NEW ENGLAND ZENITH FUND, 497, 1998-05-06

NEW ENGLAND ZENITH FUND
497, 1998-05-06

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<PAGE>

NEW ENGLAND ZENITH FUND

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

PROSPECTUS -- MAY 1, 1998

New England Zenith Fund (the "Fund") consists of fourteen investment
portfolios (each a "Series"), nine of which are contained herein, with the
following investment objectives:

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

MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES--long-term capital
appreciation through investment primarily in international equity securities.

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

GOLDMAN SACHS MIDCAP VALUE SERIES (FORMERLY, LOOMIS SAYLES AVANTI GROWTH
SERIES)--long-term capital appreciation.

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, 1998,
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. The SEC maintains a Web site at
http://www.sec.gov that contains the Statement, material incorporated by
reference and other information about the Fund.

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-28
Investment Restrictions.................................................... B-31
Management................................................................. B-32
Purchase and Redemption of Shares.......................................... B-39
Net Asset Values and Portfolio Valuation................................... B-39
Dividends and Capital Gain Distributions................................... B-39
Taxes...................................................................... B-39
Organization and Capitalization of the Fund................................ B-40
Transfer Agent............................................................. B-40
Voting Rights.............................................................. B-40
Appendix A................................................................. B-41
Appendix B ................................................................ B-42
</TABLE>

B-2
<PAGE>

FINANCIAL HIGHLIGHTS

The Financial Highlights for the Fund which appear on the following pages
have been examined by Deloitte & Touche LLP, the Fund's independent
accountants, whose report thereon for the year ended December 31, 1997
accompanies the financial statements incorporated by reference in the
Statement and may be obtained by shareholders. Prior to 1997, Coopers &
Lybrand L.L.P. acted as the Fund's independent accountants and provided
reports which accompany the financial statements for those periods. The
Financial Highlights 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 on request
free of charge.

LOOMIS SAYLES SMALL CAP SERIES

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
MAY 2, 1994(A) TO --------------------------
DECEMBER 31, 1994 1995 1996 1997
----------------- ------- ------- --------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period.......................... $100.00 $ 96.61 $118.80 144.29
------- ------- ------- --------
Income From Investment Operations
Net Investment Income............ 0.14 0.85 1.05 1.22
Net Gains or (Losses) on
Investments (both realized and
unrealized)..................... (3.38) 26.93 35.03 34.11
------- ------- ------- --------
Total From Investment
Operations.................. (3.24) 27.78 36.08 35.33
------- ------- ------- --------
Less Distributions
Distributions From Net Investment
Income.......................... (0.15) (0.78) (1.03) (1.21)
Distributions From Net Realized
Capital Gains................... 0.00 (4.81) (9.56) (19.49)
------- ------- ------- --------
Total Distributions.......... (0.15) (5.59) (10.59) (20.70)
------- ------- ------- --------
Net Asset Value, End of the
Period.......................... $ 96.61 $118.80 $144.29 $ 158.92
======= ======= ======= ========
Total Return (%)................. (3.23)(b) 28.88 30.67 24.85
Ratio of Operating Expenses to
Average Net Assets (%)(d)....... 1.00 (c) 1.00 1.00 1.00
Ratio of Net Investment Income to
Average Net Assets (%).......... 0.32 (c) 1.26 1.15 0.97
Portfolio Turnover Rate (%)...... 80 (c) 98 62 87
Average Commission Rate Paid(e).. -- -- $0.0568 $ 0.0534
Net Assets, End of Period (000).. $ 3,105 $27,741 $89,194 $200,105
The Ratio of Operating Expenses
to Average Net Assets without
giving effect to the voluntary
expense limitation would have
been (%)(d)..................... 2.31 (c) 1.91 1.29 1.14
</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, 1994(B) YEAR ENDED DECEMBER 31,
TO -------------------------
DECEMBER 31, 1994 1995 1996 1997
------------------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period......................... $10.00 $ 10.23 $ 10.73 $ 11.29
------ ------- ------- -------
Income From Investment
Operations
Net Investment Income........... 0.03 0.09 0.06 0.08
Net Gains or (Losses) on
Investments (both realized and
unrealized).................... 0.23 0.53 0.68 (0.23)
------ ------- ------- -------
Total From Investment
Operations................. 0.26 0.62 0.74 (0.15)
------ ------- ------- -------
Less Distributions
Distributions From Net
Investment Income.............. (0.02) (0.09) (0.02) (0.09)
Distributions in Excess of Net
Investment Income.............. 0.00 (0.03) 0.00 0.00
Distributions From Net Realized
Capital Gains.................. 0.00 0.00 (0.16) (0.08)
Distributions in Excess of Net
Realized Capital Gains......... 0.00 0.00 0.00 (0.11)
Distributions From Paid-In
Capital........................ (0.01) 0.00 0.00 (0.00)
------ ------- ------- -------
Total Distributions......... (0.03) (0.12) (0.18) (0.28)
------ ------- ------- -------
Net Asset Value, End of the
Period......................... $10.23 $ 10.73 $ 11.29 $ 10.86
====== ======= ======= =======
Total Return (%)................ 2.60 (c) 6.03 6.87 (1.30)
Ratio of Operating Expenses to
Average Net Assets (%)(e)...... 1.30 (d) 1.30 1.30 1.30
Ratio of Net Investment Income
to Average Net Assets (%)...... 2.56 (d) 1.29 0.67 0.96
Portfolio Turnover Rate (%)..... 4 (d) 89 64 115
Average Commission Rate Paid(f). -- -- $0.0204 $0.0123
Net Assets, End of Period (000). $2,989 $16,268 $39,392 $53,035
The Ratio of Operating Expenses
to Average Net Assets without
giving effect to the voluntary
expense limitation would have
been (%)(e).................... 5.38 (d) 3.12 1.66 1.59
</TABLE>
- --------
(a) On May 1, 1997, Morgan Stanley Asset Management Inc. succeeded Draycott
Partners, Ltd. as investment subadviser to the Series.

(b) Commencement of operations.

(d) Computed on an annualized basis.

(e) During the periods presented, TNE Advisers, Inc. has agreed to pay
operating expenses of the Series in excess of an annual expense limit of
1.30% of average daily net 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, 1994(A) YEAR ENDED DECEMBER 31,
TO ---------------------------
DECEMBER 31, 1994 1995 1996 1997
------------------- ------- -------- --------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period....................... $10.00 $ 9.56 $ 13.80 $ 15.58
------ ------- -------- --------
Income From Investment
Operations
Net Investment Income......... 0.02 0.01 0.04 0.02
Net Gains or (Losses) on
Investments (both realized
and unrealized).............. (0.44) 4.65 1.78 3.92
------ ------- -------- --------
Total From Investment
Operations............... (0.42) 4.66 1.82 3.94
------ ------- -------- --------
Less Distributions
Distributions From Net
Investment Income............ (0.02) (0.01) (0.04) (0.02)
Distributions from Net
Realized Capital Gains....... 0.00 (0.41) 0.00 (1.88)
------ ------- -------- --------
Total Distributions....... (0.02) (0.42) (0.04) (1.90)
------ ------- -------- --------
Net Asset Value, End of the
Period....................... $ 9.56 $ 13.80 $ 15.58 $ 17.62
====== ======= ======== ========
Total Return (%).............. (4.20)(b) 48.80 13.17 25.63
Ratio of Operating Expenses to
Average Net Assets (%)(d).... 0.85 (c) 0.85 0.90 0.87
Ratio of Net Investment Income
to Average Net Assets (%).... 1.07 (c) 0.14 0.24 0.12
Portfolio Turnover Rate (%)... 32 (c) 107 78 137
Average Commission Rate
Paid(e)...................... -- -- $ 0.0716 $ 0.0723
Net Assets, End of Period
(000)........................ $1,917 $46,386 $120,456 $205,318
The Ratio of Operating
Expenses to Average Net
Assets without giving effect
to the voluntary expense
limitation would have been
(%)(d)....................... 2.74 (c) 2.45 0.90 0.87
</TABLE>
- --------
(a) Commencement of operations.

(b) Not computed on an annualized basis.

(d) During the periods presented, TNE Advisers, Inc. has agreed to pay
operating expenses of the Series in excess of an annual expense limit of
0.85% (through December 31, 1995) of average daily net 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>

GOLDMAN SACHS MIDCAP VALUE SERIES (FORMERLY, LOOMIS SAYLES AVANTI GROWTH
SERIES)(A)

<TABLE>
<CAPTION>
APRIL 30, 1993(B) YEAR ENDED DECEMBER 31,
TO -----------------------------------
DECEMBER 31, 1993 1994 1995 1996 1997
----------------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Begin-
ning of the Period..... $100.00 $113.67 $112.77 $142.44 $ 157.88
------- ------- ------- ------- --------
Income From Investment
Operations
Net Investment Income... 0.18 0.59 0.42 0.11 0.00
Net Gains or (Losses) on
Investments (both
realized and
unrealized)............ 14.56 (0.89) 33.80 24.88 27.12
------- ------- ------- ------- --------
Total From Invest-
ment Operations.... 14.74 (0.30) 34.22 24.99 27.12
------- ------- ------- ------- --------
Less Distributions
Distributions From Net
Investment Income...... (0.18) (0.60) (0.40) (0.13) 0.00
Distributions From Net
Realized Capital Gains. (0.67) 0.00 (4.15) (9.42) (14.41)
Distributions From Paid-
In Capital............. (0.22) 0.00 0.00 0.00 0.00
------- ------- ------- ------- --------
Total Distributions. (1.07) (0.60) (4.55) (9.55) (14.41)
------- ------- ------- ------- --------
Net Asset Value, End of
the Period............. $113.67 $112.77 $142.44 $157.88 $ 170.59
======= ======= ======= ======= ========
Total Return (%)........ 14.74 (c) (0.27) 30.35 17.58 17.35
Ratio of Operating Ex-
penses to Average Net
Assets (%)(e).......... 0.85 (d) 0.84 0.85 0.85 0.85
Ratio of Net Investment
Income to Average Net
Assets (%)............. 0.46 (d) 0.67 0.37 0.08 (0.16)
Portfolio Turnover Rate
(%).................... 21 (d) 67 58 65 49
Average Commission Rate
Paid(f)................ -- -- -- $0.0508 $ 0.0504
Net Assets, End of Pe-
riod (000)............. $11,972 $25,622 $48,832 $82,667 $114,617
The Ratio of Operating
Expenses to Average Net
Assets without giving
effect to the voluntary
expense limitation
would have been (%)(e). 0.89 (d) 0.84 1.06 0.92 0.86
</TABLE>
- --------
(a) On May 1, 1998, Goldman Sachs Asset Management succeeded Loomis, Sayles &
Company, L.P. as investment subadviser to the Series.

(b) Commencement of operations.

(d) Computed on an annualized basis.

(e) During the periods presented, the Series' adviser voluntarily agreed to
bear expenses of the Series (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. Commencing May 1, 1998, TNE
Advisers, Inc. has agreed to pay operating expenses of the Series in
excess of an annual expense limit of 0.90% of average daily net 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-6
<PAGE>

DAVIS VENTURE VALUE SERIES

<TABLE>
<CAPTION>
OCTOBER 31, 1994(A) YEAR ENDED DECEMBER 31,
TO ---------------------------
DECEMBER 31, 1994 1995 1996 1997
------------------- ------- -------- --------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period....................... $10.00 $ 9.62 $ 13.10 $ 16.09
------ ------- -------- --------
Income From Investment
Operations
Net Investment Income......... 0.03 0.10 0.13 0.18
Net Gains or (Losses) on
Investments (both realized
and unrealized).............. (0.38) 3.68 3.26 5.20
------ ------- -------- --------
Total From Investment
Operations............... (0.35) 3.78 3.39 5.38
------ ------- -------- --------
Less Distributions
Distributions From Net
Investment Income............ (0.03) (0.10) (0.13) (0.14)
Distributions From Net
Realized Capital Gains....... 0.00 (0.20) (0.27) (0.53)
------ ------- -------- --------
Total Distributions....... (0.03) (0.30) (0.40) (0.67)
------ ------- -------- --------
Net Asset Value, End of the
Period....................... $ 9.62 $ 13.10 $ 16.09 $ 20.80
====== ======= ======== ========
Total Return (%).............. (3.50)(b) 39.28 25.84 33.50
Ratio of Operating Expenses to
Average Net Assets (%)(d).... 0.90 (c) 0.90 0.90 0.90
Ratio of Net Investment Income
to Average Net Assets (%).... 2.54 (c) 1.39 1.25 0.94
Portfolio Turnover Rate (%)... 1 (c) 20 18 17
Average Commission Rate
Paid(e)...................... -- -- $ 0.0599 $ 0.0600
Net Assets, End of Period
(000)........................ $3,371 $35,045 $108,189 $280,448
The Ratio of Operating
Expenses to Average Net
Assets without giving effect
to the voluntary expense
limitation would have been
(%)(d)....................... 3.97 (c) 1.51 0.96 0.90
</TABLE>
- --------
(a) Commencement of operations.

(b) Not computed on an annualized basis.

(d) During the periods presented, TNE Advisers, Inc. has agreed to pay
operating expenses of the Series in excess of an annual expense limit of
0.90% of average daily net 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, 1993(A) YEAR ENDED DECEMBER 31,
TO -----------------------------------
DECEMBER 31, 1993 1994 1995 1996 1997
----------------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Begin-
ning of the Period..... $100.00 $112.32 $109.03 $141.31 $ 151.77
------- ------- ------- ------- --------
Income From Investment
Operations
Net Investment Income... 0.92 1.90 1.77 1.78 1.37
Net Gains or (Losses) on
Investments (both
realized and
unrealized)............ 13.33 (3.25) 37.91 23.69 48.76
------- ------- ------- ------- --------
Total From Invest-
ment Operations.... 14.25 (1.35) 39.68 25.47 50.13
------- ------- ------- ------- --------
Less Distributions
Distributions From Net
Investment Income...... (0.92) (1.92) (1.71) (1.82) (1.35)
Distributions From Net
Realized Capital Gains. (1.00) 0.00 (5.69) (13.19) (20.57)
Distributions In Excess
of Net Realized Capital
Gains.................. (0.01) 0.00 0.00 0.00 0.00
Distributions From Paid-
In Capital............. 0.00 (0.02) 0.00 0.00 0.00
------- ------- ------- ------- --------
Total Distributions. (1.93) (1.94) (7.40) (15.01) (21.92)
------- ------- ------- ------- --------
Net Asset Value, End of
the Period............. $112.32 $109.03 $141.31 $151.77 $ 179.98
======= ======= ======= ======= ========
Total Return (%)........ 14.24 (b) (1.21) 36.46 18.10 33.48
Ratio of Operating Ex-
penses to Average Net
Assets (%)(d).......... 0.85 (c) 0.85 0.85 0.85 0.82
Ratio of Net Investment
Income to Average Net
Assets (%)............. 2.16 (c) 2.30 1.63 1.40 0.91
Portfolio Turnover Rate
(%).................... 49 (c) 133 92 104 93
Average Commission Rate
Paid(e)................ -- -- -- $0.0344 $ 0.0334
Net Assets, End of Pe-
riod (000)............. $ 9,082 $22,934 $48,129 $82,330 $152,738
The Ratio of Operating
Expenses to Average Net
Assets without giving
effect to the voluntary
expense limitation
would have been (%)(d). 0.94 (c) 0.86 1.06 0.91 0.82
</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 expenses of the Series (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>
OCTOBER 31, 1994(A) YEAR ENDED DECEMBER 31,
TO --------------------------
DECEMBER 31, 1994 1995 1996 1997
------------------- ------- ------- --------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period....................... $10.00 $ 9.94 $ 11.95 $ 13.55
------ ------- ------- --------
Income From Investment
Operations
Net Investment Income......... 0.05 0.26 0.27 0.28
Net Gains or (Losses) on
Investments (both realized
and unrealized).............. (0.06) 2.20 1.73 1.90
------ ------- ------- --------
Total From Investment
Operations............... (0.01) 2.46 2.00 2.18
Less Distributions
Distributions From Net
Investment Income............ (0.05) (0.26) (0.27) (0.27)
Distributions in Excess of Net
Realized Capital Gains....... 0.00 (0.19) (0.13) (0.60)
------ ------- ------- --------
Total Distributions....... (0.05) (0.45) (0.40) (0.87)
------ ------- ------- --------
Net Asset Value, End of the
Period....................... $ 9.94 $ 11.95 $ 13.55 $ 14.86
====== ======= ======= ========
Total Return (%).............. (0.10)(b) 24.79 16.91 16.18
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 (%).... 4.16 (c) 4.03 3.08 2.79
Portfolio Turnover Rate (%)... 0 (c) 72 59 60
Average Commission Rate
Paid(e)...................... -- -- $0.0594 $ 0.0594
Net Assets, End of Period
(000)........................ $2,722 $18,823 $58,525 $137,443
The Ratio of Operating
Expenses to Average Net
Assets without giving effect
to the voluntary expense
limitation would have been
(%)(d)....................... 3.73 (c) 1.85 0.99 0.86
</TABLE>
- --------
(a) Commencement of operations.

(b) Not computed on an annualized basis.

(d) During the periods presented, TNE Advisers, Inc. has agreed to pay
operating expenses of the Series in excess of an annual expense limit of
0.85% of average daily net 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.

B-9
<PAGE>

SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES

<TABLE>
<CAPTION>
OCTOBER 31, 1994(A) YEAR ENDED DECEMBER 31,
TO -----------------------------
DECEMBER 31, 1994 1995 1996 1997
------------------- ------- -------- --------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period................. $10.00 $ 9.74 $ 10.85 $ 11.62
------ ------- -------- --------
Income From Investment
Operations
Net Investment Income...... 0.12 0.58 0.51 0.75
Net Gains or Losses on
Investments (both realized
and unrealized)........... (0.26) 1.30 1.05 0.54
------ ------- -------- --------
Total From Investment
Operations............ (0.14) 1.88 1.56 1.29
------ ------- -------- --------
Less Distributions
Distributions From Net
Investment Income......... (0.12) (0.55) (0.60) (0.76)
Distributions From Net
Realized Capital Gains.... 0.00 (0.22) (0.19) (0.14)
------ ------- -------- --------
Total Distributions.... (0.12) (0.77) (0.79) (0.90)
------ ------- -------- --------
Net Asset Value, End of the
Period.................... $ 9.74 $ 10.85 $ 11.62 $ 12.01
====== ======= ======== ========
Total Return (%)........... (1.40)(b) 19.38 14.36 11.07
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 (%)................ 7.05 (c) 8.39 7.79 6.45
Portfolio Turnover Rate
(%)(a).................... 403 (c) 202 176 258
Net Assets, End of Period
(000)..................... $3,450 $ 9,484 $ 35,808 $ 71,202
The Ratio of Operating
Expenses to Average Net
Assets without giving
effect to the voluntary
expense limitation would
have been (%)(d).......... 2.01 (c) 2.44 1.19 0.87
</TABLE>
- --------
(a) Commencement of operations.

(b) Not computed on an annualized basis.

(d) During period presented, TNE Advisers, Inc. has agreed to pay operating
expenses of the Series in excess of an annual expense limit of 0.85% of
average daily net 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.

B-10
<PAGE>

SALOMON BROTHERS U.S. GOVERNMENT SERIES

<TABLE>
<CAPTION>
OCTOBER 31, 1994(A) YEAR ENDED DECEMBER 31,
TO ---------------------------
DECEMBER 31, 1994 1995 1996 1997
------------------- ------- -------- --------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period....................... $10.00 $ 9.96 $ 11.04 $ 10.83
------ ------- -------- --------
Income From Investment
Operations
Net Investment Income......... 0.10 0.33 0.58 0.53
Net Gains or (Losses) on
Investments (both realized
and unrealized).............. (0.04) 1.16 (0.21) 0.40
------ ------- -------- --------
Total From Investment
Operations............... 0.06 1.49 0.37 0.93
------ ------- -------- --------
Less Distributions
Distributions From Net
Investment Income............ (0.10) (0.33) (0.56) (0.53)
Distributions From Net
Realized Capital Gains....... 0.00 (0.08) 0.00 (0.05)
Distributions in Excess of Net
Realized Capital Gains....... 0.00 0.00 0.00 (0.04)
------ ------- -------- --------
Total Distributions....... (0.10) (0.41) (0.58) (0.62)
------ ------- -------- --------
Net Asset Value, End of the
Period....................... $ 9.96 $ 11.04 $ 10.83 $ 11.14
====== ======= ======== ========
Total Return (%).............. 0.60 (b) 15.02 3.31 8.57
Ratio of Operating Expenses to
Average Net Assets (%)(d).... 0.70 (c) 0.70 0.70 0.70
Ratio of Net Investment Income
to Average Net Assets (%).... 5.70 (c) 5.62 6.13 6.42
Portfolio Turnover Rate (%)... 1,409 (c) 415 388 572
Net Assets, End of Period
(000)........................ $2,012 $ 7,542 $ 13,211 $ 22,143
The Ratio of Operating
Expenses to Average Net
Assets without giving effect
to the voluntary expense
limitation would have been
(%)(d)....................... 2.54 (c) 2.90 1.37 0.98
</TABLE>
- --------
(a) Commencement of operations.

(b) Not computed on an annualized basis.

(d) During the periods presented, TNE Advisers, Inc. has agreed to pay
operating expenses of the Series in excess of an annual expense limit of
0.70% of average daily net 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.
Each of the Series is a series of the Fund.

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
Subadviser: Loomis, Sayles & Company, L.P. ("Loomis Sayles")

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

Loomis Sayles 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. Such companies also typically
have better than average growth rates, below-average price/earnings ratios and
strong balance sheets and cash flow. Normally, the Series will invest at least
65% of its assets in companies with market capitalization, at the time of
investment, in the range of the market capitalization of those companies which
make up the Russell 2000 Index. 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
Subadviser: Morgan Stanley Asset Management Inc. ("MSAM")

The Morgan Stanley International Magnum Equity Series seeks long-term
capital appreciation through investment primarily in international equity
securities. The production of any current income is incidental to this
objective. MSAM seeks to achieve this objective by investing the Series'
assets 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 MSAM. 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 primarily 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"). The Series may
invest up to 5% of its assets in non-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.

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

B-12
<PAGE>

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 MSAM
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.

Although the Series anticipates being fully invested in equity securities of
EAFE countries, the Series may invest, under normal circumstances for cash
management purposes, up to 35% of its total assets in certain short-term (less
than twelve months to maturity) and medium-term (not greater than five years
to maturity) debt securities or hold cash.

ALGER EQUITY GROWTH SERIES
Subadviser: Fred Alger Management, Inc. ("Alger Management")

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.

Alger Management seeks to achieve the Series' 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 (with respect to 15% of its average net assets) may also: (i)
purchase money market instruments and repurchase agreements, (ii) purchase
restricted securities, including Rule 144A securities, and (iii) 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.

GOLDMAN SACHS MIDCAP VALUE SERIES
Subadviser: Goldman Sachs Asset Management ("GSAM")

The Goldman Sachs Midcap Value Series seeks to provide investors with long-
term capital appreciation. GSAM invests, under normal circumstances,
substantially all of the Series' assets in equity securities and at least 65%
of its total assets in equity securities of companies with public stock market
capitalizations (based upon shares available for trading on an unrestricted
basis) within the range of the market capitalization of companies constituting
the Russell Midcap Index at the time of investment. Such range varies over
time, and as of December 31, 1997 was between $400 million and $16 billion. If
the capitalization of an issuer increases above or decreases below this range
after purchase of such issuer's securities, the Series may, but is not
required to, sell the securities. Dividend income, if any, is an incidental
consideration.

GSAM evaluates securities using fundamental analysis and intends to purchase
equity securities that are, in its view, underpriced relative to a combination
of such companies' long-term earnings prospects, growth rate, free cash flow
and/or dividend-paying ability. Consideration will be given to the business
quality of the issuer. Factors positively affecting GSAM's view of the quality
include the competitiveness and degree of regulation in markets in which the
issuer operates, the existence of a management team with a record of success,
the position of the issuer in markets in which it operates, the level of the
issuer's

B-13
<PAGE>

financial leverage and the sustainable return on capital invested in the
business. The Series may also purchase securities of companies that have
experienced difficulties and that, in the opinion of GSAM, are available at
attractive prices.

The Series may invest up to 35% of its total assets in fixed-income
securities, including up to 10% of its total assets in fixed-income securities
rated BB or lower by Standard & Poor's Rating Group ("Standard & Poor's" or
"S&P") or Ba or lower by Moody's Investors Services, Inc. ("Moody's"). In
addition, although the Series will invest primarily in publicly traded U.S.
securities, it may invest up to 25% of its total assets in foreign securities,
including up to 15% of its assets in securities of issuers in emerging markets
(as from time to time determined by GSAM) and securities quoted in foreign
currencies.

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

The Series may make short sales "against the box" but will not invest more
than 25% of the Series net assets (determined at the time of the short sale)
in such short sales.

The Series may, together with other registered investment companies managed
by GSAM or its affiliates, transfer uninvested cash balances into a single
joint account, the daily aggregate balance of which will be invested in one or
more repurchase agreements.

In addition to the techniques described above, the Series may engage in the
following techniques and investments, in each case, with respect to no more
than 5% of its total assets: (i) warrants and stock purchase rights; (ii)
custodial receipts; (iii) privately-issued mortgage securities; (iv) asset-
backed securities; (v) stripped mortgage securities; (vi) swaps, caps, floors
and collars; (vii) futures; (viii) options; (ix) structured notes; (x) inverse
floaters; (xi) collateralized mortgage obligations; (xii) adjustable rate
mortgage securities and (xiii) mortgage-related securities not included in the
foregoing.

DAVIS VENTURE VALUE SERIES
Subadviser: Davis Selected Advisers, L.P. ("Davis Selected")

The Davis Venture Value Series' investment objective is growth of capital.
The Series seeks to achieve its objective by investing primarily 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.

The Series may write covered call options on its portfolio securities, but
currently intends to write 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
Subadviser: Westpeak Investment Advisors, L.P. ("Westpeak")

The Series 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.

B-14
<PAGE>

LOOMIS SAYLES BALANCED SERIES
Subadviser: Loomis Sayles

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

The Series is "flexibly managed" in that sometimes it invests more heavily
in equity securities and at other times it invests more heavily in fixed-
income securities, depending on Loomis Sayles' view of the economic and
investment outlook. Most of the Series' equity investments are normally in
dividend-paying common stocks of recognized investment quality that are
expected to achieve growth in earnings and dividends over the long term.
Fixed-income securities include notes, bonds, non-convertible preferred stock
and money market instruments. The Series may invest in adjustable rate
mortgage securities, asset-backed securities, STRIPS (see "Miscellaneous
Investment Practices--STRIPS" in the Statement), stripped mortgage securities
and inverse floaters, subject to a limit of 5% of the Series' average net
assets for each of these instruments. The Series may invest in securities
rated BB or Ba or lower by S&P or Moody's (or in unrated securities that
Loomis Sayles determines to be of comparable quality). During the fiscal year
ended December 31, 1997, 1.33% 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 0.57% of such assets were invested
in fixed-income securities rated below this level. The Series invests at least
25% of its assets in fixed-income securities and, under normal market
conditions, more than 50% of its assets in equity securities. The Series also
may invest in foreign securities.

SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES
Subadviser: Salomon Brothers Asset Management Inc ("SBAM")

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

Based upon SBAM's assessment 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 SBAM'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 arranged through private negotiations
between a foreign sovereign entity and one or more financial institutions, in
the form of participation in such Loans and/or 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 SBAM 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 SBAM, 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, 1997, 9.0% of the average month-end net assets
of the Series were invested in fixed-income securities rated in the rating
category BB by S&P or Ba by Moody's (just below investment grade), and 36.0%
of the Series assets were invested in fixed-income securities below this
level. See Appendix A for more complete information on portfolio composition.

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 SBAM anticipates that under certain market conditions it
will, invest up to 100% of its total 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

B-15
<PAGE>

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. The securities
issued by such entities 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
(except that short-term forward settlement of trades shall not count for the
purposes of this limitation).

SBAM 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, interest rate transactions and 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 or options on
currencies or currency futures contracts and Eurodollar futures and options.

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

SALOMON BROTHERS U.S. GOVERNMENT SERIES
Subadviser: SBAM

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

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

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

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

(2) U.S. Treasury obligations;

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

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

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

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

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

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<PAGE>

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 exceed
20% of the Series' total assets.

ADDITIONAL INFORMATION

Except for the investment objective of the Loomis Sayles Small Cap and
Westpeak Growth and Income Series, or except as otherwise explicitly stated in
this Prospectus or the Statement, each Series' investment objective and
policies may be changed at any time without shareholder approval. If there is
a change in the objective or policies of a Series, shareholders should
consider whether the Series remains an appropriate investment, in light of
their own investment objectives.

TEMPORARY DEFENSIVE INVESTMENTS

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

INVESTMENT RISKS

. EQUITY SECURITIES (LOOMIS SAYLES SMALL CAP, MORGAN STANLEY INTERNATIONAL
MAGNUM EQUITY, ALGER EQUITY GROWTH, GOLDMAN SACHS MIDCAP VALUE, DAVIS
VENTURE VALUE, WESTPEAK GROWTH AND INCOME AND LOOMIS SAYLES BALANCED SERIES)

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).

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. Their 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.

In addition, each Series may invest in real estate investment trusts
("REITs"). REITs are pooled investment vehicles that invest primarily in
either real estate or real estate related loans. The value of a REIT is
affected by changes in the value of the properties owned by the REIT or
securing mortgage loans held by the REIT. REITs are dependent upon cash flow
from their investments to repay financing costs and the ability of the REITs'
manager. REITs are also subject to risks generally associated with investments
in real estate. A Series will indirectly bear its proportionate share of any
expenses, including management fees, paid by each REIT in which it invests.

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<PAGE>

. CONVERTIBLE SECURITIES (MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY, ALGER
EQUITY GROWTH, GOLDMAN SACHS MIDCAP VALUE, LOOMIS SAYLES BALANCED AND
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)

Convertible securities include debt securities or preferred stock that are
convertible into common 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.

. FIXED-INCOME SECURITIES (ALL SERIES)

Fixed-income securities include a broad array of short-, medium- and long-term
obligations (including notes, bonds and preferred stock) 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 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 or other factors. 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. Prepayment risk 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. Call risk is the
risk that an issuer will exercise a call feature that permits the issuer to
repurchase the securities from their holders. Although a Series would
typically receive a premium if an issuer were to call a security, if a call
occurs during times of declining interest rates, the Series may realize a
capital loss if the security was purchased at a premium, and 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 consist of; (a)
obligations of governments, agencies or instrumentalities of any member state
of the Organization for Economic Cooperation and Development (the "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 are invested in any one
of such issuers. The short-term and medium-term fixed-income 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 (GOLDMAN SACHS MIDCAP VALUE, 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,
are considered high yield, high risk securities and are commonly known as
"junk bonds". 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

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of the issuer to meet principal and interest payments. The ability of a Series
investing in lower quality fixed-income securities to achieve its investment
objective may be more dependent on the credit analysis of the Series'
subadviser than it would be for a Series 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. For more information, including a detailed description of the
ratings assigned by S&P and Moody's, please refer to "Appendix B--Ratings of
Securities."

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

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

. STRIPPED MORTGAGE SECURITIES (GOLDMAN SACHS MIDCAP VALUE, SALOMON BROTHERS
STRATEGIC BOND OPPORTUNITIES AND SALOMON BROTHERS U.S. GOVERNMENT SERIES)

Stripped mortgage securities are derivative multi-class mortgage securities.
Stripped mortgage securities may be issued by agencies or instrumentalities of
the U.S. Government or by private originators of, or investors in, mortgage
loans, including savings and loans, mortgage banks, commercial banks or
investment banks. Stripped mortgage securities are usually structured with two
classes that receive different proportions of the interest and principal
distribution on a pool of mortgage assets. In some cases, one class will
receive all of the interest (the interest-only or "IO" class), while the other
class will receive all of the principal (the principal-only or "PO" class).
Stripped mortgage securities have greater market volatility than other types
of mortgage securities. The yield to maturity on IOs and POs and other
mortgage-backed securities that are purchased at a substantial premium or
discount generally are sensitive to changes in prevailing interest rates and
to the rates of principal payments (including prepayments) on the underlying
mortgage assets. If the underlying mortgage assets experience greater than
anticipated pre-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.

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

An adjustable rate mortgage security (an "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 (GOLDMAN SACHS MIDCAP VALUE, LOOMIS SAYLES BALANCED,
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES AND SALOMON BROTHERS U.S.
GOVERNMENT SERIES)

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

. INVERSE FLOATERS (GOLDMAN SACHS MIDCAP VALUE, 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
may 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 treated as 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 seller 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 credit 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 ROLLS (SALOMON BROTHERS STRATEGIC
BOND OPPORTUNITIES AND SALOMON BROTHERS U.S. GOVERNMENT SERIES)

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

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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 restrictions with respect to
borrowings.

. WRITING OPTIONS (MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY, GOLDMAN SACHS
MIDCAP VALUE, 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 the right to sell, and obliges the writer of
the option to buy, the underlying security at the exercise price. A call
option gives the purchaser of the option the right to buy, and obliges the
writer of the option 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, GOLDMAN SACHS MIDCAP VALUE, 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 positions
of a Series could cause losses on the futures contracts to be greater than
gains in the value of such securities or currency positions. In addition,
futures markets could be illiquid in some circumstances. As a result, in
certain markets, a Series might not be able to close out a transaction without
incurring substantial losses. Although a Series' use of futures transactions
for hedging should tend to minimize the risk of loss due to a decline in the
value of the hedged position, at the same time it will tend to limit any
potential gain to a Series that might result from an increase in value of the
position. The daily variation margin requirements for futures contracts create
a greater ongoing potential financial risk than would purchases of options, in
which case the exposure is limited to the cost of the initial premium.

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Each of the Series listed above may, in the discretion of its subadviser,
engage in foreign currency exchange transactions including options on foreign
currencies 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 the 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. The Goldman
Sachs Midcap Value Series may also engage (to the extent of up to 5% of its
total net assets) in transactions in futures and options thereon transactions,
and on securities indices for the purpose of increasing total return (i.e.,
for purposes other than hedging).

Each of the Series listed above 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 these types of instruments. There is no assurance that a Series' use of
these strategies will be effective. These strategies involve costs and the
risk of loss to the Series. See the Statement for more information.

. SWAPS (MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY, GOLDMAN SACHS MIDCAP
VALUE AND SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)

The Morgan Stanley International Magnum Equity, Goldman Sachs Midcap Value and
Salomon Brothers Strategic Bond Opportunities Series may enter into interest
rate, currency and index swaps. The Series will enter into these transactions
primarily to seek to preserve a return or spread on a particular investment or
portion of its portfolio, to protect against currency fluctuations, as a
duration management technique or to protect against any increase in the price
of securities the Series anticipates purchasing at a later date. Interest rate
swaps involve the exchange by the Series with another party of their
respective commitments to pay or receive interest (for example, an exchange of
floating rate payments for fixed rate payments with respect to a notional
amount of principal). A currency swap is an agreement to exchange cash flows
on a notional amount based on changes in the relative values of the specified
currencies. The Series will maintain cash and/or other liquid assets 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 (GOLDMAN SACHS MIDCAP VALUE AND SALOMON BROTHERS STRATEGIC
BOND OPPORTUNITIES SERIES)

The Salomon Brothers Strategic Bond Opportunities and Goldman Sachs Midcap
Value Series are 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 hold. For example, if a
structured note has

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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'
portfolios 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 are 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, GOLDMAN SACHS MIDCAP VALUE, 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"). The Morgan Stanley International Magnum
Equity and Salomon Brothers Strategic Bond Opportunities Series may invest up
to 100% of their total assets in foreign securities. Each of the following
Series will not purchase a foreign security if, as a result, the Series'
holdings of foreign securities would exceed the indicated percentage of the
Series' total assets: Back Bay Advisors Bond Income Series, 10%; Loomis Sayles
Small Cap and Salomon Brothers U.S. Government Series, 20%; Goldman Sachs
Midcap Value Series, 25%.

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

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

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

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

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

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

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

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

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.

B-24
<PAGE>

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 intends to treat all
investments in Participations and Assignments as illiquid.

. WHEN-ISSUED SECURITIES (LOOMIS SAYLES SMALL CAP, MORGAN STANLEY
INTERNATIONAL MAGNUM EQUITY, ALGER EQUITY GROWTH, GOLDMAN SACHS MIDCAP
VALUE, DAVIS VENTURE VALUE, LOOMIS SAYLES BALANCED, 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 cash or liquid assets in a segregated
account in an amount sufficient to satisfy its outstanding obligations to buy
securities on a "when-issued" basis.

. FORWARD COMMITMENTS (GOLDMAN SACHS MIDCAP VALUE SERIES)

The Goldman Sachs Midcap Value Series may purchase securities on a forward
commitment basis; that is, make contracts to purchase securities for a fixed
price at a future date beyond the customary three-day settlement period. The
Series is required to hold and maintain in a segregated account with the
custodian until three days prior to settlement date, cash or liquid assets in
an amount sufficient to meet the purchase price. Alternatively, the Series may
enter into offsetting contracts for the forward sale of other securities it
owns. The purchase of securities on a forward commitment basis involves a risk
of loss if the value of the security to be purchased declines prior to the
settlement date. Although the Series would generally purchase securities on a
forward commitment basis with the intention of acquiring such securities for
its portfolio, the Series may dispose of forward commitments prior to
settlement if GSAM deems it appropriate to do so.

. INVESTMENT COMPANY SECURITIES (MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY,
ALGER EQUITY GROWTH, GOLDMAN SACHS MIDCAP VALUE, 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

B-25
<PAGE>

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.

The Goldman Sachs Midcap Value Series may also purchase Standard and Poor's
Depository Receipts ("SPDRs"). SPDRs are interests in a unit investment trust
which is designed to track the S&P 500. SPDRs may be obtained from the issuer
or purchased in the secondary market (SPDRs are listed on the American Stock
Exchange).

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

To the extent that any of the above-listed Series lends its 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" (MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY,
ALGER EQUITY GROWTH AND GOLDMAN SACHS MIDCAP VALUE SERIES)

A short sale is a transaction in which a party borrows a security and then
sells the borrowed security to another party. The Series listed above 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. The tax advantages of short sales against the box may be limited by
certain provisions of the Taxpayer Relief Act of 1997.

. ILLIQUID SECURITIES (ALL SERIES)

Each Series may invest up to 15% of its assets in "illiquid securities," that
is, securities which are not readily resalable, including securities whose
disposition is restricted by federal securities laws. Each 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. Investment in restricted
or other illiquid securities involves the risk that a Series may be unable to
sell such a security at the desired time. Also, a Series may incur expenses,
losses or delays in the process of registering restricted securities prior to
resale.

. 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
values 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 depreciate more
during periods of rising interest rates. Zero coupon securities may be issued
by a wide variety of corporate and governmental issuers. Although zero coupon
securities are generally not traded on a national securities exchange, many
such securities are widely traded by brokers and dealers and, if so, will not
be considered illiquid.

Current federal income tax law requires the holder of a zero coupon security
(as well as the holders of other securities, such as Brady Bonds (see "High
Yield/High Risk Foreign Sovereign Debt Securities" above), which may be
acquired at a discount) to

B-26
<PAGE>

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. Higher portfolio turnover involves correspondingly greater
brokerage commissions and other transaction costs, which will be borne
directly by the relevant Series, and may result in increased recognition of
taxable capital gains. For additional information about such costs see "Taxes"
below and "Portfolio Transactions and Brokerage" in the Statement. For
information about the past portfolio turnover rates of all the Series, see
"Financial Highlights" above. A portfolio turnover rate in excess of 100% may
be considered high.

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 NELICO or
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-27
<PAGE>

PERFORMANCE INFORMATION

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

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

TOTAL RETURN

<TABLE>
<CAPTION>
AVERAGE
AVERAGE ANNUAL
AVERAGE ANNUAL TOTAL
ANNUAL TOTAL RETURN
TOTAL RETURN SINCE
RETURN FOR THE COMMENCE-
FOR THE FIVE MENT
YEAR ENDED DECEMBER 31, TEN YEARS YEARS OF OPERATIONS
-------------------------------------------------------------------- ENDED ENDED THROUGH
SERIES 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 12/31/97 12/31/97 12/31/97
- ------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loomis Sayles
Small Cap
Series -- -- -- -- -- -- (3.2)%(1) 28.9% 30.7% 24.9 % -- -- 21.4%
Morgan Stanley
International
Magnum Equity
Series(2) -- -- -- -- -- -- 2.6 %(3) 6.0% 6.9% (1.3)% -- -- 4.4%
Alger Equity
Growth Series -- -- -- -- -- -- (4.2)%(3) 48.8% 13.2% 25.6 % -- -- 25.0%
Goldman Sachs
Midcap Value
Series(5) -- -- -- -- -- 14.7%(6) (0.3)% 30.4% 17.6% 17.4 % -- -- 16.7%
Davis Venture
Value Series -- -- -- -- -- -- (3.5)%(3) 39.3% 25.8% 33.5 % -- -- 29.3%
Westpeak Growth
and Income
Series -- -- -- -- -- 14.2%(7) (1.2)% 36.5% 18.1% 33.5 % -- -- 20.9%
Loomis Sayles
Balanced Series -- -- -- -- -- -- (0.1)%(3) 24.8% 16.9% 16.2 % -- -- 18.1%
Salomon Brothers
Strategic Bond
Opportunities
Series -- -- -- -- -- -- (1.4)%(3) 19.4% 14.4% 11.1 % -- -- 13.6%
Salomon Brothers
U.S. Government
Series -- -- -- -- -- -- 0.6 %(3) 15.0% 3.3% 8.6 % -- -- 8.6%
S&P 500(8) 16.5 % 31.6% (3.1)% 30.3% 7.6 % 10.1% 1.3 % 37.4% 23.0% 33.3 % 18.0% 20.2% 16.9%(4)
Lehman
Intermediate
Government/Corporate
Bond Index(9) 6.8 % 12.8% 9.2 % 14.6% 7.2 % 8.8% (2.0)% 15.3% 2.9% 7.9 % 8.3% 6.6% 9.5%(4)
Consumer Price
Index(10) 4.4 % 4.7% 6.1 % 3.1% 2.9 % 2.8% 2.8 % 2.6% 3.3% 1.7 % 3.4% 2.6% 3.4%(4)
Dow Jones
Industrial
Average(11) 16.1 % 32.2% (1.0)% 24.2% 7.4 % 16.9% 5.1 % 37.0% 28.9% 24.9 % 18.6% 22.0% 17.9%(4)
</TABLE>
- --------
(1) Represents unannualized total return for the period May 2, 1994, when the
Loomis Sayles Small Cap Series commenced operations, to December 31, 1994.
The Series was not available through variable insurance or variable
annuity products until October 31, 1994.
(2) Effective May 1, 1997, MSAM began managing the Series, succeeding Draycott
Partners, Ltd.
(3) Represents unannualized total return for the period from 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, to December 31, 1994.
(4) These returns would not change if they had been calculated for the period
beginning with September 1, 1983, which is the period for which the
Average Annual Total Returns Since Commencement of Operations have been
calculated for the S&P 500, Lehman Intermediate Government/Corporate Bond
Index, Consumer Price Index and Dow Jones Industrial Average (unless
otherwise indicated).

B-28
<PAGE>

(5) On May 1, 1998, GSAM became subadviser to the Series, succeeding Loomis
Sayles.
(6) Represents unannualized total return for the period beginning April 30,
1993, when the Series became publicly available, to December 31, 1993.
(7) Represents unannualized total return for the period beginning April 30,
1993, when the Series became publicly available, to December 31, 1993.
(8) 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.
(9) 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.
(10) 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.
(11) 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.

PAST PERFORMANCE OF SIMILARLY MANAGED ACCOUNTS

The performance data shown below for Goldman Sachs Mid Cap Equity Fund (the
"Goldman Fund") and the Morgan Stanley International Magnum Composite (the
"Composite") were calculated in accordance with recommended standards of the
Association for Investment Management and Research retroactively applied to
all time periods. Investors should also be aware that the use of methodology
different from that used below to calculate performance could result in
different performance data.

GOLDMAN SACHS ASSET MANAGEMENT

The total returns shown below are based on performance data furnished by
GSAM for the Goldman Fund, a mutual fund which has the same investment
objective as that of the Goldman Sachs Midcap Value Series and is managed
using policies and strategies substantially similar, though not necessarily
identical, to those employed by GSAM in managing the Goldman Sachs Midcap
Value Series, and is the only account that has been managed by GSAM using such
policies and strategies. The performance information for the Goldman Fund has
been adjusted to give effect to the expenses incurred by the Goldman Sachs
Midcap Value Series in its most recent fiscal year without giving effect to
the Voluntary Expense Agreement or the Expense Deferral Arrangement but giving
effect to a 0.05% increase in investment advisory fees that takes effect May
1, 1998. The Goldman Fund may not have been subject to the same types of
expenses to which the Series is subject, nor to the diversification
requirements, investment limitations and other restrictions imposed on the
Series by the Investment Company Act of 1940 or Internal Revenue Code. The
following information does not represent the Series' performance and should
not be considered a prediction of future performance of the Series. The
Series' performance may be higher or lower than the performance of the Goldman
Fund shown below. IN ADDITION, THE PERFORMANCE OF THE GOLDMAN FUND SHOWN BELOW
DOES NOT REFLECT ANY OF THE CHARGES ASSESSED AGAINST THE INSURANCE COMPANY
SEPARATE ACCOUNTS OR VARIABLE LIFE INSURANCE OR VARIABLE ANNUITY PRODUCTS FOR
WHICH THE SERIES SERVES AS AN INVESTMENT VEHICLE. THESE CHARGES WOULD HAVE THE
EFFECT OF LOWERING PERFORMANCE.

<TABLE>
<CAPTION>
GOLDMAN SACHS MID CAP LIPPER MIDCAP
EQUITY FUND FUND INDEX RUSSELL MIDCAP INDEX
--------------------- ------------- --------------------
<S> <C> <C> <C>
Total Return for the
Year Ended December 31,
1997................... 36.0% 17.6% 29.0%
Average Annual Total
Return Since Inception
of Goldman Fund (August
1, 1995)............... 25.5% 16.7% 22.9%
</TABLE>
- --------
* Giving effect to the expense deferral arrangement which goes into effect
May 1, 1998 the total returns for the one year and since inception periods
ending December 31, 1997 would have been 36.0% and 25.5%, respectively.

The Russell Midcap Index is an unmanaged index of the 800 smallest companies
in the Russell 1000 Index. The Russell 1000 Index represents the largest 1000
U.S. companies. The range of market capitalization of the companies included
in the Russell Midcap Index was $400 million to $16 billion as of December 31,
1997. The Russell Midcap Index has not been adjusted for ongoing management,
distribution and operating expenses.

The Lipper Midcap Fund Index is a composite return of 10 midcap mutual funds
that by prospectus or portfolio practice invest primarily in companies with
market capitalization of less than $5 billion (such capitalization fluctuates
with the market).

B-29
<PAGE>

MORGAN STANLEY ASSET MANAGEMENT INC.

The data presented below under "Morgan Stanley International Magnum
Composite" represent the composite average annual total return of nine
accounts managed by MSAM. These accounts include three separate accounts, six
mutual fund accounts (including, during the period it has been under MSAM's
management, the Morgan Stanley International Magnum Equity Series) and a
pooled trust.

The total returns shown below are based on performance data furnished by
MSAM for the Composite. Each account represented in the Composite has an
investment objective substantially similar to that of the Morgan Stanley
International Magnum Equity Series and was managed using policies and
strategies substantially similar (although not necessarily identical) to those
that are employed by MSAM in managing the Series. The Composite includes the
Morgan Stanley International Magnum Equity Series and all the accounts with
assets in excess of $25 million managed by MSAM in a substantially similar
policies as the Series. The performance data for the Composite does not
represent the Series' performance and does not include the Series' performance
prior to MSAM becoming investment subadviser to the Series' on May 1, 1997.

Several of the accounts included in the Composite are not subject to the
same types of expenses to which the Series is subject, nor to the
diversification requirements, investment limitations and other restrictions
imposed on the Series by the Investment Company Act of 1940 or the Internal
Revenue Code. The performance data shown below might have been less favorable
had all of the accounts been subject to regulation as investment companies
under the relevant federal laws. Investors should not consider this
performance data as an indication of future performance of the Series. IN
ADDITION, THE PERFORMANCE SHOWN BELOW 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 SERIES SERVES AS AN
INVESTMENT VEHICLE. THESE CHARGES WOULD HAVE THE EFFECT OF LOWERING
PERFORMANCE.

<TABLE>
<CAPTION>
MORGAN STANLEY MORGAN STANLEY
INTERNATIONAL MAGNUM INTERNATIONAL MAGNUM LIPPER INTERNATIONAL
COMPOSITE*** EQUITY SERIES EQUITY FUND INDEX MSCI EAFE INDEX
-------------------- -------------------- -------------------- ---------------
<S> <C> <C> <C> <C>
Total Return for the
Period
5/1/97-12/31/97*....... 5.0% 1.9 % 4.2% 2.9%
Total Return for the
Year Ended December 31,
1997................... 8.2% (1.3)% 7.3% 4.1%
Average Annual Total
Return Since Inception
(June 1, 1995)**....... 10.8% 3.5 % 11.4% 5.5%
</TABLE>
- --------
* Represents unannualized total return since MSAM began managing the Series
on May 1, 1997.
** Earliest commencement of operations of an account managed by MSAM included
in the Composite.
*** The performance information for the Composite has been adjusted to give
effect to the expenses incurred by the Series in its most recent fiscal
year without giving effect to the expense deferral arrangement (described
below under "Management"). Giving effect to the expense deferral
arrangement the total returns for the eight month, one year and since
inception periods ending December 31, 1997 would have been 5.2%, 8.6% and
11.1%, respectively.

The MSCI EAFE Index is an arithmetical average (weighted by market value) of
the performance (in U.S. dollars) of over 1,000 companies representing the
stock markets of Europe, Australia, New Zealand, and the Far East. The Index
performance has not been adjusted for ongoing management, distribution and
operating expenses.

The Lipper International Equity Fund Index is a composite return of 30
mutual funds that invest their assets in equity securities with primary
trading markets outside the United States.

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 TNE Advisers, Inc.

B-30
<PAGE>

INVESTMENT RESTRICTIONS

The following is a description of restrictions on the investments to be made
by each of the 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. Percentage tests regarding any investment restriction apply
only at the time a Series is making that investment.

INVESTMENT RESTRICTIONS APPLICABLE TO THE LOOMIS SAYLES SMALL CAP, MORGAN
STANLEY INTERNATIONAL MAGNUM EQUITY, ALGER EQUITY GROWTH, GOLDMAN SACHS MIDCAP
VALUE, 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 securities) 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
securities) 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) 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;

(8) 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);

(9) 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;

*(10) Except to the extent permitted by rule or order of the SEC,
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);

*(11) Write, purchase or sell options except that the Series may (a)
write, purchase and sell put and call options on securities, securities
indices, currencies, futures contracts, swap contracts and other similar
investments, (b) enter into currency forward contracts, and (c) invest in
structured notes;

B-31
<PAGE>

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

(13) 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 Agreement and 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. The Fund intends to comply with the regulations
specifying the diversification requirements which have been issued by the
Department of the Treasury. State insurance laws and regulations may impose
additional limitations on the Series' investments, including the 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.

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. ("TNE Advisers") is the investment adviser of
each of the Series.

SERIES ADVISED BY TNE ADVISERS

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

<TABLE>
<CAPTION>
SERIES SUBADVISER
------ ----------
<S> <C>
Loomis Sayles Small Cap Series........................... Loomis Sayles
Morgan Stanley International Magnum Equity Series........ MSAM
Alger Equity Growth Series............................... Alger Management
Goldman Sachs Midcap Value Series........................ GSAM
Davis Venture Value Series............................... Davis Selected
Westpeak Growth and Income Series........................ Westpeak
Loomis Sayles Balanced Series............................ Loomis Sayles
Salomon Brothers Strategic Bond Opportunities Series..... SBAM
Salomon Brothers U.S. Government Series.................. SBAM
</TABLE>

TNE ADVISERS, 501 Boylston Street, Boston, Massachusetts 02116, was
organized in 1994 and is an indirect wholly-owned subsidiary of MetLife, a
mutual insurance company. 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 executive and
other personnel for administration of certain affairs of 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

B-32
<PAGE>

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 their subadvisers.

The general partners of each of Loomis Sayles, Westpeak and New England
Funds, L.P. are special purpose corporations which are indirect wholly-owned
subsidiaries of Nvest Companies, L.P. ("Nvest Companies"). Nvest Companies'
managing general partner, Nvest Corporation, is an indirect wholly-owned
subsidiary of MetLife. MetLife owns in the aggregate, directly and indirectly,
approximately 47% of the outstanding limited partnership interests in Nvest
Companies. Nvest Companies' advising general partner, Nvest, L.P., is a
publicly-traded company listed on the New York Stock Exchange. Nvest
Corporation is the sole general partner of Nvest, L.P.

The Fund has received an exemptive order from the SEC to permit TNE
Advisers, subject to certain conditions, to enter into subadvisory agreements
with subadvisers, including subadvisers other than the existing subadvisers of
a Series, when approved by the Fund's Board of Trustees, without obtaining
shareholder approval. The exemptive order also permits, without shareholder
approval, the terms of an existing subadvisory agreement to be changed or the
employment of existing subadviser to be continued after events that would
otherwise cause an automatic termination of a subadvisory agreement, when such
changes or continuation are approved by the Board of Trustees. Shareholders
will be notified of any subadviser changes and whenever notification is
required by the conditions of the order.

LOOMIS SAYLES, One Financial Center, Boston, Massachusetts 02111, subadviser
to the 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.

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.

Carol C. McMurtrie and Tricia H. Mills are the portfolio managers of the
equity portion of the Loomis Sayles Balanced Series and are responsible for
allocating the assets of the Series between equity and fixed-income
securities. Ms. McMurtrie and Ms. Mills have served in these capacities since
July 1997. The portfolio management team for the fixed-income portion of the
Series consists of Meri Anne Beck, John Hyll and Barr Segal. Ms. Beck and Mr.
Hyll have had portfolio management responsibility for the Series' fixed-income
investments since 1994, and Mr. Segal joined the team in 1996. Messrs. Hyll
and Segal and Mses. Beck, McMurtrie and Mills are Vice Presidents of Loomis
Sayles. Mses. Beck, McMurtrie and Mills and Mr. Hyll have been employed by
Loomis Sayles for more than five years. Mr. Segal was a Senior Portfolio
Manager at TCW Group before joining Loomis Sayles in 1996.

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.

MSAM, 1221 Avenue of the Americas, New York, New York 10020, subadviser to
the Morgan Stanley International Magnum Equity Series, 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 Dean Witter & Co., which is a
preeminent financial services firm that maintains leading market positions in
each of its three primary businesses--securities, asset management and credit
services. MSAM serves as investment adviser to numerous open-end and closed-
end investment companies.

Barton Biggs, Managing Director of MSAM, heads MSAM's Asset Allocation
Committee 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, Managing Director of
MSAM, joined MSAM in 1993 and has been primarily responsible for the day-to-
day management of the Series since MSAM became subadviser to the Series in May
1997. Previously she was a Principal and Executive Vice President of Westwood
Management Corp., a registered investment adviser.

ALGER MANAGEMENT, 75 Maiden Lane, New York, New York 10038, subadviser to
the Alger Equity Growth Series, is a wholly-owned indirect 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

B-33
<PAGE>

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 until 1995 and as President since 1995. 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. Mr. Alger, Ms. Khoo
and Mr. Tartaro serve as portfolio managers for other mutual funds and
investment accounts managed by Alger Management.

DAVIS SELECTED, 124 East Marcy Street, Santa Fe, New Mexico 87501,
subadviser to the Davis Venture Value Series, also provides advisory services
to other investment companies and institutions. Venture Advisers, Inc., which
is controlled by Shelby M.C. Davis, is the sole general partner of Davis
Selected. Davis Selected may also delegate any of its responsibilities to
Davis Selected-NY, Inc. ("DSA-NY"). Davis Selected compensates DSA-NY for all
reasonable direct costs of providing services to the Series. DSA-NY, organized
in 1996, is a wholly-owned subsidiary of Davis Selected and is 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, 1997, and was co-portfolio manager of the Series with
Shelby M.C. Davis from October 1995 until February 1997. Prior to his
responsibilities as co-portfolio manager, Christopher C. Davis worked closely
with Shelby M.C. Davis as assistant portfolio manager and research analyst
beginning in September 1989.

Shelby M.C. Davis is Chief Investment Officer of Davis Selected. As Chief
Investment Officer, he is active in providing investment themes, strategies
and individual stock selections to the Series.

SBAM, 7 World Trade Center, New York, New York 10048, the subadviser to the
Salomon Brothers Strategic Bond Opportunities Series and the Salomon Brothers
U.S. Government Series, is an indirect wholly-owned subsidiary of Travelers
Group Inc. ("Travelers"). Travelers is a diversified financial services
company engaged in investment services, asset management, consumer finance and
life and property and casualty insurance business. SBAM was incorporated in
1987 and, together with its 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 and insurance
companies, and serves as investment adviser to various investment companies.
In providing advisory services, SBAM and its affiliates have access to more
than 400 economists and mortgage, bond and sovereign debt analysts. As of
February 28, 1998, SBAM and such affiliates managed approximately $27 billion
in assets.

On April 6, 1998, Travelers Group announced that it had entered into a
Merger Agreement with Citicorp. The transaction, which is expected to be
completed during the third quarter of 1998, is subject to various regulatory
approvals, including approval by the Federal Reserve Board. The transaction is
also subject to approval by the stockholders of each of the Travelers Group
and Citicorp. Upon consummation of the merger, it is anticipated that SBAM and
Salomon Brothers Asset Management Limited ("SBAM Ltd") would be subsidiaries
of the surviving corporation. The surviving corporation would be a bank
holding company subject to regulation under the Bank Holding Company Act of
1956 (the "BHCA"), the requirements of the Glass-Steagall Act and certain
other laws and regulations. Although the effects of the merger of Travelers
and Citicorp and compliance with the requirements of the BHCA and the Glass-
Steagall Act are still under review, SBAM does not believe that its compliance
with applicable law following the merger of Travelers and Citicorp will have a
material adverse effect on its ability to continue to provide the Fund with
the same level of investment advisory services that it currently receives.

In connection with SBAM's service as subadviser to the Salomon Brothers
Strategic Bond Opportunities Series, SBAM's London based affiliate, SBAM Ltd,
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
Series. For these services, SBAM has agreed to compensate SBAM Ltd at the rate
of one-third of the compensation payable to SBAM by TNE Advisers, as described
below. SBAM Ltd is an indirect, wholly-owned subsidiary of Travelers. SBAM Ltd
is a member of Investment Management Regulatory Organization Limited 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
Salomon Brothers Strategic Bond Opportunities Series. David Scott is primarily
responsible for the portion of the Salomon Brothers Strategic Bond
Opportunities Series relating to currency transactions and investments in non-
dollar denominated debt securities.

B-34
<PAGE>

Mr. Guterman joined SBAM in 1990 and is currently a Managing Director and
Senior Portfolio Manager of SBAM. He has acted as portfolio manager of the
Salomon Brothers Strategic Bond Opportunities Series and as a portfolio
manager of the Salomon Brothers U.S. Government Series since October their
inception in 1994. Mr. Lavan joined SBAM as Director and Portfolio Manager in
1990 and has served as a co-portfolio manager of the Series since its
inception. Mr. Wilby joined SBAM in 1989 and is a Managing Director of SBAM's
broker dealer affiliate, Salomon Brothers Inc and SBAM and Senior Portfolio
Manager of SBAM. He is responsible for investment company and institutional
portfolio investments in high yield U.S. corporate debt securities and high
yield foreign sovereign debt securities. He has served as portfolio manager of
the Salomon Brothers Strategic Bond Opportunities Series since its inception.
Ms. Semmel has served as portfolio manager of the Salomon Brothers Strategic
Bond Opportunities Series since its inception. She has served as a Director of
SBAM since January 1996 and as Vice President from May 1993 to December 1995.
Prior to joining SBAM in May 1993, Ms. Semmel spent four years as a high yield
bond analyst at MSAM. Mr. Scott has been with SBAM Ltd since April 1994 and is
a Director and Senior Portfolio Manager of SBAM Ltd. He has served as a co-
portfolio manager of the Salomon Brothers Strategic Bond Opportunities Series
since October 1994. 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.

GSAM, One New York Plaza, New York, New York, 10004, subadviser to the
Goldman Sachs Midcap Value Series, is a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"). G. Lee Anderson, Vice President of
GSAM, Lawrence S. Sibley, Vice President of GSAM and Ronald E. Gutfleish,
Managing Director of GSAM, have served as portfolio managers of the Goldman
Sachs Midcap Value Series since May 1998. Mr. Anderson has been employed by
GSAM for more than five years. Mr. Sibley joined GSAM in 1997. Prior to that
he was Vice President at J.P. Morgan Securities and before that he was a
partner in institutional sales at Sanford C. Bernstein & Co. Mr. Gutfleish
joined GSAM in 1993. Prior to that, he was a principal of Sanford C. Bernstein
& Co. in its investment research department. Goldman Sachs is a worldwide
investment banking firm and has its principal business address at 85 Broad
Street, New York, New York 10004. The general partners of Goldman Sachs are
controlled by The Goldman Sachs Corporation.

FEES AND EXPENSES. TNE Advisers is paid a management fee from the Series it
manages at the following annual rates:

<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
Goldman Sachs Midcap Value
Series..................... 0.75% of all assets
Davis Venture Value Series.. 0.75% of all assets
Westpeak Growth and Income 0.70% of the first $200 million
Series..................... 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-35
<PAGE>

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

<TABLE>
<CAPTION>
ANNUAL SUBADVISORY
FEE RATES PAID
BY TNE
ADVISERS TO THE AS A % OF THE SERIES
SERIES SUBADVISERS AVERAGE DAILY NET ASSETS
- ------ ------------------ ------------------------------------
<S> <C> <C>
Loomis Sayles Small Cap
Series................. 0.55% of the first $25 million
0.50% of the next $75 million
0.45% of the next $100 million
0.40% of amounts in excess of $200 million
Morgan Stanley
International Magnum
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
Series................. 0.45% of the first $100 million
0.40% of the next $400 million
0.35% of amounts in excess of $500 million
<CAPTION>
ANNUAL SUBADVISORY
FEE RATES PAID
BY TNE
ADVISERS TO THE
RESPECTIVE AS A % OF THE SERIES
SERIES SUBADVISERS AVERAGE DAILY NET ASSETS
- ------ ------------------ ------------------------------------
<S> <C> <C>
Goldman Sachs Midcap
Value Series........... 0.45% of the first $100 million
0.40% of the next $400 million
0.35% of amounts in excess of $500 million
Davis Venture Value
Series................. 0.45% of the first $100 million
0.40% of the next $400 million
0.35% of amounts in excess of $500 million
Westpeak Growth and
Income Series.......... 0.50% of the first $25 million
0.40% of the next $75 million
0.35% of the next $100 million
0.30% of amounts in excess of $200 million
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
Strategic 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>

VOLUNTARY EXPENSE AGREEMENT

Pursuant to voluntary expense agreements relating to the Westpeak Growth and
Income Series, TNE Advisers bears the expenses (other than management fees and
any brokerage costs, interest, taxes or extraordinary expenses) of the Series
in excess of 0.15% annually of the respective Series' average daily net
assets. Prior to May 1, 1998 a similar arrangement was in effect for the
Goldman Sachs Midcap Value Series (then called the Loomis Sayles Avanti Growth
Series). 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% annually of the
Series' average daily net assets. TNE Advisers may terminate these expense

B-36
<PAGE>

agreements at any time. As a result of the current voluntary expense
agreements (and assuming the Series incur the same level of management fees as
in 1997 and no taxes, interest or extraordinary expenses), these Series'
annual expense ratios as a percentage of net assets during this prospectus'
effectiveness, assuming the continuation of the voluntary expense agreements,
are expected to be as follows:

<TABLE>
<CAPTION>
TOTAL EXPENSE RATIO
UNDER CURRENT VOLUNTARY
SERIES EXPENSE AGREEMENTS
------ -----------------------
<S> <C>
Westpeak Growth and Income Series................. 0.82%
Loomis Sayles Small Cap Series.................... 1.00%
</TABLE>

If these expense agreements were to terminate, the expense ratios may be
higher.

EXPENSE DEFERRAL ARRANGEMENT

Pursuant to an expense deferral arrangement relating to the Morgan Stanley
International Magnum Equity, the Alger Equity Growth, Goldman Sachs Midcap
Value Series, Davis Venture Value, Loomis Sayles Balanced, Salomon Brothers
Strategic Bond Opportunities and Salomon Brothers U.S. Government Series, 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 each Series to repay TNE Advisers such expenses in future
years, if any, when that 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. The expense deferral arrangement can be
prospectively discontinued by TNE Advisers at any time 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. The expense
limits (annual rates as a percentage of the Series average daily net assets)
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%
Goldman Sachs Midcap Value Series................... 0.90%
Davis Venture Value Series.......................... 0.90%
Loomis Sayles Balanced Series....................... 0.85%
Salomon Brothers Strategic Bond Opportunities Se-
ries............................................... 0.85%
Salomon Brothers U.S. Government Series............. 0.70%
</TABLE>

ADDITIONAL INFORMATION ABOUT EXPENSES

Each Series pays 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-37
<PAGE>

The Series incurred total expenses during the year ended December 31, 1997
as follows:

<TABLE>
<CAPTION>
TOTAL EXPENSES
(AS OF A PERCENTAGE OF
AVERAGE NET ASSETS)
FOR THE YEAR ENDED
SERIES DECEMBER 31, 1997
------ ----------------------
<S> <C>
Loomis Sayles Small Cap Series.................... 1.00%
Morgan Stanley International Magnum Equity Series. 1.30%
Alger Equity Growth Series........................ 0.87%
Goldman Sachs Midcap Value Series*................ 0.85%*
Davis Venture Value Series........................ 0.90%
Westpeak Growth and Income Series................. 0.82%
Loomis Sayles Balanced Series..................... 0.85%
Salomon Brothers Strategic Bond Opportunities Se-
ries............................................. 0.85%
Salomon Brothers U.S. Government Series........... 0.70%
</TABLE>

*During 1997, the Goldman Sachs Midcap Value Series, then known as the
Loomis Sayles Avanti Growth Series, was subject to a lower management fee than
is currently in effect for the Series and operated under a voluntary expense
agreement described above rather than the expense deferral arrangement under
which the Series currently operates.

If the voluntary expense agreements and expense deferral arrangement
described above had not been in effect, the Series' expenses for the year
ended December 31, 1997 would have been:

<TABLE>
<CAPTION>
TOTAL EXPENSES
(AS A PERCENTAGE OF
NET ASSETS) WITHOUT
VOLUNTARY EXPENSE
AGREEMENT OR
EXPENSE DEFERRAL
ARRANGEMENT FOR THE YEAR
SERIES ENDED DECEMBER 31, 1997
------ ------------------------
<S> <C>
Loomis Sayles Small Cap Series.................. 1.14%
Morgan Stanley International Magnum Equity
Series......................................... 1.59%
Alger Equity Growth Series...................... 0.87%
Goldman Sachs Midcap Value Series**............. 0.86%
Davis Venture Value Series...................... 0.88%
Westpeak Growth and Income Series............... 0.82%
Loomis Sayles Balanced Series................... 0.86%
Salomon Brothers Strategic Bond Opportunities
Series......................................... 0.87%
Salomon Brothers U.S. Government Series......... 0.98%
</TABLE>

**Total expenses for the Goldman Sachs Midcap Value Series are expected to
be higher during 1998 and are limited to 0.90% under the expense deferral
arrangement.

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.

MISCELLANEOUS ARRANGEMENTS

Subject to procedures adopted by the Fund's Board of Trustees, Fund
brokerage transactions may be executed by brokers, and futures contract
transactions and options thereon may be executed by futures commission
merchants, where such brokers or futures commission merchants are affiliated
with any adviser or subadviser. The Morgan Stanley International Magnum
Equity, Alger Equity Growth, Goldman Sachs Midcap Value and Davis Venture
Value Series may pay brokerage commissions to brokerage firms affiliated with
each Series' respective subadviser. The Goldman Sachs Midcap Value Series may
pay commissions and charges on futures and Fund transactions in futures
options transactions to futures commissions merchants affiliated with GSAM.
Portfolio transactions of all Series in bonds, notes and money market
instruments are generally effected on a net basis without a stated commission.

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

B-38
<PAGE>

SERVICE SYSTEMS--YEAR 2000

Many of the services provided to the Series depend on the smooth functioning
of computer systems. Many systems in use today cannot distinguish between the
year 1900 and the year 2000. Failure of any of the service systems to process
information properly in the year 2000 could have an adverse impact on the
Series' operations and services provided to shareholders. TNE Advisers, CGM,
the Series subadvisers, New England Securities, NELICO (the Fund's transfer
agent), State Street Bank and Trust Company (the Fund's custodian) and certain
other service providers to the Series have reported that each expects to
modify its systems, as necessary, prior to January 1, 2000 to address the so-
called "year 2000 problem." However, there can be no assurance that the
problem will be corrected in all respects and that the Series' operations and
services provided to shareholders will not be adversely affected.

PURCHASE AND REDEMPTION OF SHARES

Shares of each Series are purchased or redeemed depending on, among other
things, 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 (the "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 VALUE AND PORTFOLIO VALUATION

The Series subadvisers, 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 on
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.

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

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

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

Dividends and distributions of each Series are automatically reinvested in
additional 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
capital gains on sales of securities held for more than one year but not more
than eighteen months (i.e. 28% rate gain) and on sales of securities held for
more than eighteen months (i.e. 20% rate gain), if any, are treated as such to
its

B-39
<PAGE>

shareholders. Whether or not taxes must be paid by the shareholders of a
Series on distributions received from that Series will depend on the tax
status of NELICO's or MetLife's separate accounts and the tax status of any
other shareholders. For the purposes of the foregoing, each Series'
shareholders are the separate accounts investing directly in the Fund and not
the owners of the variable life insurance or variable annuity contracts for
which the Fund serves as an investment vehicle. For a description of the tax
consequences for such contract owners, see the relevant prospectus applicable
to such contracts.

ORGANIZATION AND CAPITALIZATION OF THE FUND

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

As of the date of this prospectus, all of the outstanding voting securities
of the Fund are owned by separate accounts of MetLife or NELICO, and may, from
time to time, be owned by those separate accounts and the general accounts of
MetLife or NELICO. 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 and NELICO are required to
vote any shares held in their general accounts (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 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-40
<PAGE>

APPENDIX A

AVERAGE PORTFOLIO COMPOSITION OF THE SALOMON BROTHERS STRATEGIC BOND
OPPORTUNITIES SERIES

<TABLE>
<CAPTION>
PERCENTAGE OF
SECURITY NET ASSETS
-------- -------------
<S> <C>
Preferred Stock............................................. 0%
Short-term Obligations and Other Assets..................... 5.0%
Common Stock................................................ 0%
Debt -- Unrated............................................. 3.0%
Debt -- Standard and Poor's Rating
AAA....................................................... 40.0%
AA........................................................ 2.0%
A......................................................... 2.0%
BBB....................................................... 3.0%
BB........................................................ 9.0%
B......................................................... 36.0%
CCC....................................................... 0.0%
</TABLE>

The chart above indicates the composition of the Salomon Brothers Strategic
Bond Opportunities Series for the fiscal year ended December 31, 1997, 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 Series' net assets invested in each category as
of the end of each month during the year. SBAM 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-41
<PAGE>

APPENDIX B

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-42