<PAGE>
Registration Nos. 2-83538
811-3728
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
-
Pre-Effective Amendment No.
Post-Effective Amendment No. 22 X
-- -
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 X
-
Amendment No. 23 X
--- -
(Check appropriate box or boxes)
New England Zenith Fund
-----------------------
(Exact Name of Registrant
as Specified in Charter)
399 Boylston Street, Boston, Massachusetts 02116
------------------------------------------------
(Address of Principal Executive Offices)
(617) 267-6600
--------------
(Registrant's Telephone Number, including Area Code)
Robert P. Connolly, Esq. Copy to: Edward A. Benjamin, Esq.
New England Funds, L.P. Ropes & Gray
399 Boylston Street One International Place
Boston, Massachusetts 02116 Boston, Massachusetts 02110
- ---------------------------------------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
(check appropriate box)
- --- immediately upon filing pursuant to paragraph (b)of Rule 485
- --- on (date) pursuant to paragraph (b)of Rule 485
- --- 60 days after filing pursuant to paragraph (a)(1)of Rule 485
X on May 1, 1997 pursuant to paragraph (a)(1)of Rule 485
- ---
- --- 75 days after filing pursuant to paragraph (a)(2) of Rule 485.
- --- on (date) pursuant to paragraph (a)(2) of Rule 485.
Registrant has registered an indefinite number of securities under the
Securities Act of 1933 in accordance with Rule 24f-2 under the Investment
Company Act of 1940, as amended. Registrant filed on February 28, 1997, the Rule
24f-2 Notice for the Registrant's fiscal year ended December 31, 1996.
<PAGE>
CROSS REFERENCE SHEET
Items required by Form N-1A
Item No.
of Form N-1A Caption in Prospectus
- ------------ ---------------------
1 . . . . . . . . . . . . . Cover Page
2 . . . . . . . . . . . . . Not Applicable
3 . . . . . . . . . . . . . Financial Highlights;
Performance Information
4 . . . . . . . . . . . . . The Fund; Investment Objectives and
Policies; Organization and
Capitalization of the Fund; Investment Risks;
Appendix A
5 . . . . . . . . . . . . . Management; Transfer Agent
5A . . . . . . . . . . . . . Not Applicable
6 . . . . . . . . . . . . . Organization and Capitalization of the Fund;
Dividends and Capital Gain Distributions;
Taxes; Investment Objectives and Policies;
Voting Rights
7 . . . . . . . . . . . . . The Fund; Sale and Redemption of Shares; Net
Asset Values and Portfolio Valuation
8 . . . . . . . . . . . . . Sale and Redemption of Shares; Net
Asset Values and Portfolio Valuation
9 . . . . . . . . . . . . . Not Applicable
1
<PAGE>
Caption in Statement of
Additional Information
----------------------
10 . . . . . . . . . . . . . Cover Page
11 . . . . . . . . . . . . . Table of Contents
12 . . . . . . . . . . . . . Description of the Fund
13 . . . . . . . . . . . . . Investment Objectives and Policies;
Miscellaneous Investment Practices;
Appendix A-1; Appendix A-2
14 . . . . . . . . . . . . . Trustees and Officers
15 . . . . . . . . . . . . . Description of the Fund; Organization
and Capitalization of the Fund
(in Prospectus)
16 . . . . . . . . . . . . . Advisory Agreements; Distribution Agreement;
Other Services
17 . . . . . . . . . . . . . Portfolio Transactions and Brokerage
18 . . . . . . . . . . . . . Description of the Fund
19 . . . . . . . . . . . . . Determination of Net Asset Values
20 . . . . . . . . . . . . . Taxes (in Prospectus)
21 . . . . . . . . . . . . . Not Applicable
22 . . . . . . . . . . . . . Fund Performance
23 . . . . . . . . . . . . . Appendix C
<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, 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, 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.
1
<PAGE>
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.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Financial Highlights B-
The Fund B-
Investment Objectives and Policies B-
Investment Risks B-
Performance Information B-
Investment Restrictions B-
Management B-
Sale and Redemption of Shares B-
Net Asset Values and Portfolio Valuation B-
Dividends and Capital Gain Distributions B-
Taxes B-
Organization and Capitalization of the Fund B-
Transfer Agent B-
Voting Rights B-
Appendix A B-
</TABLE>
3
<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 1(a) Year Year
to Ended Ended
December 31, 1994 December 31, 1995 December 31, 1996
------------------ ----------------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning 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 Expenses 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 (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.
(c) 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.
4
<PAGE>
MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES (a)
<TABLE>
<CAPTION>
October 31(b) Year Year
to Ended Ended
December 31, 1994 December 31, 1995 December 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning 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 Income 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 Expenses 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 (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
described in Footnote (e) would have been (%) 5.38 (d) 3.12 1.66
</TABLE>
(a) On May 1, 1997 the name of the series until May 1, 1997, Morgan Stanley
Asset Management Inc. ("MSAM") succeeded Draycott Partners, Ltd. as
investment subadviser to the Series.
(b) Commencement of operations.
(c) Not computed on an annualized basis.
(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.
5
<PAGE>
ALGER EQUITY GROWTH SERIES
<TABLE>
<CAPTION>
October 31(b) Year Year
to Ended 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 Expenses 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 (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.
(c) 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.
(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.
6
<PAGE>
CAPITAL GROWTH SERIES
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1987 1988 1989 1990 (a)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Asset value,
Beginning of the Year $264.48 $231.33 $201.14 $260.25
------- ------- ------- -------
Income From Investment
Operations
Net Investment Income 1.05 10.63 1.59 1.78
Net Gains or Losses on
Investments (both
realized and
unrealized) 109.33 (30.97) 60.11 (10.88)
------ ------- ----- -------
Total From Investment
Operations 110.38 (20.34) 61.70 (9.10)
------ ------- ----- -------
Less distributions
Distributions From Net
Investment Income (1.10) (9.55) (2.59) (2.11)
Distributions From Net
Realized Capital Gains (142.43) (0.30) 0.00 0.00
Distributions From Paid-
in Capital
0.00 0.00 0.00 0.00
---- ---- ---- ----
Total Distributions (143.53) (9.85) (2.59) (2.11)
-------- ------ ------ ------
Net Asset Value, End of
the Year $231.33 $201.14 $260.25 $249.04
======= ======= ======= =======
Total Return (%) 52.7 (8.8) 30.8 (3.5)
Ratio of Operating
Expenses to Average
Net Assets(%) 0.57 0.75 0.72 0.73
Ratio of Net Investment
Income to Average
Net Assets (%) 0.75 6.20 1.21 0.93
Portfolio Turnover
Rate (%) 368 813 269 229
Net Assets, End of
Period (000) $29,626 $42,538 $90,377 $148,254
</TABLE>
7
<PAGE>
CAPITAL GROWTH SERIES (continued)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------
1991 1992 1993 1994 1995 1996
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Year $249.04 $347.36 $322.23 $351.63 $312.30 $374.62
------- ------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Income 3.16 4.04 2.12 5.28 3.47 3.08
Net Gains or Losses on
Investments (both realized
and unrealized) 130.75 (25.10) 46.21 (30.54) 114.91 74.80
------ ------- ----- ------- ------ -----
Total From Investment
Operations 133.91 (21.06) 48.33 (25.26) 118.38 77.88
------ ------- ----- ------- ------ -----
Less distributions
Distributions From Net
Investment Income (3.22) (4.07) (2.18) (5.15) (3.48) (3.08)
Distributions From Net
Realized Capital Gains (31.93) 0.00 (16.75) (8.92) (52.58) (22.34)
Distributions From Paid-in
Capital
(0.44) 0.00 0.00 0.00 0.00 0.00
------ ---- ---- ---- ---- ----
Total Distributions (35.59) (4.07) (18.93) (14.07) (56.06) (25.42)
------- ------ ------- ------- ------- -------
Net Asset Value, End of the
Year $347.36 $322.23 $351.63 $312.30 $374.62 $427.08
======= ======= ======= ======= ======= =======
Total Return (%) 54.0 (6.1) 15.0 (7.1) 38.03 21.08
Ratio of Operating Expenses
to Average Net Assets(%) 0.70 0.70 0.68 0.67 0.71 0.69
Ratio of Net Investment
Income to Average Net
Assets (%) 1.22 1.53 0.67 1.61 0.92 0.79
Portfolio Turnover Rate (%) 174 207 169 140 242 207
Average Commission Rate
(b) --- --- --- --- --- $0.0669
Net Assets, End of Period
(000) $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.
8
<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 14.56 (0.89) 33.80 24.88
unrealized) ----- ----- ----- -----
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 (0.22) 0.00 0.00 0.00
Capital ------ ---- ---- ----
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 (%) 14.7 (b) (0.3) 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 (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.
(c) Computed on an annualized basis.
(d) During the periods presented, the Series' adviser voluntarily agreed to bear
the Series' 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.
(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.
9
<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 Period $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 Period $9.62 $13.10 $16.09
===== ====== ======
Total Return (%) (3.50)(b) 39.28 25.84
Ratio of Operating Expenses to Average 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 (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.
(c) 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.
(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.
10
<PAGE>
WESTPEAK GROWTH AND INCOME SERIES
<TABLE>
<CAPTION>
Year Ended December 31,
April 30(a) -----------------------
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 Realized Capital
Gains (0.01) 0.00 0.00 0.00
Distributions From Paid In Capital 0.00 (0.02) 0.00 0.00
---- ------ ---- ----
Total Distributions (1.93) (1.94) (7.40) (15.01)
------ ------ ------ -------
Net Asset Value, End of the Period $112.32 $109.03 $141.31 $151.77
======= ======= ======= =======
Total Return (%) 14.2(b) (1.2) 36.46 18.10
Ratio of Operating Expenses to Average 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 (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
limitation 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.
(c) Computed on an annualized basis.
(d) During the periods presented, the Series' adviser voluntarily agreed to bear
the Series' 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.
(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.
11
<PAGE>
<TABLE>
<CAPTION>
WESTPEAK STOCK INDEX SERIES
Year Ended December 31,
---------------------------------------------
Mar. 30(a)
to
Dec. 31,
--------
1987 1988 1989 1990
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Year $100.00 $84.74 $94.36 $117.36
------- ------ ------ -------
Income From Investment
Operations
Net Investment Income 2.44 3.48 3.55 3.76
Net Gains or Losses on Investments
(both realized and unrealized) (15.06) 10.39 24.83 (8.64)
------- ----- ----- ------
Total From Investment
Operations (12.62) 13.87 28.38 (4.88)
------- ----- ----- ------
Less distributions
Distributions From Net
Investment Income (2.23) (3.44) (3.74) (3.82)
Distributions From Net
Realized Capital Gains (0.41) (0.81) (1.64) 0.00
Distributions in Excess of Net
Realized Capital Gains 0.00 0.00 0.00 0.00
Distributions From Paid-in
Capital 0.00 0.00 0.00 (0.17)
---- ---- ---- ------
Total Distributions (2.64) (4.25) (5.38) (3.99)
------ ------ ------ ------
Net Asset Value, End of
Period $84.74 $94.36 $117.36 $108.49
====== ====== ======= =======
Total Return(%) (12.2) 16.3 30.2 (4.1)
Ratio of Operating Expenses to
Average Net Assets(%) 0.31 0.36 0.34 0.36
Ratio of Net Investment Income to
Average Net Assets(%) 3.36 3.92 3.31 3.36
Portfolio Turnover Rate(%) 31 4 52 1
Net Assets, End of
Period (000) $9,002 $11,073 $15,501 $15,122
</TABLE>
12
<PAGE>
WESTPEAK STOCK INDEX SERIES (continued)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1991 1992 1993* 1994 1995 1996
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the Year $108.49 $137.39 $72.00 $76.48 $75.35 $100.09
------- ------- ------ ------ ------- -------
Income From Investment
Operations
Net Investment Income 3.56 8.35 1.54 1.80 1.88 1.91
Net Gains or Losses on
Investments (both
realized and
unrealized) 29.29 2.02 5.18 (0.92) 25.89 20.58
------- ------- ------- ------- ------- -------
Total From Investment
Operations 32.85 10.37 6.72 0.88 27.77 22.49
------- ------- ------- ------- ------- -------
Less distributions
Distributions From Net
Investment Income (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 (0.39) (67.41) (0.55) (0.16) (1.18) (1.03)
Distributions in Excess of
Net Realized Capital
Gains 0.00 0.00 (0.15) 0.00 0.00 0.00
Distributions From Paid-
in Capital 0.00 0.00 0.00 (0.03) 0.00 0.00
------- ------- ------- ------- ------- -------
Total Distributions (3.95) (75.76) (2.24) (2.01) (3.03) (2.96)
------- ------- ------- ------- ------- -------
Net Asset Value, End of
the Year $137.39 $72.00 $76.48 $75.35 $100.09 $119.62
======= ====== ====== ====== ======= =======
Total Return (%) 30.4 7.3 9.7 1.1 36.88 22.47
Ratio of Operating
Expenses to Average
Net Assets(%) 0.36 0.35 0.34 0.33 0.40 0.40
Ratio of Net Investment
Income to Average
Net Assets (%) 2.86 2.63 2.52 2.59 2.20 1.84
Portfolio Turnover
Rate (%) 2 17 12 2 5 4
Average Commission
Rate (c) --- --- --- --- --- $0.0309
Net Assets, End of
Period (000) $20,496 $10,172 $28,817 $37,164 $58,671 $80,764
</TABLE>
13
<PAGE>
WESTPEAK STOCK INDEX SERIES (continued)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------------
1991 (a) 1992 1993 1994 1995 1996
-------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
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 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.
14
<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 Period $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 Realized Capital Gains 0.00 (0.19) (0.13)
------ ------- -------
Total Distributions (0.05) (0.45) (0.40)
------ ------- -------
Net Asset Value, End of the Period $ 9.94 $ 11.95 $ 13.55
====== ======= =======
Total Return (%) (0.10)(b) 24.79 16.91
Ratio of Operating Expenses to Average 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 (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.
(c) 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.
(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.
15
<PAGE>
BACK BAY ADVISORS MANAGED SERIES
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
May 1(a)
to
Dec. 31,
-----------
1987 1988 1989 1990
---------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of the Year $100.00 $ 96.62 $100.17 $114.65
------- ------- ------- -------
Income From Investment
Operations
Net Investment Income 2.80 5.13 4.31 5.47
Net Gains or Losses on
Investments (both
realized and (3.45) 4.04 14.77 (1.81)
unrealized) ------ ---- ----- ------
Total From Investment
Operations (0.65) 9.17 19.08 3.66
------ ---- ----- ----
Less distributions
Distributions From Net
Investment Income (2.73) (5.24) (4.22) (5.38)
Distributions From Net
Realized Capital Gains 0.00 (0.38) (0.38) 0.00
Distributions From Paid-
in Capital 0.00 0.00 0.00 (0.14)
---- ---- ---- ------
Total Distributions (2.73) (5.62) (4.60) (5.52)
------ ------ ------ ------
Net Asset Value, End of
the Year $ 96.62 $100.17 $114.65 $112.79
======= ======= ======= =======
Total Return (%) (0.7) 9.5 19.1 3.2
Ratio of Operating
Expenses to Average 0.66 0.64 0.57 0.57
Net Assets(%)
Ratio of Net Investment
Income to Average
Net Assets (%) 4.96 5.88 5.29 5.58
Portfolio Turnover
Rate (%) 1 1 1 1
Net Assets, End of
Period (000) $ 7,694 $10,806 $23,622 $36,563
</TABLE>
16
<PAGE>
BACK BAY ADVISORS MANAGED SERIES (continued)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1991 1992 1993 1994 1995 1996
------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
- - - - - -
Net Asset Value, Beginning of
the Year $112.79 $127.87 $ 130.26 $ 137.18 $ 130.30 $ 163.52
------- ------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income 6.41 5.145 4.35 5.42 6.34 6.43
Net Gains or Losses on
Investments (both realized
and unrealized) 16.23 3.45 9.58 (6.92) 34.33 18.21
----- ---- ---- ------ ----- -----
Total From Investment
Operations 22.64 8.59 13.93 (1.50) 40.67 24.64
----- ---- ----- ------ ----- -----
Less distributions
Distributions From Net
Investment Income (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 (1.15) (1.07) (2.65) 0.00 (0.88) (11.45)
Distributions From Paid-
in Capital 0.00 0.00 0.00 0.00 0.00 0.00
---- ---- ---- ---- ---- ----
Total Distributions (7.56) (6.20) (7.01) (5.38) (7.45) (17.79)
------ ------ ------ ------ ------ -------
Net Asset Value, End of the
Year $127.87 $130.26 $ 137.18 $ 130.30 $ 163.52 $ 170.37
======= ======= ======== ======== ======== ========
Total Return (%) 20.2 6.7 10.7 (1.1) 31.26 15.01
Ratio of Operating Expenses
to Average Net Assets(%) 0.55 0.54 0.53 0.54 0.64 0.62
Ratio of Net Investment
Income to Average Net
Assets (%) 5.45 5.32 3.65 3.98 4.06 3.64
Portfolio Turnover
Rate (%) 36 36 22 76 51 72
Average Commission Rate (b) --- --- --- --- --- $ 0.0318
Net Assets, End of
Period (000) $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.
17
<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 Period $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 Period $9.74 $10.85 $11.62
===== ====== ======
Total Return (%) (1.40)(b) 19.38 14.36
Ratio of Operating Expenses to Average 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.
(c) 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.
18
<PAGE>
<TABLE>
<CAPTION>
BACK BAY ADVISORS BOND INCOME SERIES
Year Ended December 31,
--------------------------------------
1987 1988 1989 1990
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Year $123.45 $ 95.47 $ 92.75 $ 97.23
------- ------- ------- -------
Income From Investment
Operations
Net Investment Income 8.97 8.52 8.58 8.49
Net Gains or Losses on
Investments (both
realized and unrealized) (7.14) (0.54) 2.81 (0.65)
------ ------ ---- ------
Total From Investment
Operations 1.83 7.98 11.39 7.84
---- ---- ----- ----
Less distributions
Distributions From Net
Investment Income (18.71) (10.70) (6.91) (7.46)
Distributions in Excess of
Net Investment Income 0.00 0.00 0.00 0.00
Distributions From Net
Realized Capital Gains (11.10) 0.00 0.00 0.00
------- ---- ---- ----
Total Distributions (29.81) (10.70) (6.91) (7.46)
------- ------- ------ ------
Net Asset Value, End of the
Year $95.47 $92.75 $97.23 $97.61
====== ====== ====== ======
Total Return (%) 1.4 8.4 12.3 8.1
Ratio of Operating
Expenses to Average
Net Assets(%) 0.45 0.47 0.45 0.46
Ratio of Net Investment
Income to Average Net
Assets (%) 8.65 8.50 8.62 8.57
Portfolio Turnover
Rate (%) 331 104 69 106
Net Assets, End of
Period (000) $17,449 $15,750 $26,156 $40,631
</TABLE>
19
<PAGE>
BACK BAY ADVISORS BOND INCOME SERIES (continued)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------
1991 1992 1993* 1994 1995 1996
---- ---- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Year $97.61 $103.44 $103.47 $106.14 $95.53 $108.67
------ ------- ------- ------- ------ -------
Income From Investment
Operations
Net Investment Income 8.53 7.96 5.70 7.05 7.34 7.72
Net Gains or Losses on
Investments (both
realized and unrealized) 8.90 0.51 7.38 (10.61) 12.85 (2.70)
---- ---- ---- ------- ----- ------
Total From Investment
Operations 17.43 8.47 13.08 (3.56) 20.19 5.02
----- ---- ----- ------ ----- ------
Less distributions
Distributions From Net
Investment Income (9.47) (6.87) (6.20) (7.05) (7.05) (7.74)
Distributions In Excess of
Net Investment Income 0.00 0.00 (0.05) 0.00 0.00 0.00
Distributions From Net
Realized Capital Gains (2.13) (1.57) (4.16) 0.00 0.00 (0.32)
------ ------ ------ ---- ---- ------
Total Distributions (11.60) (8.44) (10.41) (7.05) (7.05) (8.06)
------- ------ ------- ------ ------ ------
Net Asset Value, End of the
Year $103.44 $103.47 $106.14 $95.53 $108.67 $105.63
======= ======= ======= ====== ======= =======
Total Return (%) 18.0 8.2 12.6 (3.4) 21.20 4.61
Ratio of Operating
Expenses to Average
Net Assets(%) 0.45 0.44 0.43 0.44 0.55 0.52
Ratio of Net Investment
Income to Average Net
Assets (%) 8.27 7.70 6.47 6.75 7.22 7.22
Portfolio Turnover
Rate (%) 193 71 177 82 73 98
Net Assets, End of
Period (000) $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.
20
<PAGE>
SALOMON BROTHERS U.S. GOVERNMENT SERIES
<TABLE>
<CAPTION>
Year Ended December 31,
October 31(a) ------------------------
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.
(c) 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.
21
<PAGE>
BACK BAY ADVISORS MONEY MARKET SERIES
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1987 1988 1989 1990
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of the Year $100.00 $100.00 $100.00 $100.00
------- ------- ------- -------
Income From Investment
Operations
Net Investment Income 6.33 7.25 8.85 7.88
---- ---- ---- ----
Total From Investment
Operations 6.32 7.25 8.85 7.88
Less Distributions
Distributions From Net
Investment Income (6.32) (7.25) (8.85) (7.88)
---- ---- ---- ----
Total Distributions (6.32) (7.25) (8.85) (7.88)
---- ---- ---- ----
Net Asset Value, End of
the Year $100.00 $100.00 $100.00 $100.00
======= ======= ======= =======
Total Return (%) 6.6 7.4 9.2 8.2
Ratio of Operating
Expenses to Average
Net Assets(%) 0.38 0.38 0.38 0.38
Ratio of Net Investment
Income to Average Net
Assets (%) 6.37 7.26 8.85 7.87
Net Assets, End of Period
(000) $33,047 $38,929 $42,678 $60,071
</TABLE>
22
<PAGE>
BACK BAY ADVISORS MONEY MARKET SERIES (continued)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------
1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ -------
<S> <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
------- ------- ------- ------- ------- -------
Income From Investment
Operations
Net Investment Income 6.03 3.73 2.93 3.89 5.50 4.99
---- ---- ---- ---- ---- ----
Total From Investment
Operations 6.03 3.73 2.93 3.89 5.50 4.99
---- ---- ---- ---- ---- ----
Less distributions
Distributions From Net
Investment Income (6.03) (3.73) (2.93) (3.89) (5.50) (4.99)
---- ---- ---- ---- --- ----
Total Distributions (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
======= ======= ======= ======= ======= ========
Total Return (%) 6.2 3.8 3.0 4.0 5.64 5.11
Ratio of Operating
Expenses to Average
Net Assets(%) 0.38 0.38 0.38 0.40 0.50 0.50
Ratio of Net Investment
Income to Average Net
Assets (%) 6.01 3.71 2.93 3.89 5.50 4.99
Net Assets, End of Period
(000) $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
the Series' expenses (other than advisory fees and any brokerage costs,
interest, taxes or extraordinary expenses) in excess of 0.15% of the Series'
average average daily net assets.
23
<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 equivalent.
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 aforementioned 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
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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
different EAFE countries.
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.
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.
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
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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.
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
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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 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 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 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 currently 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.
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Back Bay Advisors Managed Series
The investment objective of the 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.
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. See "Back Bay Advisors Bond Income Series" below for a description of
these types of investments and some possible risks associated with them. 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 regarding , 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 but 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
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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, ____% 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.
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 existing commercial bank loans to foreign for new obligations under
a plan introduced by former U.S. Treasury Secretary Nicholas F. 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.
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.
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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, ___% 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;
(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.
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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.
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.
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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. 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 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 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 is 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
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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.
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' sub-
adviser'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."
. 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
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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 due to the prepayment feature.
. 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 prepayments) 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 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.
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. 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
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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.
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 Part II of the Statement for more information.
. Swaps (Salomon Brothers Strategic Bond Opportunities Series)
The 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
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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 (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, Loomis Sayles Avanti Growth, Davis
Venture Value, 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.
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In connection with their investments in foreign securities, the Series intend to
comply with certain diversification guidelines of the California Department of
Insurance. These guidelines limit each Series' investments in any one foreign
country to 20% of the Series' net assets (except that the limit is 35% with
respect to Australia, Canada, France, Japan, the United Kingdom and Germany).
Also, when a Series has at least 20% but less than 40% of its net assets
invested in foreign securities, it must have investments in at least two foreign
countries; when a Series has at least 40% but less than 60% of its net assets
invested in foreign securities, it must have investments in at least three
foreign countries; when a Series has at least 60% but less than 80% of its net
assets invested in foreign securities, it must have investments in at least four
foreign counties; and when a Series has more than 80% of its net assets invested
in foreign securities, it must have investments in at least five foreign
countries.
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.
. 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
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government to make payments 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 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.
40
<PAGE>
.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"). 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 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 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.
.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)
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
41
<PAGE>
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.
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
42
<PAGE>
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>
Year Ended December 31,
----------------------------------------------------
Series 1987 1988 1989 1990 1991 1992
- ------ ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Loomis Sayles Small Cap Series(1) -- -- -- -- -- --
Morgan Stanley International Magnum
Equity Series(2) -- -- -- -- -- --
Alger Equity Growth Series -- -- -- -- -- --
Capital Growth Series 52.7% -8.8% 30.8% -3.5% 54.0% -6.1%
Loomis Sayles Avanti Growth Series(5) -- -- -- -- -- --
Davis Venture Value Series -- -- -- -- --
Westpeak Growth and Income Series -- -- -- -- --
Westpeak Stock Index Series (7) -12.2%(7) 16.3% 30.2% -4.1% 30.4% 7.3%
Loomis Sayles Balanced Series -- -- -- -- --
Back Bay Advisors Managed Series -0.7%(7) 9.5% 19.1% 3.2% 20.2% 6.7%
Salomon Brothers Strategic Bond
Opportunities Series -- -- -- -- --
Back Bay Advisors Bond Income Series 1.4% 8.4% 12.3% 8.1% 18.0% 8.2%
Salomon Brothers U.S. Government
Series -- -- -- -- --
Back Bay Advisors Money Market
Series 6.6% 7.4% 9.2% 8.2% 6.2% 3.8%
S&P 500(9) 5.2% 16.5% 31.6% -3.1% 30.3% 7.6%
Lehman Intermediate
Government/Corporate Bond 3.7% 6.8% 12.8% 9.2% 14.6% 7.2%
Index(10)
Consumer Price Index(11) 4.4% 4.4% 4.7% 6.1% 3.1% 2.9%
Dow Jones Industrial Average(12) 5.5% 16.1% 32.2% -1.0% 24.2% 7.4%
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
Average
Average Annual
Average Annual Total
Annual Total Return
Total Return Since
Return For the Commence-
For the Ten Five ment
Years Years of Offering
Ending Ending through
Series 1993 1994 1995 1996 12/31/96 12/31/96 12/31/96
- ------ ---- ---- ---- ---- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Loomis Sayles Small Cap Series -- -3.2%(1) 28.9% 30.67% -- -- 20.1%(1)
Morgan Stanley International
Magnum Equity Series(2) -- 2.6%(3) 6.0% 6.67% -- -- 7.2%
Alger Equity Growth Series -- -4.2%(3) 48.8% 13.17% -- -- 24.7%
Capital Growth Series 15.0% -7.1% 38.0% 21.08% 16.34% 10.90% 23.2%(4)
Loomis Sayles Avanti Growth
Series 14.7%(5) -0.3% 30.4% 17.58% -- -- 16.5%(5)
Davis Venture Value Series -- -3.5%(3) 39.3% 25.84% -- -- 27.5%
Westpeak Growth and Income Series 14.2%(6) -1.2% 36.5% 18.10% -- -- 17.7%(6)
Westpeak Stock Index Series 9.7% 1.1% 36.9% 22.47% -- 14.82% 13.2%(8)
Loomis Sayles Balanced Series -- -0.1%(3) 24.8% 16.91% -- -- 19.0%
Back Bay Advisors Managed Series 10.7% -1.1% 31.3% 15.01% -- 12.00% 11.4%(8)
Salomon Brothers Strategic Bond
Opportunities Series -- -1.4%(3) 19.4% 14.36% -- -- 14.7%
Back Bay Advisors Bond Income
Series 12.6% -3.4% 21.2% 4.61% 8.91% 8.34% 10.4%(4)
Salomon Brothers U.S. Government
Series -- 0.6%(3) 15.0% 3.31% -- -- 8.6%
Back Bay Advisors Money Market
Series 3.0% 4.0% 5.6% 5.11% 5.9% 4.3% 6.6%(4)
S&P 500(9) 10.1% 1.3% 37.4% 22.96% 15.29% 15.22% --
Lehman Intermediate
Government/Corporate Bond
Index(10) 8.8% -2.0% 15.3% 2.9% 8.4% 7.2% --
Consumer Price Index(11) 2.8% 2.8% 2.6% 3.3% 3.7% 2.8% --
Dow Jones Industrial Average(12) 16.9% 5.1% 37.0% 28.9% 16.7% 18.4% --
</TABLE>
44
<PAGE>
(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.
(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.
(6) For the period beginning April 30, 1993, when the Westpeak Growth and
Income Series became publicly available.
(7) Operations commenced on March 30, 1987, but the Westpeak Stock Index Series
did not become publicly available until May 1, 1987.
(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.
The data presented below under "Morgan Stanley International Magnum
Composite" represent the composite average annual total return of five accounts
managed by MSAM. These accounts include three 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 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, greater than $25 million, managed by MSAM in a substantially
similar style as the Series at a certain point. The following information does
not represent the Series' performance and should not be considered a prediction
of future performance of the Series. The Series' performance may be higher or
lower than that shown below.
Several of the accounts included in the composite 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
45
<PAGE>
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.
<TABLE>
<CAPTION>
Morgan Stanley International Lipper International
Magnum Composite Equity Fund Index EAFE Index
---------------- ----------------- ----------
<S> <C> <C> <C>
Total Return for the One Year Ended
December 31, 1996 12.84% 14.48% 6.36%
Average Annual Total Return Since
Inception (June 1, 1995) 12.77% 13.15% 7.98%
</TABLE>
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.
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 ____%. The effective yield for the same
period was ____%.
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 New England Mutual Life Insurance Company or TNE
Advisers, Inc. and its affiliates.
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
46
<PAGE>
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;
(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;
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 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 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);
47
<PAGE>
(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.
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.
48
<PAGE>
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 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
49
<PAGE>
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;
50
<PAGE>
*(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 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.
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.
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:
51
<PAGE>
<TABLE>
<CAPTION>
Series Subadviser
- ----------------------------------------------------------- ------------------------------------------
<S> <C>
Loomis Sayles Small Cap Series Loomis, Sayles & Company, L.P.
Morgan Stanley International Magnum Equity Series Morgan Stanley Asset Management Inc.
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 Opportunities Series Salomon Brothers Asset Management Inc
Back Bay Advisors Bond Income Series Back Bay Advisors, L.P.
Salomon Brothers U.S. Government Series Salomon Brothers Asset Management Inc
Back Bay Advisors Money Market Series Back Bay Advisors, L.P.
</TABLE>
TNE Advisers, Inc., 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, Inc. 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, Inc. has contracted with New England Funds, L.P. to
provide certain administrative services to support the Series.
Subject to the supervision of TNE Advisers, Inc., each subadviser manages
its Series in accordance with the Series' investment objectives and policies,
makes investment decisions for that 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, Inc. 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, 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. 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.
52
<PAGE>
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, Executive 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, 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 serves as investment adviser to numerous open-end and closed-end
investment companies. 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.
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.
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.
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. As Chief
Investment Officer, he is active in providing investment themes, strategies and
individual stock selections to the Series. He was the Series' primary
53
<PAGE>
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., 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, Inc. 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.
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. Mr. Lavan
joined SBAM in 1990 and is a Director and Portfolio Manager. 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. 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. Mr. Scott has been
with SBAM Limited since April, 1994 and is a Director and Senior Portfolio
Manager. 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.
54
<PAGE>
Fees and Expenses. TNE Advisers, Inc. is paid a management fee from the
Series it manages as follows:
<TABLE>
<CAPTION>
Annual Management fee rate paid by Series to
TNE Advisers, Inc.
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 Series 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 Series 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 Series 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. Government 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>
55
<PAGE>
Subadvisory Fees. TNE Advisers, Inc. pays each subadviser at the following
rates for providing subadvisory services to the following Series:
<TABLE>
<CAPTION>
Annual Percentage Rates
Paid by TNE Advisers, Inc. to Average Daily Net Asset
Series the Respective 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 International Magnum 0.75% of the first $30 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 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 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
Westpeak Stock Index Series 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 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 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>
56
<PAGE>
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.
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 Agreements
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, Inc. 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, Inc. 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 Mutual Life Insurance were 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 agreements,
are expected to be as follows:
<TABLE>
<CAPTION>
Total Expense Ratio
Series Under Current Voluntary Expense Agreements
- ----------------------------------------------- ----------------------------------------------------
<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, Inc. may terminate these voluntary 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), Alger Equity Growth Series, Davis Venture Value Series, Loomis Sayles
Balanced Series, Salomon Brothers Strategic Bond Opportunities Series and the
Salomon Brothers U.S. Government Series, which TNE Advisers, Inc. may terminate
at any time, TNE Advisers, Inc. 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, Inc. 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
57
<PAGE>
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. These expense limits can
be prospectively discontinued by TNE Advisers, Inc. 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>
Series Expense Limit Under 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 deferral arrangement had been limited
to 0.85%.
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 Series 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>
58
<PAGE>
If the voluntary expense agreements 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 agreements and expense defferal arrangement
Series for the year ended 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 Opportunities Series 1.19%
Back Bay Advisors Bond Income Series 0.52%
Salomon Brothers U.S. Government Series 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.
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
Morgan Stanley International Magnum Equity Series
Alger Equity Growth Series
Capital Growth Series $4,053,238
Loomis Sayles Avanti Growth Series $74,700
Davis Venture Value Series $81,002
Westpeak Growth and Income Series
Westpeak Stock Index Series
Loomis Sayles Balanced Series
Back Bay Advisors Managed Series
</TABLE>
The Alger Equity Growth and Davis Venture Value Series paid brokerage
commissions to brokerage firms affiliated with each Series respective
subadviser. The Morgan Stanley International Magnum Equity Series may use an
affiliated broker and pay brokerage commissions with respect to transactions
made on behalf of the Series. 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. 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.
Miscellaneous Arrangements
TNE Advisers, Inc. 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.
59
<PAGE>
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.
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.
60
<PAGE>
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.
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
61
<PAGE>
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.
62
<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.
63
<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
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Objectives and Policies
Miscellaneous Investment Practices
Determination of Net Asset Values
Fund Performance
Trustees and Officers
Advisory Arrangements
Distribution Agreement
Other Services
Portfolio Transactions and Brokerage
Description of the Fund
Appendix A-1 (Description of Bond Ratings)
Appendix A-2 (Description of Commercial Paper Ratings)
Appendix B
Appendix C Financial Statements and Report of Independent Accountants
</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.
<TABLE>
<CAPTION>
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>
<TABLE>
<S> <C>
Reverse Repurchase Agreements and Dollar Rolls Salomon Brothers Strategic Bond Opportunities Series
Salomon Brothers U.S. Government Series
Lending of Portfolio Securities Alger Equity Growth Series
Davis Venture Value Series
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 Mortgage Securities Salomon Brothers Strategic Bond Opportunities Series
Salomon Brothers U.S. Government Series
Asset-Backed Securities; Types of Credit Support Loomis Sayles Balanced Series
Salomon Brothers Strategic Bond Opportunities 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 Securities Salomon Brothers Strategic Bond Opportunities Series
Salomon Brothers U.S. Government Series
Loomis Sayles Balanced Fund
Swaps, Caps, Floors, Collars, Etc. Salomon Brothers Strategic Bond Opportunities Series
Eurodollar Futures and Options Salomon Brothers Strategic Bond Opportunities Series
Salomon Brothers U.S. Government Series
High Yield/High Risk Foreign Sovereign Debt Salomon Brothers Strategic Bond Opportunities Series
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 Hedging Transactions Morgan Stanley International Magnum Equity Series
Davis Venture Value Series
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>
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")
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<PAGE>
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.
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.
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>
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>
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
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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
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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
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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
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<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
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<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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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
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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:
<TABLE>
<CAPTION>
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>
30.67 -- -- --
Loomis Sayles Small Cap Series
Morgan Stanley International Magnum
Equity Series 6.67 -- -- --
Alger Equity Growth Series 13.17 -- -- --
Capital Growth Series 21.08 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 -- -- --
Loomis Sayles Balanced Series 16.91 -- -- --
Back Bay Advisors Managed Series 15.01 -- -- --
Salomon Brothers Strategic Bond
Opportunities Series 14.36 -- -- --
Back Bay Advisors Bond Income Series 4.61
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>
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 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.
25
<PAGE>
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.
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
26
<PAGE>
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 (44) -- Trustee; Pilot House, Lewis Wharf, Boston, MA 02110;
-------
Senior Vice President and Chief Financial Officer, Continental Cablevision,
Inc. (cable television operator); Director, Perini Corporation
(construction).
JOSEPH M. HINCHEY (70) -- Trustee; 193 Wamphassue 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. (70) -- Trustee; 217 Waterways Avenue., P.O. Box 518,
-------
Boca Grande, Florida 33921; Director, RYKA, Inc. (manufacturer of athletic
footwear for women); retired Chairman of the Board, HBM/Creamer (advertising
agency).
ROBERT B. KITTREDGE (75) -- 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 (70) -- 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 (58) -- 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 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,
Acushnet Company.
FREDERICK K. ZIMMERMANN* (44) -- 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* (47) -- Senior Vice President and Trustee; Vice President and
---------------------------------
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 (46) -- 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 (52) -- Senior Vice President; Vice President, NELICO; Senior
---------------------
Vice President, TNE Advisers, Inc.; formerly, Vice President-Portfolio
Strategy, The New England.
ALAN C. LELAND (44) -- 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.
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.
28
<PAGE>
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 of NEVA.
<TABLE>
<CAPTION>
Aggregate Compensation Aggregate Compensation Total Compensation from the
from the Fund from NEVA Fund 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
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.
30
<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 Assset 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
financial services corporation listed on the New York, London and Pacific stock
exchanges. MSAM,
31
<PAGE>
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."
<TABLE>
<CAPTION>
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>
32
<PAGE>
<TABLE>
<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 Opportunities Series 0.65% all assets
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:
<TABLE>
<CAPTION>
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 Series million
0.40% of the next $75 million
0.35% of the next $100 million
</TABLE>
33
<PAGE>
<TABLE>
<S> <C> <C>
0.30% of amounts in excess of $200 million
Westpeak Stock Index Series 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 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 sub-advisory fee rate for the Morgan Stanley
International Magnum Equity Series was 0.75% of the first $10 million of average
daily net assets, 0.60% of the next $40 million of such assets and 0.45% of such
assets in excess of $50 milllion.
** 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 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.
34
<PAGE>
For the following periods in 1995, the following amounts of advisory fees
were paid by the following Series:
<TABLE>
<CAPTION>
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 TNE Advisers,
Small Cap Series $22,671 Loomis Sayles $124,433 Inc. -- --
Morgan Stanley
International
Magnum Equity
Series TNE Advisers,
-- -- -- -- $85,666 Inc.
Alger Equity TNE Advisers,
Growth 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 TNE Advisers,
Value Series -- -- -- -- $131,969 Inc.
Westpeak
Growth and Income TNE Advisers,
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
Opportunities TNE Advisers,
Series -- -- -- -- $35,085 Inc.
Back Bay
Advisors Bond Back Bay TNE Advisers,
Income Series $173,139 Advisors $399,140 Inc. -- --
Salomon Brothers
U.S. Government TNE Advisers,
Series -- -- -- -- $20,446 Inc.
Back Bay
Advisors Money Back Bay TNE Advisers,
Market Series $84,329 Advisors $193,678 Inc. -- --
</TABLE>
35
<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.
<TABLE>
<CAPTION>
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 __,
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.
36
<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 sells
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
37
<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 and 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 years 1987 through 1996 and on the report of
the
38
<PAGE>
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 $_____, 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
Draycott International 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 Davis 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 __% respectively, for the Back Bay
39
<PAGE>
Advisors Bond Income Series and 76%, 51% and __%, respectively, for the Back Bay
Advisors Managed Series. 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 __%, 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 $_________, respectively. For the same periods, the Back
Bay Advisors Managed Series paid brokerage commissions aggregating $21,159,
$1,615 and $_________, 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 on those transactions. The Westpeak
Growth and Income Series paid brokerage commissions of $54,751, $61,252 and
$_________ 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, and $________, $________ and $10,554
were paid to brokers providing research services on those transactions. 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 and $________. Over the same periods $________, $________
and $________ were paid to brokers providing research services on those
transactions. The Davis Venture Value Series paid brokerage commissions of
$6,084 and $________ for the fiscal years ended 1994, 1995 and 1996. Over the
same periods $________, $________ and $________ were paid to brokers providing
research services on those transactions. The Alger Equity Growth Series paid
brokerage commissions of $2,452 and $________ for the fiscal years ended 1994,
1995 and 1996. Over the same periods $________, $________ and $________ were
paid to brokers providing research services on those transactions.
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
40
<PAGE>
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 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 $_______ 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 _____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. The Davis Venture Value Series
paid a total of $________ in brokerage commissions to Shelby Cullum Davis, Inc.,
an affiliated broker. This amount represents __% 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, Morgan
Stanley International Magnum 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.
41
<PAGE>
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 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 February 28, 1997, all of the outstanding voting securities of the Fund
were 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
42
<PAGE>
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 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.
43
<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.
44
<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.
45
<PAGE>
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.
46
<PAGE>
APPENDIX B
ABC and affiliates
Atlanta Constitution
Atlanta Journal
Austin American Statesman
Baltimore Sun
Barron's
Bond Buyer
Boston Business Journal
Boston Globe
Boston Herald
Broker World
Business Radio Network
Business Week
CBS and affiliates
CFO
Changing Times
Chicago Sun Times
Chicago Tribune
Christian Science Monitor
Christian Science Monitor News Service
Cincinnati Enquirer
Cincinnati Post
CNBC
CNN
Columbus Dispatch
Dallas Morning News
Dallas Times-Herald
Denver Post
Des Moines Register
Detroit Free Press
Donoghue's Money Fund Report
Dorfman, Dan (syndicated column)
Dow Jones News Service
Economist
FACS of the Week
Financial News Network
Financial Planning
Financial Services Week
Financial World
Forbes
Fort Worth Star-Telegram
Fortune
Fox Network and affiliates
Fund Action
Hartford Courant
Houston Chronicle
INC
Indianapolis Star
Institutional Investor
Investment Dealers Digest
Investment Vision
Investor's Daily
Journal of Commerce
Kansas City Star
LA Times
47
<PAGE>
Leckey, Andrew (syndicated column)
Life Association News
Miami Herald
Milwaukee Sentinel
Money
Money Maker
Money Management Letter
Morningstar
National Public Radio
National Underwriter
NBC and affiliates
New England Business
New England Cable News
New Orleans Times-Picayune
New York Daily News
New York Times
Newark Star Ledger
Newsday
Newsweek
Nightly Business Report
Orange County Register
Orlando Sentinel
Pension World
Pensions and Investments
Personal Investor
Philadelphia Inquirer
Porter, Sylvia (syndicated column)
Portland Oregonian
Public Broadcasting Service
Quinn, Jane Bryant (syndicated column)
Registered Representative
Research Magazine
Resource
Reuters
Rukeyser's Business (syndicated column)
Sacramento Bee
San Francisco Chronicle
San Francisco Examiner
San Jose Mercury
Seattle Post-Intelligencer
Seattle Times
Smart Money
St. Louis Post Dispatch
St. Petersburg Times
Standard & Poor's Outlook
Standard & Poor's Stock Guide
Stanger's Investment Advisor
Stockbroker's Register
Strategic Insight
Tampa Tribune
Time
Tobias, Andrew (syndicated column)
UPI
US News and World Report
USA Today
Value Line
Wall St. Journal
48
<PAGE>
Wall Street Letter
Wall Street Week
Washington Post
WBZ
WBZ-TV
WCVB-TV
WEEI
WHDH
Worcester Telegram
Worth Magazine
WRKO
49
<PAGE>
Registration Nos. 2-83538
811-3728
NEW ENGLAND ZENITH FUND
-----------------------
PART C. OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements: "Financial Highlights" contained in part A
hereof and "Financial Statements and Reports of Independent
Public Accountants" are incorporated by reference to the annual
report to shareholders of each of the Series of the Registrant
for the fiscal year ended December 31, 1996 which was filed with
the Commission on February 26, 1997.
(b) Exhibits:
(1) (a) Agreement and Declaration of Trust is filed herewith.
(b) Amendment No. 1 to Agreement and Declaration of Trust is
filed herewith.
(c) Amendment No. 2 to Agreement and Declaration of Trust is
filed herewith.
(d) Amendment No. 3 to Agreement and Declaration of Trust is
filed herewith.
(e) Amendment No. 4 to Agreement and Declaration of Trust is
filed herewith.
(f) Amendment No. 5 to the Agreement and Declaration of Trust is
filed herewith.
(g) Amendment No. 6 to the Agreement and Declaration of Trust is
filed herewith.
(h) Amendment No. 7 to Agreement and Declaration of Trust is
filed herewith.
(2) (a) By-Laws, as amended.***
(b) Amendment to By-Laws relating to Electronic Proxy Voting is
incorporated herein by reference to Post-Effective Amendment
No. 19 on Form N-1A (File No. 2-83538) filed on March 2,
1995.
(3) None.
(4) None.
(5) (a) Form of Advisory Agreement between the Fund, on behalf of
its Back Bay Advisors Money Market Series, and Back Bay
Advisors, Inc. ("Back Bay Advisors").*
1
<PAGE>
Registration Nos. 2-83538
811-3728
(b) Form of Advisory Agreement between the Fund, on behalf on its Back
Bay Advisors Bond Income Series, and Back Bay Advisors.*
(c) Form of Advisory Agreement between the Fund, on behalf of its Back
Bay Advisors Managed Series, and Back Bay Advisors.**
(d) Form of Advisory Agreement between the Fund, on behalf of its
Westpeak Value Growth Series, and Westpeak Investment Advisors,
Inc. is incorporated herein by reference to Post-Effective
Amendment No. 14 on Form N-1A (File No. 2-83538) filed on February
17, 1993.
(e) Form of Advisory Agreement between the Fund, on behalf of its
Loomis Sayles Avanti Growth Series, and Loomis, Sayles & Company,
Incorporated is incorporated herein by reference to Post-Effective
Amendment No. 14 on Form N-1A (File No. 2-83538) filed on February
17, 1993.
(f) Advisory Agreement between the Fund, on behalf of its Capital
Growth Series, and Capital Growth Management Limited Partnership
("CGM") is incorporated herein by reference to Post-Effective
Amendment No. 16 on Form N-1A (File No. 2-83538) filed on March 2,
1994.
(g) Advisory Agreement between the Fund, on behalf of its Westpeak
Stock Index Series, and Westpeak Investment Advisors, L.P.
("Westpeak") is incorporated herein by reference to Post-Effective
Amendment No. 16 on Form N-1A (File No. 2-83538) filed on March 2,
1994.
(h) Form of Advisory Agreement between the Fund, on behalf of its
Loomis Sayles Small Cap Series, and Loomis Sayles & Co., L.P.
("Loomis Sayles"), is incorporated herein by reference to Post-
Effective Amendment No. 17 on Form N-1A (File No. 2-83538) filed
on April 29, 1994.
(i) Advisory Agreement between the Fund, on behalf of each of its
Loomis Sayles Balanced Series, Draycott International Equity
Series, Salomon Brothers U.S. Government Series, Salomon Brothers
Strategic Bond Opportunities Series, Venture Value Series, Alger
Equity Growth Series and CS First Boston Strategic Equity
Opportunities Series, and TNE Advisers, Inc. is incorporated
herein by reference to Post-Effective Amendment No. 19 on Form N-
1A (File No. 2-83538) filed on March 2, 1995.
(j) Form of Sub-Advisory Agreement for each of Loomis Sayles Balanced
Series, Draycott International Equity Series, Salomon Brothers
U.S. Government Series, Salomon Brothers Strategic Bond
Opportunities Series, Davis Venture Value Series, Alger Equity
Growth Series and CS First Boston Strategic Equity Opportunities
Series between TNE Advisers, Inc. and Loomis Sayles, Draycott
Partners, Ltd., Salomon Brothers Asset Management, Inc., Davis
Selected Advisers, L.P., Fred Alger Management, Inc. and CS First
Boston Investment Management Corporation is incorporated herein
by reference to Post-Effective Amendment No. 18 on Form N-1A (File
No. 2-83538) filed on August 19, 1994.
(k) Form of Advisory Agreement between the Fund, on behalf of each of
its Back Bay Advisors Money Market Series, Back Bay Advisors Bond
Income Series, Westpeak Growth and Income Series, Loomis Sayles
Avanti Growth Series, Westpeak Stock Index Series, Back Bay
Advisors Managed Series and Loomis Sayles Small Cap Series and TNE
Advisers, Inc. is incorporated herein by reference to Post-
Effective Amendment No. 19 on Form N-1A (File No. 2-83538) filed
on March 2, 1995.
2
<PAGE>
Registration Nos. 2-83538
811-3728
(l) Form of Sub-Advisory Agreement for each of the Back Bay Advisors
Money Market Series, Back Bay Advisors Bond Income Series,
Westpeak Value Growth Series, Loomis Sayles Avanti Growth Series,
Westpeak Stock Index Series, Back Bay Advisors Managed Series and
Loomis Sayles Small Cap Series is incorporated herein by
reference to Post-Effective Amendment No. 19 on Form N-1A (File
No. 2-83538) filed on March 2, 1995.
(m) Form of Advisory Agreement between the Fund, on behalf of its
Alger Equity Growth Series, and TNE Advisers, Inc. is incorporated
herein by reference to Post-Effective Amendment No. 21 (File No. 2-
8353) filed on February 29, 1996.
(n) Form of Sub-Advisory Agreement for the Alger Equity Growth Series
between TNE Advisers, Inc. and Fred Alger Management, Inc. is
incorporated herein by reference to Post-Effective Amendment No.
21 (File No. 2-83538) filed on February 29, 1996.
(o) Form of Sub-Advisory Agreement for the Draycott International
Equity Series between TNE Advisers, Inc. and Draycott Partners,
Ltd. is incorporated herein by reference to Post-Effective
Amendment No. 21 (File No. 2-83538) filed on February 29, 1996.
(p) Form of Sub-Advisory Agreement for the Draycott International
Equity Series between TNE Advisers, Inc. and Draycott Partners,
Ltd. is incorporated herein by reference to Post-Effective
Amendment No. 21 (File No. 2-83538) filed on February 29, 1996.
(q) Sub-Advisory Agreement for the Davis Venture Value Series among
TNE Advisers, Inc., Davis Selected Advisers, L.P. and Davis
Selected Advisers - NY, Inc. is filed herewith.
(r) Form of Sub-Advisory Agreement for the Morgan Stanley International
Magnum Equity Series and Morgan Stanley Asset Management Inc. is
filed herewith.
(6) (a) Form of Distribution Agreement between the Fund and New England
Securities Corporation, as amended, is incorporated herein by
reference to Post-Effective Amendment No. 14 on Form N-1A (File No.
2-83538) filed on February 17, 1993.
(b) Form of Distribution Agreement between the Fund and New England
Securities Corporation, as amended, is incorporated herein by
reference to Post-Effective Amendment No. 18 on Form N-1A (File
No. 2-83538) filed on August 19, 1994.
(7) None.
(8) (a) Amended and Restated Custodian Contract among the Fund, on behalf
of its Back Bay Advisors Money Market, Back Bay Advisors Bond
Income, Capital Growth, Westpeak Stock Index and Back Bay Advisors
Managed Series, New England Mutual Life Insurance Company ("The New
England") and State Street Bank and Trust Company ("State
Street").*
(b) Form of Agreement among the Fund, The New England and State Street
relating to the applicability of the Custodian Contract to the
Westpeak Growth and Income and Loomis Sayles Avanti Growth Series
is incorporated herein by reference to Post-Effective Amendment
No. 14 on Form N-1A (File No. 2-83538) filed on February 17, 1993.
3
<PAGE>
Registration Nos. 2-83538
811-3728
(c) Agreement among the Fund, The New England and State Street relating
to the applicability of the Custodian Contract to the Loomis Sayles
Small Cap Series is incorporated herein by reference to Post-
Effective Amendment No. 17 on Form N-1A (File No. 2-83538) filed on
April 29, 1994.
(d) Form of Agreement among the Fund, The New England and State Street
relating to the applicability of the Custodian Contract to each of
the Loomis Sayles Balanced Series, Draycott International Equity
Series, Salomon Brothers U.S. Government Series, Salomon Brothers
Strategic Bond Opportunities Series, Davis Venture Value Series,
Alger Equity Growth Series and CS First Boston Strategic Equity
Opportunities Series is incorporated herein by reference to Post-
Effective Amendment No. 19 on Form N-1A (File No. 2-83538) filed on
March 2, 1995.
(9) (a) Transfer Agency Agreement between the Fund and The New England.**
(b) Amendment to Transfer Agency Agreement relating to the
applicability of the Agreement to the Westpeak Growth and Income
and the Loomis Sayles Avanti Growth Series is incorporated herein
by reference to Post-Effective Amendment No. 14 on Form N-1A (File
No. 2-83538) filed on February 17, 1993.
(c) Amendment to Transfer Agency Agreement relating to the
applicability of the Agreement to the Loomis Sayles Small Cap
Series is incorporated herein by reference to Post-Effective
Amendment No. 17 on Form N-1A (File No. 2-83538) filed on April 29,
1994.
(d) Form of Amendment to Transfer Agency Agreement relating to the
applicability of the Agreement to each of the Loomis Sayles
Balanced Series, Draycott International Equity Series, Salomon
Brothers U.S. Government Series, Salomon Brothers Strategic Bond
Opportunities Series, Davis Venture Value Series, Alger Equity
Growth Series and CS First Boston Strategic Equity Opportunities
Series is incorporated herein by reference to Post-Effective
Amendment No. 18 on Form N-1A (File No. 2-83538) filed on August
19, 1994.
(e) Form of Expense Agreement between the Fund and The New England.*
(f) Powers of Attorney of Trustees are filed herewith.
(g) Form of Service Agreement relating to the Loomis Sayles Small Cap
Series between Loomis Sayles and New England Funds, L.P., is
incorporated herein by reference to Post-Effective Amendment No. 17
on Form N-1A (File No. 2-83538) filed on April 29, 1994.
(h) Service Agreement relating to the Westpeak Growth and Income Series
and the Westpeak Stock Index Series between Westpeak Investment
Advisors, Incorporated and New England Funds, L.P. is incorporated
herein by reference to Post-Effective Amendment No 17 on Form N-1A
(File No. 2-83538) filed on April 29, 1994.
(i) Service Agreement relating to each of the Back Bay Advisors Money
Market Series, Back Bay Advisors Bond Income Series, Westpeak
Growth and Income Series, Loomis Sayles Avanti Growth Series,
Westpeak Stock Index Series, Back Bay Advisors Managed Series and
Loomis Sayles Small Cap Series, Loomis Sayles Balanced Series,
Draycott International Equity Series, Salomon Brothers U.S.
Government Series, Salomon Brothers Strategic Bond Opportunities
Series, Davis Venture Value Series, Alger Equity Growth Series and
Short-Term Series between TNE Advisers, Inc. and New England Funds,
L.P. is incorporated herein by reference
4
<PAGE>
Registration Nos. 2-83538
811-3728
to Post-Effective Amendment No. 20 on Form N-1A (File No. 2-83538)
filed on May 4, 1995.
(10) (a) Opinion and Consent of counsel relating to the Back Bay Advisors
Money Market Series, Back Bay Advisors Bond Income Series and
Capital Growth Series incorporated herein by reference to Post-
Effective Amendment No. 6 on Form N-1A (File No. 2-83538) filed on
February 27, 1987.
(b) Opinion and Consent of counsel relating to the Westpeak Stock
Index Series and Back Bay Advisors Managed Series incorporated
herein by reference to Post-Effective Amendment No. 8 on Form N-1A
(File No. 2-83538) filed on April 29, 1987.
(c) Opinion and Consent of counsel relating to the Westpeak Value
Growth and Loomis Sayles Avanti Growth Series is incorporated
herein by reference to Post-Effective Amendment No. 15 on Form N-
1A (File No. 2-83538) filed on April 30, 1993.
(d) Opinion and Consent of counsel relating to the Loomis Sayles Small
Cap Series is incorporated herein by reference to Post-Effective
Amendment No. 17 on Form N-1A (File No. 2-83538) filed on April
29, 1994.
(e) Opinion and Consent of counsel relating to each of the Loomis
Sayles Balanced Series, Draycott International Equity Series,
Salomon Brothers U.S. Government Series, Salomon Brothers
Strategic Bond Opportunities Series, Venture Value Series, Alger
Equity Growth Series and CS First Boston Strategic Equity
Opportunities Series is incorporated herein by reference to Post-
Effective Amendment No. 19 on Form N-1A (File No. 2-83538) filed
on March 2, 1995.
(11) Consent of Coopers and Lybrand is filed herewith.
(12) None.
(13) (a) Investment Letter of New England Securities Corporation is
incorporated herein by reference to Pre-Effective Amendment No. 1
on Form N-1A (File No. 2-83538) filed on August 2, 1983.
(b) Investment Letter of The New England relating to the Loomis Sayles
Avanti Growth Series is incorporated herein by reference to Post-
Effective Amendment No. 15 on Form N-1A (File No. 2-83538) filed
on April 30, 1993.
(c) Investment Letter of The New England relating to the Westpeak
Value Growth Series is incorporated herein by reference to Post-
Effective Amendment No. 15 on Form N-1A (File No. 2-83538) filed
on April 30, 1993.
(d) Investment Letter of The New England relating to the Loomis Sayles
Small Cap Series is incorporated herein by reference to Post-
Effective Amendment No. 17 on Form N-1A (File No. 2-83538) filed
on April 29, 1994.
(14) None.
(15) None.
(16) Schedule for Computation of Performance Quotations is herein
incorporated by reference to Post-Effective Amendment No. 10 to
Registration Statement on Form N-1A (File No. 2-83538) filed on
May 1, 1989.
5
<PAGE>
Registration Nos. 2-83538
811-3728
* Incorporated herein by reference to Post-Effective Amendment No. 5 on
Form N-1A (File No. 2-83538) filed on December 29, 1986.
** Incorporated herein by reference to Post-Effective Amendment No. 7 on
Form N-1A (File No. 2-83538) filed on March 2, 1987.
*** Incorporated herein by reference to Post-Effective Amendment No. 11
on Form N-1A (File No. 2-83538) filed on May 1, 1990.
Item 25. Persons Controlled by or Under Common Control with Registrant
-------------------------------------------------------------
None.
Item 26. Number of Holders of Securities
-------------------------------
The following table sets forth the number of record holders of each
class of securities of the Fund as of February 1, 1997:
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
-------------- ------------------------
<S> <C>
Shares of Beneficial Interest 3
Money Market Series
Shares of Beneficial Interest 3
Bond Income Series
Shares of Beneficial Interest 2
Capital Growth Series
Shares of Beneficial Interest 2
Stock Index Series
Shares of Beneficial Interest 2
Managed Series
Shares of Beneficial Interest 5
Avanti Growth Series
Shares of Beneficial Interest 5
Growth and Income Series
Shares of Beneficial Interest 4
Loomis Sayles Small Cap Series
Shares of Beneficial Interest 5
Loomis Sayles Balanced Series
Shares of Beneficial Interest 5
Draycott International Equity Series
Shares of Beneficial Interest 5
Salomon Brothers U.S. Government Series
Shares of Beneficial Interest 5
Salomon Brothers Strategic Bond
Opportunities Series
</TABLE>
6
<PAGE>
Registration Nos. 2-83538
811-3728
Shares of Beneficial Interest 5
Davis Venture Value Series
Shares of Beneficial Interest 5
Alger Equity Growth Series
Item 27. Indemnification
---------------
See Article 4 of the Fund's By-Laws filed as Exhibit 2 to Post-
Effective Amendment No. 8 on Form N-1A (File No. 2-83538) which Exhibit
is incorporated herein by reference. In addition, the Fund maintains a
trustees and officers liability insurance policy with a maximum
coverage of $15 million under which the Fund and its trustees and
officers are named insureds.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the Fund's By-Laws, or otherwise,
the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a
trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit of proceeding) is asserted by
such trustee, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication
of such issue.
Item 28. Business and other Connections of Investment Adviser
----------------------------------------------------
(a) TNE Advisers, Inc., is the adviser of the Back Bay Advisers Money
Market Series, Back Bay Advisers Bond Income Series, Westpeak Value
Growth Series, Loomis Sayles Avanti Growth Series, Westpeak Stock
Index Series, Back Bay Advisors Managed Series, Loomis Sayles Small
Cap Series, Loomis Sayles Balanced Series, Morgan Stanley
International Magnum Equity Series, Salomon Brothers U.S.
Government Series, Salomon Brothers Strategic Bond Opportunities
Series, Venture Value Series and the Alger Equity Growth Series and
has entered into subadvisory agreements for these Series with Back
Bay Advisors, Westpeak, Loomis Sayles, Morgan Stanley Asset
Management Inc., Salomon Brothers Asset Management Inc, Salomon
Brothers Asset Management Inc, Davis Selected Advisers, L.P. and
Fred Alger Management, Inc., respectively. TNE Advisers, a wholly-
owned subsidiary of New England, was organized in 1994 and
oversees, evaluates and monitors the subadvisers' provision of
investment advisory services to the Series and provides general
management and administration to the Series.
Such adviser's directors and officers have been engaged during the
past two years in the following other businesses, vocations or
employments of a substantial nature.
<TABLE>
<CAPTION>
Name and Office with Name and Address of
TNE Advisers, Inc. Other Affiliations Nature of Connection
------------------ ------------------ --------------------
<S> <C> <C>
Frederick K. Zimmermann
Chairman of the Board and
President
</TABLE>
7
<PAGE>
Registration Nos. 2-83538
811-3728
New England Portfolio Chairman
Advisors, Inc.
501 Boylston Street
Boston, MA 02117
New England Life Director and Vice
Insurance Company President of Investments
501 Boylston Street
Boston, MA 02117
New England Pension and Chairman, President and
Annuity Company Vice President of
501 Boylston Street Investments
Boston, MA 02117
NEL Partnership I, Inc. Director and President
501 Boylston Street
Boston, MA 02117
New England Life Chairman and President
Mortgage Funding Corp.
501 Boylston Street
Boston, MA 02117
NELRECO Troy, Inc. Director
501 Boylston Street
Boston MA 02117
TNE Funding Corp. Chairman and President
501 Boylston Street
Boston, MA 02117
John F. Guthrie, Jr. New England Life Vice President
Senior Vice President & Insurance Company
Director 501 Boylston Street
Boston, MA 02117
New England Portfolio President of Portfolio
Advisors, Inc. Strategy
501 Boylston Street
Boston, MA 02117
New England Pension & Vice President of
Annuity Co. Portfolio Strategy
501 Boylston Street
Boston, MA 02117
New England Variable Vice President of
Life Insurance Co. Portfolio Strategy
501 Boylston Street
Boston, MA 02117
8
<PAGE>
Registration Nos. 2-83538
811-3728
Thomas C. McDevitt New England Life Asset Allocation
Vice President Insurance Company Consultant
501 Boylston Street
Boston, MA 02117
New England Portfolio Vice President
Advisors, Inc.
501 Boylston Street
Boston, MA 02117
Beverly J. DeWitt New England Life Attorney and Assistant
Chief Legal Officer, Insurance Co. Secretary
Secretary and Clerk 501 Boylston Street
Boston, MA 02117
New England Securities Assistant Secretary
Corp.
399 Boylston Street
Boston, MA 02116
Westpeak Chief Legal Officer,
Advisors, L.P. Assistant Secretary and
1011 Walnut St., Suite Assistant Clerk
400
Boulder, CO 80302
Alan C. Leland New England Life Senior Vice President
Chief Financial Officer Insurance Co.
and Treasurer 501 Boylston Street
Boston, MA 02117
(b) Capital Growth Management Limited Partnership, the adviser of
the Capital Growth Series, provides investment advice to a
number of other registered investment companies and to other
organizations and individuals.
Name and Office Name and Address of
with CGM Other Affiliations Nature of Connection
-------- ------------------ --------------------
Kenbob, Inc. None None
General Partner
(c) Back Bay Advisors, L.P. ("Back Bay Advisors"), the subadviser
of the Back Bay Advisors Money Market Series, Back Bay Advisors
Bond Income Series and Back Bay Advisors Managed Series, is a
wholly-owned subsidiary of NEIC and is indirectly controlled by
The New England. Its sole general partner is Back Bay Advisors,
Inc.
Back Bay Advisors serves as investment adviser to a number of
other registered investment companies. Back Bay Advisors'
directors and officers have been engaged during the past two
years in the following businesses, vocations or employments of
a substantial nature (former affiliations are marked with an
asterisk).
Name and Office with
Back Bay Advisors or Name and Address of
Back Bay Advisors, Inc. Other Affiliations Nature of Connection
----------------------- ------------------ --------------------
Peter S. Voss, New England Investment Chairman of the Board,
Chairman of the Board, Companies, L.P. Chief
9
<PAGE>
Registration Nos. 2-83538
811-3728
Director 501 Boylston Street Executive Officer
Boston, MA 02117
New England Funds, L.P. Chairman of the Board
399 Boylston Street and Director
Boston, MA 02116
NEF Corporation Director
399 Boylston Street
Boston, MA 02116
New England Life Director
Insurance Company
501 Boylston Street
Boston, MA 02117
New England Investment President, CEO and
Companies, Inc. Director
399 Boylston Street
Boston, MA 02116
Westpeak Investment Chairman and Director
Advisors, Inc.
1050 Walnut Street, Suite
300
Boulder, CO 80302
NEF Corporation Director
399 Boylston Street
Boston, MA 02116
Charles T. Wallis, New England Securities Officer
Director, President and Corporation
Chief Executive Officer 399 Boylston Street
Boston, MA 02116
New England Funds, L.P. Director
399 Boylston Street
Boston, MA 02116
Charles G. Glueck, None None
Senior Vice President
Scott A. Millimet Chicago Board of Trade* Senior Vice President
Executive Vice President 141 West Jackson Boulevard and Manager of
Chicago, IL 60604 Carroll McEntee &
McGinley
J. Scott Nicholson, None None
Senior Vice President
Edgar M. Reed Aetna Capital Management* Head of Fixed Income
Executive Vice President 151 Farmington Avenue Management Group
Hartford, CT 06156
Nathan R. Wentworth, None None
10
<PAGE>
Registration Nos. 2-83538
811-3728
Vice President
Paul Zamagni, None None
Vice President and
Treasurer
Catherine L. Bunting, None None
Senior Vice President
Peter Hanson, NEIC Counsel and Senior
Secretary and Clerk 399 Boylston Street Vice President,
Boston, MA 02116 Assistant Secretary
and Assistant Clerk
Draycott Partners, Ltd.* Assistant Secretary
No. 8 City Road and Assistant Clerk
London, England EC2Y 1HE
Peter Palfrey, None None
Vice President
(d) Westpeak Investment Advisors, L.P., the subadviser of the Westpeak
Value Growth Series and Westpeak Stock Index Series, is a wholly-owned
subsidiary of NEIC. Its sole general partner is Westpeak Investment
Advisors, Inc. Organized in 1991, Westpeak provides investment
management services to other institutional clients, including accounts
of The New England and its affiliates.
Westpeak's directors and officers have been engaged during the past two
years in the following businesses, vocations or employments of a
substantial nature.
Name and Office with
Westpeak Investment Name and Address of
Advisors, Inc. Other Affiliations Nature of Connection
------------- ------------------ -------------------
Gerald H. Scriver, None None
President, Chief Executive
Officer, Chief Investment
Officer, Director
Peter S. Voss, NEIC Chairman of the
Chairman of the Board, 399 Boylston Street Board, Chief
Director Boston, MA 02116 Executive Officer
New England Funds, L.P. Chairman of the Board
399 Boylston Street and Director
Boston, MA 02116
Back Bay Advisors Chairman of the Board
399 Boylston Street and Director
Boston, MA 02116
New England Investment Chairman of the
Companies, L.P. Board, Chief
501 Boylston Street Executive Officer
Boston, MA 02117
11
<PAGE>
Registration Nos. 2-83538
811-3728
NEF Corporation Director
399 Boylston Street
Boston, MA 02116
New England Life Director
Insurance Company
501 Boylston Street
Boston, MA 02117
New England Investment President, CEO and
Companies, Inc. Director
399 Boylston Street
Boston, MA 02116
Sherry A. Umberfield, NEIC Executive Vice
Director 399 Boylston Street President
Boston, MA 02116
New England Investment Director
Associates, Inc
399 Boylston Street
Boston, MA 02116
NEF Corporation Director
399 Boylston Street
Boston, MA 02116
Edward N. Wadsworth, NEIC Executive Vice
Clerk and Secretary, Chief 399 Boylston Street President, Clerk,
Legal Officer Boston, MA 02116 Secretary and
General Counsel
Marlborough Capital Assistant Clerk
Advisors, Inc.
399 Boylston Street
Boston, MA 02116
New England Investment Secretary
Associates, Inc.
399 Boylston Street
Boston, MA 02116
Robert A. Franz, None None
Senior Vice President
Philip J. Cooper, None None
Executive Vice President
Compliance Officer
Beverly J. DeWitt, Chief New England Life Attorney and Assistant
Legal Officer Insurance Company Secretary
501 Boylston Street
Boston, MA 02117
12
<PAGE>
Registration Nos. 2-83538
811-3728
TNE Advisers, Inc. Chief Legal Officer,
501 Boylston Street Secretary and Clerk
Boston, MA 02117
(e) Loomis, Sayles & Company, L.P. ("Loomis Sayles"), the subadviser of
the Loomis Sayles Avanti Growth Series, the Loomis Sayles Small Cap
Series and the Loomis Sayles Balanced Series, provides investment
advice to a number of other registered investment companies and to
other organizations and individuals. Loomis Sayles is a wholly-owned
subsidiary of New England Investment Companies, L.P. ("NEIC") and is
indirectly controlled by The New England. Its sole general partner is
Loomis Sayles & Co., Inc.
Such subadviser's directors and officers have been engaged during the
past two years in the following other businesses, vocations or
employments of a substantial nature:
<TABLE>
<CAPTION>
Name and Office with
Loomis Sayles or Name and Address of
Loomis Sayles & Co., Inc. Other Affiliations Nature of Connection
------------------------- ------------------- --------------------
<S> <C> <C>
Robert J. Blanding, None None
President and Chief
Operating Officer
Sandy P. Tichenor, None None
Vice President, General
Counsel, Secretary and
Clerk
Jeffrey L. Meade, None None
Executive Vice President
and Chief Operating
Officer
Bruce Ebel, None
Vice President
Scott Pape, None None
Vice President
Mary Champagne, None None
Vice President
Jeffrey C. Petherick, None None
Vice President
Douglas Ramos, None None
Vice President
Meri Anne Beck, None None
Vice President
</TABLE>
(f) Fred Alger Management, Inc., the subadviser of Alger Equity Growth
Series, provides investment advice to a number of other registered
investment companies and to other organizations and individuals.
13
<PAGE>
Registration Nos. 2-83538
811-3728
Such subadviser's directors and officers have been engaged during the
past two years in the following other businesses, vocations or
employments of a substantial nature.
Name and Office with
Fred Alger Name and Address of
Management, Inc. Other Affiliations Nature of Connection
---------------- ------------------ --------------------
Fred M. Alger III, Alger Properties, Inc. Chairman
Chairman 75 Maiden Lane
New York, NY 10038
The Alger Fund Chairman
75 Maiden Lane
New York, NY 10038
Alger Associates, Inc. Chairman
75 Maiden Lane
New York, NY 10038
Castle Convertible Fund, Inc. Chairman
75 Maiden Lane
New York, NY 10038
Spectra Fund Chairman
75 Maiden Lane
New York, NY 10038
Fred Alger & Company, Chairman
Incorporated
30 Montgomery Street
Jersey City, NJ 07302
Alger Shareholder Chairman
Services, Inc
30 Montgomery Street
Jersey City, NJ 07302
The Alger American Fund Chairman
75 Maiden Lane
New York, NY 10038
Alger Life Insurance Agency, Chairman
Inc.
75 Maiden Lane
New York, NY 10038
Analysts Resources, Inc. Chairman
75 Maiden Lane
New York, NY 10038
The Alger Retirement Fund Chairman
75 Maiden Lane
New York, NY 10038
Fred Alger International Chairman
Advisory, S.A.
14
<PAGE>
Registration Nos. 2-83538
811-372
11, rue Aldringen
L-1118 Luxembourg
Grand Duchy of Luxembourg
The Alger American Asset Chairman
Growth Fund
11, rue Aldringen
L-1118 Luxembourg
Grand Duchy of Luxembourg
David D. Alger, The Alger Fund Trustee and President
Director and President 75 Maiden Lane
New York, NY 10038
Alger Properties, Inc. Director and President
75 Maiden Lane
New York, NY 10038
Alger Associates, Inc. Director and President
75 Maiden Lane
New York, NY 10038
Castle Convertible Fund, Director and President
Inc.
75 Maiden Lane
New York, NY 10038
Fred Alger & Company, Director and President
Incorporated
30 Montgomery Street
Alger Shareholder Director and President
Services, Inc.
30 Montgomery Street
Jersey City, NJ 07302
The Alger American Fund Trustee and President
75 Maiden Lane
New York, NY 10038
Spectra Fund Director and President
75 Maiden Lane
New York, NY 10038
Alger Life Insurance Director and President
Agency, Inc.
75 Maiden Lane
New York, NY 10038
Analysts Resources, Inc. Director and President
75 Maiden Lane
New York, NY 10038
The Alger Retirement Fund Trustee and President
75 Maiden Lane
15
<PAGE>
Registration Nos. 2-83538
811-3728
New York, NY 10038
Fred Alger International Director and President
Advisory, S.A.
11, rue Aldringen
L-1118 Luxembourg
Grand Duchy of Luxembourg
Gregory S. Duch, Alger Associates Executive Vice
Treasurer, Executive Vice 75 Maiden Lane President and
President and Director New York, NY 10038 Treasurer
Alger Properties, Inc. Executive Vice
75 Maiden Lane President, Director
New York, NY 10038 and Treasurer
Fred Alger & Company, Executive Vice
Incorporated President and
30 Montgomery Street Treasurer
Jersey City, NJ 07302
Alger Shareholder Executive Vice
Services, Inc. President and
30 Montgomery Street Treasurer
Jersey City, NJ 07302
The Alger Fund Treasurer
75 Maiden Lane
New York, NY 10038
The Alger American Fund Treasurer
75 Maiden Lane
New York, NY 10038
Castle Convertible Fund,
Inc.
75 Maiden Lane
New York, NY 10038
Spectra Fund Treasurer
75 Maiden Lane
New York, NY 10038
Alger Life Insurance Executive Vice
Agency, Inc. President and
75 Maiden Lane Treasurer
New York, NY 10038
Analysts Resources, Inc. Executive Vice
75 Maiden Lane President and
New York, NY 10038 Treasurer
The Alger Retirement Fund Treasurer
75 Maiden Lane
New York, NY 10038
Fred Alger International Director and Treasurer
16
<PAGE>
Registration Nos. 2-83538
811-3728
<TABLE>
<S> <C> <C>
Advisory, S.A.
11, rue Aldringen
L-1118 Luxembourg
Grand Duchy of Luxembourg
Mary E. Marsden Cochran Fred Alger & Company, Secretary and General
Secretary and General Incorporated Counsel
Counsel 30 Montgomery Street
Jersey City, NJ 07302
Alger Associates, Inc. Secretary and General
75 Maiden Lane Counsel
Alger Shareholder Secretary and General
Services, Inc. Counsel
30 Montgomery Street
Jersey City, N.J. 07302
Alger Properties, Inc. Secretary
75 Maiden Lane
New York, NY 10038
Alger Life Insurance Secretary
Agency, Inc.
75 Maiden Lane
New York, NY 10038
Analysts Resources, Inc. Secretary
75 Maiden Lane
New York, NY 10038
The Alger Fund Secretary
75 Maiden Lane
New York, NY 10038
Castle Convertible Fund, Secretary
Inc.
75 Maiden Lane
New York, NY 10038
Spectra Fund Secretary
75 Maiden Lane
New York, NY 10038
The Alger American Fund Secretary
75 Maiden Lane
New York, NY 10038
The Alger Retirement Fund Secretary
75 Maiden Lane
New York, NY 10038
Fred Alger International Secretary
Advisory, S.A.
11, rue Aldringen
L-1118 Luxemborg
Grand Duchy of Luxembourg
</TABLE>
17
<PAGE>
Registration Nos. 2-83538
811-3728
(g)Davis Selected Advisers, L.P., the subadviser of the Venture Value
Series, provides investment advice to a number of other registered
investment companies and to other organizations and individuals.
Such subadviser's directors and officers have been engaged during the
past two years in the following other businesses, vocations or
employments of a substantial nature (former affiliations are marked
with an asterisk).
Name and Office with
Davis Selected Name and Address of
Advisers, L.P. Other Affiliations Nature of Connection
-------------- ------------------ --------------------
Shelby M.C. Davis Selected American Shares, Director and President
Chairman and Majority Inc.
Shareholder of the 124 East Marcy Street
General Partner Santa Fe, NM 87501
Selected Special Shares, Director and President
Inc.
124 East Marcy Street
Santa Fe, NM 87501
Selected Capital Trustee and President
Preservation Trust
124 East Marcy Street
Santa Fe, NM 87501
Davis Series, Inc. Director and President
124 East Marcy Street
Santa Fe, NM 87501
Davis Tax-Free High Director and President
Income Fund
124 East Marcy Street
Santa Fe, NM 87501
Davis High Income Fund Director and President
124 East Marcy Street
Santa Fe, NM 87501
Davis New York Venture Director and President
Fund, Inc.
124 East Marcy Street
Santa Fe, NM 87501
Davis International Director and President
Series, Inc.
124 East Marcy Street
Santa Fe, NM 87501
Davis Venture Advisers, Director and Chairman
Inc.
124 East Marcy Street
Santa Fe, NM 87501
18
<PAGE>
Registration Nos. 2-83538
811-3728
Shelby Cullom Davis Director and
Financial Consultants Shareholder
70 Pine Street
New York, NY 10270
Fiduciary Trust Co., Consultant
International
2 World Trade Center
New York, NY 10048
Carl Luff Davis New York Venture Vice President,
Director, President and Fund, Inc. Treasurer and
Treasurer of the General 124 East Marcy Street Assistant Secretary
Partner Santa Fe, NM 87501
Davis Tax-Free High Vice President,
Income Fund Treasurer and
124 East Marcy Street Assistant Secretary
Santa Fe, NM 87501
Davis High Income Fund Vice President,
124 East Marcy Street Treasurer and
Santa Fe, NM 87501 Assistant Secretary
Davis Series, Inc. Vice President,
124 East Marcy Street Treasurer and
Santa Fe, NM 87501 Assistant Secretary
Selected American Shares, Vice President,
Inc. Treasurer and
124 East Marcy Street Assistant Secretary
Santa Fe, NM 87501
Selected Special Shares, Vice President,
Inc. Treasurer and
124 East Marcy Street Assistant Secretary
Santa Fe, NM 87501
Selected Capital Vice President,
Preservation Trust Treasurer and
124 East Marcy Street Assistant Secretary
Santa Fe, NM 87501
Davis International Vice President,
Series, Inc. Treasurer and
124 East Marcy Street Assistant Secretary
Santa Fe, NM 87501
19
<PAGE>
Registration Nos. 2-83538
811-3728
Carolyn H. Spolidoro, Davis New York Venture Vice President
Vice President of the Fund, Inc.
General Partner 124 East Marcy Street
Santa Fe. NM 87501
Davis Series, Inc. Vice President
124 East Marcy Street
Santa Fe, NM 87501
Davis High Income Fund Vice President
124 East Marcy Street
Santa Fe, NM 87501
Davis Tax-Free High Vice President
Income Fund
124 East Marcy Street
Santa Fe, NM 87501
Davis Venture Advisers, Vice President
Inc.
124 East Marcy Street
Santa Fe, NM 87501
Davis International Vice President
Series, Inc.
124 East Marcy Street
Santa Fe, NM 87501
Eileen Street, Davis New York Venture Assistant Treasurer
Senior Vice President and Fund, Inc. and Assistant Secretary
Secretary of the General 124 East Marcy Street
Partner Santa Fe, NM 87501
20
<PAGE>
Registration Nos. 2-83538
811-3728
Davis Tax-Free High Assistant Treasurer
Income Fund and Assistant
124 East Marcy Street Secretary
Santa Fe, NM 87501
Davis Series, Inc. Assistant Treasurer
124 East Marcy Street and Assistant
Santa Fe, NM 87501 Secretary
Davis High Income Fund Assistant Treasurer
124 East Marcy Street and Assistant
Santa Fe, NM 87501 Secretary
Selected American Shares, Assistant Treasurer
Inc. and Assistant
124 East Marcy Street Secretary
Santa Fe, NM 87501
Selected Special Shares Assistant Treasurer
124 East Marcy Street and Assistant
Santa Fe, NM 87501 Secretary
Davis International Assistant Treasurer
Services, Inc. and Assistant
124 East Marcy Street Secretary
Santa Fe, NM 87501
Selected Capital Assistant Treasurer
Preservation Trust and Assistant
124 East Marcy Street Secretary
Santa Fe, NM 87501
Andrew A. Davis, Shelby Cullom Davis & Co. Consultant
President of the 70 Pine Street
General Partner New York, NY 10270
Capital Ideas, Inc. Consultant
140 North Beach Road
Hobe Sound, FL 33475
Davis Series, Inc. Vice President
124 East Marcy Street
Santa Fe, NM 87501
Davis International Vice President
Series, Inc.
124 East Marcy Street
Santa Fe, NM 87501
Davis Tax-Free High Vice President
Income Fund
124 East Marcy Street
Santa Fe, NM 87501
Davis High Income Fund Vice President
124 East Marcy Street
Santa Fe, NM 87501
21
<PAGE>
Registration Nos. 2-83538
811-3728
Davis New York Venture, Vice President
Fund, Inc.
124 East Marcy Street
Santa Fe, NM 87501
(h) Salomon Brothers Asset Management Inc, the subadviser of Salomon
Brothers U.S. Government Series and Salomon Brothers Strategic Bond
Opportunities Series, provides investment advice to a number of other
registered investment companies and to other organizations and
individuals.
Such subadviser's directors and officers have been engaged during the
past two years in the following other businesses, vocations or
employments of a substantial nature (former affiliations are marked
with an asterisk).
Name and Office with
Salomon Brothers Name and Address of
Asset Management Inc Other Affiliations Nature of Connection
-------------------- ------------------ --------------------
Thomas W. Brock, Salomon Brothers Inc Managing Director
Chairman and Chief 7 World Trade Center
Executive Officer New York, NY 10048
Vilas Gadkari, Salomon Brothers Inc Managing Director
Director Victoria Plaza
111 Buckingham Palace Road
London SW1W05B England
Salomon Brothers Managing Director
International Limited
Victoria Plaza
111 Buckingham Palace Road
London SW1W05B England
Rodney B. Berens Salomon Brothers Inc Managing Director
7 World Trade Center
New York, NY 10048
Salomon Brothers Managing Director
International Limited
Victoria Plaza
111 Buckingham Palace Road
London SW1W05B England
Richard J. Carbone, Salomon Brothers Inc Controller
Treasurer 7 World Trade Center
New York, NY 10048
Michael S. Hyland, Salomon Brothers Inc Managing Director
President 7 World Trade Center
New York, NY 10048
Salomon Brothers Asset Chairman
Management Limited*
7 World Trade Center
22
<PAGE>
Registration Nos. 2-83538
811-3728
New York, NY 10048
James J. Lee, Salomon Brothers Inc Director
Director 7 World Trade Center
New York, NY 10048
Zachary Snow, Salomon Brothers Inc Managing
Secretary 7 World Trade Center Director
New York, NY 10048
(i) Morgan Stanley Asset Management Inc. ("MSAM"), the subadviser of Morgan
Stanley International Magnum Equity Series, is a wholly-owned
subsidiary of Morgan Stanley Group Inc. Which provides investment
advice to a number of other registered investment companies and to
other organizations and individuals.
Listed below are the officers and Directors of Morgan Stanley Asset
Management Inc. ("MSAM"). The information as to any other business,
profession, vocation, or employment of a substantial nature engaged in
by the Chairman, President and Directors during the past two fiscal
years, is incorporated by reference to Schedules A and D of Form ADV
filed by MSAM pursuant to the Advisers Act (SEC File No. 801-15757).
<TABLE>
<CAPTION>
Name and Office with
Morgan Stanley Asset Title
Management Inc. -----
---------------
<S> <C>
James M. Allwin Director
Barton M. Biggs Chairman, Managing Director
Gordon S. Gray Director
Peter A. Nadosy Director
Dennis G. Sherva Director
Peter A. Nadosy Vice Chairman, Managing
Director
James M. Allwin President, Managing Director
Eah Wan Chin Managing Director (MSAM)-
Singapore
Robert A. Sargent Managing Director (MSAM)-
U.K.
Francine J. Bovich Principal
</TABLE>
Item 29. Principal Underwriters
----------------------
(a) New England Securities Corporation also serves as principal underwriter
for:
23
<PAGE>
Registration Nos. 2-83538
811-3728
New England Variable Life Separate Account
New England Variable Annuity Fund I
New England Life Retirement Investment Account
The New England Variable Account
New England Variable Annuity Separate Account
(b) The directors and officers of the Registrant's principal underwriter, New
England Securities Corporation, and their addresses are as follows:
<TABLE>
<CAPTION>
Positions and Officer's Offices with
Name Principal Underwriter Registrant
---- --------------------- ----------
<S> <C> <C>
Thomas W. McConnell** President, Director and None
Chief Executive Officer
Kernan F. King* Chairman of the Board, None
Director
Beverly J. DeWitt* Assistant Secretary None
Michael Toland Assistant Vice President None
Anne M. Goggin* Vice President, General None
Counsel, Secretary and
Clerk
Mark F. Greco** Vice President None
Laura A. Hutner** Vice President None
Robert F. Regan*** Vice President None
Jonathan M. Rozek** Vice President None
Henry L.P. Schmelzer** Director None
Robert E. Schneider* Director None
Michael E. Toland** Vice President, Assistant None
Secretary, Assistant
Clerk and Chief Financial
Officer
Peter S. Voss** Director None
</TABLE>
* Business Address: 501 Boylston Street, Boston, MA 02117
** Business Address: 399 Boylston Street, Boston, MA 02116
*** Business Address: 500 Boylston Street, Boston, MA 02117
Item 30. Location of Accounts and Records
--------------------------------
The following companies maintain possession of the documents
required by the specified rules:
(a) Registrant
24
<PAGE>
Registration Nos. 2-83538
811-3728
Rule 31a-1(a)(4)
Rule 31a-2(a)
(b) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Rule 31a-1(a)
Rule 31a-1(b)(1), (2), (3), (5), (6),
(7), (8)
Rule 31a-2(a)
(c) For the Back Bay Advisors Money Market Series, the Back Bay
Advisors Bond Income Series and the Back Bay Advisors Managed
Series:
Back Bay Advisors, L.P.
399 Boylston Street
Boston, Massachusetts 02116
Rule 31a-1(a); 31a-1(b)(9), (10),
(11); 31a-1(f)
Rule 31a-2(a); 31a-2(e)
For the Westpeak Growth and Income and Westpeak Stock Index
Series:
Westpeak Investment Advisors, L.P.
1011 Walnut St. Suite 400
Boulder, Colorado 80302
Rule 31a-1(a); 31a-1(b)(9), (10), (11);
31a-1(f)
Rule 31a-2(a); 31a-2(e)
For the Loomis Sayles Avanti Growth, Loomis Sayles Small Cap and
Loomis Sayles Balanced Series:
Loomis Sayles & Company, L.P.
One Financial Center
Boston, Massachusetts 02110
Rule 31a-1(a); 31a-1(b)(9), (10), (11);
31a-1(f)
Rule 31a-2(a); 31a-2(e)
For the Morgan Stanley International Magnum Equity Series:
Morgan Stanley Asset Management
1221 Avenue of the Americas
New York, New York 10021
Rule 31a-1(a); 31a-1(b)(9), (10), (11);
31a-1(f)
Rule 31a-2(a); 31a-2(e)
25
<PAGE>
Registration Nos. 2-83538
811-3728
For the Salomon Brothers U. S. Government Series and the Salomon
Brothers Strategic Bond Opportunities Series:
Salomon Brothers Asset Management Inc.
7 World Trade Center
New York, New York 10048
Rule 31a-1(a); 31a-1(b)(9), (10), (11);
31a-1(f)
Rule 31a-2(a); 31a-2(e)
For the Davis Venture Value Series:
Davis Selected Advisers, L.P.
124 East Marcy Street
Santa Fe, NM 87501
Rule 31a-1(a); 31a-1(b)(9), (10), (11);
31a-1(f)
Rule 31a-2(a); 31a-2(e)
For the Alger Equity Growth Series:
Fred Alger Management, Inc.
75 Maiden Lane
New York, New York 10038
Rule 31a-1(a); 31a-1(b)(9), (10), (11);
31a-1(f)
Rule 31a-2(a); 31a-2(e)
For the Capital Growth Series:
Capital Growth Management Limited Partnership
One Financial Center
Boston, Massachusetts 02111
Rule 31a-1(a); 31a-1(b)(9), (10), (11);
31a-1(f)
Rule 31a-2(a); 31a-2(e)
(d) New England Securities Corporation
399 Boylston Street
Boston, Massachusetts 02116
Rule 31a-1(d)
Rule 31a-2(c)
Item 31. Management Services
-------------------
Not applicable.
Item 32. Undertakings
------------
26
<PAGE>
Registration Nos. 2-83538
811-3728
(a) The Registrant undertakes to provide the Fund's annual report to
any person who receives a Fund prospectus and who requests the
annual report.
********
A copy of the Agreement and Declaration of Trust establishing New England
Zenith Fund is on file with the Secretary of State of the Commonwealth of
Massachusetts, and notice is hereby given that this Registration Statement is
executed on behalf of the Fund by officers of the Fund as officers and not
individually and that the obligations of or arising out of this Registration
Statement are not binding upon any of the Trustees, officers or shareholders
individually but are binding only upon the assets and property of the Fund.
27
<PAGE>
Registration Nos. 2-83538
811-3728
NEW ENGLAND ZENITH FUND
-----------------------
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly caused
this Post-Effective Amendment No. 22 to its Registration Statement to be signed
on its behalf by the undersigned, thereto duly authorized, in the City of
Boston, and Commonwealth of Massachusetts, on the 28th day of February 1997.
New England Zenith Fund
By: FREDERICK K. ZIMMERMANN
-----------------------
Frederick K. Zimmermann
Chief Executive Officer
*By: /s/ FRANK NESVET
-------------------
Frank Nesvet
Attorney-In-Fact
28
<PAGE>
Registration Nos. 2-83538
811-3728
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
FREDERICK K. ZIMMERMANN* Chairman of the Board; February 28, 1997
- ------------------------ Chief Executive Officer;
Frederick K. Zimmermann President and Trustee
/s/ FRANK NESVET
- ------------------------ Treasurer February 28, 1997
Frank Nesvet
ANNE GOGGIN* Trustee February 28, 1997
- ------------
Anne Goggin
JOSEPH M. HINCHEY* Trustee February 28, 1997
- ------------------
Joseph M. Hinchey
RICHARD S. HUMPHREY, Jr.* Trustee February 28, 1997
- -------------------------
Richard S. Humphrey, Jr.
ROBERT B. KITTREDGE* Trustee February 28, 1997
- --------------------
Robert B. Kittredge
LAURENS MACLURE* Trustee February 28, 1997
- ----------------
Laurens MacLure
NANCY HAWTHORNE* Trustee February 28, 1997
- ----------------
Nancy Hawthorne
DALE ROGERS MARSHALL* Trustee February 28, 1997
- ---------------------
Dale Rogers Marshall
JOSEPH F. TURLEY* Trustee February 28, 1997
- -----------------
Joseph F. Turley
JOHN J. ARENA* Trustee February 28, 1997
- --------------
John J. Arena
JOHN W. FLYNN* Trustee February 28, 1997
- --------------
John W. Flynn
JOHN T. LUDES* Trustee February 28, 1997
- --------------
John T. Ludes
</TABLE>
*By: /s/ FRANK NESVET
----------------
Frank Nesvet
Attorney-In-Fact
February 28, 1997
29
<PAGE>
Registration Nos. 2-83538
811-3728
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<S> <C>
1(a) Agreement and Declaration of Trust
1(b) Amendment No. 1 to the Agreement and Declaration of Trust
1(c) Amendment No. 2 to the Agreement and Declaration of Trust
1(d) Amendment No. 3 to the Agreement and Declaration of Trust
1(e) Amendment No. 4 to the Agreement and Declaration of Trust
1(f) Amendment No. 5 to the Agreement and Declaration of Trust
1(g) Amendment No. 6 to the Agreement and Declaration of Trust
1(h) Amendment No. 7 to the Agreement and Declaration of Trust
5(q) Sub-Advisory Agreement for the Davis Venture Value Series
among TNE Advisers, Inc., Davis Selected, L.P. and Davis
Selected - NY, Inc.
5(r) Form of Sub-Advisory Agreement for the Morgan Stanley International
Magnum Equity Series between TNE Advisers, Inc. and Morgan
Stanley Asset Management Inc.
9(f) Powers of Attorney of Trustees
11 Consent of Coopers and Lybrand
</TABLE>
<PAGE>
AGREEMENT
AND DECLARATION OF TRUST
NEW ENGLAND ZENITH FUND
THIS AGREEMENT AND DECLARATION OF TRUST made at Boston Massachusetts this
16th day of December, 1986 by the Trustees hereunder and the holders of shares
of beneficial interest issued hereunder and to be issued hereunder as
hereinafter provided:
WHEREAS the Trustees have agreed to manage all property coming into their
hands as trustees of a Massachusetts business trust in accordance with the
provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby direct that this Agreement and
Declaration of Trust be filed with the Secretary of The Commonwealth of
Massachusetts and with the City Clerk of the City of Boston and do hereby
declare that they will hold all cash, securities and other assets, which they
may from time to time acquire in any manner as Trustees hereunder IN TRUST to
manage and dispose of the same upon the following terms and conditions for the
pro rata benefit of the holders from time to time of Shares in this Trust as
hereinafter set forth.
ARTICLE I
Name and Definitions
Section 1. This Trust shall be known as New England Zenith Fund and the
---------
Trustees shall conduct the business of the Trust under that name or any other
name as they may from time to time determine.
Section 2. Definition. Whenever used herein, unless otherwise required by
--------- ----------
the context or specifically provided
(a) "Trust" refers to the Massachusetts business trust established by this
Agreement and Declaration of Trust, as amended from time to time;
(b) "Trustees" refers to the Trustees of the Trust named in Article IV
hereof or elected in accordance with such Article;
(c) "Shares" means the equal proportionate units of interest into which
the beneficial interest in the Trust or in the Trust property belonging to any
Series of the Trust (as the context may require) shall be divided from time to
time;
<PAGE>
(d) "Shareholder" means a record owner of Shares;
(e) "1940 Act" refers to the Investment Company Act of 1940 and the Rules
and Regulations thereunder, all as amended from time to time;
(f) The terms "Commission" and "principal underwriter" shall have the
meanings given them in the 1940 Act;
(g) "Declaration of Trust" shall mean this Agreement and Declaration of
Trust, as amended or restated from time to time;
(h) "By-Laws" shall mean the By-Laws of the Trust as amended from time to
time;
(i) "Series Company" refers to the form of registered open-end investment
company described in Section 18(f)(2) of the 1940 Act or in any successor
statutory provision; and
(j) "Series" refers to Series of Shares established and designated under
or in accordance with the provisions of Article III.
ARTICLE II
Purpose of Trust
The purpose of the Trust is to provide investors a managed investment
primarily in securities (including options), debt instruments, commodities,
commodity contracts and options thereon.
ARTICLE III
Shares
Section 1. Division of Beneficial Interest. The beneficial interest in
--------- -------------------------------
the Trust shall at all times be divided into an unlimited number of Shares,
without par value. Subject to the provisions of Section 6 of this Article III,
each Share shall have voting rights as provided in Article V hereof, and holders
of the Shares of any Series shall be entitled to receive dividends, when and as
declared with respect thereto in the manner provided in Article VI, Section 1
hereof. No Share shall have any priority or preference over any other Share of
the same Series with respect to dividends or distributions upon termination of
the Trust or of such Series made pursuant to Article VIII, Section 4 hereof.
All dividends and distributions shall be made ratably among all Shareholder of a
particular Series from the assets belonging to such Series according to the
number of
<PAGE>
Shares of such Series held of record by such Shareholders on the record date for
any dividend or on the date of termination, as the case may be. Shareholders
shall have no preemptive or other right to subscribe to any additional Shares or
other securities issued by the Trust. The Trustees may from time to time divide
or combine the Shares of any particular Series into a greater or lesser number
of Shares of that Series without thereby changing the proportionate beneficial
interest of the Shares of that Series in the assets belonging to that Series or
in any way affecting the rights of Shares of any other Series.
Section 2. Ownership of Shares. The ownership of Shares shall be recorded
--------- -------------------
on the books of the Trust or a transfer or similar agent for the Trust, which
books shall be maintained separately for the Shares of each Series. No
certificates certifying the ownership of Shares shall be issued except as the
Trustees may otherwise determine from time to time. The Trustees may make such
rules as they consider appropriate for the transfer of Shares of each Series and
similar matters. The record books to the Trust as kept by the Trust or any
transfer or similar agent, as the case may be, shall be conclusive as to who are
the Shareholders of each Series and as to the number of Shares of each Series
held from time to time by each.
Section 3. Investment in the Trust. The Trustees shall accept investments
--------- -----------------------
in the Trust from such persons and on such terms and for such consideration as
they from time to time authorize.
Section 4. Status of Shares and Limitation of Personal Liability. Shares
--------- -----------------------------------------------------
shall be deemed to be personal property giving only the rights provided in this
instrument. Every Shareholder by virtue of having become a Shareholder shall be
held to have expressly assented and agreed to the terms hereof and to have
become a party hereto. The death of a Shareholder during the continuance of the
Trust shall not operate to terminate the same nor entitle the representative of
any deceased Shareholder to an accounting or to take any action in court or
elsewhere against the Trust or the Trustees, but shall entitle such
representative only to the rights of said deceased Shareholder under this Trust.
Ownership of Shares shall not entitle the Shareholder to any title in or to the
whole or any part of the Trust property or right to call for a partition or
division of the same or for an accounting, nor shall the ownership of Shares
constitute the Shareholder partners. Neither the Trust nor the Trustees, nor
any officer, employee or agent of the Trust shall have any power to bind
personally any Shareholders, nor except as specifically provided herein to call
upon any Shareholder for the payment of any sum of money or assessment
whatsoever other than such as the Shareholder may at any time personally agree
to pay.
Section 5. Power of Trustees to Change Provisions Relating to Shares.
--------- ---------------------------------------------------------
Notwithstanding any other provisions of this Declaration of Trust and without
limiting the power of the Trustees to amend the Declaration of Trust as provided
elsewhere herein, the Trustees shall have the power to amend this Declaration of
Trust, at any
<PAGE>
time and from time to time, in such manner as the Trustees may determine in
their sole discretion, without the need for Shareholder action, so as to add to,
delete, replace or otherwise modify any provisions relating to the Shares
contained in this Declaration of Trust for the purpose of (i) responding to or
complying with any regulations, orders, rulings or interpretations of any
governmental agency or any laws, now or hereafter applicable to the Trust, or
(ii) designating and establishing Series in addition to the Series established
in Section 6 of this Article III; provided that before adopting any such
amendment without Shareholder approval the Trustees shall determine that it is
consistent with the fair and equitable treatment of all Shareholders. The
establishment and designation of any Series or class of Shares in addition to
the Series established and designated in Section 6 of this Article III shall be
effective upon the execution by a majority of the then Trustees of an amendment
to this Declaration of Trust, taking the form of a complete restatement or
otherwise, setting forth such establishment and designation and the relative
rights and preferences of such Series, or as otherwise provided in such
instrument.
Without limiting the generality of the foregoing, the Trustees may, for the
above-stated purposes, amend the Declaration of Trust to:
(a) create one or more Series or classes of Shares (in addition to any
Series or classes already existing or otherwise) with such rights and
preferences and such eligibility requirements for investment therein as the
Trustees shall determine, and reclassify any or all outstanding Shares as shares
of particular Series or classes in accordance with such eligibility
requirements;
(b) amend any of the provisions set forth in paragraphs (a) through (i) of
Section 6 of this Article III;
(c) combine one or more Series or classes of Shares into a single Series
or class on such terms and conditions as the Trustees shall determine;
(d) change or eliminate any eligibility requirements for investment in
Shares of any Series or class, including without limitation the power to provide
for the issue of Shares of any Series or class in connection with any merger or
consolidation of the Trust with another trust or company or any acquisition by
the Trust of part or all of the assets of another trust or company;
(e) change the designation of any Series or class of Shares;
(f) change the method of allocating dividends among the various Series and
classes of Shares;
(g) allocate any specific assets or liabilities of the Trust or any
specific items of income or expense of the Trust to one or more Series or
classes of Shares;
<PAGE>
(h) specifically allocate assets to any or all Series or classes of Shares
or create one or more additional Series or classes of Shares which are preferred
over all other Series or classes of Shares in respect of assets specifically
allocated thereto or any dividends paid by the Trust with respect to any net
income, however determined, earned from the investment and reinvestment of any
assets so allocated or otherwise and provide for any special voting or other
rights with respect to such Series or classes.
Section 6. Establishment and Designation of Series. Without limiting the
--------- ---------------------------------------
authority of the Trustees set forth in Section 5, inter alia, to establish and
----- ----
designate and further Series or classes or to modify the rights and preferences
of any Series, the "U.S. Government Securities Series," shall be, and is hereby,
established and designated.
Shares of each Series established in this Section 6 shall have the
following relative rights and preferences:
(a) Assets belonging to Series. All consideration received by the Trust
--------------------------
for the issue or sale of Shares of a particular Series, together with all assets
in which such consideration is invested or reinvested, all income, earnings,
profits and proceeds thereof from whatever source derived, including, without
limitation, any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall irrevocably belong to that Series for
all purposes, subject only to the rights of creditors, and shall be so recorded
upon the books of account of the Trust. Such consideration, assets, income,
earnings, profits and proceeds thereof, from whatever source derived, including,
without limitation, any proceeds derived from the sale, exchange or liquidation
of such assets, and any funds or payments derived from any reinvestment of such
proceeds, in whatever form the same may be, are herein referred to as "assets
belonging to" that Series. In the event that there are any assets, income,
earnings, profits and proceeds thereof, funds or payments which are not readily
identifiable as belonging to any particular Series (collectively "General
Assets"), the Trustees shall allocate such General Assets to, between or among
any one or more of the Series established and designated from time to time in
such manner and on such basis as they, in their sole discretion, deem fair and
equitable, and any General Asset so allocated to a particular Series shall
belong to that Series. Each such allocation by the Trustees shall be conclusive
and binding upon the Shareholders of all Series for all purposes.
(b) Liabilities Belonging to Series. The assets belonging to each
-------------------------------
particular Series shall be charged solely with the liabilities of the Trust in
respect to that Series, expenses, costs, charges and reserves attributable to
that Series, and any general liabilities of the Trust which are not readily
identifiable as belonging to any particular Series but which are allocated and
charged by the Trustees to and among any one or more of the Series established
and designated from time to time in a manner and on such basis as the
<PAGE>
Trustees in their sole discretion deem fair and equitable. The liabilities,
expenses, costs, charges and reserves so charged to a Series are herein referred
to as "liabilities belonging to" that Series. Each allocation of liabilities,
expenses, costs, charges and reserves by the Trustees shall be conclusive and
binding upon the holders of all Series for all purposes.
(c) Dividends, Distributions, Redemptions and Repurchases.
-----------------------------------------------------
Notwithstanding any other provisions of this Declaration, including, without
limitation, Article VI, no dividend or distribution (including, without
limitation, any distribution paid upon termination of the Trust or of any
Series) with respect to, nor any redemption or repurchase of, the Shares of any
Series shall be effected by the Trust other than from the assets belonging to
such Series, nor shall any Shareholder of any particular Series otherwise have
any right or claim against the assets belonging to any other Series except to
the extent that such Shareholder has such a right or claim hereunder as a
Shareholder of such other Series.
(d) Voting. Notwithstanding any of the other provisions of this
------
Declaration, including, without limitation, Section 1 of Article V, the
Shareholders of any particular Series shall not be entitled to vote on any
matters as to which such Series is not affected. On any matter submitted to a
vote of Shareholders, all Shares of the Trust then entitled to vote shall be
voted by individual Series, unless otherwise required by the 1940 Act or other
applicable law.
(e) Equality. All the Shares of each particular Series shall represent an
--------
equal proportionate interest in the assets belonging to that Series (subject to
the liabilities belonging to that Series), and each Share of any particular
Series shall be equal to each other Share of that Series.
(f) Fractions. Any fractional Share of a Series shall carry
---------
proportionately all the rights and obligations of a whole share of that Series,
including rights with respect to voting, receipt of dividends and distributions,
redemption of Shares and termination of the Trust.
(g) Exchange Privilege. The Trustees shall have the authority to provide
------------------
that the holders of Shares of any Series shall have the right to exchange said
Shares for Shares of one or more other Series of Shares in accordance with such
requirements and procedures as may be established by the Trustees.
(h) Combination of Series. The Trustees shall have the authority,
---------------------
without the approval of the Shareholders of any Series unless otherwise required
by applicable law, to combine the assets and liabilities belonging to any two or
more Series into assets and liabilities belonging to a single series or class.
<PAGE>
(i) Elimination of Series. At any time that there are no Shares
---------------------
outstanding of any particular Series previously established and designated, the
Trustees may amend this Declaration of Trust to abolish that Series and to
rescind the establishment and designation thereof, such amendment to be effected
in the manner provided in Section 5 of this Article III.
Section 7. Indemnification of Shareholders. In case any Shareholder or
--------- -------------------------------
former Shareholder shall be held to be personally liable solely by reason of his
or her being or having been a Shareholder of the Trust or of a particular Series
and not because of his or here acts or omissions or for some other reason, the
Shareholder or former Shareholder (or his or her heirs, executors,
administrators or their legal representatives or in the case of a corporation or
other entity, its corporate or other general successor) shall be entitled out of
the assets of the Series of which he is a Shareholder or former Shareholder to
be held harmless from and indemnified against all loss and expense arising from
such liability.
Section 8. No Preemptive Rights. Shareholder shall have no preemptive
--------- --------------------
or other rights to subscribe to any additional Shares or other securities issued
by the Trust.
ARTICLE IV
The Trustees
Section 1. Election and Tenure. The initial Trustee shall be John Ex
--------- -------------------
Rodgers. The Trustees may fix the number of Trustees, fill vacancies in the
Trustees, including vacancies arising from an increase in the number of
Trustees, or remove Trustees with or without cause. Each Trustee shall serve
during the continued lifetime of the Trust until he dies, resigns or is removed,
or, if sooner, until the next meeting of Shareholders called for the purpose of
electing Trustees and until the election and qualification of his successor. Any
Trustee may resign at any time by written instrument signed by him and delivered
to any officer of the Trust or to a meeting of the Trustees. Such resignation
shall be effective upon receipt unless specified to be effective at some other
time. Except to the extent expressly provided in a written agreement with the
Trust, no Trustee resigning and no Trustee removed shall have any right to any
compensation for any period following his resignation or removal, or any right
to damages on account of such removal. The Shareholders may fix the number of
Trustees and elect Trustees at any meeting of Shareholders called by the
Trustees for that purpose, and to the extent required by applicable law,
including paragraphs (a) and (b) of Section 16 of the 1940 Act.
Section 2. Effect of Death, Resignation, etc. of a Trustee. The death,
--------- -----------------------------------------------
declination, resignation, retirement, removal or incapacity of the Trustees, or
any of them, shall not operate to annul the Trust or to revoke any existing
agency created pursuant to the terms of this Declaration of Trust.
<PAGE>
Section 3. Powers. Subject to the provisions of this Declaration of
--------- ------
Trust, the business of the Trust shall be managed by the Trustees, and they
shall have all powers necessary or convenient to carry out that responsibility
including the power to engage in securities transactions of all kinds on behalf
of the Trust. Without limiting the foregoing, the Trustees may adopt By-Laws not
inconsistent with this Declaration of Trust providing for the regulation and
management of the affairs of the Trust and may amend and repeal them to the
extent that such By-Laws do not reserve that right to the Shareholders; they may
fill vacancies in or remove from their number (including any vacancies created
by an increase in the number of Trustees); they may remove from their number
with or without cause; they may elect and remove such officers and appoint and
terminate such agents as they consider appropriate; they may appoint from their
own number and terminate one or more committees consisting of two or more
Trustees which may exercise the powers and authority of the Trustees to the
extent that the Trustees determine; they may employ one or more custodians of
the assets of the Trust and may authorize such custodians to employ
subcustodians and to deposit all or any part of such assets in a system or
systems for the central handling of securities or with a Federal Reserve Bank,
retain a transfer agent or a shareholder servicing agent, or both, provide for
the distribution of Shares by the Trust, through one or more principal
underwriters or otherwise, set record dates for the determination of
Shareholders with respect to various matters, and in general delegate such
authority as they consider desirable to any officer of the Trust, to any
committee of the Trustees and to any agent or employee of the Trust or to any
such custodian or underwriter.
Without limiting the foregoing, the Trustees shall have power and
authority:
(a) To invest and reinvest cash, and to hold cash uninvested;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate, lease, write
options with respect to or otherwise deal in any property rights relating to any
or all of the assets of the Trust;
(c) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and deliver
proxies or powers of attorney to such person or persons as the Trustees shall
deem proper, granting to such person or persons such power and discretion with
relation to securities or property as the Trustees shall deem proper;
(d) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities;
(e) To hold any security to property in a form not indicating any trust,
whether in bearer, unregistered or other negotiable form , or in its own name or
in the name of a custodian or subcustodian or a nominee or nominees or
otherwise;
<PAGE>
(f) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer of any security which is
held in the Trust; to consent to any contract, lease, mortgage, purchase or sale
of property by such corporation or issuer; and to pay calls or subscriptions
with respect to any security held in the Trust;
(g) To join with other security holders in acting through a committee,
depository, voting trustee or otherwise, and in that connection to deposit any
security with, or transfer any security to, any such committee, depository or
trustee, and to delegate to them such power and authority with relation to any
security (whether or not so deposited or transferred) as the Trustees shall deem
proper, and to agree to pay, and to pay, such portion of the expenses and
compensation of such committee, depository or trustee as the Trustees shall deem
proper;
(h) To compromise; arbitrate or otherwise adjust claims in favor of or
against the Trust or any matter in controversy, including but not limited to
claims for taxes;
(i) To enter into joint ventures, general or limited partnerships and any
other combinations or associations;
(j) To borrow funds or other property;
(k) To endorse or guarantee the payment of any notes or other obligations
of any person; to make contracts of guaranty or suretyship, or otherwise assume
liability for payment thereof;
(l) To purchase and pay for entirely out of Trust property such insurance
as they may deem necessary or appropriate for the conduct of the business,
including, without limitation, insurance policies insuring the assets of the
Trust and payment of distributions and principal on its portfolio investments,
and insurance policies insuring the Shareholders, Trustees, officers, employees,
agents, investment advisers, principal underwriters or independent contractors
of the Trust individually against all claims and liabilities of every nature
arising by reason of holding, being or having held any such office or position,
or by reason of any action alleged to have been taken or omitted by any such
person as Trustee, officer, employee, agent, investment adviser, principal
underwriter or independent contractor, including any action taken or omitted
that may be determined to constitute negligence, whether or not the Trust would
have the power to indemnify such person against liability; and
(m) To pay pensions as deemed appropriate by the Trustees and to adopt,
establish and carry out pension, profit sharing, share bonus, share purchase,
savings, thrift and other retirement, incentive and benefit plans, trusts and
provisions, including the purchasing of life insurance and annuity contracts as
a means of providing such
<PAGE>
retirement and other benefits, for any or all of the Trustees, officers,
employees and agents of the Trust.
The Trustees shall not in any way be bound or limited by any present or
future law or custom in regard to investments by Trustees. The Trustees shall
not be required to obtain any court order to deal with any assets of the Trust
or take any other action hereunder.
Section 4. Payment of Expenses by the Trust. The Trustees are authorized
--------- --------------------------------
to pay or cause to be paid out of the principal or income of the Trust, or
partly out of principal and partly out of income, as they deem fair, all
expenses, fees, charges, taxes and liabilities incurred or arising in connection
with the Trust, or in connection with the management thereof, including but not
limited to , the Trustees' compensation and such expenses and charges for the
services of the Trust's officers, employees, investment adviser or manager,
principal underwriter, auditor, counsel, custodian, transfer agent, shareholder
servicing agent, and such other agents or independent contractors and such other
expenses and charges as the Trustees may deem necessary or proper to incur.
Section 5. Payment of Expenses by Shareholders. The Trustees shall have
--------- -----------------------------------
the power, as frequently as they may determine, to cause each Shareholder, or
each Shareholder of any particular Series, to pay directly, in advance or
arrears, for charges of the Trust's custodian or transfer, shareholder servicing
or similar agent, an amount fixed from time to time by the Trustees, by setting
off such charges due from such Shareholder from declared but unpaid dividends
owed such Shareholder and/or by reducing the number of Shares in the account of
such Shareholder by that number of full and/or fractional Shares which
represents the outstanding amount of such charges due from such Shareholder.
Section 6. Ownership of Assets of the Trust. Title to all of the assets
--------- --------------------------------
of the Trust shall at all times be considered as vested in the Trustees.
Section 7. Advisory, Management and Distribution Contracts. Subject to
--------- -----------------------------------------------
such requirements and restrictions as may be set forth in the By-Laws, the
Trustees may, at any time and from time to time, contract for exclusive or
nonexclusive advisory and/or management services for the Trust or for any Series
with New England Mutual Life Insurance Company, Back Bay Advisors, Inc., Loomis
Sayles & Company, Incorporated or any other corporation, trust, association or
other organization (the "Manager"); and any such contract may contain such other
terms as the Trustees may determine including, without limitation, authority for
the Manager to determine from time to time without prior consultation with the
Trustees what investments shall be purchased, held, sold or exchanged and what
portion, if any, of the assets of the Trust shall be held uninvested and to make
changes in the Trust's investments. The Trustees may also, at any time and from
time to time, contract with New England Securities Corporation, any Manager or
any other corporation, trust, association or other organization, appointing it
<PAGE>
exclusive or nonexclusive distributor or principal underwriter for the Shares,
every such contract to comply with such requirements and restrictions as may be
set forth in the By-Laws; and any such contract may contain such other terms as
the Trustees may determine. The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, manager, adviser,
principal underwriter, distributor or affiliate or agent of or for any
corporation, trust, association or other organization, or of or for any parent
or affiliate of any organization, with which an advisory or management contract,
or principal underwriter's or distributor's contract, or transfer, shareholder
servicing or other agency contract may have been or may hereafter be made, or
that any such organization, or any parent or affiliate thereof, is a Shareholder
or has an interest in the Trust, or that
(ii) any corporation, trust, association or other organization with which
an advisory or management contract or principal underwriter's or distributor's
contract, or transfer, shareholder servicing or other agency contract may have
been or may hereafter be made also has an advisory or management contract, or
principal underwriter's or distributor's contract, or transfer, shareholder
servicing or other agency contract with one or more other corporations, trusts,
associations or other organizations, or has other business or interests, shall
not affect the validity of any such contract or disqualify any Shareholder,
Trustee or officer of the Trust from voting upon or executing the same or create
any liability or accountability to the Trust or its Shareholders.
ARTICLE V
Shareholders' Voting Powers and Meetings
Section 1. Voting Powers. The Shareholders shall have power to vote only
--------- -------------
(i) for the election of Trustees as provided in Article IV, Section 1, (ii) with
respect to any amendment of this Declaration of Trust to the extent and as
provided in Article VIII, Section 8, (iii) to the same extent as the
stockholders of a Massachusetts business corporation as to whether or not a
court action, proceeding or claim should or should not be brought or maintained
derivatively or as a class action on behalf of the Trust or the Shareholders,
(iv) with respect to the termination of the Trust of any Series to the extent
and as provided in Article VIII, Section 4, (v) to remove Trustees from office
to the extent and as provided in Article V, Section 7 and (vi) with respect to
such additional matters relating to the Trust as may be required by this
Declaration of Trust, the By-Laws or any registration of the Trust with the
Commission (or any successor agency) or any state, or as the Trustees may
consider necessary or desirable. Each whole Share shall be entitled to one vote
as to any matter on which it is entitled to vote and each fractional Share shall
be entitled to a proportionate fractional vote. There shall be no cumulative
voting in the election of Trustees. Shares may be voted in person or by proxy. A
proxy with respect to Shares held in the name of two or more persons shall
<PAGE>
be valid if executed by any one of them unless at or prior to exercise of the
proxy the Trust receives a specific written notice to the contrary from any one
of them. A proxy purporting to be executed by or on behalf of a Shareholder
shall be deemed valid unless challenged at or prior to its exercise and the
burden of proving invalidity shall rest on the challenger. At any time when no
Shares of a Series are outstanding the Trustees may exercise all rights of
Shareholders of that Series with respect to matters affecting that Series and
may with respect to that Series take any action required by law, this
Declaration of Trust or the By-Laws to be taken by the Shareholders.
Section 2. Voting Power and Meetings. Meetings of the Shareholders may be
--------- -------------------------
called by the Trustees for the purpose of electing Trustees as provided in
Article IV, Section 1 and for such other purposes as may be prescribed by law,
by this Declaration of Trust or by the By-Laws. Meetings of the Shareholders
may also be called by the Trustees from time to time for the purpose of taking
action upon any other matter deemed by the Trustees to be necessary or
desirable. A meeting of Shareholders may be held at any place designated by the
Trustees. Written notice of any meeting of Shareholders shall be given or
caused to be given by the Trustees by mailing such notice at least seven days
before such meeting, postage prepaid, stating the time and place of the meeting,
to each Shareholder at the Shareholder's address as it appears on the records of
the Trust. Whenever notice of a meeting is required to be given to a
Shareholder under this Declaration of Trust or the By-Laws, a written waiver
thereof, executed before or after the meeting by such Shareholder or his
attorney thereunto authorized and filed with the records of the meeting, shall
be deemed equivalent to such notice.
Section 3. Quorum and Required Vote. Except when a larger quorum is
--------- ------------------------
required by law, by the By-Laws or by this Declaration of Trust, 40% of the
Shares entitled to vote shall constitute a quorum at a Shareholders' meeting.
When any one or more Series is to vote as a single class separate from any other
Shares which are to vote on the same matters as a separate class or classes, 40%
of the Shares of each such class entitled to vote shall constitute a quorum at a
Shareholder's meeting of that class. Any meeting of Shareholders may be
adjourned from time to time by a majority of the votes properly cast upon the
question, whether or not a quorum is present, and the meeting may be held as
adjourned within a reasonable time after the date set for the original meeting
without further notice. When a quorum is present at any meeting, a majority of
the Shares voted shall decide any questions and a plurality shall elect a
Trustee, except when a larger vote is required by any provision of this
Declaration of Trust or the By-Laws or by law. If any question on which the
Shareholders are entitled to vote would adversely affect the rights of any
Series or class of Shares, the vote of a majority (or such larger vote as is
required as aforesaid) of the Shares of such Series or class which are entitled
to vote, voting separately, shall also be required to decide such question.
<PAGE>
Section 4. Action by Written Consent. Any action taken by Shareholders
--------- -------------------------
may be taken without a meeting if Shareholders holding a majority of the Shares
entitled to vote on the matter (or such larger proportion thereof as shall be
required by any express provision of this Declaration of Trust or by the By-
Laws) and holding a majority (or such larger proportion as aforesaid) of the
Shares of any Series or class entitled to vote separately on the matter consent
to the action in writing and such written consents are filed with the records of
the meetings of Shareholders. Such consent shall be treated for all purposes as
a vote taken at a meeting of Shareholders.
Section 5. Record Dates. For the purpose of determining the Shareholders
--------- ------------
of any Series who are entitled to vote or act at any meeting or any adjournment
thereof, the Trustees may from time to time fix a time, which shall be not more
than 90 days before the date of any meeting of Shareholders, as the record date
for determining the Shareholders of such Series having the right to notice of
and to vote at such meeting and any adjournment thereof, and in such case only
Shareholders of record on such record date shall have such right,
notwithstanding any transfer of shares of the books of the Trust after the
record date. For the purpose of determining the Shareholders of any Series who
are entitled to receive payment of any dividend or of any other distribution,
the Trustees may from time to time fix a date, which shall be before the date
for the payment of such dividend or such other payment, as the record date for
determining the Shareholders of such Series having the right to receive such
dividend or distribution. Without fixing a record date the Trustees may for
voting and/or distribution purposes close the register or transfer books for one
or more Series for all or any part of the period between a record date and a
meeting of shareholders or the payment of a distribution. Nothing in this
section shall be construed as precluding the Trustees from setting different
record dates for different Series.
Section 6. Additional Provisions. The By-Laws may include further
--------- ---------------------
provisions for Shareholders' votes and meetings and related matters.
Section 7. Removal of Trustees. No natural person shall serve as Trustee
--------- -------------------
after the holders of record of not less than two-thirds of the outstanding
Shares have declared that such Trustees be removed from that office either by
declaration in writing filed with the Trust's custodian or by votes cast in
person or by proxy at a meeting called for the purpose. The Trustees shall
promptly call a meeting of shareholders for the purpose of voting upon the
question of removal of any Trustee when requested in writing so to do by the
record holders of not less than 10% of the outstanding Shares.
Whenever ten or more shareholders of record who have been such for at
least six months preceding the date of application, and who hold in the
aggregate Shares having a net asset value of at least 1% of the outstanding
Shares shall apply to the Trustees in writing, stating that they wish to
communicate with other shareholders with a view to obtaining signatures to a
request for a meeting pursuant to this Section and accompanied by a form of
communication and request which they wish to transmit, the
<PAGE>
Trustees shall within five business days after receipt of such application
either (a) afford to such applicants access to a list of the names and addresses
of all shareholders as recorded on the books of the Trust; or (b) inform such
applicants as to the approximate number of shareholders of record, and the
approximate cost of mailing to them the proposed communication and form of
request. If the Trustees elect to follow the course specified in clause (b), the
Trustees, upon the written request of such applicants, accompanied by a tender
of the material to be mailed and of the reasonable expenses of mailing, shall,
with reasonable promptness, mail such material to all shareholders of record at
their addresses as recorded on the books of the Trust, unless within five
business days after such tender the Trustees shall mail to such applicants and
file with the Commission, together with a copy of the material proposed to be
mailed, a written statement signed by at least a majority of the Trustees to the
effect that in their opinion either such material contains untrue statements of
fact or omits to state facts necessary to make the statements contained therein
not misleading, or would be in violation of applicable law, and specifying the
basis of such opinion. If the Commission shall enter an order refusing to
sustain any of the objections specified in the written statement so filed, or
if, after the entry of an order sustaining one or more of such objections, the
Commission shall find, after notice and opportunity for hearing, that all
objections so sustained have been met, and shall enter an order so declaring,
the Trustees shall mail copies of such material to all shareholders with
reasonable promptness after the entry of such order and the renewal of such
tender.
ARTICLE VI
Net Income, Distributions, and Redemptions and Repurchases
Section 1. Distributions of Net Income. The Trustees shall each year,
--------- ---------------------------
or more frequently if they so determine in their sole discretion, distribute to
the Shareholders of each Series, in shares of that Series, cash or otherwise, an
amount approximately equal to the net income attributable to the assets
belonging to such Series and may from time to time distribute to the
Shareholders of each Series, in shares of that Series, cash or otherwise, such
additional amounts, but only from the assets belonging to such Series, as they
may authorize. All dividends and distributions on Shares of a particular Series
shall be distributed pro rata to the holders of that Series in proportion to the
number of Shares of that Series held by such holders and recorded on the books
of the Trust at the date and time of record established for that payment of such
dividend or distribution.
The manner of determining net income, income, asset values, capital gains,
expenses, liabilities and reserves of any Series may from time to time be
altered as necessary or desirable in the judgment of the Trustees to conform
such manner of determination to any other method prescribed or permitted by
applicable law. Net income shall be determined by the Trustees or by such
person as they may authorize at the times and in the manner provided in the By-
Laws. Determinations of net income of any Series and determinations of income,
asset value, capital gains, expenses and
<PAGE>
liabilities made by the Trustees, or by such person as they may authorize, in
good faith, shall be binding on all parties concerned. The foregoing sentence
shall not be construed to protect any Trustee, officer or agent of the Trust
against any liability to the Trust or its security holders to which he 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
office.
If, for any reason, the net income of any Series determined at any time is
a negative amount, the pro rata share of such negative amount allocable to each
Shareholder of such Series shall constitute a liability of such Shareholder to
that Series which shall be paid out of such Shareholders' account at such times
and in such manner as the Trustees may from time to time determine (x) out of
the accrued dividend account of such Shareholder, (y) by reducing the number of
Shares of that Series in the account of such Shareholder or (z) otherwise.
Section 2. Redemptions and Repurchases. The Trust shall purchase such
--------- ---------------------------
Shares as are offered by any Shareholder for redemption, upon the presentation
of a proper instrument of transfer together with a request directed to the Trust
or a person designated by the Trust that the Trust purchase such Shares or in
accordance with such other procedures for redemption as the Trustees may from
time to time authorize; and the Trust will pay therefore the net asset value
thereof, as determined in accordance with the By-Laws, next determined. Payment
for said Shares shall be made by the Trust to the Shareholder within seven days
after the date on which the request is made. The obligation set forth in this
Section 2 is subject to the provision that in the event that any time the New
York Stock Exchange is closed for other than weekends or holidays, or if
permitted by the rules of the Commission during periods when trading on the
Exchange is restricted or during any emergency which makes it impracticable for
the Trust to dispose of the investments of the applicable Series or to determine
fairly the value of the net assets belonging to such Series or during any other
period permitted by order of the Commission for the protection of investors,
such obligations may be suspended or postponed by the Trustees. The Trust may
also purchase or repurchase Shares at a price not exceeding the net asset value
of such Shares in effect when the purchase or repurchase or any contract to
purchase or repurchase is made.
The redemption price may in any case or cases by paid wholly or partly in
kind if the Trustees determine that such payment is advisable in the interest of
the remaining Shareholders of the Series the Shares of which are being redeemed.
In making any such payment wholly or partly in kind, the Trust shall, so far as
may be practicable, deliver assets which approximate the diversification of all
of the assets belonging at the time to the Series the Shares of which are being
redeemed. Subject to the foregoing, the fair value, selection and quantity of
securities or other property so paid or delivered as all or part of the
redemption price may be determined by or under authority of the Trustees. In no
case shall the Trust be liable for any delay of any corporation or other person
in transferring securities selected for delivery as all or part of any payment
in kind.
<PAGE>
Section 3. Redemptions at the Option of the Trust. The Trust shall have
--------- --------------------------------------
the right at its option and at any time to redeem Shares of any Shareholder at
the net asset value thereof as described in Section 1 of this Article VI: (i) if
at such time such Shareholder owns Shares of any Series having an aggregate net
asset value of less than an amount determined from time to time by the Trustees;
or (ii) to the extent that such Shareholder owns Shares equal to or in excess of
a percentage determined from time to time by the Trustees of the outstanding
Shares of the Trust or of any Series.
ARTICLE VII
Compensation and Limitation of Liability of Trustees
Section 1. Compensation. The Trustees as such shall be entitled to
--------- ------------
reasonable compensation from the Trust; they may fix the amount of their
compensation. Nothing herein shall in any way prevent the employment of any
Trustee for advisory, management, legal, accounting, investment banking or other
services and payment for the same by the Trust.
Section 2. Limitation of Liability. The Trustees shall not be responsible
--------- -----------------------
or liable in any event for any neglect or wrong-doing of any officer, agent,
employee, Manager or principal underwriter of the Trust, nor shall any Trustee
by responsible for the act or omission of any other Trustee, but nothing herein
contained shall protect any Trustee against any liability to which he 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
office.
Every note, bond, contract, instrument, certificate or undertaking and every
other act or thing whatsoever issued, executed or done by or on behalf of the
Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been issued, executed or done only in or with
respect to their or his capacity as Trustees or Trustee, and such Trustees or
Trustee shall not be personally liable thereon.
ARTICLE VIII
Miscellaneous
Section 1. Trustees, Shareholders, etc. Not Personally Liable; Notice. All
--------- ----------------------------------------------------------
persons extending credit to, contracting with or having any claim against the
Trust or any Series shall look only to the assets of the Trust, or, to the
extent that the liability of the Trust may have been expressly limited by
contract to the assets of a particular Series, only to the assets belonging to
the relevant Series, for payment under such credit, contract or claim; and
neither the Shareholders not the Trustees, nor any of the Trust's officers,
employees or agents, whether past, present or future, shall be
<PAGE>
personally liable therefor. Nothing in this Declaration of Trust shall protect
any Trustee against any liability to which such 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 the office of
Trustee.
Every note, bond, contract, instrument, certificate or undertaking made or
issued on behalf of the Trust by the Trustees, by any officers or officer or
otherwise shall give notice that this Declaration of Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts and shall recite that
the same was executed or made by or on behalf of the Trust or by them as Trustee
or Trustees or as officers or officer or otherwise and not individually and that
the obligations of such instrument are not binding upon any of them or the
Shareholders individually but are binding only upon the assets and property of
the Trust or upon the assets belonging to the Series for the benefit of which
the Trustees have caused the note, bond, contract, instrument, certificate or
undertaking to be made or issued, and may contain such further recital as he or
they may deem appropriate, but the omission of any such recital shall not
operate to bind any Trustee or Trustees or officers or officer or Shareholders
or any other person individually.
Section 2. Trustee's Good Faith Action, Expert Advice, No Bond or Surety.
--------- -------------------------------------------------------------
The exercise by the Trustees of their powers and discretions hereunder shall be
binding upon everyone interested. A Trustee shall be liable for his own willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee, and for nothing else, and
shall not be liable for errors of judgment or mistakes of fact or law. The
Trustees may take advice of counsel or other experts with respect to the meaning
and operation of this Declaration of Trust, and shall be under no liability for
any act or omission in accordance with such advice or for failing to follow such
advice. The Trustees shall not be required to give any bond as such, nor any
surety if a bond is required.
Section 3. Liability of Third Persons Dealing with Trustees. No person
--------- ------------------------------------------------
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Trust or upon
its order.
Section 4. Termination of Trust or Series. Unless terminated as provided
--------- ------------------------------
herein, the Trust shall continue without limitation of time. The Trust may be
terminated at any time by vote of at least 66-2/3% of the Shares of each Series
entitled to vote and voting separately by Series or by the Trustees by written
notice to the Shareholders. Any Series may be terminated at any time by vote of
at least 66-2/3% of the Shares of that Series or by the Trustees by written
notice to the Shareholders of that Series.
Upon termination of the Trust (or any Series, as the case may be), after
paying or otherwise providing for all charges, taxes, expenses and liabilities
belonging, severally,
<PAGE>
to each Series (or the applicable Series, as the case may be), whether due or
accrued or anticipated as may be determined by the Trustees, the Trust shall in
accordance with such procedures as the Trustees consider appropriate reduce the
remaining assets belonging, severally, to each Series (or the applicable Series,
as the case may be), to distributable form in cash or shares or other
securities, or any combination thereof, and distribute the proceeds belonging to
each Series (or the applicable Series, as the case may be), to the Shareholders
of that Series, as a Series, ratably according to the number of Shares of that
Series held by the several Shareholders on the date of termination.
Section 5. Merger and Consolidation. The Trustees may cause the Trust to
--------- ------------------------
be merged into or consolidated with another trust or company or it shares
exchanged under or pursuant to any state or federal statute, if any, or
otherwise to the extent permitted by law, if such merger or consolidation or
share exchange has been authorized by vote of a majority of the outstanding
Shares; provided that in all respects not governed by statute or applicable law,
the Trustees shall have power to prescribe the procedure necessary or
appropriate to accomplish a sale of assets, merger or consolidation.
Section 6. Filing of Copies, References, Headings. The original or a copy
--------- --------------------------------------
of this instrument and of each amendment hereto shall be kept at the office of
the Trust where it may be inspected by any Shareholder. A copy of this
instrument and of each amendment hereto shall be filed by the Trust with the
secretary of State of The Commonwealth of Massachusetts and with any other
governmental office where such filing may from time to time be required. Anyone
dealing with the Trust may rely on a certificate by an officer of the Trust as
to whether or not any such amendments have been made and as to any matters in
connection with the Trust hereunder; and, with the same effect as if it were the
original, may rely on a copy certified by an officer of the Trust to be a copy
of this instrument or of any such amendments. In this instrument and in any such
amendment, references to this instrument, and all expressions like "herein",
"hereof" and "hereunder", shall be deemed to refer to this instrument as amended
or affected by any such amendments. Headings are placed herein for convenience
of reference only and shall not be taken as a part hereof or control or affect
the meaning, construction or effect of this instrument. This instrument may be
executed in any number of counterparts each of which shall be deemed an
original.
Section 7. Applicable Law. This Declaration of Trust is made in The
--------- --------------
Commonwealth of Massachusetts, and it is created under and is to be governed by
and construed and administered according to the laws of said Commonwealth. The
Trust shall be of the type commonly called a Massachusetts business trust, and
without limiting the provisions hereof, the Trust may exercise all powers which
are ordinarily exercised by such a trust.
Section 8. Amendments. This Declaration of Trust may be amended at any
--------- ----------
time by an instrument in writing signed by a majority of the then Trustees when
authorized
<PAGE>
so to do by vote of a majority of the Shares entitled to vote, except that
amendments described in Article III, Section 5 hereof or having the purpose of
changing the name of the Trust or of supplying any omission, curing any
ambiguity or curing, correcting or supplementing any defective or inconsistent
provision contained herein shall not require authorization by Shareholder vote.
IN WITNESS WHEREOF, all of the Trustees as aforesaid do hereto set their
hands this 16th day of December, 1986.
/S/ JOHN EX ROGERS
-------------------
John Ex Rodgers
COMMONWEALTH OF MASSACHUSETTS)
) ss.
COUNTY OF SUFFOLK )
Then personally appeared before me John Ex Rodgers, who acknowledged the
foregoing instrument to be his free act and deed.
December 16, 1986 /s/CHRISTINE A. SANSONE
Notary Public
My commission expires: April 23, 1993
<PAGE>
NEW ENGLAND ZENITH FUND
Amendment No. 1 to Agreement and Declaration of Trust
The undersigned, being the sole trustee of New England Zenith Fund (the
"Trust") and having determined it to be consistent with the fair and equitable
treatment of all shareholders of the Trust, hereby consents to and adopts the
following amendment to the Trust's Agreement and Declaration of Trust, a copy of
which is on file in the office of the Secretary of State of the Commonwealth of
Massachusetts:
The designation of the Trust's "U.S. Government Securities Series" is
hereby changed to "Money Market Series", and the first sentence of Section 6 of
Article III of the Agreement and Declaration of Trust is hereby amended to read
in its entirety as follows:
Without limiting the authority of the Trustees set forth in Section 5,
inter alia, to establish and designate any further series or classes or
----- ----
to modify the rights and preferences of any Series, each of the following
five Series shall be, and is hereby, established and designated: (1) the
"Money Market Series", (2) the Bond Income Series", (3) the Capital
Growth Series", (4) the "Stock Index Series" and (5) the "Managed
Series".
The forgoing amendment shall become effective as of the time it is filed
with the Secretary of State of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, I have hereunto set my hand for myself and for my
successors and assigns this 22nd day of January, 1987.
/s/JOHN EX RODGERS
John Ex Rodgers
<PAGE>
NEW ENGLAND ZENITH FUND
Amendment No. 2 to Agreement and Declaration of Trust
The undersigned, being at least a majority of the Trustees of New
England Zenith Fund ("Trust") hereby consent to and adopt the following
amendment to the Trust's Agreement and Declaration of Trust (as amended through
Amendment No. 1 thereto, the Declaration of Trust), a copy of which is on file
in the office of the Secretary of State of the Commonwealth of Massachusetts:
The undersigned Trustees having determined it to be fair and equitable
treatment of all shareholders of the Trust, the first sentence of Section 6 of
Article III of the Agreement and Declaration of Trust is hereby amended to read
in its entirety as follows:
Without limiting the authority of the Trustees set forth in Section 5,
inter alia, to establish and designate any further Series or classes or
----------
to modify the rights and preferences of any Series or class, each of the
following Series shall be, and is hereby, established and designated: (1)
the "Money Market Series," (2) the "Bond Income Series," (3) the "Capital
Growth Series," (4) the "Stock Index Series," (5) the "Managed Series,"
(6) the "Value Growth Series" and (7) the "Avanti Growth Series."
The foregoing amendment shall become effective as of the time it is filed
with the Secretary of State of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, we have hereunto set my hand for ourselves and for
our successors and assigns this 23rd day of April, 1993.
/s/ROBERT B. KITTREDGE
- ----------------- ----------------------
Graham T. Allison Robert B. Kittredge
/s/LAURENS MACLURE /s/SANDRA O. MOOSE
- ------------------ ------------------
Laurens MacLure Sandra O. Moose
/s/JAMES H. SCOTT /s/JOSEPH E. TURLEY
- ----------------- -------------------
James H. Scott Joseph E. Turley
/s/PETER S. VOSS /s/HENRY L.P. SCHMELZER
- ---------------- -----------------------
Peter S. Voss Henry L. P. Schmelzer
<PAGE>
NEW ENGLAND ZENITH FUND
Amendment No. 3 to Agreement and Declaration of Trust
The undersigned, being at least a majority of the Trustees of New
England Zenith Fund (the "Trust"), hereby consent to and adopt the following
amendment to the Trust's Agreement and Declaration of Trust (as amended through
Amendment No. 2 thereto, the "Declaration of Trust"), a copy of which is on file
in the office of the Secretary of State of The Commonwealth of Massachusetts:
The undersigned Trustees having determined it to be consistent with the
fair and equitable treatment of all shareholders of the Trust, the first
sentence of Section 6 of Article III of the Declaration of Trust is hereby
amended to read in its entirety as follows:
Without limiting the authority of the Trustees set forth in Section 5,
inter alia, to establish and designate any further Series or classes or
----------
to modify the rights and preferences of any Series or class, each of the
following Series shall be, and is hereby, established and designated: (1)
the "Money Market Series," (2) the "Bond Income Series," (3) the "Capital
Growth Series," (4) the "Stock Index Series," (5) the "Managed Series,"
(6) the "Value Growth Series," (7) the "Avanti Growth Series" and (8) the
"Small Cap Series."
The foregoing amendment shall become effective as of the time it is
filed with the Secretary of State of The Commonwealth of Massachusetts.
IN WITNESS WHEREOF, we have hereunder set our hands for ourselves and
for our successors and assigns this 29th day of April, 1994.
/s/KENNETH J. COWAN /s/ROBERT B. KITTREDGE
- ------------------- ----------------------
Kenneth J. Cowan Robert B. Kittredge
/s/LAURENS MACLURE
- ------------------ --------------------
Laurens MacLure Sandra O. Moose
/s/JAMES H. SCOTT /s/JOSEPH E. TURLEY
- ----------------- -------------------
James H. Scott Joseph E. Turley
/s/PETER S. VOSS /s/HENRY L. P. SCHMELZER
- ---------------- ------------------------
Peter S. Voss Henry L. P. Schmelzer
<PAGE>
/s/JOSEPH M. HINCHEY /s/RICHARD S. HUMPHREY, JR.
- -------------------- ---------------------------
Joseph M. Hinchey Richard S. Humphrey, Jr.
/S/JOHN A. SHANE /s/PENDLETON P. WHITE
- ---------------- ---------------------
John A. Shane Pendleton P. White
<PAGE>
NEW ENGLAND FUND
Amendment No. 4 to Agreement and Declaration of Trust
The undersigned, being at least a majority of the Trustees of New
England Zenith Fund (the "Trust"), hereby consent to and adopt the following
amendment to the Trust's Agreement and Declaration of Trust (as amended through
Amendment No. 3 thereto, the "Declaration of Trust"), a copy of which is on file
in the office of the Secretary of State of The Commonwealth of Massachusetts:
The undersigned Trustees having determined it to be consistent with the
fair and equitable treatment of all shareholders of the Trust, the first
sentence of Section 6 of Article III of the Declaration of Trust is hereby
amended to read in its entirety as follows:
Without limiting the authority of the Trustees set forth in Section 5,
inter alia, to establish and designate any further Series or classes or
----------
to modify the rights and preferences of any Series or class, each of the
following Series shall be, and is hereby, established and designated: (1)
the "Back Bay Advisors Money Market Series," (2) the "Back Bay Advisors
Bond Income Series," (3) the "Capital Growth Series," (4) the "Westpeak
Stock Index Series," (5) the "Back Bay Advisors Managed Series," (6) the
"Westpeak Value Growth Series," (7) the "Loomis Sayles Avanti Growth
Series," (8) the "Loomis Sayles Small Cap Series," (9) the "Loomis Sayles
Balanced Series," (10) the "Draycott International Equity Series," (11)
the "Salomon Brothers Strategic Bond Opportunities Series," (13) the
"Venture Value Series," (14) the "Alger Equity Growth Series" and (15)
the "CS First Boston Strategic Equity Opportunities Series."
The foregoing amendment shall become effective as of the time it is
filed with the Secretary of State of The Commonwealth of Massachusetts.
IN WITNESS WHEREOF, we have hereunder set our hands for ourselves and
for our successor and assigns this 28th day of October, 1994.
/s/KENNETH J. COWAN /s/ROBERT B. KITTREDGE
- ------------------- ----------------------
Kenneth J. Cowan Robert B. Kittredge
/s/LAURENS MACLURE /s/SANDRA O. MOOSE
- ------------------ -------------------
Laurens MacLure Sandra O. Moose
/s/JAMES H. SCOTT /s/JOSEPH E. TURLEY
- ----------------- --------------------
James H. Scott Joseph E. Turley
<PAGE>
/s/PETER S. VOSS /s/HENRY L. P. SCHMELZER
- ---------------- ------------------------
Peter S. Voss Henry L. P. Schmelzer
/s/JOSEPH M. HINCHEY /s/RICHARD S. HUMPHREY, JR.
- -------------------- ---------------------------
Joseph M. Hinchey Richard S. Humphrey, Jr.
/s/JOHN A. SHANE /s/PENDLETON P. WHITE
- ---------------- ----------------------
John A. Shane Pendleton P. White
<PAGE>
NEW ENGLAND ZENITH FUND
Amendment No. 5 to Agreement and Declaration of Trust
The undersigned, being at least a majority of the Trustees of New
England Zenith Fund (the "Trust"), hereby consent to and adopt the following
amendment to the Trust's Agreement and Declaration of Trust (as amended through
Amendment No, 4 thereto, the "Declaration of Trust"), a copy of which is on file
in the office of the Secretary of State of The Commonwealth of Massachusetts.
The undersigned Trustees having determined it to be consistent with the
fair and equitable treatment of all shareholders of the Trust, the first
sentence of Section 6 of Article III of the Declaration of Trust is hereby
amended to read in its entirety as follows:
Without limiting the authority of the Trustees set forth in Section 5,
inter alia, to establish and designate any further Series or classes or to
- ----------
modify the rights and preferences of any Series or class, each of the following
Series shall be, and is hereby, established and designated: (1) the "Back Bay
Advisors Money Market Series," (2) the "Back Bay Advisors Bond Income Series,"
(3) the "Capital Growth Series," (4) the "Westpeak Stock Index Series," (5) the
"Back Bay Advisors Managed Series," (6) the "Westpeak Value Growth Series," (7)
the "Loomis Sayles Balanced Series," (8) the "Loomis Sayles Small Cap Series,"
(9) the "Loomis Sayles Balanced Series," (10) the "Draycott International Equity
Series," (11) the "Salomon Brothers U.S. Government Series," (12) the "Salomon
Brothers Strategic Bond Opportunities Series," (13) the "Venture Value Series,"
(14) the "Alger Equity Growth Series" and (15) "Short-Term Series."
The foregoing amendment shall become effective as of the time it is
filed with the Secretary of State of The Commonwealth of Massachusetts.
IN WITNESS WHEREOF, we have hereunder set our hands for ourselves and
for our successors and assigns this 28th day of April, 1995.
/S/GRAHAM T. ALLISON PETER S. VOSS
- -------------------- -------------
Kenneth J. Cowan Peter S. Voss
/s/KENNETH COWAN /s/ROBERT B. KITTRIDGE
- ---------------- ----------------------
Kenneth J. Cowan ROBERT B. KITTRIDGE
LAURENS MACLURE /s/SANDRA O. MOOSE
- --------------- ------------------
Sandra O. Moose
/s/JAMES H. SCOTT /s/JOSEPH E. TURLEY
- ----------------- -------------------
James H. Scott Joseph E.. Turley
<PAGE>
/s/HENRY L.P. SCHMELZER /s/RICHARD S. HUMPHREY
- ----------------------- ----------------------
Henry L.P. Schmelzer Richard S. Humphrey, Jr.
/S/JOSEPH M. HINCHEY /s/PENDLETON P.WHITE
- -------------------- --------------------
Joseph M. Hinchey Pendleton P. White
/s/JOHN A. SHANE
- ----------------
John A. Shane
<PAGE>
Registration Nos. 2-83538
811-3728
EXHIBIT 1(G)
AMENDMENT NO. 6 TO THE AGREEMENT AND DECLARATION OF TRUST
<PAGE>
NEW ENGLAND ZENITH FUND
Amendment No. 6 to Agreement and Declaration of Trust
The undersigned, being at least a majority of the Trustees of New England
Zenith Fund (the "Trust"), hereby consent to and adopt the following amendment
to the Trust's Agreement and Declaration of Trust (as amended through Amendment
No. 5 thereto, the "Declaration of Trust"), a copy of which is on file in the
office of the Secretary of State of The Commonwealth of Massachusetts:
The undersigned Trustees having determined it to be consistent with the
fair and equitable treatment of all shareholders of the Trust, the first
sentence of Section 6 of Article III of the Declaration of Trust is hereby
amended to read in its entirety as follows:
Without limiting the authority of the Trustees set forth in Section 5,
inter alia, to establish and designate any further Series or classes or to
----- ----
modify the rights and preferences of any Series or class, each of the
following Series shall be, and is hereby, established and designated: (1)
the "Back Bay Advisors Money Market Series," (2) the "Back Bay Advisors
Bond Income Series," (3) the "Capital Growth Series," (4) the "Westpeak
Stock Index Series," (5) the "Back Bay Advisors Managed Series," (6) the
"Westpeak Value Growth Series," (7) the "Loomis Sayles Avanti Growth
Series," (8) the "Loomis Sayles Small Cap Series," (9) the "Loomis Sayles
Balanced Series," (10) the "Draycott International Equity Series," (11) the
"Salomon Brothers U.S. Government Series," (12) the "Salomon Brothers
Strategic Bond Opportunities Series," (13) the "Venture Value Series" and
(14) the "Alger Equity Growth Series."
The foregoing amendment shall become effective as of the time it is filed
with the Secretary of State of The Commonwealth of Massachusetts.
IN WITNESS WHEREOF, we have hereunder set our hands for ourselves and for
our successors and assigns this 21st day of July, 1995.
/s/ NANCY HAWTHORNE /s/ ROBERT B. KITTREDGE
- --------------------------- ----------------------------
Nancy Hawthorne Robert B. Kittredge
/s/ LAURENS MACLURE /s/ DALE ROGERS MARSHALL
- --------------------------- ----------------------------
Laurens MacLure Dale Rogers Marshall
/s/ ANNE M. GOGGIN /s/ JOSEPH E. TURLEY
- --------------------------- ----------------------------
Anne M. Goggin Joseph E. Turley
/s/ FREDERICK K. ZIMMERMANN /s/ RICHARD S. HUMPHREY, JR.
- --------------------------- ----------------------------
Frederick K. Zimmermann Richard S. Humphrey, Jr.
<PAGE>
/s/ JOSEPH M. HINCHEY
- ----------------------------
Joseph M. Hinchey
<PAGE>
Registration Nos. 2-83538
811-3728
EXHIBIT 1(H)
AMENDMENT NO. 7 TO THE AGREEMENT AND DECLARATION OF TRUST
<PAGE>
NEW ENGLAND ZENITH FUND
Amendment No. 7 to Agreement and Declaration of Trust
The undersigned, being at least a majority of the Trustees of New
England Zenith Fund (the "Trust"), hereby consent to and adopt the following
amendment to the Trust's Agreement and Declaration of Trust (as amended through
Amendment No. 6 thereto, the "Declaration of Trust"), a copy of which is on file
in the office of the Secretary of State of The Commonwealth of Massachusetts:
The undersigned Trustees having determined it to be consistent with the
fair and equitable treatment of all shareholders of the Trust, the first
sentence of Section 6 of Article III of the Declaration of Trust is hereby
amended to read in its entirety as follows:
Without limiting the authority of the Trustees set forth in Section 5,
inter alia, to establish and designate any further Series or classes or
----- ----
to modify the rights and preferences of any Series or class, each of the
following Series shall be, and is hereby, established and designated:
(1) the "Back Bay Advisors Money Market Series," (2) the "Back Bay
Advisors Bond Income Series," (3) the "Capital Growth Series," (4) the
"Westpeak Stock Index Series," (5) the "Back Bay Advisors Managed
Series," (6) the "Westpeak Growth and Income Series" (formerly the
Westpeak Value Growth Series), (7) the "Loomis Sayles Avanti Growth
Series," (8) the "Loomis Sayles Small Cap Series," (9) the "Loomis
Sayles Balanced Series," (10) the "Draycott International Equity
Series," (11) the "Salomon Brothers U.S. Government Series," (12) the
"Salomon Brothers Strategic Bond Opportunities Series," (13) the "Davis
Venture Value Series" and (14) the "Alger Equity Growth Series."
The foregoing amendment shall become effective as of the time it is
filed with the Secretary of State of The Commonwealth of Massachusetts.
IN WITNESS WHEREOF, we have hereunder set our hands for ourselves and
for our successors and assigns this 23st day of July, 1996.
<TABLE>
<S> <C>
/s/ NANCY HAWTHORNE /s/ ROBERT B. KITTREDGE
- --------------------------- ----------------------------
Nancy Hawthorne Robert B. Kittredge
/s/ DALE ROGERS MARSHALL
- --------------------------- ----------------------------
Laurens MacLure Dale Rogers Marshall
/s/ ANNE M. GOGGIN /s/ JOSEPH E. TURLEY
- --------------------------- ----------------------------
Anne M. Goggin Joseph E. Turley
/s/ FREDERICK K. ZIMMERMANN /s/ RICHARD S. HUMPHREY, JR.
- --------------------------- ----------------------------
Frederick K. Zimmermann Richard S. Humphrey, Jr.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
/s/ JOSEPH M. HINCHEY /s/ JOHN ARENA
- ------------------------ ----------------------------
Joseph M. Hinchey John Arena
/s/ JOHN FLYNN /s/ JOHN LUDES
- ------------------------ ----------------------------
John Flynn John Ludes
</TABLE>
<PAGE>
Registration Nos. 2-83538
811-3728
EXHIBIT 5(Q)
SUB-ADVISORY AGREEMENT FOR THE DAVIS VENTURE VALUE SERIES AMONG TNE ADVISERS,
INC., DAVIS SELECTED, L.P. AND DAVIS SELECTED - NY, INC.
<PAGE>
SUB-ADVISORY AGREEMENT
DAVIS VENTURE VALUE SERIES
This Sub-Advisory Agreement (this "Agreement") is entered into as of
December 16, 1996 by and among TNE Advisers, Inc., a Massachusetts corporation
(the "Manager"), Davis Selected Advisers, L.P., a Delaware limited partnership
(the "Sub-Adviser"), and Davis Selected Advisers - NY, Inc., a Delaware
corporation ("DSA-NY").
WHEREAS, the Manager has entered into an Advisory Agreement dated
August 30, 1996 (the "Advisory Agreement") with New England Zenith Fund (the
"Trust"), pursuant to which the Manager provides portfolio management and
administrative services to the Davis Venture Value Series of the Trust (the
"Series");
WHEREAS, the Advisory Agreement provides that the Manager may delegate any
or all of its portfolio management responsibilities under the Advisory Agreement
to one or more sub-advisers;
WHEREAS, the Manager desires to retain the Sub-Adviser to render portfolio
management services in the manner and on the terms set forth in this Agreement;
WHEREAS, the Manager and the Sub-Adviser desire to retain DSA-NY to render
certain services as described herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, the Manager and the Sub-Adviser agree as follows:
-1-
<PAGE>
1. Sub-Advisory Services.
1. The Sub-Adviser shall, subject to the supervision of the Manager
and in cooperation with any administrator appointed by the Manager (the
"Administrator"), manage the investment and reinvestment of the assets of the
Series. The Sub-Adviser shall manage the Series in conformity with (1) the
investment objective, policies and restrictions of the Series set forth in the
Trust's prospectus and statement of additional information relating to the
Series, (2) any additional policies or guidelines established by the Manager or
by the Trust's trustees that have been furnished in writing to the Sub-Adviser
and (3) the provisions of the Internal Revenue Code (the "Code") applicable to
"regulated investment companies" (as defined in Section 851 of the Code) and
Section 817 of the Code, all as from time to time in effect (collectively, the
"Policies"), and with all applicable provisions of law, including without
limitation all applicable provisions of the Investment Company Act of 1940 (the
"1940 Act") and the rules and regulations thereunder. Subject to the foregoing,
the Sub-Adviser is authorized, in its discretion and without prior consultation
with the Manager, to buy, sell, lend and otherwise trade in any stocks, bonds
and other securities and investment instruments on behalf of the Series, without
regard to the length of time the securities have been held and the resulting
rate of portfolio turnover or any tax considerations; and the majority or the
whole of the Series may be invested in such proportions of stocks, bonds, other
securities or investment instruments, or cash, as the Sub-Adviser shall
determine. Notwithstanding the foregoing provisions of this Section 1.a,
however, the Sub-Adviser shall, upon written instructions from the Manager,
effect such portfolio transactions for the Series as the Manager shall determine
are necessary in order for the Series to comply with the Policies.
2. The Sub-Adviser shall furnish the Manager and the Administrator
monthly, quarterly and annual reports concerning transactions and performance of
the Series in such form as may be mutually agreed upon, and agrees to review the
Series and discuss the management of the Series with representatives or agents
of the Manager, the Administrator or the Trust at their reasonable request. The
Sub-Adviser shall permit all books and records with respect to the Series to be
inspected and audited by the Manager and the Administrator at all reasonable
times during normal business hours, upon reasonable notice. The Sub-Adviser
shall also provide the Manager, the Administrator or the Trust with such other
information and reports as may reasonably be requested by the Manager, the
Administrator or the Trust from time to time, including without limitation all
material as reasonably may be requested to the Trustees of the Trust pursuant to
Section 15(c) of the 1940 Act.
3. The Sub-Adviser shall provide to the Manager a copy of the Sub-
Adviser's and DSA-NY's respective Forms ADV as filed with the Securities and
Exchange Commission and as amended from time to time and a list of the persons
whom the Sub-Adviser wishes to have authorized to give written and/or oral
instructions to custodians of assets of the Series.
<PAGE>
2. Obligations of the Manager.
1. The Manager shall provide (or cause the Trust's custodian to
provide) timely information to the Sub-Adviser regarding such matters as the
composition of assets in the Series, cash requirements and cash available for
investment in the Series, and all other information as may be reasonably
necessary for the Sub-Adviser to perform its responsibilities hereunder.
2. The Manager has furnished the Sub-Adviser a copy of the
prospectus and statement of additional information of the Series and agrees
during the continuance of this Agreement to furnish the Sub-Adviser copies of
any revisions or supplements thereto at, or, if practicable, before the time the
revisions or supplements become effective. The Manager agrees to furnish the
Sub-Adviser with minutes of meetings of the Trustees of the Trust applicable to
the Series to the extent they may affect the duties of the Sub-Adviser, and with
copies of any financial statements or reports made by the Series to its
shareholders, and any further materials or information which the Sub-Adviser may
reasonably request to enable it to perform its functions under this Agreement.
3. Custodian. The Manager shall provide the Sub-Adviser with a copy of
the Series's agreement with the custodian designated to hold the assets of the
Series (the "Custodian") and any modifications thereto (the "Custody
Agreement"), copies of such modifications to be provided to the Sub-Adviser a
reasonable time in advance of the effectiveness of such modifications. The
assets of the Series shall be maintained in the custody of the Custodian
identified in, and in accordance with the terms and conditions of, the Custody
Agreement (or any sub-custodian properly appointed as provided in the Custody
Agreement). The Sub-Adviser shall have no liability for the acts or omissions of
the Custodian, unless such act or omission is required by and taken in reliance
upon instruction given to the Custodian by a representative of the Sub-Adviser
properly authorized to give such instruction under the Custody Agreement. Any
assets added to the Series shall be delivered directly to the Custodian.
4. Proprietary Rights. The Manager agrees and acknowledges that the Sub-
Adviser is the sole owner of the name and mark "Venture" and that all use of any
designation consisting in whole or part of "Venture" (a "Venture Mark") under
this Agreement shall inure to the benefit of the Sub-Adviser. The Manager on its
own behalf and on behalf of the Series agrees not to use any Venture Mark in any
advertisement or sales literature or other materials promoting the Series,
except with the prior written consent of the Sub-Adviser. Without the prior
written consent of the Sub-Adviser, the Manager shall not, and the Manager shall
use its best efforts to cause the Trust not to, make representations regarding
the Sub-Adviser in any disclosure document, advertisement or sales literature or
other materials relating to the Series. Upon termination of this Agreement for
any reason, the Manager shall cease, and the Manager shall use its best efforts
to cause the Series to cease, all use of any Venture Mark(s) as soon as
reasonably practicable.
<PAGE>
5. Expenses. Except for expenses specifically assumed or agreed to be
paid by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be liable for
any expenses of the Manager or the Trust including, without limitation,
(a) interest and taxes, (b) brokerage commissions and other costs in connection
with the purchase or sale of securities or other investment instruments with
respect to the Series, and (c) custodian fees and expenses. The Sub-Adviser will
pay its own expenses incurred in furnishing the services to be provided by it
pursuant to this Agreement.
6. Purchase and Sale of Assets. Absent instructions from the Manager to
the contrary, the Sub-Adviser shall place all orders for the purchase and sale
of securities for the Series with brokers or dealers selected by the Sub-
Adviser, which may include brokers or dealers affiliated with the Sub-Adviser,
provided such orders comply with Rule 17e-1 under the 1940 Act in all respects.
To the extent consistent with applicable law, purchase or sell orders for the
Series may be aggregated with contemporaneous purchase or sell orders of other
clients of the Sub-Adviser. The Sub-Adviser shall use its best efforts to obtain
execution of transactions for the Series at prices which are advantageous to the
Series and at commission rates that are reasonable in relation to the benefits
received.
7. Compensation of the Sub-Adviser. As full compensation for all services
rendered, facilities furnished and expenses borne by the Sub-Adviser hereunder,
the Manager shall pay the Sub-Adviser compensation at the annual rate of 0.45%
of the first $100 million of the average daily net assets of the Series, 0.40%
of the next $400 million of such assets and 0.35% of such assets in excess of
$500 million. Such compensation shall be payable monthly in arrears or at such
other intervals, not less frequently than quarterly, as the Manager is paid by
the Series pursuant to the Advisory Agreement. The Manager may from time to time
waive the compensation it is entitled to receive from the Trust, however, any
such waiver will have no effect on the Manager's obligation to pay the Sub-
Adviser the compensation provided for herein.
8. Non-Exclusivity. The Manager and the Series agree that the services of
the Sub-Adviser are not to be deemed exclusive and that the Sub-Adviser and its
affiliates are free to act as investment manager and provide other services to
various investment companies and other managed accounts, except as the Sub-
Adviser and the Manager or the Administrator may otherwise agree from time to
time in writing before or after the date hereof. This Agreement shall not in any
way limit or restrict the Sub-Adviser or any of its directors, officers,
employees or agents from buying, selling or trading any securities or other
investment instruments for its or their own account or for the account of others
for whom it or they may be acting, provided that such activities do not
adversely affect or otherwise impair the performance by the Sub-Adviser of its
duties and obligations under this Agreement. The Manager and the Series
recognize and agree that the Sub-Adviser may provide advice to or take action
with respect to other clients, which advice or action, including the timing and
nature of such action, may differ from or be identical to advice given or action
taken with respect to the Series. The Sub-Adviser shall for all purposes hereof
be deemed to be an independent contractor and shall, unless otherwise provided
or
<PAGE>
authorized, have no authority to act for or represent the Trust or the Manager
in any way or otherwise be deemed an agent of the Trust or the Manager.
9. Liability. Except as may otherwise be provided by the 1940 Act or
other federal securities laws, neither the Sub-Adviser, DSA-NY nor any of their
officers, directors, employees or agents (the "Indemnified Parties") shall be
subject to any liability to the Manager, the Trust, the Series or any
shareholder of the Series for any error of judgment, any mistake of law or any
loss arising out of any investment or other act or omission in the course of,
connected with, or arising out of any service to be rendered under this
Agreement, except by reason of willful misfeasance, bad faith or gross
negligence in the performance of the Sub-Adviser's or DSA-NY's duties or by
reason of reckless disregard by the Sub-Adviser or DSA-NY of their obligations
and duties. The Manager shall hold harmless and indemnify the Sub-Adviser and
DSA-NY for any loss, liability, cost, damage or expense (including reasonable
attorneys fees and costs) arising from any claim or demand by any past or
present shareholder of the Series that is not based upon the obligations of the
Sub-Adviser or DSA-NY with respect to the Series under this Agreement. The
Manager acknowledges and agrees that the Sub-Adviser and DSA-NY make no
representation or warranty, express or implied, that any level of performance or
investment results will be achieved by the Series or that the Series will
perform comparably with any standard or index, including other clients of the
Sub-Adviser or DSA-NY, whether public or private.
10. Effective Date and Termination. This Agreement shall become
effective as of the date of its execution, and
1. unless otherwise terminated, this Agreement shall continue in
effect for two years from the date of execution, and from year to year
thereafter so long as such continuance is specifically approved at least
annually (i) by the Board of Trustees of the Trust or by vote of a majority of
the outstanding voting securities of the Series, and (ii) by vote of a majority
of the trustees of the Trust who are not interested persons of the Trust, the
Manager, the Sub-Adviser or DSA-NY, cast in person at a meeting called for the
purpose of voting on such approval;
2. this Agreement may at any time be terminated on sixty days'
written notice to the Sub-Adviser either by vote of the Board of Trustees of the
Trust or by vote of a majority of the outstanding voting securities of the
Series;
3. this Agreement shall automatically terminate in the event of its
assignment or upon the termination of the Advisory Agreement;
<PAGE>
4. this Agreement may be terminated by the Sub-Adviser on sixty
days' written notice to the Manager and the Trust, or, if approved by the Board
of Trustees of the Trust, by the Manager on sixty days' written notice to the
Sub-Adviser; and
e. if the Sub-Adviser requires the Series to change its name so as
to eliminate all references to the word "Venture" then this Agreement shall
automatically terminate at the time of such change unless the continuance of
this Agreement after such change shall have been specifically approved by vote
of a majority of the outstanding voting securities of the Series and by vote of
a majority of the Trustees of the Trust who are not interested persons of the
Trust or the Sub-Adviser, cast in person at a meeting called for the purpose of
voting on such approval.
Termination of this Agreement pursuant to this Section 10 shall be without
the payment of any penalty.
11. Amendment. This Agreement may be amended at any time by mutual
consent of the Manager, the Sub-Adviser and DSA-NY, provided that, if required
by law, such amendment shall also have been approved by vote of a majority of
the outstanding voting securities of the Series and by vote of a majority of the
trustees of the Trust who are not interested persons of the Trust, the Manager,
the Sub-Adviser or DSA-NY, cast in person at a meeting called for the purpose of
voting on such approval.
12. Certain Definitions. For the purpose of this Agreement, the terms
"vote of a majority of the outstanding voting securities," "interested person,"
"affiliated person" and "assignment" shall have their respective meanings
defined in the 1940 Act, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under the 1940 Act.
13. Delegation to DSA-NY etc.
a. The Sub-Adviser may from time to time delegate to DSA-NY any or
all of the responsibilities of the Sub-Adviser hereunder (but shall not delegate
any of the rights of the Sub-Adviser hereunder); provided, however, that the
Sub-Adviser shall be liable under this Agreement for any acts or omissions of
DSA-NY to the same extent as if such acts or omissions were committed by the
Sub-Adviser itself.
b. The Sub-Adviser shall compensate DSA-NY for all reasonable
direct and indirect costs associated with DSA-NY's performance of services
hereunder. In no event shall DSA-NY be entitled to any compensation hereunder
from any person other than the Sub-Adviser (including without limitation the
Manager, the Administrator or the Trust).
<PAGE>
14. General.
1. The Sub-Adviser and DSA-NY may perform their services through
any of their employees, officers or agents, and the Manager shall not be
entitled to the advice, recommendation or judgment of any specific person;
provided, however, that the persons identified in the prospectus of the Series
shall perform the portfolio management duties described therein until the Sub-
Adviser notifies the Manager that one or more other employees, officers or
agents of the Sub-Adviser or DSA-NY, identified in such notice, shall assume
such duties as of a specific date.
2. If any term or provision of this Agreement or the application
thereof to any person or circumstances is held to be invalid or unenforceable to
any extent, the remainder of this Agreement or the application of such provision
to other persons or circumstances shall not be affected thereby and shall be
enforced to the fullest extent permitted by law.
<PAGE>
3. This Agreement shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Massachusetts.
TNE ADVISERS, INC.
By: /s/ JOHN F. GUTHRIE
John F. Guthrie, Jr.
Senior Vice President
DAVIS SELECTED ADVISERS, L.P.
By: /s/ Carl Luff
Name: Carl Luff
Title: Co-President
DAVIS SELECTED ADVISERS - NY, INC.
By: /s/ Andrew Davis
Name: Andrew Davis
Title: Co-President
<PAGE>
Registration Nos. 2-83538
811-3728
EXHIBIT 5(S)
FORM OF SUB-ADVISORY AGREEMENT FOR THE MORGAN STANLEY INTERNATIONAL MAGNUM
EQUITY SERIES BETWEEN TNE ADVISERS, INC. AND MORGAN STANLEY ASSET
MANAGEMENT INC.
<PAGE>
SUB-ADVISORY AGREEMENT
MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES
This Sub-Advisory Agreement (this "Agreement") is entered into as of
May 1, 1997 by and among TNE Advisers, Inc., a Massachusetts corporation (the
"Manager"), and Morgan Stanley Asset Management Inc., a Delaware corporation
(the "Sub-Adviser").
WHEREAS, the Manager has entered into an Advisory Agreement dated
August 30, 1996 (the "Advisory Agreement") with New England Zenith Fund (the
"Trust"), pursuant to which the Manager provides portfolio management and
administrative services to the Morgan Stanley International Magnum Equity Series
of the Trust (the "Series");
WHEREAS, the Advisory Agreement provides that the Manager may delegate any
or all of its portfolio management responsibilities under the Advisory Agreement
to one or more sub-advisers;
WHEREAS, the Manager desires to retain the Sub-Adviser to render portfolio
management services in the manner and on the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, the Manager and the Sub-Adviser agree as follows:
-1-
<PAGE>
1. Sub-Advisory Services.
1. The Sub-Adviser shall, subject to the supervision of the Manager
and in cooperation with any administrator appointed by the Manager (the
"Administrator"), manage the investment and reinvestment of the assets of the
Series. The Sub-Adviser shall manage the Series in conformity with (1) the
investment objective, policies and restrictions of the Series set forth in the
Trust's prospectus and statement of additional information relating to the
Series, (2) any additional policies or guidelines established by the Manager or
by the Trust's trustees that have been furnished in writing to the Sub-Adviser
and (3) the provisions of the Internal Revenue Code (the "Code") applicable to
"regulated investment companies" (as defined in Section 851 of the Code) and
Section 817 of the Code, all as from time to time in effect (collectively, the
"Policies"), and with all applicable provisions of law, including without
limitation all applicable provisions of the Investment Company Act of 1940 (the
"1940 Act") and the rules and regulations thereunder. Subject to the foregoing,
the Sub-Adviser is authorized, in its discretion and without prior consultation
with the Manager, to buy, sell, lend and otherwise trade in any stocks, bonds
and other securities and investment instruments on behalf of the Series, without
regard to the length of time the securities have been held and the resulting
rate of portfolio turnover or any tax considerations; and the majority or the
whole of the Series may be invested in such proportions of stocks, bonds, other
securities or investment instruments, or cash, as the Sub-Adviser shall
determine. Notwithstanding the foregoing provisions of this Section 1.a,
however, the Sub-Adviser shall, upon written instructions from the Manager,
effect such portfolio transactions for the Series as the Manager shall determine
are necessary in order for the Series to comply with the Policies.
2. The Sub-Adviser shall furnish the Manager and the Administrator
monthly, quarterly and annual reports concerning transactions and performance of
the Series in such form as may be mutually agreed upon, and agrees to review the
Series and discuss the management of the Series with representatives or agents
of the Manager, the Administrator or the Trust at their reasonable request. The
Sub-Adviser shall permit all books and records with respect to the Series to be
inspected and audited by the Manager and the Administrator at all reasonable
times during normal business hours, upon reasonable notice. The Sub-Adviser
shall also provide the Manager, the Administrator or the Trust with such other
information and reports as may reasonably be requested by the Manager, the
Administrator or the Trust from time to time, including without limitation all
material as reasonably may be requested by the Trustees of the Trust pursuant to
Section 15(c) of the 1940 Act.
3. The Sub-Adviser shall provide to the Manager a copy of its
Form ADV as filed with the Securities and Exchange Commission and as amended
from time to time and a list of the persons whom the Sub-Adviser wishes to have
authorized to give written and/or oral instructions to custodians of assets of
the Series.
<PAGE>
2. Obligations of the Manager.
1. The Manager shall provide (or cause the Trust's custodian to
provide) timely information to the Sub-Adviser regarding such matters as the
composition of assets of the Series, cash requirements and cash available for
investment in the Series, and all other information as may be reasonably
necessary for the Sub-Adviser to perform its responsibilities hereunder.
2. The Manager has furnished the Sub-Adviser a copy of the
prospectus and statement of additional information of the Series and agrees
during the continuance of this Agreement to furnish the Sub-Adviser copies of
any revisions or supplements thereto at, or, if practicable, before the time the
revisions or supplements become effective. No revisions shall be made nor
supplements issued regarding the Series or the Sub-Adviser without the prior
review and approval of the Sub-Adviser. No written materials naming or relating
to the Sub-Adviser, its employees or its affiliated companies, other than
materials provided or approved by the Sub-Adviser, shall be used by the Manager,
the Trust or their affiliates in offering or marketing shares of the Trust or
related variable insurance products. The Manager agrees to furnish the Sub-
Adviser with minutes of meetings of the Trustees of the Trust applicable to the
Series to the extent they may affect the duties of the Sub-Adviser, and with
copies of any financial statements or reports made by the Series to its
shareholders, and any further materials or information which the Sub-Adviser may
reasonably request to enable it to perform its functions under this Agreement.
3. Custodian. The Manager shall provide the Sub-Adviser with a copy of
the Series' agreement with the custodian designated to hold the assets of the
Series (the "Custodian") and any modifications thereto (the "Custody
Agreement"), copies of such modifications to be provided to the Sub-Adviser a
reasonable time in advance of the effectiveness of such modifications. The
assets of the Series shall be maintained in the custody of the Custodian
identified in, and in accordance with the terms and conditions of, the Custody
Agreement (or any sub-custodian properly appointed as provided in the Custody
Agreement). The Sub-Adviser shall have no liability for the acts or omissions of
the Custodian, unless such act or omission is required by and taken in reliance
upon instruction given to the Custodian by a representative of the Sub-Adviser
properly authorized to give such instruction under the Custody Agreement. Any
assets added to the Series shall be delivered directly to the Custodian.
4. Expenses. Except for expenses specifically assumed or agreed to be
paid by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be liable for
any expenses of the Manager or the Trust including, without limitation, (a)
interest and taxes, (b) brokerage commissions and other costs in connection with
the purchase or sale of securities or other
<PAGE>
investment instruments with respect to the Series, and (c) custodian fees and
expenses. The Sub-Adviser will pay its own expenses incurred in furnishing the
services to be provided by it pursuant to this Agreement.
5. Purchase and Sale of Assets. Absent instructions from the Manager to
the contrary, the Sub-Adviser shall place all orders for the purchase and sale
of securities for the Series with brokers or dealers selected by the Sub-
Adviser, which may include brokers or dealers affiliated with the Sub-Adviser,
provided such orders comply with Rule 17e-1 under the 1940 Act in all respects.
To the extent consistent with applicable law, purchase or sell orders for the
Series may be aggregated with contemporaneous purchase or sell orders of other
clients of the Sub-Adviser. The Sub-Adviser shall use its best efforts to obtain
execution of transactions for the Series at prices which are advantageous to the
Series and at commission rates that are reasonable in relation to the benefits
received.
6. Compensation of the Sub-Adviser. As full compensation for all services
rendered, facilities furnished and expenses borne by the Sub-Adviser hereunder,
the Manager shall pay the Sub-Adviser compensation at the annual rate of 0.75%
of the first $30 million of the average daily net assets of the Series, 0.60% of
the next $40 million of such assets, 0.45% of the next $30 million of such
assets and 0.40% of such assets in excess of $100 million. Such compensation
shall be payable monthly in arrears or at such other intervals, not less
frequently than quarterly, as the Manager is paid by the Series pursuant to the
Advisory Agreement. The Manager may from time to time waive the compensation it
is entitled to receive from the Trust, however, and such waiver will have no
effect on the Manager's obligation to pay the Sub-Adviser the compensation
provided for herein.
7. Non-Exclusivity. The Manager and the Series agree that the services of
the Sub-Adviser are not to be deemed exclusive and that the Sub-Adviser and its
affiliates are free to act as investment manager and provide other services to
various investment companies and other managed accounts, except as the Sub-
Adviser and the Manager or the Administrator may otherwise agree from time to
time in writing before or after the date hereof. This Agreement shall not in any
way limit or restrict the Sub-Adviser or any of its directors, officers,
employees or agents from buying, selling or trading any securities or other
investment instruments for its or their own account or for the account of others
for whom it or they may be acting, provided that such activities do not
adversely affect or otherwise impair the performance by the Sub-Adviser of its
duties and obligations under this Agreement. The Manager and the Series
recognize and agree that the Sub-Adviser may provide advice to or take action
with respect to other clients, which advice or action, including the timing and
nature of such action, may differ from or be identical to advice given or action
taken with respect to the Series. The Sub-Adviser shall for all purposes hereof
be deemed to be an independent contractor and shall, unless otherwise provided
or authorized, have no authority to
<PAGE>
act for or represent the Trust or the Manager in any way or otherwise be deemed
an agent of the Trust or the Manager.
8. Liability. Except as may otherwise be provided by the 1940 Act or
other federal securities laws, neither the Sub-Adviser nor any of its officers,
directors, employees or agents (the "Indemnified Parties") shall be subject to
any liability to the Manager, the Trust, the Series or any shareholder of the
Series for any error of judgment, any mistake of law or any loss arising out of
any investment or other act or omission in the course of, connected with, or
arising out of any service to be rendered under this Agreement, except by reason
of willful misfeasance, bad faith or gross negligence in the performance of the
Sub-Adviser's duties or by reason of reckless disregard by the Sub-Adviser of
its obligations and duties. The Manager shall hold harmless and indemnify the
Sub-Adviser for any loss, liability, cost, damage or expense (including
reasonable attorneys fees and costs) arising from any claim or demand by any
past or present shareholder of the Series that is not based upon the obligations
of the Sub-Adviser with respect to the Series under this Agreement. The Manager
acknowledges and agrees that the Sub-Adviser makes no representation or
warranty, express or implied, that any level of performance or investment
results will be achieved by the Series or that the Series will perform
comparably with any standard or index, including other clients of the Sub-
Adviser, whether public or private.
9. Effective Date and Termination. This Agreement shall become effective
as of the date of its execution, and
1. unless otherwise terminated, this Agreement shall continue in
effect for two years from the date of execution, and from year to year
thereafter so long as such continuance is specifically approved at least
annually (i) by the Board of Trustees of the Trust or by vote of a majority of
the outstanding voting securities of the Series, and (ii) by vote of a majority
of the trustees of the Trust who are not interested persons of the Trust, the
Manager or the Sub-Adviser, cast in person at a meeting called for the purpose
of voting on such approval;
2. this Agreement may at any time be terminated on sixty days'
written notice to the Sub-Adviser either by vote of the Board of Trustees of the
Trust or by vote of a majority of the outstanding voting securities of the
Series;
3. this Agreement shall automatically terminate in the event of its
assignment or upon the termination of the Advisory Agreement;
<PAGE>
4. this Agreement may be terminated by the Sub-Adviser on sixty
days' written notice to the Manager and the Trust, or, if approved by the Board
of Trustees of the Trust, by the Manager on sixty days' written notice to the
Sub-Adviser; and
e. if the Sub-Adviser requires the Series to change its name so as
to eliminate all references to the words "Morgan Stanley" then this Agreement
shall automatically terminate at the time of such change unless the continuance
of this Agreement after such change shall have been specifically approved by
vote of a majority of the outstanding voting securities of the Series and by
vote of a majority of the Trustees of the Trust who are not interested persons
of the Trust or the Sub-Adviser, cast in person at a meeting called for the
purpose of voting on such approval.
Termination of this Agreement pursuant to this Section 9 shall be without
the payment of any penalty.
10. Amendment. This Agreement may be amended at any time by mutual consent
of the parties, provided that, if required by law, such amendment shall also
have been approved by vote of a majority of the outstanding voting securities of
the Series and by vote of a majority of the trustees of the Trust who are not
interested persons of the Trust, the Manager or the Sub-Adviser, cast in person
at a meeting called for the purpose of voting on such approval.
11. Certain Definitions. For the purpose of this Agreement, the terms
"vote of a majority of the outstanding voting securities," "interested person,"
"affiliated person" and "assignment" shall have their respective meanings
defined in the 1940 Act, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under the 1940 Act.
12. General.
1. The Sub-Adviser may perform its services through any employee,
officer or agent, and the Manager shall not be entitled to the advice,
recommendation or judgment of any specific person; provided, however, that the
persons identified in the prospectus of the Series shall perform the portfolio
management duties described therein until the Sub-Adviser notifies the Manager
that one or more other employees, officers or agents identified in such notice
shall assume such duties as of a specific date.
2. If any term or provision of this Agreement or the application
thereof to any person or circumstances is held to be invalid or unenforceable to
any extent, the remainder
<PAGE>
of this Agreement or the application of such provision to other persons or
circumstances shall not be affected thereby and shall be enforced to the fullest
extent permitted by law.
3. This Agreement shall be governed by and interpreted in accordance
with the laws of the Commonwealth of Massachusetts.
13. Use of Morgan Stanley Name. The Manager and the Trust agree that if
this Agreement is terminated and the Sub-Adviser or an affiliate thereof shall
no longer be the sub-adviser to the Series, the Trust will change the name of
the Series to delete any reference to "Morgan Stanley."
TNE ADVISERS, INC.
By:
--------------------------------
John F. Guthrie, Jr.
Senior Vice President
MORGAN STANLEY ASSET
MANAGEMENT INC.
By:
---------------------------------
Name:
----------------------------
Title:
---------------------------
<PAGE>
Registration Nos. 2-83538
811-3728
EXHIBIT 9(F)
POWERS OF ATTORNEY OF TRUSTEES
<PAGE>
NEW ENGLAND ZENITH FUND
POWER OF ATTORNEY
-----------------
We, the undersigned members of the Board of Trustees of New England Zenith
Fund, hereby severally constitute and appoint Anne M. Goggin, Frederick K.
Zimmermann, Frank Nesvet, Beverly J. DeWitt and John F. Guthrie, Jr. and each of
them singly, our true and lawful attorneys, with full power to them and each of
them to sign, for us, and in our names and in the capacities indicated below,
any and all registration statements and any and all amendments thereto to be
filed with the Securities and Exchange Commission, pursuant to the Securities
Act of 1933 and/or the Investment Company Act of 1940, hereby ratifying and
confirming our signatures as they may be signed by our said attorneys to any and
all such registration statements and amendments thereto.
Witness our hands on the date set forth below.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ JOHN J. ARENA Member of the January 22, 1997
- --------------------- Board of Trustees
John J. Arena
January 22, 1997
/s/ JOHN W. FLYNN Member of the
- --------------------- Board of Trustees
John W. Flynn
/s/ JOHN T. LUDES Member of the January 22, 1997
- --------------------- Board of Trustees
John T. Ludes
</TABLE>
<PAGE>
Registration Nos. 2-83538
811-3728
EXHIBIT 11
CONSENT OF COOPERS AND LYBRAND
<PAGE>
[LETTERHEAD OF COOPERS & LYBRAND APPEARS HERE]
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
New England Zenith Fund:
We consent to the inclusion in Post-Effective Amendment No. 22 to the
Registration Statement of New England Zenith Fund (comprising, respectively, the
Back Bay Advisors Bond Income Series, Capital Growth Series, Back Bay Advisors
Money Market Series, Westpeak Stock Index Series, Back Bay Advisors Managed
Series, Loomis Sayles Avanti Growth Series, Westpeak Growth and Income Series,
Loomis Sayles Balanced Series, Draycott International Equity Series, Salomon
Brothers U.S. Government Series, Salomon Brothers Strategic Bond Opportunities
Series, Davis Venture Value Series, Alger Equity Growth Series and Loomis Sayles
Small Cap Series - the "Series") on Form N-1A of our report dated February 14,
1997 on our audit of the financial statements and financial highlights of the
respective Series, which report is included in the Annual Report to Shareholders
for the year ended December 31, 1996, which is included in the Registration
Statement. We also consent to the reference to our Firm under the captions
"Financial Highlights," "Independent Accountants" and "Experts".
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
February 25, 1997
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NEW ENGLAND
ZENITH FUND ANNUAL AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 8
<NAME> BOND INCOME
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> FEB-25-1997
<INVESTMENTS-AT-COST> 176,121,238
<INVESTMENTS-AT-VALUE> 177,005,766
<RECEIVABLES> 3,636,732
<ASSETS-OTHER> 3,991
<OTHER-ITEMS-ASSETS> 274
<TOTAL-ASSETS> 180,646,489
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 287,807
<TOTAL-LIABILITIES> 287,807
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 178,899,513
<SHARES-COMMON-STOCK> 1,707,523
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 12,169,158
<OVERDISTRIBUTION-NII> 146,994
<ACCUMULATED-NET-GAINS> 428,101
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 884,348
<NET-ASSETS> 192,381,120
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 13,045,963
<OTHER-INCOME> 0
<EXPENSES-NET> 876,805
<NET-INVESTMENT-INCOME> 12,169,158
<REALIZED-GAINS-CURRENT> 1,434,380
<APPREC-INCREASE-CURRENT> (5,669,381)
<NET-CHANGE-FROM-OPS> 7,934,157
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (12,191,823)
<DISTRIBUTIONS-OF-GAINS> (496,515)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 491,882
<NUMBER-OF-SHARES-REDEEMED> (401,180)
<SHARES-REINVESTED> 119,580
<NET-CHANGE-IN-ASSETS> 210,282
<ACCUMULATED-NII-PRIOR> 10,335,393
<ACCUMULATED-GAINS-PRIOR> (341,858)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 672,348
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 204,457
<AVERAGE-NET-ASSETS> 168,663,725
<PER-SHARE-NAV-BEGIN> 108.67
<PER-SHARE-NII> 7.72
<PER-SHARE-GAIN-APPREC> (2.70)
<PER-SHARE-DIVIDEND> (7.74)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> (0.32)
<PER-SHARE-NAV-END> 105.63
<EXPENSE-RATIO> 0.52
<AVG-DEBT-OUTSTANDING> 0.00
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NEW ENGLAND
ZENITH FUND ANNUAL AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 9
<NAME> CAPITAL GROWTH
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> FEB-25-1997
<INVESTMENTS-AT-COST> 889,202,359
<INVESTMENTS-AT-VALUE> 1,137,275,763
<RECEIVABLES> 19,503,717
<ASSETS-OTHER> 1,293
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,156,780,773
<PAYABLE-FOR-SECURITIES> 12,706,300
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,414,298
<TOTAL-LIABILITIES> 14,120,598
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 863,208,951
<SHARES-COMMON-STOCK> 2,675,506
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 7,929,365
<OVERDISTRIBUTION-NII> 36,394
<ACCUMULATED-NET-GAINS> 31,341,426
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 248,073,404
<NET-ASSETS> 1,150,553,146
<DIVIDEND-INCOME> 14,724,056
<INTEREST-INCOME> 163,836
<OTHER-INCOME> 0
<EXPENSES-NET> 6,958,527
<NET-INVESTMENT-INCOME> 7,929,365
<REALIZED-GAINS-CURRENT> 68,632,360
<APPREC-INCREASE-CURRENT> 121,815,567
<NET-CHANGE-FROM-OPS> 198,377,292
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (7,921,505)
<DISTRIBUTIONS-OF-GAINS> (57,069,463)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 647,661
<NUMBER-OF-SHARES-REDEEMED> (533,320)
<SHARES-REINVESTED> 101,508
<NET-CHANGE-IN-ASSETS> 215,849
<ACCUMULATED-NII-PRIOR> 7,450,611
<ACCUMULATED-GAINS-PRIOR> 19,778,563
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,398,659
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 559,868
<AVERAGE-NET-ASSETS> 1,065,708,988
<PER-SHARE-NAV-BEGIN> 374.62
<PER-SHARE-NII> 3.08
<PER-SHARE-GAIN-APPREC> 74.80
<PER-SHARE-DIVIDEND> (3.08)
<PER-SHARE-DISTRIBUTIONS> (22.34)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 427.08
<EXPENSE-RATIO> 0.69
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NEW ENGLAND
ZENITH ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 10
<NAME> MONEY MARKET
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> FEB-26-1997
<INVESTMENTS-AT-COST> 115,526,702
<INVESTMENTS-AT-VALUE> 115,526,702
<RECEIVABLES> 2,572,881
<ASSETS-OTHER> 903
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 118,100,486
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,101,767
<TOTAL-LIABILITIES> 1,101,767
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 116,998,719
<SHARES-COMMON-STOCK> 1,169,987
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 5,024,507
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 122,023,226
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,523,727
<OTHER-INCOME> 0
<EXPENSES-NET> 499,220
<NET-INVESTMENT-INCOME> 5,024,507
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 5,024,507
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,024,507)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,346,128
<NUMBER-OF-SHARES-REDEEMED> (2,127,942)
<SHARES-REINVESTED> 50,319
<NET-CHANGE-IN-ASSETS> 268,505
<ACCUMULATED-NII-PRIOR> 4,403,095
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 350,632
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 148,588
<AVERAGE-NET-ASSETS> 101,235,978
<PER-SHARE-NAV-BEGIN> 100.00
<PER-SHARE-NII> 4.99
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (4.99)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 100.00
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NEW ENGLAND
ZENITH FUND ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 11
<NAME> STOCK INDEX
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> FEB-25-1997
<INVESTMENTS-AT-COST> 53,500,323
<INVESTMENTS-AT-VALUE> 80,696,348
<RECEIVABLES> 252,016
<ASSETS-OTHER> 699
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 80,949,063
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 185,215
<TOTAL-LIABILITIES> 185,215
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 53,271,948
<SHARES-COMMON-STOCK> 675,146
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1,258,557
<OVERDISTRIBUTION-NII> 8,445
<ACCUMULATED-NET-GAINS> 287,430
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 27,196,025
<NET-ASSETS> 82,013,960
<DIVIDEND-INCOME> 1,474,292
<INTEREST-INCOME> 57,446
<OTHER-INCOME> 0
<EXPENSES-NET> 273,181
<NET-INVESTMENT-INCOME> 1,258,557
<REALIZED-GAINS-CURRENT> 995,215
<APPREC-INCREASE-CURRENT> 11,760,936
<NET-CHANGE-FROM-OPS> 14,014,708
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,270,368)
<DISTRIBUTIONS-OF-GAINS> (675,238)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 198,327
<NUMBER-OF-SHARES-REDEEMED> (125,580)
<SHARES-REINVESTED> 16,226
<NET-CHANGE-IN-ASSETS> 88,973
<ACCUMULATED-NII-PRIOR> 1,070,362
<ACCUMULATED-GAINS-PRIOR> (32,544)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 170,651
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 102,530
<AVERAGE-NET-ASSETS> 68,249,766
<PER-SHARE-NAV-BEGIN> 100.09
<PER-SHARE-NII> 1.91
<PER-SHARE-GAIN-APPREC> 20.58
<PER-SHARE-DIVIDEND> (1.93)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (1.03)
<PER-SHARE-NAV-END> 119.62
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NEW ENGLAND
ZENITH FUND ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 12
<NAME> MANAGED
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> FEB-25-1997
<INVESTMENTS-AT-COST> 121,363,826
<INVESTMENTS-AT-VALUE> 162,577,171
<RECEIVABLES> 1,103,581
<ASSETS-OTHER> 2,364
<OTHER-ITEMS-ASSETS> 131
<TOTAL-ASSETS> 163,683,116
<PAYABLE-FOR-SECURITIES> 2,593,440
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 201,379
<TOTAL-LIABILITIES> 2,794,819
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 119,495,162
<SHARES-COMMON-STOCK> 944,370
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 5,527,070
<OVERDISTRIBUTION-NII> 40,029
<ACCUMULATED-NET-GAINS> 140,816
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 41,212,421
<NET-ASSETS> 166,375,469
<DIVIDEND-INCOME> 2,573,306
<INTEREST-INCOME> 3,903,015
<OTHER-INCOME> 0
<EXPENSES-NET> 949,251
<NET-INVESTMENT-INCOME> 5,527,070
<REALIZED-GAINS-CURRENT> 9,531,773
<APPREC-INCREASE-CURRENT> 6,443,761
<NET-CHANGE-FROM-OPS> 21,502,604
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,442,217)
<DISTRIBUTIONS-OF-GAINS> (9,837,965)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 120,220
<NUMBER-OF-SHARES-REDEEMED> (164,939)
<SHARES-REINVESTED> 86,822
<NET-CHANGE-IN-ASSETS> 42,103
<ACCUMULATED-NII-PRIOR> 5,487,603
<ACCUMULATED-GAINS-PRIOR> 356,254
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 759,871
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 189,380
<AVERAGE-NET-ASSETS> 151,987,088
<PER-SHARE-NAV-BEGIN> 163.52
<PER-SHARE-NII> 6.43
<PER-SHARE-GAIN-APPREC> 18.21
<PER-SHARE-DIVIDEND> (6.34)
<PER-SHARE-DISTRIBUTIONS> (11.45)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 170.37
<EXPENSE-RATIO> 0.62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NEW ENGLAND
ZENITH FUND ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 13
<NAME> AVANTI GROWTH
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> FEB-25-1997
<INVESTMENTS-AT-COST> 72,338,076
<INVESTMENTS-AT-VALUE> 84,909,084
<RECEIVABLES> 326,578
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 85,235,662
<PAYABLE-FOR-SECURITIES> 2,383,605
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 184,712
<TOTAL-LIABILITIES> 2,568,317
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 68,933,894
<SHARES-COMMON-STOCK> 523,600
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 49,436
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,162,443
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,571,008
<NET-ASSETS> 82,716,781
<DIVIDEND-INCOME> 436,309
<INTEREST-INCOME> 164,434
<OTHER-INCOME> 0
<EXPENSES-NET> 551,307
<NET-INVESTMENT-INCOME> $49,436
<REALIZED-GAINS-CURRENT> 4,796,759
<APPREC-INCREASE-CURRENT> 5,241,031
<NET-CHANGE-FROM-OPS> 10,087,226
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (56,514)
<DISTRIBUTIONS-OF-GAINS> (4,542,510)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 265,834
<NUMBER-OF-SHARES-REDEEMED> (108,338)
<SHARES-REINVESTED> 23,281
<NET-CHANGE-IN-ASSETS> 180,777
<ACCUMULATED-NII-PRIOR> 138,413
<ACCUMULATED-GAINS-PRIOR> 908,909
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 454,015
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 97,292
<AVERAGE-NET-ASSETS> 64,965,593
<PER-SHARE-NAV-BEGIN> 142.44
<PER-SHARE-NII> 0.11
<PER-SHARE-GAIN-APPREC> 24.88
<PER-SHARE-DIVIDEND> (0.13)
<PER-SHARE-DISTRIBUTIONS> (9.42)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 157.88
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0.00
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NEW ENGLAND
ZENITH FUND ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 14
<NAME> GROWTH AND INCOME
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> FEB-25-1997
<INVESTMENTS-AT-COST> 72,324,057
<INVESTMENTS-AT-VALUE> 82,252,327
<RECEIVABLES> 245,762
<ASSETS-OTHER> 728
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 82,498,817
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 168,674
<TOTAL-LIABILITIES> 168,674
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 70,263,879
<SHARES-COMMON-STOCK> 542,4449
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 890,831
<OVERDISTRIBUTION-NII> 469
<ACCUMULATED-NET-GAINS> 2,137,525
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9,928,270
<NET-ASSETS> 83,220,505
<DIVIDEND-INCOME> 1,301,995
<INTEREST-INCOME> 127,382
<OTHER-INCOME> 0
<EXPENSES-NET> 538,546
<NET-INVESTMENT-INCOME> 890,831
<REALIZED-GAINS-CURRENT> 8,163,321
<APPREC-INCREASE-CURRENT> 2,277,386
<NET-CHANGE-FROM-OPS> 11,331,538
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (904,227)
<DISTRIBUTIONS-OF-GAINS> (6,507,691)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 239,114
<NUMBER-OF-SHARES-REDEEMED> (86,095)
<SHARES-REINVESTED> 48,827
<NET-CHANGE-IN-ASSETS> 201,846
<ACCUMULATED-NII-PRIOR> 563,717
<ACCUMULATED-GAINS-PRIOR> 481,895
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 443,509
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 95,037
<AVERAGE-NET-ASSETS> 63,468,958
<PER-SHARE-NAV-BEGIN> 141.31
<PER-SHARE-NII> 1.78
<PER-SHARE-GAIN-APPREC> 23.69
<PER-SHARE-DIVIDEND> (1.82)
<PER-SHARE-DISTRIBUTIONS> (13.19)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 151.77
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NEW ENGLAND
ZENITH FUND ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> SMALL CAP
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> FEB-25-1997
<INVESTMENTS-AT-COST> 79,743,622
<INVESTMENTS-AT-VALUE> 89,950,230
<RECEIVABLES> 1,000,809
<ASSETS-OTHER> 4,302
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 90,955,341
<PAYABLE-FOR-SECURITIES> 1,513,473
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 247,843
<TOTAL-LIABILITIES> 1,761,316
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 78,276,114
<SHARES-COMMON-STOCK> 618,171
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 591,899
<OVERDISTRIBUTION-NII> 9,342
<ACCUMULATED-NET-GAINS> 701,961
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,206,608
<NET-ASSETS> 89,776,582
<DIVIDEND-INCOME> 717,775
<INTEREST-INCOME> 380,416
<OTHER-INCOME> 0
<EXPENSES-NET> 506,292
<NET-INVESTMENT-INCOME> 591,899
<REALIZED-GAINS-CURRENT> 5,566,031
<APPREC-INCREASE-CURRENT> 7,966,226
<NET-CHANGE-FROM-OPS> 14,124,156
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (597,412)
<DISTRIBUTIONS-OF-GAINS> (5,269,235)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 482,269
<NUMBER-OF-SHARES-REDEEMED> (139,206)
<SHARES-REINVESTED> 41,606
<NET-CHANGE-IN-ASSETS> 384,669
<ACCUMULATED-NII-PRIOR> 186,550
<ACCUMULATED-GAINS-PRIOR> 405,163
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 506,292
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 51,467,388
<PER-SHARE-NAV-BEGIN> 118.80
<PER-SHARE-NII> 1.05
<PER-SHARE-GAIN-APPREC> 35.03
<PER-SHARE-DIVIDEND> (1.03)
<PER-SHARE-DISTRIBUTIONS> (9.56)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 144.29
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NEW ENGLAND
ZENITH FUND ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> BALANCED
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> FEB-25-1997
<INVESTMENTS-AT-COST> 52,646,399
<INVESTMENTS-AT-VALUE> 58,154,833
<RECEIVABLES> 593,626
<ASSETS-OTHER> 748
<OTHER-ITEMS-ASSETS> 5,689
<TOTAL-ASSETS> 58,754,896
<PAYABLE-FOR-SECURITIES> 24,224
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 205,829
<TOTAL-LIABILITIES> 230,053
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 52,484,161
<SHARES-COMMON-STOCK> 4,318,444
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1,121,822
<OVERDISTRIBUTION-NII> 10,566
<ACCUMULATED-NET-GAINS> 521,682
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,508,434
<NET-ASSETS> 59,636,099
<DIVIDEND-INCOME> 432,720
<INTEREST-INCOME> 996,102
<OTHER-INCOME> 0
<EXPENSES-NET> 307,000
<NET-INVESTMENT-INCOME> 1,121,822
<REALIZED-GAINS-CURRENT> 940,791
<APPREC-INCREASE-CURRENT> 4,480,648
<NET-CHANGE-FROM-OPS> 6,543,261
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,114,677)
<DISTRIBUTIONS-OF-GAINS> (557,561)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,250,311
<NUMBER-OF-SHARES-REDEEMED> (619,940)
<SHARES-REINVESTED> 112,980
<NET-CHANGE-IN-ASSETS> 2,743,351
<ACCUMULATED-NII-PRIOR> 382,625
<ACCUMULATED-GAINS-PRIOR> 138,450
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 252,822
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 54,178
<AVERAGE-NET-ASSETS> 36,411,851
<PER-SHARE-NAV-BEGIN> 11.95
<PER-SHARE-NII> 0.27
<PER-SHARE-GAIN-APPREC> 1.73
<PER-SHARE-DIVIDEND> (0.27)
<PER-SHARE-DISTRIBUTIONS> (0.13)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.55
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NEW ENGLAND
ZENITH FUND ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> INTERN'L EQUITY
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> FEB-25-1997
<INVESTMENTS-AT-COST> 35,687,843
<INVESTMENTS-AT-VALUE> 37,588,400
<RECEIVABLES> 396,632
<ASSETS-OTHER> 716
<OTHER-ITEMS-ASSETS> 5,688
<TOTAL-ASSETS> 37,991,436
<PAYABLE-FOR-SECURITIES> 42,498
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 199,496
<TOTAL-LIABILITIES> 241,994
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 37,517,658
<SHARES-COMMON-STOCK> 3,490,576
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 191,479
<OVERDISTRIBUTION-NII> (55,074)
<ACCUMULATED-NET-GAINS> 21,291
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,908,311
<NET-ASSETS> 39,638,739
<DIVIDEND-INCOME> 448,320
<INTEREST-INCOME> 113,890
<OTHER-INCOME> 0
<EXPENSES-NET> 370,731
<NET-INVESTMENT-INCOME> 191,479
<REALIZED-GAINS-CURRENT> 536,541
<APPREC-INCREASE-CURRENT> 1,051,280
<NET-CHANGE-FROM-OPS> 1,779,300
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (50,813)
<DISTRIBUTIONS-OF-GAINS> (542,008)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,705,127
<NUMBER-OF-SHARES-REDEEMED> (784,531)
<SHARES-REINVESTED> 53,263
<NET-CHANGE-IN-ASSETS> 1,973,859
<ACCUMULATED-NII-PRIOR> 123,277
<ACCUMULATED-GAINS-PRIOR> (164,529)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 256,659
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 114,072
<AVERAGE-NET-ASSETS> 28,525,051
<PER-SHARE-NAV-BEGIN> 10.73
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 0.68
<PER-SHARE-DIVIDEND> (0.02)
<PER-SHARE-DISTRIBUTIONS> (0.16)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.29
<EXPENSE-RATIO> 1.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NEW ENGLAND
ZENITH FUND ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 4
<NAME> U.S. GOVERNMENT
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> FEB-26-1997
<INVESTMENTS-AT-COST> 15,864,814
<INVESTMENTS-AT-VALUE> 15,844,278
<RECEIVABLES> 173,104
<ASSETS-OTHER> 796
<OTHER-ITEMS-ASSETS> 5,694
<TOTAL-ASSETS> 16,023,872
<PAYABLE-FOR-SECURITIES> 2,757,054
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 56,154
<TOTAL-LIABILITIES> 2,813,208
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 13,203,810
<SHARES-COMMON-STOCK> 1,219,959
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 664,231
<OVERDISTRIBUTION-NII> 6,776
<ACCUMULATED-NET-GAINS> 20,614
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (20,536)
<NET-ASSETS> 13,868,119
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 740,123
<OTHER-INCOME> 0
<EXPENSES-NET> 75,892
<NET-INVESTMENT-INCOME> 664,231
<REALIZED-GAINS-CURRENT> 1,275
<APPREC-INCREASE-CURRENT> (214,900)
<NET-CHANGE-FROM-OPS> 450,606
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (639,626)
<DISTRIBUTIONS-OF-GAINS> (16,259)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 852,094
<NUMBER-OF-SHARES-REDEEMED> (374,295)
<SHARES-REINVESTED> 58,698
<NET-CHANGE-IN-ASSETS> 536,497
<ACCUMULATED-NII-PRIOR> 214,389
<ACCUMULATED-GAINS-PRIOR> 14,689
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 59,626
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 16,266
<AVERAGE-NET-ASSETS> 10,833,986
<PER-SHARE-NAV-BEGIN> 11.04
<PER-SHARE-NII> 0.58
<PER-SHARE-GAIN-APPREC> (0.21)
<PER-SHARE-DIVIDEND> (0.56)
<PER-SHARE-DISTRIBUTIONS> (0.02)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.83
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NEW ENGLAND
ZENITH ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 6
<NAME> VENTURE VALUE
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> FEB-25-1997
<INVESTMENTS-AT-COST> 89,704,033
<INVESTMENTS-AT-VALUE> 107,914,821
<RECEIVABLES> 923,866
<ASSETS-OTHER> 13,469
<OTHER-ITEMS-ASSETS> 5,688
<TOTAL-ASSETS> 108,857,844
<PAYABLE-FOR-SECURITIES> 398,508
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 270,310
<TOTAL-LIABILITIES> 668,818
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 89,700,900
<SHARES-COMMON-STOCK> 6,723,469
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 833,527
<OVERDISTRIBUTION-NII> 17,317
<ACCUMULATED-NET-GAINS> 258,829
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 18,211,980
<NET-ASSETS> 109,005,236
<DIVIDEND-INCOME> 1,003,895
<INTEREST-INCOME> 424,772
<OTHER-INCOME> 0
<EXPENSES-NET> 595,140
<NET-INVESTMENT-INCOME> 833,527
<REALIZED-GAINS-CURRENT> 1,885,474
<APPREC-INCREASE-CURRENT> 14,269,076
<NET-CHANGE-FROM-OPS> 16,988,077
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (818,557)
<DISTRIBUTIONS-OF-GAINS> (1,709,985)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,082,303
<NUMBER-OF-SHARES-REDEEMED> (1,190,115)
<SHARES-REINVESTED> 156,859
<NET-CHANGE-IN-ASSETS> 4,049,047
<ACCUMULATED-NII-PRIOR> 246,049
<ACCUMULATED-GAINS-PRIOR> 83,368
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 495,948
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 99,192
<AVERAGE-NET-ASSETS> 68,588,425
<PER-SHARE-NAV-BEGIN> 13.10
<PER-SHARE-NII> 0.13
<PER-SHARE-GAIN-APPREC> 3.26
<PER-SHARE-DIVIDEND> (0.13)
<PER-SHARE-DISTRIBUTIONS> (0.27)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.09
<EXPENSE-RATIO> 0.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NEW ENGLAND
ZENITH FUND ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 7
<NAME> EQUITY GROWTH
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> FEB-25-1997
<INVESTMENTS-AT-COST> 105,155,639
<INVESTMENTS-AT-VALUE> 119,015,688
<RECEIVABLES> 3,386,591
<ASSETS-OTHER> 2,209
<OTHER-ITEMS-ASSETS> 5,688
<TOTAL-ASSETS> 122,410,176
<PAYABLE-FOR-SECURITIES> 1,684,074
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 270,595
<TOTAL-LIABILITIES> 1,954,669
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 106,473,943
<SHARES-COMMON-STOCK> 7,733,167
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 204,002
<OVERDISTRIBUTION-NII> 2,272
<ACCUMULATED-NET-GAINS> 119,243
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13,860,049
<NET-ASSETS> 120,657,237
<DIVIDEND-INCOME> 473,183
<INTEREST-INCOME> 487,549
<OTHER-INCOME> 0
<EXPENSES-NET> 756,730
<NET-INVESTMENT-INCOME> 204,002
<REALIZED-GAINS-CURRENT> 965,295
<APPREC-INCREASE-CURRENT> 9,359,159
<NET-CHANGE-FROM-OPS> 10,528,456
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (206,060)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,311,990
<NUMBER-OF-SHARES-REDEEMED> (1,954,136)
<SHARES-REINVESTED> 13,117
<NET-CHANGE-IN-ASSETS> 4,370,971
<ACCUMULATED-NII-PRIOR> 30,373
<ACCUMULATED-GAINS-PRIOR> (845,423)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 620,895
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 135,835
<AVERAGE-NET-ASSETS> 83,626,261
<PER-SHARE-NAV-BEGIN> 13.80
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 1.78
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.58
<EXPENSE-RATIO> 0.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NEW ENGLAND
ZENITH ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 5
<NAME> STRATEGIC BOND OPP.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> FEB-25-1997
<INVESTMENTS-AT-COST> 39,470,175
<INVESTMENTS-AT-VALUE> 40,272,332
<RECEIVABLES> 642,272
<ASSETS-OTHER> 54
<OTHER-ITEMS-ASSETS> 5,694
<TOTAL-ASSETS> 40,920,352
<PAYABLE-FOR-SECURITIES> 4,362,169
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 750,532
<TOTAL-LIABILITIES> 5,112,701
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 35,037,908
<SHARES-COMMON-STOCK> 3,081,361
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1,559,506
<OVERDISTRIBUTION-NII> 18,251
<ACCUMULATED-NET-GAINS> (21,203)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 772,695
<NET-ASSETS> 37,348,906
<DIVIDEND-INCOME> 150
<INTEREST-INCOME> 1,729,474
<OTHER-INCOME> 0
<EXPENSES-NET> 170,118
<NET-INVESTMENT-INCOME> 1,559,506
<REALIZED-GAINS-CURRENT> 587,758
<APPREC-INCREASE-CURRENT> 619,201
<NET-CHANGE-FROM-OPS> 2,766,465
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,704,472)
<DISTRIBUTIONS-OF-GAINS> (518,385)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,532,646
<NUMBER-OF-SHARES-REDEEMED> (513,384)
<SHARES-REINVESTED> 187,622
<NET-CHANGE-IN-ASSETS> 2,206,884
<ACCUMULATED-NII-PRIOR> 460,904
<ACCUMULATED-GAINS-PRIOR> 19,941
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 130,094
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 40,024
<AVERAGE-NET-ASSETS> 20,266,573
<PER-SHARE-NAV-BEGIN> 10.85
<PER-SHARE-NII> 0.51
<PER-SHARE-GAIN-APPREC> 1.05
<PER-SHARE-DIVIDEND> (0.60)
<PER-SHARE-DISTRIBUTIONS> (0.19)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.62
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
