.33 per share and on 9/16/96$0.002 and on 12/31/96
$0.56 per share. Over the same period, the Salomon Brothers U.S. Government
Series has made the following distributions of realized capital gains: on
12/28/94 no realized capital gains; on 12/29/95 $0.08 and on 9/16/96 $0.015 and
on 12/31/96 none per share.

TRUSTEES AND OFFICERS

Trustees and officers of the Fund (ages in parentheses) and their principal
occupations during the past five years or more are as follows:

NANCY HAWTHORNE (46) -- Trustee; Pilot House, Lewis Wharf, Boston, MA 02110;
-------
Executive Vice President, Enterprise Transformation; formerly, Senior Vice
President and Chief Financial Officer, Continental Cablevision, Inc. (cable
television operator); Director, Perini Corporation (construction).

JOSEPH M. HINCHEY (72) -- Trustee; 193 Wamphassuc Road, Stonington,
-------
Connecticut 06378; Retired; formerly, Senior Vice President-Finance, Analog
Devices, Inc. (manufacturer of electronic devices); Trustee, Union College
and Citizens Scholarship Foundation of America, Inc.; Director, New England
Security Insurance and Chemet Corporation (manufacturer of metallurgical
products).

RICHARD S. HUMPHREY, JR. (71) -- Trustee; 217 Waterways Avenue., P.O. Box 518,
-------
Boca Grande, Florida 33921; retired Chairman of the Board, HBM/Creamer
(advertising agency).

ROBERT B. KITTREDGE (76) -- Trustee; 21 Sturdivant Street, Cumberland
-------
Foreside, ME 04110; Retired; Trustee, CGM Trust and CGM Capital Development
Fund; formerly, Vice President, General Counsel and Director, Loomis, Sayles
& Company, Inc.

27
<PAGE>

LAURENS MACLURE (72) -- Trustee; 183 Sohier Street, Cohasset, MA 02025;
-------
Retired; Trustee, CGM Trust and CGM Capital Development Fund; Director,
Blue Cross of Massachusetts (health insurance).

DALE ROGERS MARSHALL (60) -- Trustee; 26 East Main Street, Norton, MA 02766;
-------
President, Wheaton College; formerly, Academic Dean, Wellesley College.

JOSEPH F. TURLEY (70) -- Trustee; 5680 N. AIA #304, Indian River Shores, FL
-------
32963; Retired; Director, The Gillette Company (manufacturers of personal
care products) and EG&G, Inc. (a diversified technical company);
formerly, President and Chief Operating Officer, The Gillette Company.

JOHN J. ARENA, (60) -- Trustee; 330 Beacon Street, Boston, MA 02116; Retired;
-------
formerly, Vice Chairman of the Board of Directors of Bank Banks, Inc. and
President of BayBank Investment Management, BayBanks, Inc.

JOHN W. FLYNN, (57) -- Trustee; 791 Main Street, Warren, RI 02885; Retired;
-------
formerly, Vice Chairman, Chief Financial Officer, Fleet Financial Group.

JOHN T. LUDES, (60) -- Trustee; 1700 E. Putnam Avenue, Old Greenwich, CT
-------
06870; President and Chief Operating Officer, American Brands; formerly,
President and CEO, Acushnet Company.

FREDERICK K. ZIMMERMANN* (45) -- Chairman of the Board, Chief Executive Officer,
-----------------------------------------------
President and Trustee; Chief Investment Officer and Executive Vice
---------------------
President, NELICO; formerly, Senior Vice President, Vice President and
Controller, The New England; Chairman of the Board and President, TNE
Advisers, Inc.; Director and Vice President - Investments, NELICO until
1996; Chairman of the Board and President, New England Pension and
Annuity Company.

ANNE M. GOGGIN* (48) -- Senior Vice President and Trustee; Senior Vice President
---------------------------------
and Associate General Counsel, NELICO; Vice President, General Counsel,
Secretary and Clerk, New England Securities Corp., Vice President and
Counsel, The New England (1994-1996); formerly, Second Vice President and
Counsel, The New England.

BEVERLY J. DeWITT (47) -- Secretary; Counsel, NELICO; Chief Legal Officer,
---------
Secretary and Clerk, TNE Advisers, Inc.; Assistant Secretary and Clerk,
Westpeak; Assistant Secretary, New England Securities Corp; formerly,
Attorney, The New England.

JOHN F. GUTHRIE (53) -- Senior Vice President; Vice President, NELICO; Senior
---------------------
Vice President, TNE Advisers, Inc.; formerly, Vice President-Portfolio
Strategy, The New England.

ALAN C. LELAND (44) -- Senior Vice President; Senior Vice President, NELICO;
---------------------
Chief Financial Officer, TNE Advisers, Inc.; formerly, Vice President,
The New England.

FRANK NESVET (52) -- Treasurer; Senior Vice President and Chief Financial
----------
Officer, New England Funds, L.P.; formerly, Executive Vice President,
SuperShare Services Corporation.

* Denotes interested trustee as defined in the Investment Company Act of
1940, as amended

Previous positions during the past five years with NELICO or its
predecessor, New England Mutual Life Insurance Company, or Back Bay Advisors,
CGM, Westpeak, Loomis Sayles or New England Funds, L.P. are omitted, if not
materially different. The Fund's Trustees also serve as managers of New England
Variable Annuity Fund I, for which New England Securities acts as a principal
underwriter and CGM as investment adviser.

Except as indicated above, the address of each trustee and officer of the
Fund affiliated with NELICO is 501 Boylston Street, Boston, Massachusetts 02116.
The address of each trustee or officer of the Fund affiliated with Back Bay
Advisors, New England Funds, L.P. or New England Securities is 399 Boylston
Street, Boston, Massachusetts. The address of each trustee and officer
affiliated with CGM is One International Place, Boston, Massachusetts.

28
<PAGE>

The officers and trustees of the Fund who are "interested persons" receive
no compensation from the Fund, for their services in such capacities, although
they do receive compensation from NELICO, Back Bay Advisors, CGM, Westpeak,
Loomis Sayles or New England Funds, L.P. for services rendered in other
capacities.

Trustees Fees
- -------------

The Fund pays no compensation to its officers or to its trustees who are
interested persons thereof.

Until May 1, 1995, each Trustee who was not an interested person of the Fund
received, in the aggregate for serving on the boards of the Fund and twenty one
other mutual fund portfolios, a retainer fee at the annual rate of $40,000 and
meeting attendance fees of $2,500 for each meeting of the boards he or she
attended and $1,500 for each meeting he or she attended of a committee of the
board of which he or she was a member. Each committee chairman received an
additional retainer fee at the annual rate of $2,500. These fees were allocated
among the Series and the twenty one other mutual fund portfolios based on a
formula that took into account, among other factors, the net assets of each
Series and each mutual fund.

Effective May 1, 1995, each Trustee who is not an interested person receive
for serving as Trustee of the Fund and on the board of New England Variable
Annuity Fund I ("NEVA") a retainer fee at an annual rate of $20,000, and meeting
attendance fees of $2,000 for each board meeting attended. In addition, the
chairman of the Contract Review and Governance Committee receives a retainer at
the annual rate of $3,000, and the chairman of the Audit Committee receives a
retainer at the annual rate of $2,000. Also in 1995, each Trustee who was not an
interested person received a special, one-time fee of $5,000 relating to the
services of the board in conjunction with the restructuring of the boards. The
compensation is allocated among the Series and NEVA based on a formula that
takes into account, among other factors, the assets of each Series, and NEVA.

During the fiscal year ended December 31, 1996, the persons who were then
Trustees of the Fund received the amounts set forth below for serving as a
Trustee of the Fund and for also serving on the governing board.

Total
Aggregate Aggregate Compensation
Compensation Compensation from the Fund
from the Fund from the NEVA and NEVA
Name of Trustee in 1996 in 1996 in 1996
- --------------- ------- ------- -------
<S> <C> <C> <C>
Nancy Hawthorne $26,053 $1,947 $28,000
Joseph M. Hinchey 27,966 2,034 30,000
Richard S. Humphrey, Jr. 26,053 1,947 28,000
Robert B. Kittredge 26,053 37,697 (a) 63,750
Laurens MacLure 28,922 37,828 (a) 66,750
Dale Rogers Marshall 24,186 1,814 26,000
Joseph F. Turley 26,053 1,947 28,000
John J. Arena 13,091 909 14,000
John. W. Flynn 13,091 909 14,000
John T. Ludes 11,224 776 12,000
</TABLE>

- -----------------------

(a) Also includes compensation paid by the portfolios of the CGM Funds,
a group of mutual funds for which Capital Growth Management Limited
Partnership, the investment adviser of the Fund's Capital Growth
Series, serves as investment adviser.

The Fund provides no pension or retirement benefits to Trustees, but has
adopted a deferred payment arrangement under which each Trustee may elect not to
receive fees from the Fund on a current basis but to receive in a subsequent
period an amount equal to the value that such fees would have if they had been
invested in each Series on the normal payment date for such fees. As a result of
this method of calculating the deferred payments, each Series, upon making the
deferred payments, will be in the same financial position as if the fees had
been paid on the normal payment dates.

At March 31, 1997, the officers and Trustees of the Fund as a group owned
less than 1% of the outstanding shares of the Fund.

29
<PAGE>

ADVISORY ARRANGEMENTS

Advisory Structure. Pursuant to separate advisory agreements dated
------------------
August 30, 1996, TNE Advisers, Inc., has agreed to manage the investment and
reinvestment of assets of the Morgan Stanley International Magnum Equity, Alger
Equity Growth, Davis Venture Value, Loomis Sayles Balanced, Salomon Brothers
Strategic Bond Opportunities and Salomon Brothers U.S. Government Series.
Pursuant to separate advisory agreements with the Fund, each dated August 30,
1996, TNE Advisers, Inc. has agreed to manage the investment and reinvestment of
the assets of the Loomis Sayles Small Cap, Loomis Sayles Avanti Growth, Westpeak
Growth and Income, Westpeak Stock Index, Back Bay Advisors Managed, Back Bay
Advisors Bond Income and Back Bay Advisors Money Market Series. TNE Advisers,
Inc. has delegated certain of these responsibilities, including responsibility
for determining what investments such Series should purchase, hold or sell and
directing all trading for the Series' account, for each of the above Series to
subadvisers under subadvisory agreements described below. Pursuant to an
advisory agreement dated August 30, 1996, CGM has agreed to manage the
investment and reinvestment of the assets of the Capital Growth Series.

In each case, advisory services are provided subject to the supervision and
control of the Fund's trustees. Each advisory agreement also provides that the
relevant investment adviser will furnish or pay the expenses of the applicable
Series for office space, facilities and equipment, services of executive and
other personnel of the Fund and certain administrative services. TNE Advisers,
Inc. has subcontracted with New England Funds, L.P. to provide, at no extra cost
to the Series it advises, certain administrative services to the Fund. CGM, in
the case of the Capital Growth Series, has subcontracted with New England Funds,
L.P. to provide such services for that Series.

TNE Advisers, Inc. is a wholly-owned subsidiary of NELICO was organized in
1994. TNE Advisers, Inc. oversees, evaluates and monitors the subadvisers'
provision of investment advisory services to all of the Series (except the
Capital Growth Series) and provides general business management and
administration to all of the Series (except the Capital Growth Series).

Subject to the supervision of TNE Advisers, Inc. each subadviser, pursuant
to Subadvisory Agreements dated August 30, 1996 (May 1, 1997 in the case of the
Morgan Stanley International Magnum Equity Series), manages the assets of its
Series in accordance with that Series' investment objective and policies, makes
investment decisions for that Series and employs professional advisers and
securities analysts who provide research services to that Series. The Series pay
no direct fees to any of the subadvisers.

Back Bay Advisors, formed in 1986, is a subsidiary of NEIC. NEIC's sole
general partner, New England Investment Companies, Inc., is a wholly-owned
subsidiary of MetLife New England Holdings, Inc., which is a wholly-owned
subsidiary of MetLife. NEIC and its subsidiary or affiliated asset management
firms, collectively, have more than $100 billion of assets under management or
administration. Back Bay Advisors provides investment management services to
institutional clients, including other registered investment companies and
accounts of NELICO and its affiliates. Back Bay Advisors specializes in fixed-
income management and currently manages over $6 billion in total assets; it is
subadviser to Back Bay Advisors Managed, Back Bay Advisors Bond Income and Back
Bay Money Market Series.

Loomis Sayles, subadviser to the Loomis Sayles Small Cap, Loomis Sayles
Avanti Growth and Loomis Sayles Balanced Series, was organized in 1926 and is
one of the oldest and largest investment counsel firms in the country. An
important feature of the Loomis Sayles investment approach is its emphasis on
investment research. Recommendations and reports of the Loomis Sayles research
department are circulated throughout the Loomis Sayles organization and are
available to the individuals in the Loomis Sayles organization who have been
assigned the responsibility for making investment decisions for the Funds'
portfolios. Loomis Sayles provides investment advice to numerous other
institutional and individual clients. These clients include other registered
investment companies and some accounts of NELICO and its affiliates ("New
England Accounts"). Loomis Sayles is a subsidiary of NEIC.

Morgan Stanley Asset Management Inc. ("MSAM") conducts worldwide investment
management business, providing a broad range of portfolio management services to
customers in the United States and abroad. MSAM is a wholly-owned subsidiary of
Morgan Stanley Group Inc. ("MSGI"), which is a publicly owned

30
<PAGE>

financial services corporation listed on the New York, London and Pacific stock
exchanges. MSAM, registered Investment Adviser under the Investment Advisers Act
of 1940, as amended, serves as adviser to numerous open-end and closed-end
investment companies.

On February 5, 1997, MSGI and Dean Witter, Discover & Company announced that
they had entered into an Agreement and Plan of Merger to form a new company to
be named Morgan Stanley, Dean Witter, Discover & Co. Subject to certain
conditions, it a anticipated that the transaction will close mid-1997.
Thereafter, MSAM will be a subsidiary of Morgan Stanley, Dean Witter, Discover &
Co.

Fred Alger Management Incorporated ("Alger Management") provides investment
management services to mutual funds and to other institutions and individuals;
it is subadviser to the Alger Equity Growth Series. Alger Management is a
wholly-owned subsidiary of Fred Alger Company, Inc., which in turn is a wholly-
owned subsidiary of Alger Associates, Inc., a financial services holding
company. Fred M. Alger III and his brother, David D. Alger are majority owners
of Alger Associates, Inc. and may be deemed to control that company and its
subsidiaries.

CGM is a limited partnership whose general partner is a corporation
controlled equally by Robert L. Kemp and G. Kenneth Heebner. In addition to
advising the Capital Growth Series, CGM acts as investment adviser of CGM
Capital Development Fund, CGM Trust, NEVA and New England Growth Fund of the New
England Funds. CGM also provides investment advice to other institutional and
individual clients.

Westpeak is a wholly-owned subsidiary of NEIC. Organized in 1991, Westpeak
provides investment management services to a mutual fund and other institutional
clients, including accounts of MetLife and its affiliates; it is subadviser to
the Westpeak Growth and Income and Westpeak Stock Index Series.

Davis Selected Advisors, L.P. ("Davis Selected") provides investment
advisory services for mutual funds and other clients; it is subadviser to the
Davis Venture Value Series. Venture Advisers, Inc., the general partner of Davis
Selected, is controlled by Shelby M.C. Davis.

Salomon Brothers Asset Management Inc ("SBAM") is a wholly-owned subsidiary
of Salomon Inc which provides investment advisory services for individuals,
other mutual funds and institutional clients; it is subadviser to the Salomon
Brothers U.S. Government Series and the Salomon Brothers Strategic Bond
Opportunities Series.

Advisory Fees. Each Series pays its adviser compensation at the annual
--------------
percentage rates of the corresponding levels of that Series' average daily net
asset values (the adviser of the Capital Growth Series is CGM, the adviser of
each other Series is TNE Advisers), subject to any fee reductions or deferrals
as described in the Prospectus under "Voluntary Expense Agreement" or "Expense
Deferral Arrangement."

Annual Average Daily Net
Series Percentage Rate Asset Value Levels
------ --------------- ------------------
<S> <C> <C>
Loomis Sayles Small Cap Series 1.00% all assets

Morgan Stanley International Magnum
Equity Series 0.90% all assets

Alger Equity Growth Series 0.75% all assets

Capital Growth Series 0.70% the first $200 million
0.65% the next $300 million
0.60% amounts in excess of $500
million

Loomis Sayles Avanti Growth Series 0.70% the first $200 million
0.65% the next $300 million
0.60% amounts in excess of $500
million

Davis Venture Value Series 0.75% all assets
</TABLE>

31
<PAGE>

Annual Average Daily Net
Series Percentage Rate Asset Value Levels
------ --------------- -------------------
<S> <C> <C>
Westpeak Growth and Income Series 0.70% the first $200 million
0.65% the next $300 million
0.60% amounts in excess of $500 million

Westpeak Stock Index Series 0.25% all assets

Loomis Sayles Balanced Series 0.70% all assets

Back Bay Advisors Managed Series 0.50% all assets

Salomon Brothers Strategic Bond 0.65% all assets
Opportunities Series

Back Bay Advisors Bond Income Series 0.40% the first $400 million
0.35% the next $300 million
0.30% the next $300 million
0.25% amounts in excess of $1 billion

Salomon Brothers U.S. Government Series 0.55% all assets

Back Bay Advisors Money Market Series 0.35% the first $500 million
0.30% the next $500 million
0.25% amounts in excess of $1 billion
</TABLE>

Sub-Advisory Fees. TNE Advisers pays each sub-adviser at the following
rates for providing sub-advisory services to the following Series:

Annual Percentage Rates Paid
by TNE Advisers to the Average Daily Net Asset
Series Respective Sub-Advisers Value Levels
- ------ ----------------------- ------------
<S> <C> <C>
Loomis Sayles Small Cap Series 0.55% of the first $25 million
0.50% of the next $75 million
0.45% of the next $100 million
0.40% of amounts in excess of $200 million

Morgan Stanley International Magnum 0.75% of the first $10 million
Equity Series* 0.60% of the next $40 million
0.45% of the next $30 million
0.40% of amounts in excess of $100 million

Alger Equity Growth Series** 0.45% of the first $100 million
0.40% of the next $400 million
0.35% of amounts in excess of $500 million

Loomis Sayles Avanti Growth 0.50% of the first $25 million
Series 0.40% of the next $75 million
0.35% of the next $100 million
0.30% of amounts in excess of $200 million

Davis Venture Value Series 0.45% of the first $100 million
0.40% of the next $400 million
0.35% of amounts in excess of $500 million

Westpeak Growth and Income Series 0.50% of the first $25 million
0.40% of the next $75 million
0.35% of the next $100 million
0.30% of amounts in excess of $200 million
</TABLE>

32
<PAGE>

Loomis Sayles Balanced Series 0.50% of the first $25 million
0.40% of the next $75 million
0.30% of amounts in excess of $100 million

Back Bay Advisors Managed Series 0.25% of the first $50 million
0.20% of amounts in excess of $50 million

Salomon Brothers Strategic Bond 0.35% of the first $50 million
Opportunities Series 0.30% of the next $150 million
0.25% of the next $300 million
0.20% of amounts in excess of $500 million

Back Bay Advisers Bond Income 0.25% of the first $50 million
Series 0.20% of the next $200 million
0.15% of amounts in excess of $250 million

Salomon Brothers U.S. Government 0.225% of the first $200 million
Series 0.150% of the next $300 million
0.100% of amounts in excess of $500 million

Back Bay Advisors Money Market 0.15% of the first $100 million
Series 0.10% of amounts in excess of $100 million
</TABLE>

*Prior to May 1, 1997 the Subadvisory fee rate payable for the Morgan Stanley
International Magnum Equity Series was 0.75% of the first $10 million of the
Series' average net assets, 0.60% of the next $40 million of such assets, 0.45%
of such assets in excess of $50 million.

**Prior to May 1, 1996, the advisory fee rate for the Alger Equity Growth
Series was 0.70% of average net assets and the sub-advisory fee rate was 0.45%
of the first $10 million of average net assets, 0.40% of the next $90 million of
such assets, 0.35% of the next $150 million of such assets, 0.30% of the next
$250 million of such assets and 0.25% of such assets in excess of $500 million.
Effective May 1, 1996, Alger Management has agreed with TNE Advisers, Inc. that
the sub-advisory fee payable by TNE Advisers, Inc. to Alger Management will be
reduced by 0.05% of the first $240 million of the excess of the Series' average
daily net assets over $10 million, and by 0.10% of the excess of the Series'
average daily net assets over $250 million. This fee reduction benefits TNE
Advisers, Inc., but does not reduce the advisory fees payable by the Series. The
fee reduction agreement will expire on (a) January 1, 1998 or (b) at such time
as TNE Advisers, Inc. has recovered certain expenses (generally, those expenses
borne by TNE Advisers, Inc. under the Expense Deferral Arrangement prior to
January 1, 1996 which are not recovered from the Series), whichever comes first.

In connection with SBAM's service as subadviser to the Strategic Bond
Opportunities Series, SBAM's London based affiliate, Salomon Brothers Asset
Management Limited ("SBAM Limited"), Victoria Plaza, 111 Buckingham Palace Road,
London SW1W OSB, England, serves as subadviser to SBAM relating to currency
transactions and investments in non-dollar denominated debt securities for the
benefit of the Salomon Brothers Strategic Bond Opportunities Series. For these
services, SBAM has agreed to pay SBAM Limited one-third of the compensation that
SBAM receives for serving as subadviser to the Series. SBAM Limited is an
indirect, wholly-owned subsidiary of Salomon Inc.

For the fiscal year ended December 31, 1994, the Back Bay Advisors Managed
Series, the Back Bay Advisors Bond Income Series and the Back Bay Advisors Money
Market Series paid advisory fees of $613,249, $515,084 and $231,326,
respectively, to Back Bay Advisors. For that same period, the Capital Growth
Series paid advisory fees of $4,396,663 to CGM, the Westpeak Growth and Income
Series and the Westpeak Stock Index Series paid advisory fees of $111,827 and
$83,095, respectively, to Westpeak and the Loomis Sayles Avanti

33
<PAGE>

Growth Series paid advisory fees of $132,596 to Loomis Sayles. For the period
May 1, 1994 to December 31, 1994, the Loomis Sayles Small Cap Series paid no
advisory fees to Loomis Sayles. For the period October 31, 1994 to December 31,
1994, the Loomis Sayles Balanced, the Morgan Stanley International Magnum
Equity, Salomon Brothers U.S. Government, Salomon Brothers Strategic Bond
Opportunities, Davis Venture Value and the Alger Equity Growth Series paid no
advisory fees to TNE Advisers, Inc.

For the following periods in 1995, the following amounts of advisory fees
were paid by the following Series:

January 1, 1995 to April 30, 1995 May 1, 1995 to December 31, 1995 January 1, 1995 to December 31, 1995
--------------------------------- -------------------------------- ------------------------------------
Series Amount Paid Adviser Paid Amount Paid Adviser Paid Amount Paid Adviser Paid
- ------ ----------- ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Loomis Sayles Small TNE Advisers,
Cap Series $22,671 Loomis Sayles $124,433 Inc. -- --

Morgan Stanley
International
Magnum Equity TNE Advisers,
Series -- -- -- -- $85,666 Inc.

Alger Equity Growth TNE Advisers,
Series -- -- -- -- $144,943 Inc.

Capital Growth
Series -- -- -- -- $5,232,562 CGM

Loomis Sayles
Avanti Growth TNE Advisers,
Series $65,057 Loomis Sayles $195,829 Inc. -- --

Davis Venture Value TNE Advisers,
Series -- -- -- -- $131,969 Inc.

Westpeak Growth TNE Advisers,
and Income Series $59,980 Westpeak $182,648 Inc. -- --

Westpeak Stock TNE Advisers,
Index Series $33,568 Westpeak $88,791 Inc. -- --

Loomis Sayles TNE Advisers,
Balanced Series -- -- -- -- $65,752 Inc.

Back Bay Advisors Back Bay TNE Advisers,
Managed Series $207,821 Advisors $467,918 Inc. -- --

Salomon Brothers
Strategic Bond TNE Advisers,
Opportunities Series -- -- -- -- $35,085 Inc.

Back Bay Advisors Back Bay TNE Advisers,
Bond Income Series $173,139 Advisors $399,140 Inc. -- --

Salomon Brothers
U.S. Government TNE Advisers,
Series -- -- -- -- $20,446 Inc.

Back Bay Advisors Back Bay TNE Advisers,
Money Market Series $84,329 Advisors $193,678 Inc. -- --
</TABLE>

34
<PAGE>

For the fiscal year end December 31, 1996, each Series (except the Capital
Growth Series) paid the following amounts in advisory fees to TNE Advisers, Inc.

Series Amount Paid to TNE Advisers, Inc.
- ------ ---------------------------------
<S> <C>
Loomis Sayles Small Cap $240,646
Morgan Stanley International Magnum Equity Series (1) 70,553
Alger Equity Growth Series 281,325
Loomis Sayles Avanti Growth Series 169,578
Davis Venture Value Series 198,620
Westpeak Growth and Income Series 165,074
Westpeak Stock Index Series 102,444
Loomis Sayles Balanced Series 83,980
Back Bay Advisors Managed Series 430,920
Salomon Brothers Strategic Bond Opportunities Series 60,044
Back Bay Advisors Bond Income Series 311,174
Salomon Brothers U.S. Government Series 35,234
Back Bay Advisors Money Market Series 201,904
</TABLE>

(1) Prior to May 1, 1997, the Morgan Stanley International Magnum Equity Series
was subadvised by Draycott Partners, Ltd. On January 22, 1997, the Board of
Trustees approved a new subadvisory agreement with Morgan Stanley Asset
Management Inc. Which was approved by shareholders on April 24, 1997 and the
Series consequently changed its name from Draycott International Equity to
Morgan Stanley International Magnum.

For the fiscal year ended December 31, 1996, the Capital Growth Series paid
CGM a total of $6,398,659 in advisory fees.

Each advisory and subadvisory agreement provides that it will continue in
effect after two years from the date of its execution only if it is approved at
least annually thereafter (i) by the trustees of the Fund or by vote of a
majority of the outstanding voting securities of the applicable Series and (ii)
by vote of a majority of the trustees who are not interested persons of (i) the
Fund or (ii) the applicable Series' investment adviser or subadviser. Any
amendment to any advisory or subadvisory agreement must be approved by vote of a
majority of the outstanding voting securities of the applicable Series and by
vote of a majority of the trustees who are not interested persons of (i) the
Fund or (ii) the applicable Series' investment adviser or subadviser. Each
agreement may be terminated without penalty by the trustees or by the
shareholders of the applicable Series, upon sixty days' written notice, or by
the applicable Series' investment adviser, upon ninety days' written notice, and
each terminates automatically in the event of its assignment. In addition, each
subadvisory agreement may be terminated without penalty upon ninety days'
written notice by the relevant subadviser. Each advisory agreement will
automatically terminate if the Fund shall at any time be required by New England
Securities, which is a wholly-owned subsidiary of NELICO, to eliminate all
reference to the words "New England" in its name, unless the continuance of such
agreement after such change of name is approved by a majority of the outstanding
voting securities of the applicable Series and by a majority of the trustees who
are not interested persons of (i) the Fund or (ii) the applicable Series'
investment adviser.

Each advisory agreement provides that if the total ordinary business
expenses of a particular Series for any fiscal year exceed the lowest applicable
limitations (based on a percentage of average net assets or income) prescribed
by any state in which shares of that Series are qualified for sale, the
applicable Series' investment adviser shall pay such excess. Each advisory
agreement provides, however, that the advisory fee shall not be reduced nor
shall any of such expenses be paid to an extent or under circumstances which
might result in the inability of any Series or of the Fund, taken as a whole, to
qualify as a regulated investment company under the Internal Revenue Code of
1986, as amended. The term "expenses" for this purpose excludes brokerage
commissions, taxes, interest and extraordinary expenses.

As required by state insurance licensing authorities, each Series'
investment adviser has also undertaken, separately from the advisory agreements,
to be liable for negligence in the performance of any administrative services
with respect to the Fund which are supplemental to their management of the
investment and reinvestment of that Series' assets.

35
<PAGE>

Each advisory and subadvisory agreement provides that the relevant
investment adviser or subadviser shall not be subject to any liability in
connection with the performance of its services thereunder in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties.

Certain officers and employees of Back Bay Advisors have responsibility
for portfolio management of the other advisory accounts and clients
(including other Series of the Fund and other registered investment
companies, and accounts of affiliates of Back Bay Advisors) that may invest
in securities in which the Series for which Back Bay Advisors acts as a
subadviser may invest. Where Back Bay Advisors determines that an investment
purchase or sale opportunity is appropriate and desirable for more than one
advisory account, purchase and sale orders may be executed separately or may
be combined and, to the extent practicable, allocated by Back Bay Advisors to
the participating accounts.

Where advisory accounts have competing interests in a limited investment
opportunity, Back Bay Advisors will allocate an investment purchase
opportunity based on the relative time that competing accounts have had funds
available for investment, and the relative amounts of available funds, and
will allocate an investment sale opportunity based on relative cash
requirements and the time that the competing accounts have had investments
available for sale. It is Back Bay Advisors' policy to allocate, to the
extent practicable, investment opportunities to each client over a period of
time on a fair and equitable basis relative to its other clients.

It is believed that the ability of the Series for which Back Bay Advisors
acts as subadviser to participate in larger volume transactions in this
manner will in some cases produce better executions for the Series. However,
in some cases, this procedure could have a detrimental effect on the price
and amount of a security available to a Series or the price at which a
security may be sold. The trustees are of the view that the benefits of
retaining Back Bay Advisors as subadviser outweigh the disadvantages, if any,
that might result from participating in such transactions.

Certain officers of Loomis Sayles have responsibility for the management
of other client portfolios. The Detroit office of Loomis Sayles buys and sell
portfolio securities for the Loomis Sayles Small Cap Series. The Chicago
office of Loomis Sayles buys and sells portfolio securities for the Loomis
Sayles Avanti Growth Series. The Pasadena office buys and sells portfolio
securities for the Loomis Sayles Balanced Series. These and other offices of
Loomis Sayles buy securities independently of one another. The other
investment companies and clients served by Loomis Sayles sometimes invest in
securities in which the Series advised by Loomis Sayles also invest. If one
of these Series and such other clients advised by the same office of Loomis
Sayles desire to buy or sell the same portfolio securities at about the same
time, purchases and sales will be allocated, to the extent practicable, on a
pro rata basis in proportion to the amounts desired to be purchased or sold
for each. It is recognized that in some cases the practices described in this
paragraph could have a detrimental effect on the price or amount of a
security which that Series purchases or sells. In other cases, however, it is
believed that these practices may benefit the Series. It is the opinion of
the trustees of the Fund that the desirability of retaining Loomis Sayles as
subadviser for these Series outweighs the disadvantages, if any, which might
result from these practices.

Certain officers of Westpeak have responsibility for portfolio management
for other clients (including affiliates of Westpeak), some of which may
invest in securities in which the Westpeak Growth and Income Series or the
Westpeak Stock Index Series also may invest. When these Series and other
clients desire to purchase or sell the same security at or about the same
time, the purchase and sale orders are ordinarily placed and confirmed
separately but may be combined to the extent practicable and allocated as
nearly as practicable on a pro rata basis in proportion to the amounts
desired to be purchased or sold for each. It is believed that the ability of
those clients to participate in larger volume transactions will in some cases
produce better executions for the Westpeak Growth and Income Series and the
Westpeak Stock Index Series. However, in some cases this procedure could
have a detrimental effect on the price and amount of a security available to
a Series or the price at which a security may be sold. It is the opinion of
the trustees of the Fund that the desirability of retaining Westpeak as
subadviser for the Westpeak Growth and Income Series and the Westpeak Stock
Index Series outweighs the disadvantages, if any, which might result from
these practices.

Various officers and trustees of the Fund also serve as officers or
trustees of other investment companies advised by CGM. The other investment
companies and clients served by CGM (including accounts of affiliates

36
<PAGE>

of CGM) sometimes invest in securities in which the Capital Growth Series
also invests. If the Capital Growth Series and such other investment
companies or clients advised by CGM desire to buy or sell the same portfolio
securities at the same time, purchases and sales will be allocated to the
extent practicable on a pro rata basis in proportion to the amounts desired
to be purchased or sold for each. It is recognized that in some cases the
practices described in this paragraph could have a detrimental effect on the
price or amount of the securities which the Capital Growth Series purchases
or sells. In other cases, however, it is believed that these practices may
benefit the Capital Growth Series. It is the opinion of the trustees that the
desirability of retaining CGM as adviser for the Capital Growth Series
outweighs the disadvantages, if any, which might result from these practices.

Certain officers and employees of SBAM, Davis Selected, MSAM and Alger
Management have responsibility for portfolio management for other clients
(including other registered investment companies and affiliates of SBAM,
Davis Selected, MSAM or Alger Management) some of which may invest in
securities in which the respective Series that these subadvisers manage also
invest. In such circumstances, SBAM, Davis Selected or Alger Management may
determine that orders for the purchase or sale of the same security for the
Series it manages and one or more other registered investment companies or
other accounts it manages should be combined, in which event the transactions
will be priced and allocated in a manner deemed by SBAM, Davis Selected, MSAM
or Alger Management, respectively, to be equitable and in the best interests
of the respective Series that it manages and its other accounts. It is
recognized that in some cases the practices described in this paragraph could
have a detrimental effect on the price or amount of a security that a Series
purchases or sells. In other cases, however, it is believed that these
practices may benefit a Series. It is the opinion of the trustees that the
desirability of retaining SBAM, Davis Selected, MSAM and Alger Management as
subadvisers for the respective Series outweighs the disadvantages, if any,
which might result from these practices.

DISTRIBUTION AGREEMENT

Under an agreement with the Fund, New England Securities, a Massachusetts
corporation, serves as the general distributor of shares of each Series,
which are sold at net asset value without any sales charge. The offering of
each Series' shares is continuous. Shares are offered for sale only to
certain insurance company separate accounts. New England Securities receives
no compensation from the Fund or purchasers of Fund shares for acting as
distributor. The agreement does not obligate New England Securities to sell
a specific number of shares. New England Securities is a wholly-owned
subsidiary of NELICO.

New England Securities controls the words "New England" in the Fund's
name and if it should cease to be the Fund's distributor, the Fund may be
required to change its name and delete these words. New England Securities
also acts as general distributor for New England Retirement Investment
Account, New England Variable Annuity Fund I, The New England Variable
Account, New England Variable Annuity Separate Account and New England
Variable Life Separate Account.

OTHER SERVICES

Custodial Arrangements. State Street Bank and Trust Company ("State
----------------------
Street Bank"), Boston, Massachusetts 02102, is the Fund's custodian. As such,
State Street Bank holds in safekeeping certificated securities and cash
belonging to each Series and, in such capacity, is the registered owner of
securities held in book-entry form belonging to the Series. Upon instruction,
State Street Bank receives and delivers cash and securities of the Series in
connection with Series transactions and collects all dividends and other
distributions made with respect to Series portfolio securities. State Street
Bank also maintains certain accounts and records of the Fund and calculates
the total net asset value, total net income and net asset value per share of
each Series on a daily basis.

Independent Accountants. The Fund's independent accountants are Deloitte
-----------------------
& Touche, LLP. Deloitte & Touche, LLP conducts an annual audit of each
Series, assists in the preparation of federal and state income tax returns
and consults with the Fund as to matters of accounting and federal and state
income taxation. A table of selected per share data and ratios for each of
the Series appears in the Prospectus. Prior to January 1, 1997 the Fund's
independent accountants were Coopers & Lybrand, LLP, this table and the
financial statements included in this Statement of Additional Information are
included in reliance on the report of Coopers & Lybrand for the

37
<PAGE>

years 1987 through 1996 and on the report of the Fund's former independent
accountants, Price Waterhouse, for the years 1985 and 1986, given on the
authority of said firms as experts in auditing and accounting.

Other Arrangements. Office space, facilities, equipment and/or certain
------------------
administrative services for the Fund (and, where applicable, other mutual
funds) under the investment management of CGM or TNE Advisers, Inc. are
currently furnished by New England Funds, L.P., under separate service
agreements with those investment advisers. Under a service agreement between
Back Bay Advisors and New England Securities for fiscal years ended December
31, 1994, 1995 and 1996, Back Bay Advisors paid New England Securities or New
England Funds, L.P., an affiliate of New England Securities, $51, 918,
$71,233 and $44,919, respectively, relating to the Back Bay Advisors Money
Market Series; $109,472, $126,352 and $68,830, respectively, relating to the
Back Bay Advisors Bond Income Series; and $104,256, $120,279 and $63,191,
respectively, relating to the Back Bay Advisors Managed Series under a
service agreement. Under a service agreement between New England Securities
and CGM, CGM paid New England Securities or New England Funds, L.P., for
fiscal years ended December 31, 1994, 1995 and 1996, $621,253, $734,743 and
$1,574,016, respectively, relating to the Capital Growth Series. Under a
service agreement between Loomis Sayles and New England Funds, L.P., Loomis
Sayles paid New England Funds, L.P. for the fiscal years ended December 31,
1994, 1995 and 1996 $29,614, $34,683 and $30,928, respectively, for the
Loomis Sayles Avanti Growth Series. Under the service agreement between New
England Securities and Westpeak, Westpeak paid New England Securities
$25,381, $31,668 and $30,331 for the fiscal years ended December 31, 1994,
1995 and 1996, respectively, for the Westpeak Growth and Income Series
$49,833, $49,914 and $32,318 for the fiscal years ended December 31, 1994,
1995 and 1996, respectively, for the Westpeak Stock Index Series. Under a
service agreement between Loomis, Sayles and New England Funds, L.P., Loomis
Sayles paid New England Funds, L.P. $2,007 for the period May 1, 1994 to
December 31, 1994, and $10,604 and $24,599 for the fiscal years ended
December 31, 1995 and 1996 for the Loomis Sayles Small Cap Series.

For the period October 31, 1994 through December 31, 1994, under the
service agreement between New England Funds, L.P. and TNE Advisers, Inc., TNE
Advisers, Inc. paid $1,666 for the Loomis Sayles Balanced Series, $1,666 for
the Morgan Stanley International Magnum Equity Series, $1,666 the Salomon
Brothers U.S. Government Series, $1,666 for the Salomon Brothers Strategic
Bond Opportunities Series, $1,666 for the Davis Venture Value Series and
$1,666 for the Alger Equity Growth Series; for the fiscal year ended December
31, 1995, TNE Advisers, Inc. paid $10,044 for the Loomis Sayles Balanced
Series, $10,044 for the Morgan Stanley International Magnum Equity Series,
$10,044 for the Salomon Brothers U.S. Government Series, $10,044 for the
Salomon Brothers Strategic Bond Opportunities Series, $11,503 for the Venture
Value Series and $13,133 for the Alger Equity Growth Series. For the fiscal
year ended December 31, 1996, under a service agreement between New England
Funds, L.P. and TNE Advisers, Inc., TNE Advisers, Inc. paid $18,011 for the
Loomis Sayles Balanced Series, $14,419 for the Morgan Stanley International
Magnum Equity Series, $10,000 for the Salomon Brothers U.S. Government
Series, $11,629 for the Salomon Brothers Strategic Bond Opportunities Series,
$31,230 for the Davis Venture Value Series and $38,435 for the Alger Equity
Growth Series.

PORTFOLIO TRANSACTIONS AND BROKERAGE

Some of the Fund's portfolio transactions are placed with brokers and
dealers who provide the investment advisers or subadvisers with supplementary
investment and statistical information or furnish market quotations to the
Fund or other investment companies advised by the investment advisers or
subadvisers. Although it is not possible to assign an exact dollar value to
these services, they may, to the extent used, tend to reduce the expenses of
the investment advisers or subadvisers. The services may also be used by the
investment advisers or subadvisers in connection with their other advisory
accounts and in some cases may not be used with respect to the Fund.

Certain Portfolio Transactions of Loomis Sayles Balanced, Back Bay Advisors
---------------------------------------------------------------------------
Managed, Back Bay Advisors Bond Income and Back Bay Advisors Money Market
-------------------------------------------------------------------------
Series
------

It is expected that the portfolio transactions of the Loomis Sayles
Balanced, Back Bay Advisors Managed Series, Back Bay Advisors Bond Income and
Back Bay Advisors Money Market Series in bonds, notes and money market
instruments, will generally be with issuers or dealers on a net basis without
a stated commission. Portfolio turnover for the years 1994, 1995 and 1996
was 82%, 73% and 98% respectively, for the Back Bay Advisors Bond Income
Series and 76%, 51% and 72%, respectively, for the Back Bay Advisors Managed
Series.

38
<PAGE>

The Loomis Sayles Balanced Series' portfolio turnover rates for the periods
May 1, 1994 through December 31, 1994 and the fiscal year ended December 31,
1995 and 1996 were 0%, 72% and 59%, respectively.

Loomis Sayles Small Cap Series, Morgan Stanley International Magnum Equity
--------------------------------------------------------------------------
Series, Alger Equity Growth Series, Capital Growth Series, Loomis Sayles
------------------------------------------------------------------------
Avanti Growth Series, Davis Venture Value Series, Loomis Sayles Balanced
------------------------------------------------------------------------
Series and Back Bay Advisors Managed Series (Common Stock Transactions)
-----------------------------------------------------------------------

In placing orders for the purchase and sale of portfolio securities, CGM,
in the case of the Capital Growth Series, Loomis Sayles, in the case of the
Loomis Sayles Avanti Growth Series, the Loomis Sayles Small Cap and the
Loomis Sayles Balanced Series, Back Bay Advisors, in the case of investments
in common stocks by the Back Bay Advisors Managed Series, Draycott, in the
case of the Draycott International Equity Series, Davis Selected, in the case
of the Davis Venture Value Series, and Alger Management, in the case of the
Alger Equity Growth Series, each selects only brokers which it believes are
financially responsible, will provide efficient and effective services in
executing, clearing and settling an order and will charge commission rates
which, when combined with the quality of the foregoing services, will produce
best price and execution for the transaction. This does not necessarily mean
that the lowest available brokerage commission will be paid. However, the
commissions are believed to be competitive with generally prevailing rates.
The Series' advisers or subadvisers will use their best efforts to obtain
information as to the general level of commission rates being charged by the
brokerage community from time to time and will evaluate the overall
reasonableness of brokerage commissions paid on transactions by reference to
such data. In making such evaluation, all factors affecting liquidity and
execution of the order, as well as the amount of the capital commitment by
the broker in connection with the order, are taken into account. The Capital
Growth Series, Loomis Sayles Avanti Growth Series, Loomis Sayles Small Cap
Series, Loomis Sayles Balanced Series, Back Bay Advisors Managed Series,
Morgan Stanley International Magnum Equity Series, Davis Venture Value Series
and Alger Equity Growth Series will not pay a broker a commission at a higher
rate than otherwise available for the same transaction in recognition of the
value of research services provided by the broker or of any other services
provided by the broker which do not contribute to the best price and
execution of the transaction.

For the fiscal years ending in 1994, 1995 and 1996, brokerage
transactions for the Capital Growth Series aggregating $1,855,305,003,
$3,292,999,742 and $3,548,037,504, respectively, were allocated to brokers
providing research services and commissions of $2,659,378, $4,129,082 and
$4,124,163, respectively, were paid on those transactions. For the fiscal
years ending in 1994, 1995 and 1996 the Westpeak Stock Index Series paid
brokerage commissions aggregating $10,918, $10,566 and $9,955, respectively.
For the same periods, the Back Bay Advisors Managed Series paid brokerage
commissions aggregating $21,159, $1,615 and $11,697, respectively. For the
fiscal years ending December 31, 1994, 1995 and 1996, the Loomis Sayles
Avanti Growth Series paid brokerage commissions of $67,095, $72,377 and
$74,700 and $2,775, $2,080 and $1,300 were paid to brokers providing research
services. The Westpeak Growth and Income Series paid brokerage commissions of
$54,751, $61,252 and $106,927 for the fiscal years ended 1994, 1995 and 1996,
respectively. For the period May 1, 1994 to December 31, 1994 and fiscal
years ended December 31, 1995 and 1996, the Loomis Sayles Small Cap Series
paid brokerage commissions of $7,395, $97,195 and $462,358, respectively. For
the period October 31, 1994 to December 31, 1994, and the fiscal year end
1995 and 1996, the Morgan Stanley International Magnum Equity Series paid
brokerage commissions of $4,714, $85,037 and $127,196. The Davis Venture
Value Series paid brokerage commissions of $6,084 and $40,523 and $81,002 for
the fiscal years ended 1994, 1995 and 1996. The Alger Equity Growth Series
paid brokerage commissions of $2,452, $69,052 and $174,495 for the fiscal
years ended 1994, 1995 and 1996.

Westpeak Growth and Income Series, Westpeak Stock Index Series, Salomon
-----------------------------------------------------------------------
Brothers Strategic Bond Opportunities Series and Salomon Brothers U.S.
----------------------------------------------------------------------
Government Series
-----------------

In placing orders for the purchase and sale of securities, Westpeak, in
the case of the Westpeak Growth and Income and Westpeak Stock Index Series,
and SBAM, in the case of Salomon Brothers Strategic Bond Opportunities and
Salomon Brothers U.S. Government Series, always seeks best execution.
Westpeak and SBAM each selects only brokers or dealers which it believes are
financially responsible, will provide efficient and effective services in
executing, clearing and settling an order and will charge commission rates
which, when combined with the quality of the foregoing services, will produce
best price and execution. This does not necessarily mean that the lowest
available brokerage commission will be paid. Westpeak or SBAM will each use
its best efforts to obtain information as to the general level of commission
rates being charged by the brokerage

39
<PAGE>

community from time to time and will evaluate the overall reasonableness of
brokerage commissions paid on transactions by reference to such data. In
making such evaluation, all factors affecting liquidity and execution of the
order, as well as the amount of the capital commitment by the broker in
connection with the order, are taken into account. Westpeak or SBAM may cause
the Series they manage to pay a broker-dealer that provides brokerage and
research services to Westpeak or SBAM an amount of commission for effecting a
securities transaction for a Series in excess of the amount another broker-
dealer would have charged effecting that transaction. Westpeak or SBAM, as
the case may be, must determine in good faith that such greater commission is
reasonable in relation to the value of the brokerage and research services
provided by the executing broker-dealer viewed in terms of that particular
transaction or Westpeak's or SBAM's overall responsibilities to the Fund and
its other clients. Westpeak's or SBAM's authority to cause the Series it
manages to pay such greater commissions is also subject to such policies as
the trustees of the Fund may adopt from time to time.

Affiliated Brokerage
--------------------

A Series may pay brokerage commissions to an affiliated broker for acting
as the respective Series' agent on purchases and sales of securities for the
portfolio of the Series. SEC rules require that commissions paid to an
affiliated broker of a mutual fund for portfolio transactions not exceed
"usual and customary" brokerage commissions. The rules define "usual and
customary" commissions to include amounts which are "reasonable and fair"
compared to the commission, fee or other remuneration received or to be
received by other brokers in connection with comparable transactions
involving similar securities being purchased or sold on a securities exchange
during a comparable period of time." The Trustees, including those who are
not "interested persons" of the Fund, have adopted procedures for evaluating
the reasonableness of commissions paid to affiliated brokers and will review
these procedures periodically. The Alger Equity Growth Series paid $2,452,
$69,052 and $174,495 in brokerage commissions to Fred Alger and Company,
Inc., an affiliated broker, for the period October 31, 1994 to December 31,
1994 and the fiscal years ended December 31, 1995 and 1996, respectively.
The amount paid by the Alger Equity Growth Series represents approximately
100%, 100% and 100% of that Series' aggregate brokerage commissions for the
period October 31, 1994 to December 31, 1994 and for the years ended December
31, 1995 and 1996. For the fiscal year ended December 31, 1996 the Davis
Venture Value Series paid a total of $5,316 in brokerage commissions to
Shelby Cullum Davis, Inc., an affiliated broker. This amount represents 6.6%
of the Series aggregate brokerage commissions for the fiscal year ended
December 31, 1996.

DESCRIPTION OF THE FUND

The Fund is organized as a Massachusetts business trust under the laws of
Massachusetts pursuant to an Agreement and Declaration of Trust (the
"Declaration of Trust") dated December 16, 1986. On February 27, 1987, the
Fund succeeded to the operations of The New England Zenith Fund, Inc., a
Massachusetts corporation incorporated on January 7, 1983 as NEL Series Fund,
Inc. On November 1, 1985, the name of that corporation was changed to Zenith
Fund, Inc. and on July 17, 1986 it was changed again to The New England
Zenith Fund, Inc. The Capital Growth, Back Bay Advisors Bond Income and Back
Bay Advisors Money Market Series all commenced investment operations in 1983.
The Westpeak Stock Index Series commenced operations on March 30, 1987. The
Back Bay Advisors Managed Series commenced investment operations on May 1,
1987. The Loomis Sayles Avanti Growth and the Westpeak Growth and Income
Series commenced investment operations in April 1993. The Loomis Sayles
Small Cap Series commenced investment operations on May 1, 1994. The Alger
Equity Growth, Draycott International Equity, Davis Venture Value, Loomis
Sayles Balanced, Salomon Brothers Strategic Bond Opportunities and Salomon
Brothers U.S. Government Series commenced investment operations on October
31, 1994.

The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of each of the Loomis Sayles Small Cap,
Draycott International Equity, Alger Equity Growth, Capital Growth, Loomis
Sayles Avanti Growth, Davis Venture Value, Westpeak Growth and Income,
Westpeak Stock Index, Loomis Sayles Balanced, Back Bay Advisors Managed,
Salomon Brothers Strategic Bond Opportunities, Back Bay Advisors Bond Income,
Salomon Brothers U.S. Government and Back Bay Advisors Money Market Series.
Interests in the Fund portfolios described in the Prospectus and in this
Statement of Additional Information are represented by shares of such Series.
Each share of a Series represents an equal proportionate interest in such
Series with each other share and is entitled to a proportionate interest in
the dividends and distributions from such Series. The shares of the Series do
not have any preemptive rights. Upon liquidation of any Series, whether
pursuant to liquidation of the Fund or otherwise, shareholders of such Series
are entitled to share pro

40
<PAGE>

rata in the net assets of such Series available for distribution to
shareholders. The Declaration of Trust also permits the trustees to charge
shareholders directly for custodial, transfer agency and servicing expenses.

The Declaration of Trust also permits the Trustees, without shareholder
approval, to subdivide any series of shares into various sub-series of shares
with such dividend preferences and other rights as the trustees may
designate. While the trustees have no current intention to exercise this
power, it is intended to allow them to provide for an equitable allocation of
the impact of any future regulatory requirements which might affect various
classes of shareholders differently. The trustees may also, without
shareholder approval, establish one or more additional separate portfolios
for investments in the Fund or merge two or more existing portfolios.
Shareholders' investments in such a portfolio would be evidenced by a
separate series of shares. The Fund is a "series" company as that term is
used in Section 18(f) of the 1940 Act.

The Declaration of Trust provides for the perpetual existence of the
Fund. The Fund or any Series, however, may be terminated at any time by vote
of at least two-thirds of the outstanding shares of each Series affected. The
Declaration of Trust further provides that the trustees may terminate the
Fund or any Series upon written notice to the shareholders thereof.

The assets received by the Fund for the issue or sale of shares of each
Series and all income, earnings, profits, losses and proceeds therefrom,
subject only to the rights of creditors, are allocated to that Series, and
constitute the underlying assets of the Series. The underlying assets of
each Series are segregated and are charged with the expenses in respect of
that Series and with a share of the general expenses of the Fund. Any
general expenses of the Fund not readily identifiable as belonging to a
particular Series are allocated by or under the direction of the trustees in
such manner as the trustees determine to be fair and equitable. While the
expenses of the Funds are allocated to the separate books of account of each
Series, certain expenses may be legally chargeable against the assets of all
Series.

As of December 1, 1996, all of the outstanding voting securities of the
Fund are owned by separate accounts of MetLife and/or NELICO, and may, from
time to time, be owned by those separate accounts and the general account of
NELICO and its affiliates. Therefore, MetLife and NELICO are presumed to be
in control (as that term is defined in the 1940 Act) of the Fund. However,
the staff of the SEC is presently of the view that MetLife and NELICO are
each required to vote their Fund shares that are held in a registered
separate account (and, to the extent voting privileges are granted by the
issuing insurance company, in unregistered separate accounts) in the same
proportion as the voting instructions received from owners of the variable
life insurance or variable annuity contracts issued by the separate account,
and that MetLife and NELICO each is required to vote any shares held in
general account (or in any unregistered separate account for which voting
privileges were not extended) in the same proportion as all other Fund shares
are voted. MetLife and NELICO currently intend to vote their shares in a
manner consistent with this view.

Voting Rights
-------------

Fund shareholders are entitled to one vote for each full share held (with
fractional votes for fractional shares held). NELICO and MetLife are the
legal owners of shares attributable to variable life insurance and variable
annuity contracts issued by their separate accounts, and have the right to
vote those shares. Pursuant to the current view of the SEC staff, NELICO and
MetLife will vote their shares in accordance with instructions received from
owners of variable life insurance and variable annuity contracts issued by
separate accounts that are registered under the 1940 Act. All Fund shares
held by separate accounts of NELICO and MetLife that are registered with the
SEC (and, to the extent voting privileges are granted by the issuing
insurance company, by unregistered separate accounts) for which no timely
instructions are received will be voted for, voted against, or withheld from
voting on any proposition in the same proportion as the shares held in that
separate account for all contracts for which voting instructions are
received. All Fund shares held by the general investment account (or any
unregistered separate account for which voting privileges are not extended)
of NELICO and its affiliates will be voted in the same proportion as the
aggregate of (i) the shares for which voting instructions are received and
(ii) the shares that are voted in proportion to such voting instructions are
received.

There will normally be no meetings of shareholders for the purpose of
electing trustees except that in accordance with the 1940 Act (i) the Fund
will hold a shareholders' meeting for the election of trustees at such time
as less than a majority of the trustees holding office have been elected by
shareholders and (ii) if, as a result

41
<PAGE>

of a vacancy in the Board of Trustees, less than two-thirds of the trustees
holding office have been elected by the shareholders, that vacancy may only
be filled by a vote of the shareholders. In addition, trustees may be removed
from office by a written consent signed by the holders of two-thirds of the
outstanding shares at a meeting duly called for the purpose, which meeting
shall be held upon the written request of the holders of not less than 10% of
the outstanding shares. Upon written request by the holders of shares having
a net asset value constituting 1% of the outstanding shares stating that such
shareholders wish to communicate with the other shareholders for the purpose
of obtaining the signatures necessary to demand a meeting to consider removal
of a trustee, the Fund has undertaken to provide a list of shareholders or to
disseminate appropriate materials (at the expense of the requesting
shareholders). Except as set forth above, the trustees shall continue to hold
office and may appoint successor trustees.

No amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the outstanding shares of the Fund except
(i) to change the Fund's name or to cure technical problems in the
Declaration of Trust and (ii) to establish, designate or modify new and
existing series or sub-series of Fund shares or other provisions relating to
Fund shares in response to applicable laws or regulations.

Shareholder and Trustee Liability
---------------------------------

Under Massachusetts law shareholders could, under certain circumstances,
be held personally liable for the obligations of the Fund. However, the
Declaration of Trust disclaims shareholder liability for acts or obligations
of the Fund and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Fund or
the trustees. The Declaration of Trust provides for indemnification out of
the relevant Series' property for all loss and expense of any shareholder
held personally liable for the obligations of the Series in which the
shareholder owns shares. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is considered remote since it is
limited to circumstances in which the disclaimer is inoperative and a Series
itself would be unable to meet its obligations. For purposes of such
liability, the Fund's shareholders are the separate accounts investing
directly in the Fund and not the owners of variable life insurance or
variable annuity contracts or purchasers of other insurance products.

The Declaration of Trust further provides that the trustees will not be
liable for errors of judgment or mistakes of fact or law. However, nothing
in the Declaration of Trust protects a trustee against any liability to which
the trustee would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office. The By-Laws of the Fund provide for
indemnification by the Fund of the trustees and officers of the Fund except
with respect to any matter as to which any such person did not act in good
faith in the reasonable belief that his or her action was in or not opposed
to the best interests of the Fund. Such person may not be indemnified
against any liability to the Fund or the Fund's shareholders to which he or
she would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct
of his or her office.

42
<PAGE>

APPENDIX A-1
DESCRIPTION OF BOND RATINGS

Moody's Investors Service, Inc.

Aaa
Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.

Aa
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in Aaa securities. See Note 1.

A
Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future. See
Note 1.

Baa
Bonds which are rated Baa are considered as medium grade obligations, i.e.,
---
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well. See Note 1.

Ba
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often, the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa
Bonds which are rated Caa are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.

Ca
Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.

C
Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.

Should no rating be assigned by Moody's, the reason may be one of the
following:

(1) An application for rating was not received or accepted.

43
<PAGE>

(2) The issue or issuer belongs to a group of securities that are not
rated as a matter of policy.

(3) There is a lack of essential data pertaining to the issue or issuer.

(4) The issue was privately placed, in which case the rating is not
published in Moody's publications.
_________________
Note 1: This rating may include the numerical modifier 1, 2
or 3 to provide a more precise indication of relative debt quality within the
category, with 1 indicating the high end of the category, 2 the mid-range and
3 nearer the low end.

Standard & Poor's Ratings Group

AAA
This is the highest rating assigned by Standard & Poor's Corporation ("S&P")
to a debt obligation and indicates an extremely strong capacity to pay
principal and interest.

AA
Bonds rated AA also qualify as high quality debt obligations. Capacity to pay
principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.

A
Bonds rated A have strong capacity to pay principal and interest although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

BBB
Bonds rated BBB are regarded as having an adequate capacity to pay principal
and interest. Whereas they normally exhibit protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.

BB, B, CCC, CC
Bonds rated BB, B, CCC and CC are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree
of speculation and CC the highest degree of speculation. While such bonds
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse
conditions.

C
The rating C is reserved for income bonds on which no interest is being paid.

D
Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.

Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

44
<PAGE>
05/02/97

APPENDIX A-2
DESCRIPTION OF COMMERCIAL PAPER RATINGS

Standard & Poor's Corporation

A-1
Commercial paper rated A-1 by S&P has the following characteristics:
Liquidity ratios are adequate to meet cash requirements. Long-term senior
debt is rated "A" or better. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances. Typically, the issuer's industry is
well established and the issuer has a strong position within the industry.
The reliability and quality of management are unquestioned. Commercial paper
within the A-1 category which has overwhelming safety characteristics is
denoted "A-1+."

A-2
Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.

Moody's Investors Service, Inc.

P-1
The rating P-1 is the highest commercial paper rating assigned by Moody's
Investors Service, Inc. ("Moody's"). Among the factors considered by Moody's
in assigning ratings are the following:

(1) evaluation of the management of the issuer;

(2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas;

(3) evaluation of the issuer's products in relation to competition and
customer acceptance;

(4) liquidity;

(5) amount and quality of long-term debt;

(6) trend of earnings over a period of ten years;

(7) financial strength of a parent company and the relationships which
exist with the issuer; and

(8) recognition by the management of obligations which may be present or
may arise as a result of public interest questions and preparations to meet
such obligations.

P-2
Issuers rated P-2 have a strong capacity for repayment of short-term
promissory obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings trends and
coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected
by external conditions. Ample alternative liquidity is maintained.

<PAGE>
05/02/97

APPENDIX B

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