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

NEW ENGLAND ZENITH FUND
497, 1997-05-06

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<PAGE>

NEW ENGLAND ZENITH FUND

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

PROSPECTUS -- MAY 1, 1997

New England Zenith Fund (the "Fund") consists of fourteen investment
portfolios, nine of which are contained herein: the Loomis Sayles Small Cap
Series, the Morgan Stanley International Magnum Equity Series (formerly, the
Draycott International Equity Series), the Alger Equity Growth Series, the
Loomis Sayles Avanti Growth Series, the Davis Venture Value Series, the
Westpeak Growth and Income Series, the Loomis Sayles Balanced Series, the
Salomon Brothers Strategic Bond Opportunities Series and the Salomon Brothers
U.S. Government Series (each a "Series"), with the following investment
objectives:

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

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

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

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.

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

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."

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

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

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

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

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

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

B-1
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Highlights....................................................... B-3
The Fund................................................................... B-12
Investment Objectives and Policies......................................... B-12
Investment Risks........................................................... B-17
Performance Information.................................................... B-27
Investment Restrictions.................................................... B-29
Management................................................................. B-31
Sale and Redemption of Shares.............................................. B-37
Net Asset Values and Portfolio Valuation................................... B-37
Dividends and Capital Gain Distributions................................... B-37
Taxes...................................................................... B-37
Organization and Capitalization of the Fund................................ B-37
Transfer Agent............................................................. B-38
Voting Rights.............................................................. B-38
Appendix A................................................................. B-39
Appendix B................................................................. B-40
</TABLE>

B-2
<PAGE>

FINANCIAL HIGHLIGHTS

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

LOOMIS SAYLES SMALL CAP SERIES

<TABLE>
<CAPTION>
MAY 2(a)
TO YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net Asset Value,
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
Paid(e)................. -- -- $0.0568
Net Assets, End of Period
(000)................... $ 3,105 $27,741 $89,194
The Ratio of Operating
Expenses to Average Net
Assets without giving
effect to the voluntary
expense limitation
described in Footnote
(d) would have been (%). 2.31 (c) 1.91 1.29
</TABLE>
- --------
(a) Commencement of operations.

(b) Not computed on an annualized basis.

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

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

B-3
<PAGE>

MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES (A)

<TABLE>
<CAPTION>
OCTOBER 31(b)
TO YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net Asset Value,
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
Paid(f)................. -- -- $0.0204
Net Assets, End of Period
(000)................... $2,989 $16,268 $39,392
The Ratio of Operating
Expenses to Average Net
Assets without giving
effect to the voluntary
expense limitation
described in Footnote
(e) would have been (%). 5.38 (d) 3.12 1.66
</TABLE>
- --------
(a) On May 1, 1997, Morgan Stanley Asset Management Inc. ("MSAM") succeeded
Draycott Partners, Ltd. as investment subadviser to the Series.

(b) Commencement of operations.

(d) Computed on an annualized basis.

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

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

B-4
<PAGE>

ALGER EQUITY GROWTH SERIES

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

(b) Not computed on an annualized basis.

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

B-5
<PAGE>

LOOMIS SAYLES AVANTI GROWTH SERIES

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

(b) Not computed on an annualized basis.

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

B-6
<PAGE>

DAVIS VENTURE VALUE SERIES

<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31(a) DECEMBER 31,
TO -----------------
DECEMBER 31, 1994 1995 1996
----------------- ------- --------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period...... $10.00 $ 9.62 $ 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 Paid(e)........... -- -- $ 0.0599
Net Assets, End of Period (000)........... $3,371 $35,045 $108,189
The Ratio of Operating Expenses to Average
Net Assets without giving effect to the
voluntary expense limitation described in
Footnote (d) would have been (%)......... 3.97 (c) 1.51 0.96
</TABLE>
- --------
(a) Commencement of operations.

(b) Not computed on an annualized basis.

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

B-7
<PAGE>

WESTPEAK GROWTH AND INCOME SERIES

<TABLE>
<CAPTION>
APRIL 30(a) YEAR ENDED DECEMBER 31,
TO -------------------------
DECEMBER 31, 1993 1994 1995 1996
----------------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period........................... $100.00 $112.32 $109.03 $141.31
------- ------- ------- -------
Income From Investment Operations
Net Investment Income............. 0.92 1.90 1.77 1.78
Net Gains or Losses on Investments
(both realized and unrealized)... 13.33 (3.25) 37.91 23.69
------- ------- ------- -------
Total From Investment Operations.. 14.25 (1.35) 39.68 25.47
------- ------- ------- -------
Less Distributions
Distributions From Net Investment
Income........................... (0.92) (1.92) (1.71) (1.82)
Distributions From Net Realized
Capital Gains.................... (1.00) 0.00 (5.69) (13.19)
Distributions In Excess of Net
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 (%).................. 14.24 (b) (1.21) 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 Paid(e)... -- -- -- $0.0344
Net Assets, End of Period (000)... $ 9,082 $22,934 $48,129 $82,330
The Ratio of Expenses to Average
Net Assets without giving effect
to the voluntary expense limita-
tion described in Footnote (d)
would have
been (%)......................... 0.94 (c) 0.86 1.06 0.91
</TABLE>
- --------
(a) Commencement of operations.

(b) Not computed on an annualized basis.

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

B-8
<PAGE>

LOOMIS SAYLES BALANCED SERIES

<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31(a) DECEMBER 31,
TO ----------------
DECEMBER 31, 1994 1995 1996
----------------- ------- -------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period....... $10.00 $ 9.94 $ 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 Paid(e)............ -- -- $0.0594
Net Assets, End of Period (000)............ $2,722 $18,823 $58,525
The Ratio of Operating Expenses to Average
Net Assets without giving effect to the
voluntary expense limitation described in
Footnote (d) would have been (%).......... 3.73 (c) 1.85 0.99
</TABLE>
- --------
(a) Commencement of operations.

(b) Not computed on an annualized basis.

B-9
<PAGE>

SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES

<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31(a) DECEMBER 31,
TO ---------------
DECEMBER 31, 1994 1995 1996
----------------- ------ -------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period....... $10.00 $ 9.74 $ 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.

B-10
<PAGE>

SALOMON BROTHERS U.S. GOVERNMENT SERIES

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

(b) Not computed on an annualized basis.

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

B-11
<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 nine of
which are contained herein: the Loomis Sayles Small Cap Series, the Morgan
Stanley International Magnum Equity Series, the Alger Equity Growth Series,
the Loomis Sayles Avanti Growth Series, the Davis Venture Value Series, the
Westpeak Growth and Income Series, the Loomis Sayles Balanced Series, the
Salomon Brothers Strategic Bond Opportunities Series and the Salomon Brothers
U.S. Government Series.

Shares in the Fund are not offered directly to the general public and,
currently, are available only to separate accounts established by New England
Life Insurance Company ("NELICO"), Metropolitan Life Insurance Company
("MetLife") or subsidiaries of MetLife as an investment vehicle for variable
life insurance or variable annuity products, although not all Series may be
available to all separate accounts. In the future, however, such shares may be
offered to separate accounts of insurance companies unaffiliated with NELICO
or MetLife.

INVESTMENT OBJECTIVES AND POLICIES

LOOMIS SAYLES SMALL CAP SERIES

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

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

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

MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES

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

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

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

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

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

ALGER EQUITY GROWTH SERIES

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

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

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

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

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

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.

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DAVIS VENTURE VALUE SERIES

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

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

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

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

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

WESTPEAK GROWTH AND INCOME SERIES

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

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

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.

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.

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

Depending on market conditions, the Series may invest without limit in
securities rated below investment grade, which involve significantly greater
risks, including price volatility and risk of default in the payment of
interest and principal, than investments in higher-quality securities.
Although the Series' subadviser does not anticipate investing in excess of 75%
of the Series' assets in domestic and developing country debt securities that
are rated below investment grade, the Series may invest a greater percentage
in such securities when, in the opinion of the subadviser, the yield available
from such securities outweighs their additional risks. Certain of the debt
securities in which the Series may invest may be rated as low as "C" by
Moody's or "D" by S&P or, if unrated, determined to be of comparable quality
to securities so rated. Securities rated below investment grade quality are
considered high yield, high risk securities and are commonly known as "junk
bonds." See "Investment Risks--Lower Rated Fixed-Income Securities" below.
During the fiscal year ended December 31, 1996, 12% of the average month-end
net assets of the Series were invested in fixed-income securities rated in the
rating category (BB or Ba) just below investment grade and 46% of the Series'
assets were invested in fixed-income securities 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 commercial bank loans for new obligations under a plan introduced
by former U.S. Treasury Secretary Nicholas Brady. See "Investment Risks--High
Yield/High Risk Foreign Sovereign Debt Securities" below. There is no limit on
the value of the Series' assets that may be invested in the securities of any
one country or in assets denominated in any one country's currency.

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

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.

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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.

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.

ADDITIONAL INFORMATION

Except for the investment objective of the Loomis Sayles Small Cap, Loomis
Sayles Avanti Growth and the Westpeak Growth and Income Series or except as
otherwise stated in this Prospectus or the Statement, each Series' investment
policies may be changed at any time without shareholder approval.

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

The Loomis Sayles Small Cap, Morgan Stanley International Magnum Equity,
Alger Equity Growth, Loomis Sayles Avanti Growth, Davis Venture Value and
Westpeak Growth and Income 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,

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including U.S. Government obligations, investment grade (and comparable
unrated) corporate bonds or notes, money market instruments, bankers
acceptances and repurchase agreements. In addition, the Morgan Stanley
International Magnum Equity Series may invest temporarily in foreign
government, agency or corporate debt obligations and any other instruments
denominated in any currency issued by international development agencies. No
estimate can be made as to when or for how long any Series will employ
defensive strategies.

INVESTMENT RISKS

. EQUITY SECURITIES (LOOMIS SAYLES SMALL CAP, MORGAN STANLEY INTERNATIONAL
MAGNUM EQUITY, ALGER EQUITY GROWTH, LOOMIS SAYLES AVANTI GROWTH, DAVIS
VENTURE VALUE, WESTPEAK GROWTH AND INCOME AND LOOMIS SAYLES BALANCED 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, LOOMIS SAYLES AVANTI GROWTH, LOOMIS SAYLES BALANCED AND
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)

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

. FIXED-INCOME SECURITIES (ALL SERIES)

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

Fixed-income securities involve both credit risk and market risk. Credit risk
is the risk that the security's issuer will fail to fulfill its obligation to
pay interest, dividends or principal on the security. Market risk is the risk
that the value of the security will fall because of changes in market rates of
interest. Except to the extent values are affected by other factors such as
developments relating to a specific issuer, generally the value of a fixed-
income security can be expected to rise when interest rates decline and
conversely, the value of such a security can be expected to fall when interest
rates rise. Some fixed-income securities also involve prepayment or call risk.
This is the risk that the issuer will repay a Series the principal on the
security before it is due, thus depriving the Series of a favorable stream of
future interest or dividend payments. In addition, many fixed-income
securities contain call or buy-back features that permit their issuers to call
or repurchase the securities from their holders. Such securities may

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present risks based on payment expectations. Although a Series would typically
receive a premium if an issuer were to redeem a security, if an issuer were to
exercise a "call option" and redeem the security during times of declining
interest rates, a Series may realize a capital loss on its investment if the
security was purchased at a premium and a Series may be forced to replace the
called security with a lower yielding security.

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

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

. LOWER RATED FIXED-INCOME SECURITIES (LOOMIS SAYLES BALANCED AND SALOMON
BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)

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

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

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

. COLLATERALIZED MORTGAGE OBLIGATIONS (LOOMIS SAYLES BALANCED, SALOMON
BROTHERS STRATEGIC BOND OPPORTUNITIES 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.

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

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

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

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

An adjustable rate mortgage security ("ARM"), like a traditional mortgage
security, is an interest in a pool of mortgage loans that provides investors
with payments consisting of both principal and interest as mortgage loans in
the underlying mortgage pool are paid off by the borrowers. Unlike fixed rate
mortgage securities, ARMs are collateralized by or represent interests in
mortgage loans with variable rates of interest. These interest rates are reset
at periodic intervals, usually by reference to some interest rate index or
market interest rate. Although the rate adjustment feature may act as a buffer
to reduce sharp changes in the value of adjustable rate securities, these
securities are still subject to changes in value based on changes in market
interest rates or changes in the issuer's creditworthiness. Because the
interest rates are reset only periodically, changes in the interest rate on
ARMs may lag changes in prevailing market interest rates. Also, some ARMs (or
the underlying mortgages) are subject to caps or floors that limit the maximum
change in interest rate during a specified period or over the life of the
security. As a result, changes in the interest rate on an ARM may not fully
reflect changes in prevailing market interest rates during certain periods.
Because of the resetting of interest rates, ARMs are less likely than non-
adjustable rate securities of comparable quality and maturity to increase
significantly in value when market interest rates fall.

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

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

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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.

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,

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

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

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

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

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

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

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

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

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

The Salomon Brothers Strategic Bond Opportunities and the Morgan Stanley
International Magnum Equity 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

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swaps involve the exchange by the Series with another party of their
respective commitments to pay or receive interest (for example, an exchange of
floating rate payments for fixed rate payments with respect to a notional
amount of principal). A currency swap is an agreement to exchange cash flows
on a notional amount based on changes in the relative values of the specified
currencies. The Series will maintain cash and/or cash equivalents in a
segregated custodial account to cover its current obligations under swap
agreements. Because swap agreements are not exchange-traded, but are private
contracts into which the Series and a swap counterparty enter as principals,
the Series may experience a loss or delay in recovering assets if the
counterparty were to default on its obligations.

. STRUCTURED NOTES (SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)

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

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

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

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

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

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

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

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

. 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.

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

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

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

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

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

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. INVESTMENT COMPANY SECURITIES (MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY,
ALGER EQUITY GROWTH, LOOMIS SAYLES AVANTI GROWTH, DAVIS VENTURE VALUE AND
WESTPEAK GROWTH AND INCOME SERIES)

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

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

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

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

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

. 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, SALOMON BROTHERS STRATEGIC
BOND OPPORTUNITIES AND SALOMON BROTHERS U.S. GOVERNMENT SERIES)

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

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

B-25
<PAGE>

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 Alger Equity Growth
Series' objective is long-term capital appreciation, it frequently sells
securities to reflect changes in market, industry or individual company
conditions or outlook, even though it may only have held those securities for
a short period. High portfolio turnover involves correspondingly greater
brokerage commissions and other transaction costs, which will be borne
directly by the relevant Series. For additional information about such costs
see "Taxes" and "Management" below and "Portfolio Transactions and Brokerage"
in the Statement. For information about the past portfolio turnover rates of
all the Series (other than the Back Bay Advisors Money Market Series), see
"Financial Highlights" above. Turnover in excess of 100% involves higher
levels of brokerage commissions and possibly increased realization of taxable
gains, as compared to many mutual funds.

RESOLVING MATERIAL CONFLICTS

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

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

B-26
<PAGE>

PERFORMANCE INFORMATION

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

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

TOTAL RETURN

<TABLE>
<CAPTION>
AVERAGE
AVERAGE ANNUAL
AVERAGE ANNUAL TOTAL
ANNUAL TOTAL RETURN
TOTAL RETURN SINCE
RETURN FOR THE COMMENCE-
FOR THE TEN FIVE MENT
YEAR ENDED DECEMBER 31, YEARS YEARS OF OFFERING
------------------------------------------------------------------- ENDING ENDING THROUGH
SERIES 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 12/31/96 12/31/96 12/31/96
- ------ ---- ---- ---- ----- ---- ---- ---- ----- ---- ----- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loomis Sayles
Small Cap
Series(1) -- -- -- -- -- -- -- (3.2)%(1) 28.9% 30.7 % -- -- 20.1%(1)
Morgan Stanley
International
Magnum Equity
Series(2) -- -- -- -- -- -- -- 2.6 %(3) 6.0% 6.7 % -- -- 7.2%
Alger Equity
Growth Series -- -- -- -- -- -- -- (4.2)%(3) 48.8% 13.2 % -- -- 24.7%
Loomis Sayles
Avanti Growth
Series(4) -- -- -- -- -- -- 14.7%(4) (0.3)% 30.4% 17.6 % -- -- 16.5%(4)
Davis Venture
Value Series -- -- -- -- -- -- -- (3.5)%(3) 39.3% 25.8 % -- -- 27.5%
Westpeak Growth
and Income
Series(5) -- -- -- -- -- -- 14.2%(5) (1.2)% 36.5% 18.1 % -- -- 17.7%(5)
Loomis Sayles
Balanced Series -- -- -- -- -- -- -- (0.1)%(3) 24.8% 16.9 % -- -- 19.0%
Salomon Brothers
Strategic Bond
Opportunities
Series -- -- -- -- -- -- -- (1.4)%(3) 19.4% 14.4 % -- -- 14.7%
Salomon Brothers
U.S. Government
Series -- -- -- -- -- -- -- 0.6 %(3) 15.0% 3.3 % -- -- 8.6%
S&P 500(6) 5.2% 16.5% 31.6% (3.1)% 30.3% 7.6% 10.1% 1.3 % 37.4% 23.0 % 15.3% 15.2% --
Lehman
Intermediate
Government/Corporate
Bond Index(7) 3.7% 6.8% 12.8% 9.2 % 14.6% 7.2% 8.8% (2.0)% 15.3% 4.1 % 7.9% 6.5% --
Consumer Price
Index(8) 4.4% 4.4% 4.7% 6.1 % 3.1% 2.9% 2.8% 2.8 % 2.6% 3.3 % 3.7% 2.8% --
Dow Jones
Industrial
Average(9) 5.5% 16.1% 32.2% (1.0)% 24.2% 7.4% 16.9% 5.1 % 37.0% 28.9 % 16.7% 18.4% --
</TABLE>
- --------
(1) For the period beginning May 2, 1994, when the Loomis Sayles Small Cap
Series commenced operations, but did not become publicly available.
Average annual total return for the period May 2, 1994 through December
31, 1994 is presented on an unannualized basis.
(2) Effective May 1, 1997, MSAM began managing the Series, succeeding Draycott
Partners, Ltd.
(3) Represents unannualized total return for the period beginning October 31,
1994 when the Morgan Stanley International Magnum Equity, Alger Equity
Growth, Davis Venture Value, Loomis Sayles Balanced, Salomon Brothers
Strategic Bond Opportunities and Salomon Brothers U.S. Government Series
commenced operations.
(4) For the period beginning April 30, 1993, when the Loomis Sayles Avanti
Growth Series became publicly available. The total return information is
not annualized for the period ended December 31, 1993.
(5) For the period beginning April 30, 1993, when the Westpeak Growth and
Income Series became publicly available. The total return information is
not annualized for the period ended December 31, 1993.

B-27
<PAGE>

(6) 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.
(7) 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.
(8) 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.
(9) The Dow Jones Industrial Average is a market value-weighted and unmanaged
index of 30 large industrial stocks traded on the New York Stock Exchange.

YIELD

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

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

MORGAN STANLEY ASSET MANAGEMENT PAST PERFORMANCE

The data presented below under "Morgan Stanley International Magnum
Composite" represent the composite average annual total return of four
accounts managed by MSAM. These accounts include two separate accounts, one
mutual fund and a pooled trust. Investors should not consider this performance
data as an indication of future performance of the Morgan Stanley
International Magnum Equity Series or of MSAM as investment subadviser.

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, with assets in excess of $25 million, managed by MSAM in a
substantially similar style as the Series. The following information does not
represent the Series' performance and should not be considered a prediction on
future performance of the Series. The Series ' performance may be higher or
lower than that shown below.

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

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

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

B-28
<PAGE>

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

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

INVESTMENT RESTRICTIONS

The following is a description of restrictions on the investments to be made
by the nine 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 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 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%;

B-29
<PAGE>

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

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

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

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

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

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

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

*(16) Invest in the securities of other investment companies, except by
purchases in the open market involving only customary brokers' commissions.
Under the 1940 Act, the Series may not (a) invest more than 10% of its
total assets (taken at current value) in the securities of other investment
companies, (b) own securities of any one investment company having a value
in excess of 5% of the total assets of the Series (taken at current value),
or (c) own more than 3% of the outstanding voting stock of any one
investment company; or

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

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

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

VARIABLE CONTRACT RELATED INVESTMENT RESTRICTIONS

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

B-30
<PAGE>

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.

SERIES ADVISED BY TNE ADVISERS, INC.

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

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

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

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

Loomis Sayles and Westpeak are each independently operated subsidiaries of
New England Investment Companies, L.P. ("NEIC"). The general partners of each
of Loomis Sayles and Westpeak 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. The subadvisers of
the remaining five Series offered through this prospectus are not affiliated
with MetLife or NEIC.

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

B-31
<PAGE>

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

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

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

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

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

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

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

SALOMON BROTHERS ASSET MANAGEMENT INC ("SBAM"), 7 World Trade Center, New
York, New York 10048, the subadviser to the Salomon Brothers U.S. Government
Series and the Salomon Brothers Strategic Bond Opportunities Series, is a
direct, wholly-owned subsidiary of Salomon Brothers Holding Company Inc, which
in turn is wholly-owned by Salomon Inc ("SI"). SBAM was incorporated in 1987
and, together with affiliates in London, Frankfurt and Hong Kong, provides a
full range of fixed-income and equity investment advisory services for
individuals and institutional clients around the world, including European and
Far Eastern central banks, pension funds, endowments, insurance companies, and
serves as investment adviser to various

B-32
<PAGE>

investment companies. In providing such services, SBAM and its affiliates have
access to more than 400 economists, mortgage, bond and sovereign analysts. As
of December 31, 1996, SBAM and its affiliates managed approximately $19.6
billion in assets.

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

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

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. He
has acted as portfolio manager of the Series since October 1994. Mr. Lavan
joined SBAM in 1990 and is a Director and Portfolio Manager and has served as
portfolio manager of the Series since October 1994. Prior to joining SBAM, Mr.
Lavan spent four years analyzing portfolios for Salomon Brothers Inc's Fixed-
Income Sales Group and Product Support Divisions. Mr. Wilby joined SBAM in
1989. 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 and has served as
portfolio manager of the Series since October 1994. 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 and has served as portfolio manager of the Series since
October 1994. He manages currency transactions and investments in non-dollar
denominated securities. From 1990 to 1994, he was a portfolio manager for J.P.
Morgan Investment Management in London where he was responsible for global and
non-dollar portfolios.

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

<TABLE>
<CAPTION>
ANNUAL MANAGEMENT FEE RATE PAID BY
SERIES TO TNE ADVISERS
SERIES (% OF AVERAGE DAILY NET ASSETS)
------ ------------------------------------------
<S> <C>
Loomis Sayles Small Cap Series. 1.00% of all assets
Morgan Stanley International
Magnum Equity Series.......... 0.90% of all assets
Alger Equity Growth Series..... 0.75% of all assets
Loomis Sayles Avanti Growth
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
Loomis Sayles Balanced Series.. 0.70% of all assets
Salomon Brothers Strategic Bond
Opportunities Series.......... 0.65% of all assets
Salomon Brothers U.S.
Government Series............. 0.55% of all assets
</TABLE>

B-33
<PAGE>

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

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

B-34
<PAGE>

VOLUNTARY EXPENSE AGREEMENT

Pursuant to a voluntary expense agreement relating to the Loomis Sayles
Avanti Growth and Westpeak Growth and Income, TNE Advisers bears the expenses
(other than the advisory fees and any brokerage costs, interest, taxes or
extraordinary expenses) of the Series in excess of 0.15% of the respective
Series' average daily net assets. In the case of the Loomis Sayles Small Cap
Series, TNE Advisers bears all the expenses (other than any brokerage costs,
interest, taxes or extraordinary expenses) of the Series in excess of 1.00% of
the Series' average daily net assets. As a result of the current voluntary
expense agreements (and assuming the Series incur the same level of management
fees as in 1996 and no taxes, interest or extraordinary expenses), these
Series' expense ratios during this prospectus' effectiveness, assuming the
continuation of the voluntary expense agreement, are expected to be as
follows:

<TABLE>
<CAPTION>
TOTAL EXPENSE RATIO
UNDER CURRENT VOLUNTARY
SERIES EXPENSE AGREEMENT
------ -----------------------
<S> <C>
Westpeak Growth and Income Series.................. 0.85%
Loomis Sayles Small Cap Series..................... 1.00%
Loomis Sayles Avanti Growth Series................. 0.85%
</TABLE>

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

EXPENSE DEFERRAL ARRANGEMENT

Pursuant to an expense deferral arrangement relating to the Morgan Stanley
International Magnum Equity Series (formerly, Draycott International Equity
Series), the Alger Equity Growth Series, the Davis Venture Value Series, the
Loomis Sayles Balanced Series, the Salomon Brothers Strategic Bond
Opportunities Series and the Salomon Brothers U.S. Government Series, which
TNE Advisers may terminate at any time, TNE Advisers has agreed to pay the
expenses of the Series' operations (exclusive of any brokerage costs,
interest, taxes, or extraordinary expenses) in excess of stated expense
limits, which limits vary from Series to Series, subject to the obligation of
the Series to repay TNE Advisers such expenses in future years, if any, when a
Series' expenses fall below the stated expense limit that pertains to that
Series; such deferred expenses may be charged to a Series in a subsequent year
to the extent that the charge does not cause the total expenses in such
subsequent year to exceed the Series' stated expense limit; provided, however,
that no Series is obligated to repay any expense paid by TNE Advisers more
than two years after the end of the fiscal year in which such expense was
incurred. These expense limits can be prospectively discontinued by TNE
Advisers but any expenses that were deferred while a Series' expense limit was
in place can never be charged to that Series unless that Series' expenses fall
below the limit. Such stated expense limits are as follows:

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

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

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.

B-35
<PAGE>

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)
SERIES FOR THE YEAR ENDED 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%
Loomis Sayles Avanti Growth Series. 0.85%
Davis Venture Value Series......... 0.90%
Westpeak Growth and Income Series.. 0.85%
Loomis Sayles Balanced Series...... 0.85%
Salomon Brothers Strategic Bond
Opportunities Series.............. 0.85%
Salomon Brothers U.S. Government
Series............................ 0.70%
</TABLE>

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

<TABLE>
<CAPTION>
TOTAL EXPENSES (AS A PERCENTAGE OF NET ASSETS)
WITHOUT VOLUNTARY EXPENSE AGREEMENT OR EXPENSE
DEFERRAL ARRANGEMENT FOR THE YEAR ENDED
SERIES DECEMBER 31, 1996
------ -----------------------------------------------
<S> <C>
Loomis Sayles Small Cap
Series................... 1.29%
Morgan Stanley
International Magnum
Equity Series............ 1.66%
Alger Equity Growth
Series................... 0.90%
Loomis Sayles Avanti
Growth Series............ 0.92%
Davis Venture Value
Series................... 0.96%
Westpeak Growth and Income
Series................... 0.91%
Loomis Sayles Balanced
Series................... 0.99%
Salomon Brothers Strategic
Bond Opportunities
Series................... 1.19%
Salomon Brothers U.S.
Government Series........ 1.37%
</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 0.91%
Morgan Stanley International
Magnum Equity Series............ 127,196 0.45
Alger Equity Growth Series....... 174,495 0.21
Loomis Sayles Avanti Growth
Series.......................... 74,700 0.12
Davis Venture Value Series....... 81,002 0.12
Westpeak Growth and Income
Series.......................... 106,927 0.17
Loomis Sayles Balanced Series.... 51,801 0.14
</TABLE>

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

MISCELLANEOUS ARRANGEMENTS

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

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

B-36
<PAGE>

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, Davis Selected, Westpeak 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.

Any fixed-income securities with remaining maturities of 60 days or less
held by any Series, are valued at amortized cost. Other portfolio securities
of each 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.

DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS

ALL SERIES

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

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

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

TAXES

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

ORGANIZATION AND CAPITALIZATION OF THE FUND

The Fund was originally organized in 1983 as a Massachusetts corporation,
and was reorganized as a Massachusetts business trust on February 27, 1987.
The Fund is registered as a diversified, open-end management company under the
1940 Act,

B-37
<PAGE>

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
instructions are received will be voted for, voted against or withheld from
voting on any proposition in the same proportion as the shares held in that
separate account for all contracts for which voting instructions are received.
All Fund shares held by the general investment account (or any unregistered
separate account that does not have voting privileges) of NELICO or MetLife
will be voted in the same proportion as the aggregate of (i) the shares for
which voting instructions are received and (ii) the shares that are voted in
proportion to such voting instructions.

B-38
<PAGE>

APPENDIX A

RATINGS OF SECURITIES

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

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

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

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

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

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

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

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

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

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

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

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

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

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

B-39
<PAGE>

APPENDIX B

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

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

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

B-40