<PAGE>
Registration Nos. 2-83538
811-3728
---------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ____ [_]
Post-Effective Amendment No. 23 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY [X]
ACT OF 1940
Amendment No. 24 [X]
(Check appropriate box or boxes)
---------------------
NEW ENGLAND ZENITH FUND
(Exact Name of Registrant as Specified in Charter)
501 Boylston Street, Boston, Massachusetts 02116
(Address of Principal Executive Offices, including Zip Code)
(617) 578-1388
(Registrant's Telephone Number, including Area Code)
---------------------
John E. Pelletier
New England Funds, L.P.
399 Boylston Street
Boston, Massachusetts 02116
(Name and address of agent for service)
Copy to:
Edward A. Benjamin, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
---------------------
It is proposed that this filing will become effective (check appropriate box)
[_] immediately upon filing pursuant to paragraph (b) of Rule 485
[_] on (date) pursuant to paragraph (b) of Rule 485
[X] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[_] on (date) pursuant to paragraph (a)(1) of Rule 485
[_] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[_] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
CROSS REFERENCE SHEET
Items required by Form N-1A
Item No.
of Form N-1A Caption in Prospectus
- ------------ ---------------------
1 . . . . . . . . . . . . . . . Cover Page
2 . . . . . . . . . . . . . . . Not Applicable
3 . . . . . . . . . . . . . . . Financial Highlights;
Performance Information
4 . . . . . . . . . . . . . . . The Fund; Investment Objectives and
Policies; Organization and
Capitalization of the Fund
5 . . . . . . . . . . . . . . . Management; Transfer Agent
6 . . . . . . . . . . . . . . . Organization and Capitalization of the
Fund; Dividends and Capital Gain
Distributions; Taxes; Investment
Objectives and Policies; Voting Rights
7 . . . . . . . . . . . . . . . The Fund; Sale and Redemption of Shares;
Net Asset Values and Portfolio Valuation
8 . . . . . . . . . . . . . . . Sale and Redemption of Shares; Net
Asset Values and Portfolio Valuation
9 . . . . . . . . . . . . . . . Not Applicable
1
<PAGE>
Caption in Statement of
Additional Information
----------------------
10 . . . . . . . . . . . . . . . Cover Page
11 . . . . . . . . . . . . . . . Table of Contents
12 . . . . . . . . . . . . . . . Not Applicable
13 . . . . . . . . . . . . . . . Investment Objectives and Policies;
Miscellaneous Investment Practices
14 . . . . . . . . . . . . . . . Trustees and Officers
15 . . . . . . . . . . . . . . . Description of the Fund; Organization
and Capitalization of the Fund (in
Prospectus)
16 . . . . . . . . . . . . . . . Advisory Agreements; Distribution
Agreement; Other Services;
17 . . . . . . . . . . . . . . . Portfolio Transactions and Brokerage
18 . . . . . . . . . . . . . . . Description of the Fund
19 . . . . . . . . . . . . . . . Determination of Net Asset Values
20 . . . . . . . . . . . . . . . Taxes (in Prospectus)
21 . . . . . . . . . . . . . . . Not Applicable
22 . . . . . . . . . . . . . . . Fund Performance
23 . . . . . . . . . . . . . . . Appendix C
<PAGE>
NEW ENGLAND ZENITH FUND
501 Boylston Street
Boston, Massachusetts 02116
(617) 267-6600
PROSPECTUS--May 1, 1998
New England Zenith Fund (the "Fund") consists of fourteen investment
portfolios: the Loomis Sayles Small Cap Series, the Morgan Stanley International
Magnum Equity Series, the Alger Equity Growth Series, the Capital Growth Series,
the Davis Venture Value Series, the Goldman Sachs Midcap Value Series (formerly,
the Loomis Sayles Avanti Growth Series), the Westpeak Growth and Income Series,
the Westpeak Stock Index Series, the Loomis Sayles Balanced Series, the Back Bay
Advisors Managed Series, the Salomon Brothers Strategic Bond Opportunities
Series, the Back Bay Advisors Bond Income Series, the Salomon Brothers U.S.
Government Series and the Back Bay Advisors Money Market Series (each a
"Series"), with the following investment objectives:
Loomis Sayles Small Cap Series--long-term capital growth from investments in
common stocks or their equivalent.
Morgan Stanley International Magnum Equity Series--long-term capital
appreciation through investment primarily in international equity securities.
Alger Equity Growth Series--long-term capital appreciation.
Capital Growth Series--long-term growth of capital.
Davis Venture Value Series--growth of capital.
Goldman Sachs Midcap Value Series (formerly, Loomis Sayles Avanti Growth
Series)--long-term capital appreciation.
Westpeak Growth and Income Series--long-term total return through investment
in equity securities.
Westpeak Stock Index Series--investment results that correspond to the
composite price and yield performance of United States publicly traded common
stocks.
Loomis Sayles Balanced Series--reasonable long-term investment return from a
combination of long-term capital appreciation and moderate current income.
Back Bay Advisors Managed Series--a favorable total return through investment
in a diversified portfolio. The Series' portfolio is expected to include a mix
of (1) common stocks, (2) notes and bonds and (3) money market instruments.
Salomon Brothers Strategic Bond Opportunities Series--a high level of total
return consistent with preservation of capital. This Series may invest a
significant portion of its assets in lower rated bonds commonly known as junk
bonds. Investors should assess carefully the risks associated with investment
in this Series. See "Investment Objectives and Policies--Salomon Brothers
Strategic Bond Opportunities Series" and "Investment Risks--Lower Rated Fixed-
Income Securities."
Back Bay Advisors Bond Income Series--a high level of current income
consistent with protection of capital and moderate investment risk.
Salomon Brothers U.S. Government Series--a high level of current income
consistent with preservation of capital and maintenance of liquidity.
1
<PAGE>
Back Bay Advisors Money Market Series--the highest possible level of current
income consistent with preservation of capital. Money market funds are neither
insured nor guaranteed by the U.S. Government and there can be no assurance that
the Series will maintain a stable net asset value of $100 per share.
This Prospectus concisely describes the information that prospective investors
ought to know before investing. Please read this Prospectus carefully and keep
it for future reference.
A Statement of Additional Information (the "Statement") dated May 1, 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.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY,
AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
2
<PAGE>
TABLE OF CONTENTS
Page
----
Financial Highlights B-
The Fund B-
Investment Objectives and Policies B-
Investment Risks B-
Performance Information B-
Investment Restrictions B-
Management B-
Sale and Redemption of Shares B-
Net Asset Values and Portfolio Valuation B-
Dividends and Capital Gain Distributions B-
Taxes B-
Organization and Capitalization of the Fund B-
Transfer Agent B-
Voting Rights B-
Appendix A B-
3
<PAGE>
FINANCIAL HIGHLIGHTS
These tables have been examined by whose reports thereon for the year ended
December 31, 1997 accompany the financial statements incorporated by reference
in the Statement and may be obtained by shareholders. Prior to 1997, acted as
the Fund's independent accountants and provided reports which accompany the
financial statements for those periods. The tables should be read in conjunction
with the financial statements and notes thereto. For further performance
information about the Fund, please refer to the Fund's annual report, which is
available free of charge.
LOOMIS SAYLES SMALL CAP SERIES
<TABLE>
<CAPTION>
Year Ended December 31,
May 2(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
------- ------- -------
Income From Investment Operations
Net Investment Income 0.14 0.85 1.05
Net Gains or Losses on Investments (both realized and
unrealized) (3.38) 26.93 35.03
------ ----- -----
Total From Investment Operations (3.24) 27.78 36.08
------ ------ -----
Less Distributions
Distributions From Net Investment Income (0.15) (0.78) (1.03)
Distributions From Net Realized Capital Gains 0.00 (4.81) (9.56)
---- ---- ----
Total Distributions (0.15) (5.59) (10.59)
---- ---- -----
Net Asset Value, End of the Period $ 96.61 $118.80 $144.29
======= ======= =======
Total Return (%) (3.23)(b) 28.88 30.67
Ratio of Operating Expenses to Average Net Assets (%)(d) 1.00 (c) 1.00 1.00
Ratio of Net Investment Income to Average Net Assets (%) 0.32 (c) 1.26 1.15
Portfolio Turnover Rate (%) 80 (c) 98 62
Average Commission Rate Paid (e) --- --- $0.0568
Net Assets, End of Period (000) $3,105 $27,741 $89,194
The Ratio of Operating Expenses to Average Net Assets without
giving effect to the voluntary expense limitation described in
Footnote (d) would have been (%) 2.31 (c) 1.91 1.29
</TABLE>
(a) Commencement of operations.
(b) Not computed on an annualized basis.
(c) Computed on an annualized basis.
(d) During the periods presented, the Series' adviser voluntarily agreed to
reduce its fees and, if necessary, to assume expenses of the Series in order
to limit the Series' expenses to an annual rate of 1.00% of the Series'
average daily net assets.
(e) For fiscal years beginning on or after September 1, 1995, a Series is
required to disclose its average commission rate per share for trades on
which commissions are charged. This rate generally does not reflect mark-
ups, mark-downs, or spreads on shares traded on a principal basis.
4
<PAGE>
MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES (a)
<TABLE>
<CAPTION>
Year Ended December 31,
October 31(b) -----------------------
to
December 31, 1994 1995 1996 1997
----------------- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.00 $ 10.23 $ 10.73
------ ------- -------
Income From Investment Operations
Net Investment Income 0.03 0.09 0.06
Net Gains or Losses on Investments (both realized and
unrealized) 0.23 0.53 0.68
---- ---- ----
Total From Investment Operations 0.26 0.62 0.74
---- ---- ----
Less Distributions
Distributions From Net Investment Income (0.02) (0.09) (0.02)
Distributions in Excess of Net Investment Income 0.00 (0.03) 0.00
Distributions From Net Realized Capital Gains 0.00 0.00 (0.16)
Distributions From Paid-In Capital (0.01) 0.00 0.00
------ ---- ----
Total Distributions (0.03) (0.12) (0.18)
------ ------ ------
Net Asset Value, End of the Period $10.23 $10.73 $11.29
====== ====== ======
Total Return (%) 2.60 (c) 6.03 6.67
Ratio of Operating Expenses to Average Net Assets (%)(e) 1.30 (d) 1.30 1.30
Ratio of Net Investment Income to Average Net Assets (%) 2.56 (d) 1.29 0.67
Portfolio Turnover Rate (%) 4 (d) 89 64
Average Commission Rate Paid (f) --- --- $0.0204
Net Assets, End of Period (000) $2,989 $16,268 $39,392
The Ratio of Operating Expenses to Average Net Assets without
giving effect to the voluntary expense limitation described in
Footnote (e) would have been (%) 5.38 (d) 3.12 1.66
</TABLE>
(a) On May 1, 1997, Morgan Stanley Asset Management Inc. ("MSAM") succeeded
Draycott Partners, Ltd. as investment subadviser to the Series.
(b) Commencement of operations.
(c) Not computed on an annualized basis.
(d) Computed on an annualized basis.
(e) Commencing November 1, 1994, TNE Advisers, Inc. agreed to pay operating
expenses of the Series in excess of an annual expense limit of 1.30% of
average assets, subject to the obligation of the Series to repay TNE
Advisers, Inc. such expenses in future years, if any, when the Series'
expenses fall below this stated expense limit; such deferred expenses may be
charged to the Series in a subsequent year to the extent that the charge
does not cause the total expenses in such subsequent year to exceed the
1.30% expense limit; provided, however, that the Series is not obligated to
repay any expense paid by TNE Advisers, Inc. more than two years after the
end of the fiscal year in which such expense was incurred.
(f) For fiscal years beginning on or after September 1, 1995, a Series is
required to disclose its average commission rate per share for trades on
which commissions are charged. This rate generally does not reflect mark-
ups, mark-downs, or spreads on shares traded on a principal basis.
5
<PAGE>
ALGER EQUITY GROWTH SERIES
<TABLE>
<CAPTION>
October 31(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
------ ----- ------
Income From Investment Operations
Net Investment Income 0.02 0.01 0.04
Net Gains or Losses on Investments (both realized and
unrealized) (0.44) 4.65 1.78
------ ---- ----
Total From Investment Operations (0.42) 4.66 1.82
------ ---- ----
Less Distributions
Distributions From Net Investment Income (0.02) (0.01) (0.04)
Distributions from Net Realized Capital Gains 0.00 (0.41) 0.00
---- ------ ----
Total Distributions (0.02) (0.42) (0.04)
------ ------ ------
Net Asset Value, End of the Period $9.56 $13.80 $15.58
===== ====== ======
Total Return (%) (4.20)(b) 48.80 13.17
Ratio of Operating Expenses to Average Net Assets (%)(d) 0.85 (c) 0.85 0.90
Ratio of Net Investment Income to Average Net Assets (%) 1.07 (c) 0.14 0.24
Portfolio Turnover Rate (%) 32 (c) 107 78
Average Commission Rate Paid (e) --- --- $0.0716
Net Assets, End of Period (000) $1,917 $46,386 $120,456
The Ratio of Operating Expenses to Average Net Assets without
giving effect to the voluntary expense limitation described in
Footnote (d) would have been (%) 2.74 (c) 2.45 0.90
</TABLE>
(a) Commencement of operations.
(b) Not computed on an annualized basis.
(c) Computed on an annualized basis.
(d) Commencing November 1, 1994, TNE Advisers, Inc. agreed to pay operating
expenses of the Series in excess of an annual expense limit of 0.85% of
average assets, subject to the obligation of the Series to repay TNE
Advisers, Inc. such expenses in future years, if any, when the Series'
expenses fall below this stated expense limit; such deferred expenses may be
charged to the Series in a subsequent year to the extent that the charge
does not cause the total expenses in such subsequent year to exceed the
0.85% expense limit; provided, however, that the Series is not obligated to
repay any expense paid by TNE Advisers, Inc. more than two years after the
end of the fiscal year in which such expense was incurred. Beginning
January 1, 1996 the annual expense limit was increased to 0.90% of average
net assets.
(e) For fiscal years beginning on or after September 1, 1995, a Series is
required to disclose its average commission rate per share for trades on
which commissions are charged. This rate generally does not reflect mark-
ups, mark-downs, or spreads on shares traded on a principal basis.
6
<PAGE>
CAPITAL GROWTH SERIES
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1988 1989 1990 (a) 1991
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net Asset value,
Beginning of the Year $231.33 $201.14 $ 260.25 $ 249.04
------- ------- -------- --------
Income From Investment
Operations
Net Investment Income 10.63 1.59 1.78 3.16
Net Gains or Losses on
Investments (both realized
and unrealized) (30.97) 60.11 (10.88) 130.75
------- ------- -------- --------
Total From Investment
Operations (20.34) 61.70 (9.10) 133.91
------- ------- -------- --------
Less distributions
Distributions From Net
Investment Income (9.55) (2.59) (2.11) (3.22)
Distributions From Net
Realized Capital Gains (0.30) 0.00 0.00 (31.93)
Distributions From Paid-in
Capital 0.00 0.00 0.00 (0.44)
------- ------- -------- --------
Total Distributions (9.85) (2.59) (2.11) (35.59)
------- ------- -------- --------
Net Asset Value, End of the
Year $201.14 $260.25 $ 249.04 $ 347.36
======= ======= ======== ========
Total Return (%) (8.8) 30.8 (3.5) 54.0
Ratio of Operating Expenses
to Average Net Assets(%) 0.75 0.72 0.73 0.70
Ratio of Net Investment
Income to Average Net
Assets (%) 6.20 1.21 0.93 1.22
Portfolio Turnover
Rate (%) 813 269 229 174
Average Commission Rate Paid (b) --- --- --- ---
Net Assets, End of
Period (000) $42,538 $90,377 $148,254 $343,965
</TABLE>
7
<PAGE>
CAPITAL GROWTH SERIES (continued)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------
1992 1993 1994 1995 1996 1997
-------- -------- -------- -------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Year $ 347.36 $ 322.23 $ 351.63 $ 312.30 $ 374.62
-------- -------- -------- -------- ----------
Income From Investment Operations
Net Investment Income 4.04 2.12 5.28 3.47 3.08
Net Gains or Losses on
Investments (both realized
and unrealized) (25.10) 46.21 (30.54) 114.91 74.80
Total From Investment Operations
(21.06) 48.33 (25.26) 118.38 77.88
-------- --------- -------- -------- ----------
Less distributions
Distributions From Net
Investment Income (4.07) (2.18) (5.15) (3.48) (3.08)
Distributions From Net Realized
Capital Gains 0.00 (16.75) (8.92) (52.58) (22.34)
Distributions From Paid-in
Capital 0.00 0.00 0.00 0.00 0.00
-------- -------- -------- -------- ----------
Total Distributions (4.07) (18.93) (14.07) (56.06) (25.42)
-------- -------- -------- -------- ----------
Net Asset Value, End of the Year $ 322.23 $ 351.63 $ 312.30 $ 374.62 $ 427.08
======== ======== ======== ======== ==========
Total Return (%) (6.05) 14.97 (7.07) 38.03 21.08
Ratio of Operating Expenses to
Average Net Assets(%) 0.70 0.68 0.67 0.71 0.69
Ratio of Net Investment Income
to Average Net Assets (%) 1.53 0.67 1.61 0.92 0.79
Portfolio Turnover Rate (%) 207 169 140 242 207
Average Commission Rate Paid (b) --- --- --- --- $ 0.0669
Net Assets, End of Period (000) $472,017 $644,384 $667,127 $921,444 $1,142,660
</TABLE>
(a) On March 1, 1990, the Capital Growth Management Division of Loomis, Sayles &
Company, Incorporated was reorganized into Capital Growth Management Limited
Partnership, which assumed management of the Series.
(b) For fiscal years beginning on or after September 1, 1995, a Series is
required to disclose its average commission rate per share for trades on
which commissions are charged. This rate generally does not reflect mark-
ups, mark-downs, or spreads on shares traded on a principal basis.
8
<PAGE>
DAVIS VENTURE VALUE SERIES
<TABLE>
<CAPTION>
Year Ended December 31,
October 31(a) -------------------------
to
December 31, 1994 1995 1996 1997
--------------------- -------- --------- ------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.00 $ 9.62 $ 13.10
------ ------- --------
Income From Investment Operations
Net Investment Income 0.03 0.10 0.13
Net Gains or Losses on Investments (both realized and
unrealized) (0.38) 3.68 3.26
------ ------- --------
Total From Investment Operations (0.35) 3.78 3.39
------ ------- --------
Less Distributions
Distributions From Net Investment Income (0.03) (0.10) (0.13)
Distributions From Net Realized Capital Gains 0.00 (0.20) (0.27)
------ ------- --------
Total Distributions (0.03) (0.30) (0.40)
------ ------- --------
Net Asset Value, End of the Period $ 9.62 $ 13.10 $ 16.09
====== ======= ========
Total Return (%) (3.50)(b) 39.28 25.84
Ratio of Operating Expenses to Average Net Assets (%)(d) 0.90 (c) 0.90 0.90
Ratio of Net Investment Income to Average Net Assets (%) 2.54 (c) 1.39 1.25
Portfolio Turnover Rate (%) 1 (c) 20 18
Average Commission Rate Paid (e) --- --- $ 0.0599
Net Assets, End of Period (000) $3,371 $35,045 $108,189
The Ratio of Operating Expenses to Average Net Assets without
giving effect to the voluntary expense limitation described in
Footnote (d) would have been (%) 3.97(c) 1.51 0.96
</TABLE>
(a) Commencement of operations.
(b) Not computed on an annualized basis.
(c) Computed on an annualized basis.
(d) Commencing November 1, 1994, TNE Advisers, Inc. agreed to pay operating
expenses of the Series in excess of an annual expense limit of 0.90% of
average assets, subject to the obligation of the Series to repay TNE
Advisers, Inc. such expenses in future years, if any, when the Series'
expenses fall below this stated expense limit; such deferred expenses may be
charged to the Series in a subsequent year to the extent that the charge
does not cause the total expenses in such subsequent year to exceed the
0.90% expense limit; provided, however, that the Series is not obligated to
repay any expense paid by TNE Advisers, Inc. more than two years after the
end of the fiscal year in which such expense was incurred.
(e) For fiscal years beginning on or after September 1, 1995, a Series is
required to disclose its average commission rate per share for trades on
which commissions are charged. This rate generally does not reflect mark-
ups, mark-downs, or spreads on shares traded on a principal basis.
9
<PAGE>
GOLDMAN SACHS MIDCAP VALUE SERIES (a)
<TABLE>
<CAPTION>
Year Ended December 31,
April 30(b) ----------------------------------
to
December 31, 1993 1994 1995 1996 1997
-------------------- -------- -------- -------- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period $100.00 $113.67 $112.77 $142.44
------- ------- ------- -------
Income From Investment Operations
Net Investment Income 0.18 0.59 0.42 0.11
Net Gains or Losses on Investments (both realized and
unrealized) 14.56 (0.89) 33.80 24.88
------- ------- ------- -------
Total From Investment Operations 14.74 (0.30) 34.22 24.99
------- ------- ------- -------
Less Distributions
Distributions From Net Investment Income (0.18) (0.60) (0.40) (0.13)
Distributions From Net Realized Capital Gains (0.67) 0.00 (4.15) (9.42)
Distributions From Paid-In Capital (0.22) 0.00 0.00 0.00
------- ------- ------- -------
Total Distributions (1.07) (0.60) (4.55) (9.55)
------- ------- ------- -------
Net Asset Value, End of the Period $113.67 $112.77 $142.44 $157.88
======= ======= ======= =======
Total Return (%) 14.74(c) (0.27) 30.35 17.58
Ratio of Operating Expenses to Average Net Assets (%)(e) 0.85 (d) 0.84 0.85 0.85
Ratio of Net Investment Income to Average Net Assets (%) 0.46 (d) 0.67 0.37 0.08
Portfolio Turnover Rate (%) 21 (d) 67 58 65
Average Commission Rate Paid (f) --- --- --- $0.0508
Net Assets, End of Period (000) $11,972 $25,622 $48,832 $82,667
The Ratio of Operating Expenses to Average Net Assets
without giving effect to the voluntary expense
limitation described in Footnote (e) would have been (%) 0.89(d) 0.84 1.06 0.92
</TABLE>
(a) On May 1, 1998, Goldman Sachs Asset Management ("GSAM") succeeded Loomis,
Sayles & Company, L.P. as investment subadviser to the Series.
(b) Commencement of operations.
(c) Not computed on an annualized basis.
(d) Computed on an annualized basis.
(e) Prior to May 1, 1998, the Series' adviser voluntarily agreed to bear
expenses (other than the advisory fees and any brokerage costs, interest,
taxes or extraordinary expenses) in excess of 0.15% of the Series' average
daily net assets. Commencing May 1, 1998, TNE Advisers, Inc. agreed to pay
operating expenses of the Series in excess of an annual expense limit of
0.90% of average assets, subject to the obligation of the Series to repay
TNE Advisers, Inc. such expenses in future years, if any, when the Series'
expenses fall below this stated expense limit; such deferred expenses may be
charged to the Series in a subsequent year to the extent that the charge
does not cause the total expenses in such subsequent year to exceed the
0.90% expense limit; provided, however, that the Series is not obligated to
repay any expense paid by TNE Advisers, Inc. more than two years after the
end of the fiscal year in which such expense was incurred.
(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.
10
<PAGE>
WESTPEAK GROWTH AND INCOME SERIES
<TABLE>
<CAPTION>
April 30(a) Year Ended December 31,
to --------------------------------------
December 31, 1993 1994 1995 1996 1997
-------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period $100.00 $112.32 $109.03 $141.31
------- ------- ------- -------
Income From Investment Operations
Net Investment Income 0.92 1.90 1.77 1.78
Net Gains or Losses on Investments (both realized
and unrealized) 13.33 (3.25) 37.91 23.69
----- ------ ----- -----
Total From Investment Operations 14.25 (1.35) 39.68 25.47
----- ------ ----- -----
Less Distributions
Distributions From Net Investment Income (0.92) (1.92) (1.71) (1.82)
Distributions From Net Realized Capital Gains (1.00) 0.00 (5.69) (13.19)
Distributions In Excess of Net Realized Capital Gains (0.01) 0.00 0.00 0.00
Distributions From Paid In Capital 0.00 (0.02) 0.00 0.00
---- ------ ---- ----
Total Distributions (1.93) (1.94) (7.40) (15.01)
------ ------ ------ -------
Net Asset Value, End of the Period $112.32 $109.03 $141.31 $151.77
======= ======= ======= =======
Total Return (%) 14.24(b) (1.21) 36.46 18.10
Ratio of Operating Expenses to Average Net Assets (%)(d) 0.85(c) 0.85 0.85 0.85
Ratio of Net Investment Income to Average Net Assets (%) 2.16(c) 2.30 1.63 1.40
Portfolio Turnover Rate (%) 49(c) 133 92 104
Average Commission Rate Paid (e) --- --- --- $0.0344
Net Assets, End of Period (000) $ 9,082 $22,934 $48,129 $82,330
The Ratio of Operating Expenses to Average Net
Assets without giving effect to the voluntary
expense limitation described in Footnote (d) would
have been (%) 0.94(c) 0.86 1.06 0.91
</TABLE>
(a) Commencement of operations.
(b) Not computed on an annualized basis.
(c) Computed on an annualized basis.
(d) During the periods presented, the Series' adviser voluntarily agreed to bear
the Series' expenses (other than the advisory fees and any brokerage costs,
interest, taxes or extraordinary expenses) of the Series in excess of 0.15%
of the Series' average daily net assets.
(e) For fiscal years beginning on or after September 1, 1995, a Series is
required to disclose its average commission rate per share for trades on
which commissions are charged. This rate generally does not reflect mark-
ups, mark-downs, or spreads on shares traded on a principal basis.
11
<PAGE>
WESTPEAK STOCK INDEX SERIES
Year Ended December 31,
-------------------------------------
1988 1989 1990 1991
------- ------- ------- -------
Net Asset Value, Beginning of the
Year $ 84.74 $ 94.36 $117.36 $108.49
------- ------- ------- -------
Income From Investment
Operations
Net Investment Income 3.48 3.55 3.76 3.56
Net Gains or Losses on
Investments (both realized and
unrealized) 10.39 24.83 (8.64) 29.29
------- ------- ------- -------
Total From Investment Operations 13.87 28.38 (4.88) 32.85
------- ------- ------- -------
Less distributions
Distributions From Net
Investment Income (3.44) (3.74) (3.82) (3.56)
Distributions From Net Realized
Capital Gains (0.81) (1.64) 0.00 (0.39)
Distributions in Excess of Net
Realized Capital Gains 0.00 0.00 0.00 0.00
Distributions From Paid-in Capital 0.00 0.00 (0.17) 0.00
------- ------- ------- -------
Total Distributions (4.25) (5.38) (3.99) (3.95)
------- ------- ------- -------
Net Asset Value, End of Period $ 94.36 $117.36 $108.49 $137.39
======= ======= ======= =======
Total Return (%) 16.3 30.2 (4.1) 30.4
Ratio of Operating Expenses to
Average Net Assets(%) 0.36 0.34 0.36 0.36
Ratio of Net Investment Income to
Average Net Assets (%) 3.92 3.31 3.36 2.86
Portfolio Turnover Rate (%) 4 52 1 2
Net Assets, End of
Period (000) $11,073 $15,501 $15,122 $20,496
12
<PAGE>
WESTPEAK STOCK INDEX SERIES (continued)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1992 1993* 1994 1995 1996 1997
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Year $137.39 $ 72.00 $ 76.48 $ 75.35 $100.09
------- ------- ------- ------- -------
Income From Investment
Operations
Net Investment Income 8.35 1.54 1.80 1.88 1.91
Net Gains or Losses on
Investments (both realized
and unrealized) 2.02 5.18 (0.92) 25.89 20.58
------- ------- ------- ------- -------
Total From Investment
Operations 10.37 6.72 0.88 27.77 22.49
------- ------- ------- ------- -------
Less distributions
Distributions From Net
Investment Income (8.35) (1.36) (1.82) (1.85) (1.93)
Distributions in Excess of
Net Investment Income 0.00 (0.18) 0.00 0.00 0.00
Distributions From Net
Realized Capital Gains (67.41) (0.55) (0.16) (1.18) (1.03)
Distributions in Excess of
Net Realized Capital Gains 0.00 (0.15) 0.00 0.00 0.00
Distributions From Paid-in
Capital 0.00 0.00 (0.03) 0.00 0.00
------- ------- ------- ------- -------
Total Distributions (75.76) (2.24) (2.01) (3.03) (2.96)
------- ------- ------- ------- -------
Net Asset Value, End of the
Year $ 72.00 $ 76.48 $ 75.35 $100.09 $119.62
======= ======= ======= ======= =======
Total Return (%) 7.30 9.72 1.14 36.88 22.47
Ratio of Operating Expenses
to Average Net Assets(%) 0.35 0.34 0.33 0.40 0.40
Ratio of Net Investment
Income to Average Net
Assets (%) 2.63 2.52 2.59 2.20 1.84
Portfolio Turnover
Rate (%) 17 12 2 5 4
Average Commission Rate Paid (c) --- --- --- --- $0.0309
Net Assets, End of
Period (000) $10,172 $28,817 $37,164 $58,671 $80,764
</TABLE>
13
<PAGE>
WESTPEAK STOCK INDEX SERIES (continued)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------
1991 (a) 1992 1993 1994 1995 1996 1997
-------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
The ratio of expenses
without giving effect
to the voluntary
expense limitations
described in Footnote
(b) would have been 0.54 0.50
</TABLE>
* Westpeak Investment Advisors, L.P. assumed responsibility for managing the
Series' portfolio on August 1, 1993.
(a) Commencement of operations.
(b) Beginning May 1, 1995, the Series' adviser has voluntarily agreed to bear
the Series' expenses (other than the advisory fees and any brokerage costs,
interest, taxes or extraordinary expenses) of the Series in excess of 0.15%
of the Series' average daily net assets.
(c) For fiscal years beginning on or after September 1, 1995, a Series is
required to disclose its average commission rate per share for trades on
which commissions are charged. This rate generally does not reflect
mark-ups, mark-downs, or spreads on shares traded on a principal basis.
14
<PAGE>
LOOMIS SAYLES BALANCED SERIES
<TABLE>
<CAPTION>
October 31(a) Year Ended December 31,
to -----------------------
December 31, 1994 1995 1996 1997
----------------- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.00 $9.94 $11.95
------ ----- ------
Income From Investment Operations
Net Investment Income 0.05 0.26 0.27
Net Gains or Losses on Investments (both realized and unrealized) (0.06) 2.20 1.73
------ ---- ----
Total From Investment Operations (0.01) 2.46 2.00
Less Distributions
Distributions From Net Investment Income (0.05) (0.26) (0.27)
Distributions in Excess of Net Realized Capital Gains 0.00 (0.19) (0.13)
---- ------ ------
Total Distributions (0.05) (0.45) (0.40)
------ ------ ------
Net Asset Value, End of the Period $9.94 $11.95 $13.55
===== ====== ======
Total Return (%) (0.10)(b) 24.79 16.91
Ratio of Operating Expenses to Average Net Assets (%)(d) 0.85 (c) 0.85 0.85
Ratio of Net Investment Income to Average Net Assets (%) 4.16 (c) 4.03 3.08
Portfolio Turnover Rate (%) 0 (c) 72 59
Average Commission Rate Paid (e) --- --- $0.0594
Net Assets, End of Period (000) $2,722 $18,823 $58,525
The Ratio of Operating Expenses to Average Net Assets
without giving effect to the voluntary expense limitation
described in Footnote (d) would have been (%) 3.73(c) 1.85 0.99
</TABLE>
(a) Commencement of operations.
(b) Not computed on an annualized basis.
(c) Computed on an annualized basis.
(d) Commencing November 1, 1994, TNE Advisers, Inc. agreed to pay operating
expenses of the Series in excess of an annual expense limit of 0.85% of
average assets, subject to the obligation of the Series to repay TNE
Advisers, Inc. such expenses in future years, if any, when the Series'
expenses fall below this stated expense limit; such deferred expenses may
be charged to the Series in a subsequent year to the extent that the
charge does not cause the total expenses in such subsequent year to exceed
the 0.85% expense limit; provided, however, that the Series is not
obligated to repay any expense paid by TNE Advisers, Inc. more than two
years after the end of the fiscal year in which such expense was incurred.
(e) For fiscal years beginning on or after September 1, 1995, a Series is
required to disclose its average commission rate per share for trades on
which commissions are charged. This rate generally does not reflect
mark-ups, mark-downs, or spreads on shares traded on a principal basis.
15
<PAGE>
BACK BAY ADVISORS MANAGED SERIES
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1988 1989 1990 1991
------------- ------------- -------------- ----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Year $96.62 $100.17 $114.65 $112.79
------ ------- ------- -------
Income From Investment
Operations
Net Investment Income 5.13 4.31 5.47 6.41
Net Gains or Losses on
Investments (both
realized and unrealized) 4.04 14.77 (1.81) 16.23
---- ----- ------ -----
Total From Investment
Operations 9.17 19.08 3.66 22.64
---- ----- ---- -----
Less distributions
Distributions From Net
Investment Income (5.24) (4.22) (5.38) (6.41)
Distributions From Net
Realized Capital Gains (0.38) (0.38) 0.00 (1.15)
Distributions From Paid-in
Capital 0.00 0.00 (0.14) 0.00
---- ---- ------ ----
Total Distributions (5.62) (4.60) (5.52) (7.56)
------ ------ ------ ------
Net Asset Value, End of
the Year $100.17 $114.65 $112.79 $127.87
======= ======= ======= =======
Total Return (%) 9.5 19.1 3.2 20.2
Ratio of Operating
Expenses to Average Net 0.64 0.57 0.57 0.55
Assets(%)
Ratio of Net Investment
Income to Average Net
Assets (%) 5.88 5.29 5.58 5.45
Portfolio Turnover
Rate (%) 1 1 1 36
Net Assets, End of
Period (000) $10,806 $23,622 $36,563 $49,995
</TABLE>
16
<PAGE>
BACK BAY ADVISORS MANAGED SERIES (continued)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997
------------ --------------- ------------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Year $127.87 $130.26 $137.18 $130.30 $163.52
------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Income 5.14 4.35 5.42 6.34 6.43
Net Gains or Losses on
Investments (both realized
and unrealized) 3.45 9.58 (6.92) 34.33 18.21
---- ---- ------ ----- -----
Total From Investment Operations
8.59 13.93 (1.50) 40.67 24.64
---- ----- ------ ----- -----
Less distributions
Distributions From Net
Investment Income (5.13) (4.36) (5.38) (6.34) (6.34)
Distributions in Excess of Net
Investment Income 0.00 0.00 0.00 (0.23) 0.00
Distributions From Net Realized
Capital Gains (1.07) (2.65) 0.00 (0.88) (11.45)
Distributions From Paid-in
Capital 0.00 0.00 0.00 0.00 0.00
---- ---- ---- ---- ----
Total Distributions (6.20) (7.01) (5.38) (7.45) (17.79)
------ ------ ------ ------ -------
Net Asset Value, End of the Year
$130.26 $137.18 $130.30 $163.52 $170.37
======= ======= ======= ======= =======
Total Return (%) 6.70 10.65 (1.11) 31.26 15.01
Ratio of Operating Expenses to
Average Net Assets(%) 0.54 0.53 0.54 0.64 0.62
Ratio of Net Investment Income
to Average Net Assets (%)
5.32 3.65 3.98 4.06 3.64
Portfolio Turnover
Rate (%) 36 22 76 51 72
Average Commission Rate Paid (b) --- --- --- --- $0.0318
Net Assets, End of
Period (000) $77,575 $121,339 $121,877 $147,536 $160,888
</TABLE>
(a) Commencement of operations.
(b) For fiscal years beginning on or after September 1, 1995, a Series is
required to disclose its average commission rate per share for trades on
which commissions are charged. This rate generally does not reflect
mark-ups, mark-downs, or spreads on shares traded on a principal basis.
17
<PAGE>
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES
<TABLE>
<CAPTION>
October 31(a) Year Ended December 31,
to
December 31, 1994 1995 1996 1997
----------------- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.00 $9.74 $10.85
------ ----- ------
Income From Investment Operations
Net Investment Income 0.12 0.58 0.51
Net Gains or Losses on Investments (both realized and unrealized) (0.26) 1.30 1.05
------ ---- ----
Total From Investment Operations (0.14) 1.88 1.56
------ ---- ----
Less Distributions
Distributions From Net Investment Income (0.12) (0.55) (0.60)
Distributions From Net Realized Capital Gains 0.00 (0.22) (0.19)
---- ------ ------
Total Distributions (0.12) (0.77) (0.79)
------ ------ ------
Net Asset Value, End of the Period $9.74 $10.85 $11.62
===== ====== ======
Total Return (%) (1.40)(b) 19.38 14.36
Ratio of Operating Expenses to Average Net Assets (%)(d) 0.85(c) 0.85 0.85
Ratio of Net Investment Income to Average Net Assets (%) 7.05(c) 8.39 7.79
Portfolio Turnover Rate (%) (a) 403(c) 202 176
Net Assets, End of Period (000) $3,450 $9,484 $35,808
The Ratio of Operating Expenses to Average Net Assets without
giving effect to the voluntary expense limitation described in
Footnote (d) would have been (%) 2.01(c) 2.44 1.19
</TABLE>
(a) Commencement of operations.
(b) Not computed on an annualized basis.
(c) Computed on an annualized basis.
(d) Commencing November 1, 1994, TNE Advisers, Inc. agreed to pay operating
expenses of the Series in excess of an annual expense limit of 0.85% of
average assets, subject to the obligation of the Series to repay TNE
Advisers, Inc. such expenses in future years, if any, when the Series'
expenses fall below this stated expense limit; such deferred expenses may
be charged to the Series in a subsequent year to the extent that the
charge does not cause the total expenses in such subsequent year to exceed
the 0.85% expense limit; provided, however, that the Series is not
obligated to repay any expense paid by TNE Advisers, Inc. more than two
years after the end of the fiscal year in which such expense was incurred.
18
<PAGE>
BACK BAY ADVISORS BOND INCOME SERIES
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
1988 1989 1990 1991
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Year $ 95.47 $92.75 $97.23 $97.61
-------- ------ ------ ------
Income From Investment
Operations
Net Investment Income 8.52 8.58 8.49 8.53
Net Gains or Losses on
Investments (both
realized and unrealized) (0.54) 2.81 (0.65) 8.90
------ ---- ------ ----
Total From Investment
Operations 7.98 11.39 7.84 17.43
---- ----- ---- -----
Less distributions
Distributions From Net
Investment Income (10.70) (6.91) (7.46) (9.47)
Distributions in Excess of
Net Investment Income 0.00 0.00 0.00 0.00
Distributions From Net
Realized Capital Gains 0.00 0.00 0.00 (2.13)
---- ---- ---- ------
Total Distributions (10.70) (6.91) (7.46) (11.60)
------- ------ ------ -------
Net Asset Value, End of
the Year $92.75 $97.23 $97.61 $103.44
====== ====== ====== =======
Total Return (%) 8.4 12.3 8.1 18.0
Ratio of Operating
Expenses to Average Net 0.47 0.45 0.46 0.45
Assets(%)
Ratio of Net Investment
Income to Average Net
Assets (%) 8.50 8.62 8.57 8.27
Portfolio Turnover
Rate (%) 104 69 106 193
Net Assets, End of
Period (000) $15,750 $26,156 $40,631 $49,369
</TABLE>
19
<PAGE>
BACK BAY ADVISORS BOND INCOME SERIES (continued)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------------------
1992 1993* 1994 1995 1996 1997
-------- -------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Year $103.44 $103.47 $106.14 $95.53 $108.67
-------- ------- ------- ------ -------
Income From Investment
Operations
Net Investment Income 7.96 5.70 7.05 7.34 7.72
Net Gains or Losses on
Investments (both
realized and unrealized) 0.51 7.38 (10.61) 12.85 (2.70)
---- ---- ------- ----- ------
Total From Investment
Operations 8.47 13.08 (3.56) 20.19 5.02
---- ----- ------ ----- ----
Less distributions
Distributions From Net
Investment Income (6.87) (6.20) (7.05) (7.05) (7.74)
Distributions In Excess of
Net Investment Income 0.00 (0.05) 0.00 0.00 0.00
Distributions From Net
Realized Capital Gains (1.57) (4.16) 0.00 0.00 (0.32)
------ ------ ---- ---- ------
Total Distributions (8.44) (10.41) (7.05) (7.05) (8.06)
------ ------- ------ ------ ------
Net Asset Value, End of
the Year $103.47 $106.14 $95.53 $108.67 $105.63
======= ======= ====== ======= =======
Total Return (%) 8.18 12.62 (3.36) 21.20 4.61
Ratio of Operating
Expenses to Average Net
Assets(%) 0.44 0.43 0.44 0.55 0.52
Ratio of Net Investment
Income to Average Net
Assets (%) 7.70 6.47 6.75 7.22 7.22
Portfolio Turnover
Rate (%) 71 177 82 73 98
Net Assets, End of
Period (000) $83,057 $131,242 $126,234 $162,712 $180,359
</TABLE>
* As of January 1, 1993, the Bond Income Series discontinued the use of
equalization accounting.
20
<PAGE>
SALOMON BROTHERS U.S. GOVERNMENT SERIES
<TABLE>
<CAPTION>
October 31(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
------ ----- ------
Income From Investment Operations
Net Investment Income 0.10 0.33 0.58
Net Gains or Losses on Investments (both realized and unrealized) (0.04) 1.16 (0.21)
------ ---- ------
Total From Investment Operations 0.06 1.49 0.37
---- ---- ----
Less Distributions
Distributions From Net Investment Income (0.10) (0.33) (0.56)
Distributions From Net Realized Capital Gains 0.00 (0.08) (0.02)
---- ------ ------
Total Distributions (0.10) (0.41) (0.58)
------ ------ ------
Net Asset Value, End of the Period $9.96 $11.04 $10.83
===== ====== ======
Total Return (%) 0.60(b) 15.02 3.31
Ratio of Operating Expenses to Average Net Assets (%)(d) 0.70(c) 0.70 0.70
Ratio of Net Investment Income to Average Net Assets (%) 5.70(c) 5.62 6.13
Portfolio Turnover Rate (%) 1,409(c) 415 388
Net Assets, End of Period (000) $2,012 $7,542 $13,211
The Ratio of Operating Expenses to Average Net Assets without
giving effect to the voluntary expense limitation
described in Footnote (d) would have been (%) 2.54 (c) 2.90 1.37
</TABLE>
(a) Commencement of operations.
(b) Not computed on an annualized basis.
(c) Computed on an annualized basis.
(d) Commencing November 1, 1994, TNE Advisers, Inc. agreed to pay operating
expenses of the Series in excess of an annual expense limit of 0.70% of
average assets, subject to the obligation of the Series to repay TNE
Advisers, Inc. such expenses in future years, if any, when the Series'
expenses fall below this stated expense limit; such deferred expenses may
be charged to the Series in a subsequent year to the extent that the charge
does not cause the total expenses in such subsequent year to exceed the
0.70% expense limit; provided, however, that the Series is not obligated to
repay any expense paid by TNE Advisers, Inc. more than two years after the
end of the fiscal year in which such expense was incurred.
21
<PAGE>
BACK BAY ADVISORS MONEY MARKET SERIES
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1988 1989 1990 1991
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Year $ 100.00 $100.00 $100.00 $100.00
--------- ------- ------- -------
Income From Investment
Operations
Net Investment Income 7.25 8.85 7.88 6.03
---- ---- ---- ----
Total From Investment
Operations 7.25 8.85 7.88 6.03
----
Less Distributions
Distributions From Net
Investment Income (7.25) (8.85) (7.88) (6.03)
------ ------ ------ ------
Total Distributions (7.25) (8.85) (7.88) (6.03)
------ ------ ------ ------
Net Asset Value, End of
the Year $100.00 $100.00 $100.00 $100.00
======= ======= ======= =======
Total Return (%) 7.4 9.2 8.2 6.2
Ratio of Operating
Expenses to Average Net 0.38 0.38 0.38
Assets(%)(a) 0.38
Ratio of Net Investment
Income to Average Net
Assets (%) 7.26 8.85 7.87 6.01
Net Assets, End of Period
(000) $38,929 $42,678 $60,071 $58,614
</TABLE>
22
<PAGE>
BACK BAY ADVISORS MONEY MARKET SERIES (continued)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997
------- ------- ------- ------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Year $100.00 $100.00 $100.00 $100.00 $100.00
------- ------- ------- ------- -------
Income From Investment
Operations
Net Investment Income 3.73 2.93 3.89 5.50 4.99
---- ---- ---- ---- ----
Total From Investment
Operations 3.73 2.93 3.89 5.50 4.99
---- ---- ---- ---- ----
Less distributions
Distributions From Net
Investment Income (3.73) (2.93) (3.89) (5.50) (4.99)
------ ------ ------ ------ ------
Total Distributions (3.73) (2.93) (3.89) (5.50) (4.99)
------ ------ ------ ------ ------
Net Asset Value, End of
the Year $100.00 $100.00 $100.00 $100.00 100.00
======= ======= ======= ======= ======
Total Return (%) 3.79 2.97 4.01 5.64 5.11
Ratio of Operating
Expenses to Average Net
Assets(%) 0.38 0.38 0.40 0.50 0.50
Ratio of Net Investment
Income to Average Net
Assets (%) 3.71 2.93 3.89 5.50 4.99
Net Assets, End of Period
(000) $61,607 $59,044 $73,960 $90,148 $116,999
The Ratio of Operating
Expenses to Average
Net Assets without
giving effect to the
voluntary expense
limitations described in
Footnote (a) would have
been --- --- --- 0.51 0.50
</TABLE>
(a) Beginning May 1, 1995, the Series' adviser has voluntarily agreed to bear
Series' expenses (other than advisory fees and any brokerage costs,
interest taxes, or extraordinary expenses) in excess of 0.15% of the
Series' average daily net assets.
23
<PAGE>
THE FUND
The Fund is a diversified, open-end management investment company organized in
1987 as a Massachusetts business trust under the laws of Massachusetts. The
Fund is a series type company with fourteen investment portfolios: the Loomis
Sayles Small Cap Series, the Morgan Stanley International Magnum Equity Series,
the Alger Equity Growth Series, the Capital Growth Series, the Goldman Sachs
Midcap Value Series, the Davis Venture Value Series, the Westpeak Growth and
Income Series, the Westpeak Stock Index Series, the Loomis Sayles Balanced
Series, the Back Bay Advisors Managed Series, the Salomon Brothers Strategic
Bond Opportunities Series, the Back Bay Advisors Bond Income Series, the Salomon
Brothers U.S. Government Series and the Back Bay Advisors Money Market Series.
Shares in the Fund are not offered directly to the general public and,
currently, are available only to separate accounts established by New England
Life Insurance Company ("NELICO"), Metropolitan Life Insurance Company
("MetLife") or subsidiaries of MetLife as an investment vehicle for variable
life insurance or variable annuity products, although not all Series may be
available to all separate accounts. In the future, however, such shares may be
offered to separate accounts of insurance companies unaffiliated with NELICO or
MetLife.
INVESTMENT OBJECTIVES AND POLICIES
Loomis Sayles Small Cap Series
The Loomis Sayles Small Cap Series' investment objective is long-term capital
growth from investments in common stocks or their equivalents.
Loomis, Sayles & Company, L.P. ("Loomis Sayles"), the Series' subadviser,
manages the Series by investing primarily in stocks of small capitalization
companies with good earnings growth potential that Loomis Sayles believes are
undervalued by the market. Normally the Series will invest 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, which have better than average growth rates below-average price/earnings
ratios and strong balance sheets and cash flow. Loomis Sayles seeks to build a
core small cap portfolio of solid growth company stocks, with a smaller emphasis
on special situations and turnarounds (companies that have experienced
significant business problems but which Loomis Sayles believes have favorable
prospects for recovery), as well as unrecognized stocks.
Under unusual market conditions as determined by Loomis Sayles, all or any
portion of the Series may be invested, for temporary, defensive purposes, in
short-term debt instruments or in cash. In addition, under normal conditions, a
portion of the Series' assets may be invested in short-term assets for liquidity
purposes or pending investment in other securities. Short-term investments may
include U.S. Government securities, certificates of deposit, commercial paper
and other obligations of corporate issuers rated in the top two rating
categories by a major rating agency or, if unrated, determined to be of
comparable quality by the subadviser, and repurchase agreements that are fully
collateralized by cash, U.S. Government securities or high-quality money market
instruments.
Morgan Stanley International Magnum Equity Series
The Morgan Stanley International Magnum Equity Series seeks long-term capital
appreciation by investing primarily in common and preferred stocks, convertible
securities, rights or warrants to purchase common stocks and other equity
securities of non-U.S. issuers, in accordance with the EAFE country (as defined
below) weightings determined by Morgan Stanley Asset Management Inc. ("MSAM"),
the Series' subadviser. The production of any current income is incidental to
this objective. The equity securities in which the Series may invest may be
denominated in any currency.
The countries in which the Series will 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.
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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 macroeconomics and political factors, MSAM develops fundamental
projections on comparative interest rates, currencies, corporate profits and
economic growth among the various regions represented in the EAFE Index. These
projections will be used to establish regional allocation strategies. Within
these regional allocations, MSAM then selects equity securities among issuers of
a region.
MSAM's approach in selecting among equity securities within a region
comprised of EAFE countries is oriented towards individual stock selection and
is value driven. MSAM identifies those equity securities which it believes to
be undervalued in relation to the issuer's assets, cash flow, earnings and
revenues. In selecting investments, MSAM utilizes the research of a number of
sources, including Morgan Stanley Capital International, an affiliate of the
subadviser located in Geneva, Switzerland. The Series' holdings are regularly
reviewed and subjected to fundamental analysis to determine whether they
continue to conform to MSAM's investment criteria. Equity securities which no
longer conform to such investment criteria will be sold. See "Investment Risks
- - Foreign Securities" below.
Alger Equity Growth Series
The Alger Equity Growth Series' investment objective is to seek long-term
capital appreciation. The Series' assets will be invested primarily in a
diversified, actively managed portfolio of equity securities, primarily of
companies having a total market capitalization of $1 billion or greater. These
companies may still be in the developmental stage, may be older companies that
appear to be entering a new stage of growth progress, or may be companies
providing products or services with a high unit volume growth rate.
The Series' subadviser, Fred Alger Management, Inc. ("Alger Management"),
seeks to achieve its objective by investing in equity securities, such as common
or preferred stocks or securities convertible into or exchangeable for equity
securities, including warrants and rights. Except during temporary defensive
periods, the Series invests at least 85% of its net assets in equity securities
and at least 65% of its total assets in equity securities of companies that, at
the time of purchase of the securities, have total market capitalization of $1
billion or greater; the Series may invest up to 35% of its total assets in
equity securities of companies that, at the time of purchase, have total market
capitalization of less than $1 billion. The Series anticipates that it will
invest primarily in companies whose securities are traded on domestic stock
exchanges or in the over-the-counter market.
The Series may invest in bank and thrift obligations, obligations issued or
guaranteed by the U.S. Government or by its agencies or instrumentalities,
foreign bank obligations and obligations of foreign branches of domestic banks,
and variable rate master demand notes.
The Series may also hold up to 15% of its net assets in money market
instruments and repurchase agreements, purchase restricted securities (including
Rule 144A securities (Rule 144A securities are privately offered securities that
can be resold only to certain qualified institutional buyers) and enter into
short sales "against the box."
The Series may lend securities it owns so long as such loans do not exceed
33 1/3% of the Series' total assets.
Capital Growth Series
The Capital Growth Series, which is advised by Capital Growth Management
Limited Partnership ("CGM"), seeks long-term growth of capital through
investment primarily in equity securities of companies whose earnings are
expected to grow at a faster rate than the United States economy. Most of the
Series' investments are normally in common stocks, although the Series may
invest in any type of equity securities. Equity securities are common stocks
and securities convertible into common stocks. The Series does not consider
current income as a significant factor in selecting its investments. Equity
securities are volatile investments, subject to price declines as well as
advances, and involve greater risks than some other investment media.
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Davis Venture Value Series
The Davis Venture Value Series' investment objective is growth of capital.
The Series' subadviser is Davis Selected Advisers, L.P. ("Davis Selected").
The Series will primarily invest in domestic common stocks that Davis
Selected believes have capital growth potential due to factors such as
undervalued assets or earnings potential, product development and demand,
favorable operating ratios, resources for expansion, management abilities,
reasonableness of market price, and favorable overall business prospects. The
Series will generally invest predominantly in equity securities of companies
with market capitalizations of at least $250 million. It may also invest in
issues with smaller capitalizations.
The Series may invest in foreign securities, and may hedge currency
fluctuation risks related thereto. The Series may invest in U.S. registered
investment companies that primarily invest in foreign securities, provided that
no such investment may cause more than 10% of the Series' total assets to be
invested in such companies. The Series may invest in restricted securities,
which may include Rule 144A securities.
The Series may write covered call options on its portfolio securities, but
currently intends to invest in such options only to the extent that less than 5%
of its net assets would be subject to the options.
The Series may lend securities it owns so long as such loans do not exceed 5%
of the Series' net assets.
Goldman Sachs Midcap Value Series
The Goldman Sachs Midcap Value Series seeks to provide investors with long-
term capital appreciation. Goldman Sachs Asset Management ("GSAM") acts as
subadviser and 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 of
between $500 million and $10 billion at the time of investment (based upon
shares available for trading on an unrestricted basis). 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 financial leverage and the sustainable return on capital invested in
the business. The Series may also purchase securities of issuers 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 S&P or Ba or lower by 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 against the box.
In addition to the techniques described above, the Series may with respect to
no more than 5% of its net assets, engage in the following techniques and
investments (i) warrants and stock purchase rights and (ii) custodial receipts.
Westpeak Growth and Income Series
The Series, for which Westpeak Investment Advisors, L.P. ("Westpeak") acts as
subadviser, seeks long-term total return (capital appreciation and dividend
income) through investment in equity securities. Emphasis will be given to both
undervalued securities ("value" style) and securities of companies with growth
potential ("growth" style). The Series will ordinarily invest substantially all
its assets in equity securities.
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The Series may engage in transactions in futures contracts solely for the
purpose of maintaining full exposure of the portfolio to the movements of broad
equity markets at times when the Series holds a cash position pending investment
in stocks or in anticipation of redemptions. See "Futures and Other Hedging
Transactions" under "Investment Risks" below and "Futures" in the Statement.
Westpeak Stock Index Series
The Series, for which Westpeak acts as subadviser, seeks to provide
investment results that correspond to the composite price and yield performance
of United States publicly traded common stocks. The Series seeks to achieve
this investment objective by attempting to duplicate the composite price and
yield performance of the Standard & Poor's 500 Composite Stock Price Index (the
"S&P 500 Index").
The S&P 500 Index fluctuates with changes in the market value of the stocks
included in the S&P 500 Index. An investment in the Series involves risks
similar to the risks of investing directly in the stocks included in the S&P 500
Index.
The Series seeks to duplicate the composite price and yield performance of
the S&P 500 Index at lower cost, without investing in all of the 500 stocks
included in the S&P 500 Index by selecting stocks having a combination of
characteristics similar to the omitted stocks and, in order to minimize
"tracking error," adjusting the proportions of the stocks included in the
Series' portfolio relative to each stock's weighting in the S&P 500 Index.
("Tracking error" is a statistical measure of the difference between the
investment results of the Series, before taking into account the Series'
expenses, and the investment results of the S&P 500 Index.)
Westpeak expects that, depending on its size, the Westpeak Stock Index Series
will ordinarily invest in approximately 300 of the 500 stocks included in the
S&P 500 Index. From time to time and over any period of time, this number may
be significantly higher or lower, depending on the size of the Series and on
Westpeak's judgment as to the appropriate number of stocks in which to invest in
order to approximate the composite price and yield performance of the S&P 500
Index. In the future, however, the Series may, without shareholder approval,
select a stock index other than the S&P 500 Index as the standard of comparison
for the Series' investments, or discontinue the practice of using a stock index
as the standard of comparison for the common stock portion of the Series'
portfolio. The Series may also engage in futures transactions to reduce
tracking error. See "Futures and Other Hedging Transactions" under "Investment
Risks" below and "Futures" in the Statement.
Loomis Sayles Balanced Series
The Series' investment objective is reasonable long-term investment return
from a combination of long-term capital appreciation and moderate current
income.
The Series, for which Loomis Sayles acts as subadviser, is "flexibly managed"
in that sometimes it invests more heavily in equity securities and at other
times it invests more heavily in fixed-income securities, depending on Loomis
Sayles' view of the economic and investment outlook. Most of the Series'
investments are normally in dividend-paying common stocks of recognized
investment quality that are expected to achieve growth in earnings and dividends
over the long term. Fixed-income securities include notes, bonds, non-
convertible preferred stock and money market instruments. The Series may invest
in adjustable rate mortgage securities, asset-backed securities, stripped
mortgage securities (see "STRIPs" in the Statement) and inverse floaters,
subject to a limit of 5% of the Series' assets for each of these instruments.
The Series may invest in securities rated BB or Ba or lower by Standard & Poor's
Ratings Group ("Standard & Poor's" or "S&P") or Moody's Investors Service, Inc.
("Moody's") (or in unrated securities that Loomis Sayles determines to be of
comparable quality). During the fiscal year ended December 31, 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 assets were invested in fixed-income securities rated below this level.
The Series invests at least 25% of its assets in fixed-income senior securities
and, under normal market conditions, more than 50% of its assets in equity
securities. The Series also may invest in foreign securities. See "Investment
Risks -- Foreign Securities" below.
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Back Bay Advisors Managed Series
The investment objective of the Back Bay Advisors Managed Series is to
provide a favorable total investment return through investment in a diversified
portfolio of common stocks and fixed-income securities. These investments will
be made in proportions that Back Bay Advisors, L.P. ("Back Bay Advisors"), the
Series' subadviser, deems appropriate for an investor who wishes to invest in a
portfolio containing a diversified mix of assets.
It is expected that more often than not the investment portfolio of the
Series will contain a higher proportion of common stocks than of notes and
bonds, and a higher proportion of notes and bonds than of money market
instruments. However, Back Bay Advisors will make variations in the proportions
of each investment category in accordance with its assessment of the outlook for
the economy and the financial markets and its judgment about the relative
attractiveness of each asset type in light of economic conditions. The Series
may also engage in futures transactions to manage its portfolio exposure to the
risks of investment in common stocks or notes and bonds. The Series will engage
in futures transactions only to the extent allowed by state law and regulations.
See "Investment Risks -- Futures and Other Hedging Transactions" below and
"Futures" in the Statement.
The investment practices with respect to the common stock portion of the
Series center upon selecting a portfolio of securities, drawn from the S&P 500,
which taken as a group can be characterized as high capitalization growth
issues. A proprietary quantitative model is used to achieve an industry sector-
neutral investment approach. In addition, as conditions warrant, a portion of
the stock portfolio may be invested in "value" situations, as identified by Back
Bay Advisors' quantitative model. In the future, however, the Series may,
without shareholder approval, select a stock index other than the S&P 500 Index
as the standard of comparison for the Series' common stock investments, or
discontinue the practice of using a stock index as the standard of comparison
for the common stock portion of the Series' portfolio. The Series may invest a
limited portion of its assets in securities of foreign issuers and may invest in
convertible securities. See "Investment Risks -- Foreign Securities" below.
The fixed-income portion of the Series' portfolio will be invested in bonds
of the types in which the Back Bay Advisors Bond Income Series is permitted to
invest (see below). These may include securities rated BB or lower by S&P or Ba
or lower by Moody's (or unrated but determined to be of comparable quality by
Back Bay Advisors) which are considered high yield, high risk securities and are
commonly known as "junk bonds." The Series will acquire no security rated below
B at the time of investment (or unrated but determined to be of comparable
quality by Back Bay Advisors). If a security held by the Series is downgraded
below B, Back Bay Advisors will determine at that time whether the Series will
continue to hold the security, taking into account the current conditions.
During the fiscal year ended December 31, 1997, ___% of the average month-end
net assets of the Series were invested in fixed-income securities rated in the
rating category (BB or Ba) just below investment grade and no assets were
invested in fixed-income securities rated below this level.
Salomon Brothers Strategic Bond Opportunities Series
The investment objective of Salomon Brothers Strategic Bond Opportunities
Series is to seek a high level of total return consistent with preservation of
capital.
Based upon the assessment of Salomon Brothers Asset Management Inc ("SBAM"),
subadviser to the Series, of the relative risks and opportunities available in
various market segments, assets will be allocated among U.S. Government
obligations, mortgage backed securities, domestic and foreign corporate debt and
sovereign debt securities rated investment grade (BBB or higher by S&P or Baa or
higher by Moody's), or if unrated, deemed to be of comparable quality in the
subadviser's judgment, and domestic and foreign corporate debt and sovereign
debt securities rated below investment grade. The Series may invest in fixed
and floating rate loans ("Loans") arranged through private negotiations between
a foreign sovereign entity and one or more financial institutions, in the form
of participation in such Loans and assignments of all or a portion of such loans
from third parties. See "Investment Risks--Loan Participations and Assignments"
below.
Depending on market conditions, the Series may invest without limit in
securities rated below investment grade, which involve significantly greater
risks, including price volatility and risk of default in the payment of interest
and principal, than investments in higher-quality securities. Although the
Series' subadviser does not anticipate investing in excess of 75% of the Series'
assets in domestic and developing country debt securities that are rated below
investment grade, the Series may invest a greater percentage in such securities
when, in the opinion of the subadviser, the yield available from such securities
outweighs their additional risks. Certain of the debt securities in which the
Series may invest may be rated as low as "C" by
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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, ___% 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 ___% 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 the subadviser anticipates that under certain market
conditions it will, invest up to 100% of its assets in foreign securities,
including Brady Bonds. Brady Bonds are debt obligations created through the
exchange of commercial bank loans for new obligations under a plan introduced by
former U.S. Treasury Secretary Nicholas Brady. See "Investment Risks--High
Yield/High Risk Foreign Sovereign Debt Securities" below. There is no limit on
the value of the Series' assets that may be invested in the securities of any
one country or in assets denominated in any one country's currency.
The Series may also invest in debt obligations issued or guaranteed by a
foreign sovereign government or one of its agencies or political subdivisions
and debt obligations issued or guaranteed by supranational entities.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the "World Bank"), the European Coal and Steel Community, the Asian
Development Bank and the Inter-American Development Bank. Such supranational
issued instruments may be denominated in multi-national currency units.
The Series currently intends to invest substantially all of its assets in
fixed-income securities. In order to maintain liquidity, the Series may invest
up to 20% of its assets in high-quality short-term money market instruments.
The Series' subadviser has the discretion to select the range of maturities
of the various fixed-income securities in which the Series will invest. The
weighted average life of the Series may vary substantially from time to time
depending on economic and market conditions.
The Series may purchase and sell (or write) exchange-listed and over-the-
counter put and call options on securities, financial futures contracts, fixed-
income indices and other financial instruments, enter into financial futures
contracts, enter into interest rate transactions and enter into currency
transactions. Interest rate transactions may take the form of swaps, structured
notes, caps, floors and collars, and currency transactions may take the form of
currency forward contracts, currency futures contracts, currency swaps and
options on currencies or currency futures contracts. See "Futures and Other
Hedging Transactions" under "Investment Risks" below and "Futures" in the
Statement.
The Series may lend securities it owns so long as such loans do not represent
more than 20% of the Series' total assets.
Back Bay Advisors Bond Income Series
The investment objective of the Series is to provide a high level of current
income consistent with protection of capital and moderate investment risk
through investment primarily in U.S. Government and corporate bonds. In
general, fixed-income securities, such as the bonds in which the Series may
invest, are subject to credit risk (the risk that the obligor will default in
the payment of principal and/or interest) and to market risk (the risk that the
market value of the securities will change as a result of changes in market
rates of interest). The Series may also invest in convertible securities. See
"Investment Risks--Convertible Securities" below.
At least 80% of the Series' assets will consist of securities rated AAA, AA,
A or BBB by S&P or Aaa, Aa, A or Baa by Moody's, or unrated but determined by
Back Bay Advisors, the Series' subadviser, to be of comparable quality to
securities in those rating categories. The Series may not invest more than 10%
of its total net assets in obligations of foreign
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issuers. The Series will invest in these securities only when Back Bay Advisors
believes the associated risks are minimal. See "Investment Risks--Foreign
Securities" below.
Up to 20% of the Series' assets may be invested in securities rated BB or
lower by S&P or Ba or lower by Moody's at the time of investment. During the
fiscal year ended December 31, 1997, ____% of the average month-end net assets
of the Series were invested in fixed-income securities rated in the rating
category (BB or Ba) just below investment grade, and no assets were invested in
fixed-income securities rated below this level. Securities rated BB or lower by
S&P or Ba or lower Moody's (or unrated but determined to be of comparable
quality by Back Bay Advisors) are considered high yield, high risk securities
and are commonly known as "junk bonds." The Series will not invest in any
securities rated below B at the time of investment (or unrated securities that
Back Bay Advisors determines to be of comparable quality). If a security held by
the Series is downgraded below B, Back Bay Advisors will determine at that time
whether the Series will continue to hold the security, taking into account the
current conditions. See Appendix A for more complete information on portfolio
composition.
The average maturity of the Back Bay Advisors Bond Income Series' portfolio
will usually be between five and fifteen years.
Salomon Brothers U.S. Government Series
The Salomon Brothers U.S. Government Series' investment objective is to
provide a high level of current income consistent with preservation of capital
and maintenance of liquidity.
The Series seeks to achieve its objective by investing primarily in debt
obligations (including mortgage backed securities) issued or guaranteed by the
U.S. Government or its agencies, authorities or instrumentalities or derivative
securities (such as collateralized mortgage obligations) backed by such
securities.
At least 80% of the total assets of the Series will be invested in:
(1) mortgage backed securities guaranteed by the Government National
Mortgage Association ("GNMA") which are supported by the full faith and
credit of the U.S. Government. Such securities entitle the holder to receive
all interest and principal payments when due, whether or not payments are
actually made on the underlying mortgages;
(2) U.S. Treasury obligations;
(3) debt obligations issued or guaranteed by agencies or instrumentalities
of the U.S. Government which are backed by their own credit but are not
necessarily backed by the full faith and credit of the U.S. Government;
(4) mortgage-related securities guaranteed by agencies or
instrumentalities of the U.S. Government which are supported by their own
credit but not the full faith and credit of the U.S. Government, such as the
Federal Home Loan Mortgage Corporation and Federal National Mortgage
Association ("FNMA"), and
(5) collateralized mortgage obligations issued by private issuers for
which the underlying mortgage backed securities serving as collateral are
backed (i) by the credit of the U.S. Government agency or instrumentality
which issues or guarantees the mortgage backed securities, or (ii) by the
full faith and credit of the U.S. Government.
Under normal market conditions, at least 65% of the Series' total assets will
be invested in securities issued or guaranteed by the U.S. Government or an
agency, authority or instrumentality thereof. For purposes of this policy,
securities that are not issued or guaranteed by the U.S. Government or an
agency, authority or instrumentality will not count toward the 65% minimum, even
if they are backed by mortgages (or other collateral) that are so guaranteed.
Any guarantee of the securities in which the Series invests runs only to
principal and interest payments on the securities and not to the market value of
such securities or the principal and interest payments on the underlying
mortgages. In addition, the guarantee runs to the portfolio securities held by
the Series and not to the purchase of shares of the Series.
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.
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Up to 20% of the total assets of the Series may be invested in marketable
debt securities of domestic issuers and of foreign issuers (payable in U.S.
dollars) rated at the time of purchase Baa or higher by Moody's or BBB or higher
by S&P, or, if unrated, deemed by SBAM to be of comparable quality, convertible
securities (including those issued in the Euromarket), securities carrying
warrants to purchase equity securities and privately placed debt securities.
The Series may lend securities it owns so long as such loans do not represent
more than 20% of the Series' total assets.
Back Bay Advisors Money Market Series
The Series seeks the highest possible level of current income consistent with
preservation of capital through investment in a managed portfolio of high
quality money market instruments including: (1) obligations backed by the full
faith and credit of the United States Government, such as bills, notes and bonds
issued by the U.S. Treasury or by such government agencies as the Farmers' Home
Administration or the Small Business Administration; (2) other obligations
issued or guaranteed by the United States Government or its agencies,
authorities or instrumentalities, such as obligations of the Tennessee Valley
Authority, Federal Land Banks and FNMA (together with full faith and credit
obligations, "U.S. Government Securities"); (3) commercial paper and other
corporate debt obligations rated in the highest rating category by S&P or
Moody's or, if unrated, of comparable quality as determined by Back Bay
Advisors, the Series' subadviser, under guidelines approved by the Fund's
Trustees; (4) repurchase agreements relating to any of the above and (5)
obligations of banks or savings and loan associations (such as bankers'
acceptances and certificates of deposit, including Eurodollar obligations of
foreign branches of U.S. banks and dollar denominated obligations of U.S. and
United Kingdom branches of foreign banks) whose net assets exceed $100,000,000;
The Series may invest up to 100% of its assets in certificates of deposit,
bankers' acceptances and other bank obligations.
All the Series' money market instruments mature in less than 397 days and its
dollar-weighted average portfolio maturity is 90 days or less. The Series
calculates the maturity of repurchase agreements by reference to the repurchase
date, not by reference to the maturity of the underlying security.
By investing only in high quality, short-term securities, the Series seeks to
minimize credit risk and market risk. Credit risk is the risk that the obligor
will default in the payment of principal and/or interest. In a repurchase
agreement transaction, credit risk relates to the performance by the other party
of its obligation to repurchase the underlying security from the Series. If the
other party defaults on that obligation, the Series may face various delays and
risks of loss. Market risk is the risk that the market value of the securities
will change as a result of changes in market rates of interest. The Series
expects that those changes will be relatively small and that the Series will be
able to maintain the net asset value of its shares at a constant level of $100,
although this cannot be assured.
The Eurodollar obligations of foreign branches of U.S. banks and U.S. and
United Kingdom branches of foreign banks in which the Series may invest may be
subject to certain risks which do not apply to investments in obligations of
domestic branches of U.S. banks. These risks may relate to foreign economic,
political and legal developments and to the fact that foreign banks and foreign
branches of U.S. banks may be subject to different regulatory requirements.
Additional Information
Except for the investment objective of the Loomis Sayles Small Cap, Capital
Growth, Westpeak Growth and Income, Westpeak Stock Index, Back Bay Advisors
Managed, Back Bay Advisors Bond Income and Back Bay Advisors Money Market
Series, or except as otherwise explicitly stated in this Prospectus or the
Statement, each Series' investment policies may be changed at any time without
shareholder approval.
Equity securities are securities that represent an ownership interest (or the
right to acquire such an interest) in a company, and include common and
preferred stocks and securities exercisable for or convertible into common or
preferred stocks (such as warrants, convertible debt securities and convertible
preferred stock).
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The Loomis Sayles Small Cap, Morgan Stanley International Magnum Equity,
Alger Equity Growth, Capital Growth, Davis Venture Value, Goldman Sachs Midcap
Value, Westpeak Growth and Income and Westpeak Stock Index Series seek to attain
their objectives by normally investing their assets primarily in equity
securities. When the particular Series' adviser or subadviser deems it
appropriate, however, any of these Series may, for temporary defensive purposes,
hold all or a substantial portion of its assets in cash or fixed-income
investments, including U.S. Government obligations, investment grade (and
comparable unrated) corporate bonds or notes, money market instruments, bankers
acceptances and repurchase agreements. In addition, the Morgan Stanley
International Magnum Equity Series may invest temporarily in foreign government,
agency or corporate debt obligations and any other instruments denominated in
any currency issued by international development agencies. No estimate can be
made as to when or for how long any Series will employ defensive strategies.
INVESTMENT RISKS
. Equity Securities (Loomis Sayles Small Cap, Morgan Stanley International
Magnum Equity, Alger Equity Growth, Capital Growth, Davis Venture Value,
Goldman Sachs Midcap Value, Westpeak Growth and Income , Westpeak Stock Index,
Loomis Sayles Balanced and Back Bay Advisors Managed Series)
Equity securities are more volatile and more risky than some other forms of
investment. Therefore, the value of your investment in a Series may sometimes
decrease instead of increase. Investments in companies with relatively small
capitalization may involve greater risk than is usually associated with more
established companies. These companies often have sales and earnings growth
rates which exceed those of companies with larger capitalization. Such growth
rates may in turn be reflected in more rapid share price appreciation. However,
companies with smaller capitalization often have limited product lines, markets
or financial resources and they may be dependent upon a relatively small
management group. The securities may have limited marketability and may be
subject to more abrupt or erratic movements in price than securities of
companies with larger capitalization or the market averages in general. The net
asset value of a Series that invests in companies with smaller capitalization,
therefore, may fluctuate more widely than market averages.
. Convertible Securities (Morgan Stanley International Magnum Equity, Alger
Equity Growth, Capital Growth, Goldman Sachs Midcap Value, Loomis Sayles
Balanced, Back Bay Advisors Managed, Salomon Brothers Strategic Bond
Opportunities and Back Bay Advisors Bond Income Series)
Convertible securities include debt securities or preferred stock that are
convertible into stock as well as other securities, such as warrants, that
provide an opportunity for equity participation. Because convertible securities
can be converted into equity securities, their values will normally increase or
decrease as the values of the underlying equity securities increase or decrease.
The movements in the prices of convertible securities, however, may be smaller
than the movements in the value of the underlying equity securities.
Convertible debt and preferred stock usually provide a higher yield than the
underlying equity securities, however, so that the price decline of a
convertible security may sometimes be less substantial than that of the
underlying equity securities. The value of convertible securities that pay
dividends or interest, like the value of other fixed-income securities,
generally fluctuates inversely with changes in interest rates. Warrants have no
voting rights, pay no dividends and have no rights with respect to the assets of
the corporation issuing them. They do not represent ownership of the securities
for which they are exercisable, but only the right to buy such securities at a
particular price.
. Fixed-Income Securities (All Series)
Fixed-income securities include a broad array of short, medium and long term
obligations issued by the U.S. or foreign governments, government or
international agencies and instrumentalities, and corporate issuers of various
types. Some fixed-income securities represent uncollateralized obligations of
their issuers; in other cases, the securities may be backed by specific assets
(such as mortgages or other receivables) that have been set aside as collateral
for the issuer's obligation. Fixed-income securities generally involve an
obligation of the issuer to pay interest or dividends on either a current basis
or at the maturity of the security, as well as the obligation to repay the
principal amount of the security at maturity.
Fixed-income securities involve both credit risk and market risk. Credit risk
is the risk that the security's issuer will fail to fulfill its obligation to
pay interest, dividends or principal on the security. Market risk is the risk
that the value of the security will fall because of changes in market rates of
interest. Except to the extent values are affected by other factors
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such as developments relating to a specific issuer, generally the value of a
fixed-income security can be expected to rise when interest rates decline and
conversely, the value of such a security can be expected to fall when interest
rates rise. Some fixed-income securities also involve prepayment or call risk.
This is the risk that the issuer will repay a Series the principal on the
security before it is due, thus depriving the Series of a favorable stream of
future interest or dividend payments. In addition, many fixed-income securities
contain call or buy-back features that permit their issuers to call or
repurchase the securities from their holders. Such securities may present risks
based on payment expectations. Although a Series would typically receive a
premium if an issuer were to redeem a security, if an issuer were to exercise a
"call option" and redeem the security during times of declining interest rates,
a Series may realize a capital loss on its investment if the security was
purchased at a premium and a Series may be forced to replace the called security
with a lower yielding security.
The short-term and medium-term fixed-income securities in which the Morgan
Stanley International Magnum Equity Series may invest consists of (a)
obligations of governments, agencies or instrumentalities of any member state of
the Organization for Economic Cooperation and Development ("OECD"), including
the United States; (b) bank deposits and bank obligations (including
certificates of deposit, time deposits and bankers' acceptances) of banks
organized under the laws of any member states of the OECD, including the United
States, denominated in any currency; (c) finance company and corporate
commercial paper and other short-term corporate debt obligations of corporations
organized under the laws of any member states of the OECD, including the United
States, meeting the Series' credit quality standards, provided that no more than
20% of the Series' assets is invested in any one of such issuers. The short-
term and medium-term securities in which the Series may invest will be rated
investment grade, or if unrated, determined to be of comparable quality by MSAM.
Because interest rates vary, it is impossible to predict the income for any
particular period of a Series that invests in fixed-income securities.
Fluctuations in the value of a Series' investments in fixed-income securities
will cause a Series' net asset value to increase or decrease.
. Lower Rated Fixed-Income Securities (Goldman Sachs Midcap Value, Loomis Sayles
Balanced, Back Bay Advisors Managed, Salomon Brothers Strategic Bond
Opportunities and Back Bay Advisors Bond Income Series)
Fixed-income securities rated BB or lower by S&P or Ba or lower by Moody's (and
comparable unrated securities) are of below "investment grade" quality. Lower
quality fixed-income securities generally provide higher yields, but are subject
to greater credit and market risk than higher quality fixed-income securities.
Lower quality fixed-income securities are considered predominantly speculative
with respect to the ability of the issuer to meet principal and interest
payments. Achievement of the investment objective of a mutual fund investing in
lower quality fixed-income securities may be more dependent on the Series'
subadviser's own credit analysis than for a fund investing in higher quality
bonds. The market for lower quality fixed-income securities may be more
severely affected than some other financial markets by economic recession or
substantial interest rate increases, by changing public perceptions of this
market or by legislation that limits the ability of certain categories of
financial institutions to invest in these securities. In addition, the
secondary market may be less liquid for lower rated fixed-income securities.
This lack of liquidity at certain times may affect the valuation of these
securities and may make the valuation and sale of these securities more
difficult. Securities of below investment grade quality are considered high
yield, high risk securities and are commonly known as "junk bonds." For more
information, including a detailed description of the ratings assigned by S&P and
Moody's, please refer to "Appendix B--Ratings of Securities."
. Mortgage-Related Securities (Loomis Sayles Balanced, Back Bay Advisors
Managed, Salomon Brothers Strategic Bond Opportunities, Back Bay Advisors Bond
Income and Salomon Brothers U.S. Government Series)
Mortgage-related securities, such as GNMA or FNMA certificates, differ from
traditional debt securities. Among the major differences are that interest and
principal payments are made more frequently, usually monthly, and that principal
may be prepaid at any time because the underlying mortgage loans generally may
be prepaid at any time. As a result, if a Series purchases these assets at a
premium, a faster-than-expected prepayment rate will reduce yield to maturity,
and a slower-than-expected prepayment rate will have the opposite effect of
increasing yield to maturity. If a Series purchases mortgage-related securities
at a discount, faster-than-expected prepayments will increase, and slower-than-
expected prepayments will reduce, yield to maturity. Prepayments, and resulting
amounts available for reinvestment by the Series, are likely to be greater
during a period of declining interest rates and, as a result, are likely to be
reinvested at lower interest rates.
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Accelerated prepayments on securities purchased at a premium may result in a
loss of principal if the premium has not been fully amortized at the time of
prepayment. When interest rates rise, the value and liquidity of mortgage-backed
securities may decline sharply and generally will decline more than would be the
case with other fixed-income securities. However, because of the prepayment
feature, the value of mortgage-backed securities may not increase as much as
other fixed-income securities when interest rates decline.
. Collateralized Mortgage Obligations (Loomis Sayles Balanced, Back Bay Advisors
Managed, Salomon Brothers Strategic Bond Opportunities, Back Bay Advisors Bond
Income and Salomon Brothers U.S. Government Series)
A collateralized mortgage obligation ("CMO") is a debt security collateralized
by a portfolio of mortgages or mortgage securities held under a trust indenture.
In some cases, the underlying mortgages or mortgage securities are issued or
guaranteed by the U.S. Government or an agency or instrumentality thereof, but
the obligations purchased by a Series will in many cases not be so issued or
guaranteed. The issuer's obligation to make interest and principal payments is
secured by the underlying portfolio of mortgages or mortgage securities. CMOs
are issued with a number of classes or series which have different maturities
and which may represent interests in some or all of the interest or principal on
the underlying collateral or a combination thereof. In the event of sufficient
early prepayments on such mortgages, the class or series of CMO first to mature
generally will be retired prior to its maturity. The early retirement of a
particular class or series of CMO held by a Series would have the same effect as
the prepayment of mortgages underlying a mortgage pass-through security.
. "Stripped" Mortgage Securities (Salomon Brothers Strategic Bond Opportunities
and Salomon Brothers U.S. Government Series)
"Stripped" mortgage securities are derivative multi-class mortgage securities.
"Stripped" mortgage securities may be issued by agencies or instrumentalities of
the U.S. Government or by private originators of, or investors in, mortgage
loans, including savings and loans, mortgage banks, commercial banks or
investment banks. Stripped mortgage securities are usually structured with two
classes that receive different proportions of the interest and principal
distribution on a pool of mortgage assets. In some cases, one class will
receive all of the interest (the interest-only or "IO" class), while the other
class will receive all of the principal (the principal-only or "PO" class).
Stripped mortgage securities have greater market volatility than other types of
mortgage securities. The yield to maturity on IOs and POs and other mortgage-
backed securities that are purchased at a substantial premium or discount
generally are sensitive to changes in prevailing interest rates and to the rates
of principal payments (including prepayment) on the underlying mortgage assets.
If the underlying mortgage assets experience greater than anticipated payments
of principal, the Series may fail to recoup fully its investments in IOs. The
staff of the SEC has indicated that it views stripped mortgage securities as
illiquid. Until further clarification of the matter is provided by the staff,
each Series will treat its investments in stripped mortgage securities as
illiquid, and as such, these investments, together with any other illiquid
investments, will not exceed 15% of a Series' net assets.
. Adjustable Rate Mortgage Securities (Loomis Sayles Balanced, Salomon Brothers
Strategic Bond Opportunities and Salomon Brothers U.S. Government Series)
An adjustable rate mortgage security ("ARM"), like a traditional mortgage
security, is an interest in a pool of mortgage loans that provides investors
with payments consisting of both principal and interest as mortgage loans in the
underlying mortgage pool are paid off by the borrowers. Unlike fixed rate
mortgage securities, ARMs are collateralized by or represent interests in
mortgage loans with variable rates of interest. These interest rates are reset
at periodic intervals, usually by reference to some interest rate index or
market interest rate. Although the rate adjustment feature may act as a buffer
to reduce sharp changes in the value of adjustable rate securities, these
securities are still subject to changes in value based on changes in market
interest rates or changes in the issuer's creditworthiness. Because the interest
rates are reset only periodically, changes in the interest rate on ARMs may lag
changes in prevailing market interest rates. Also, some ARMs (or the underlying
mortgages) are subject to caps or floors that limit the maximum change in
interest rate during a specified period or over the life of the security. As a
result, changes in the interest rate on an ARM may not fully reflect changes in
prevailing market interest rates during certain periods. Because of the
resetting of interest rates, ARMs are less likely than non-adjustable rate
securities of comparable quality and maturity to increase significantly in value
when market interest rates fall.
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. Asset Backed Securities (Loomis Sayles Balanced, Salomon Brothers Strategic
Bond Opportunities and Salomon Brothers U.S. Government Series)
The securitization techniques used to develop mortgage securities are also being
applied to a broad range of other assets. Through the use of trusts and special
purpose corporations, automobile and credit card receivables are being
securitized in pass-through structures similar to mortgage pass-through
structures or in a pay-through structure similar to the CMO structure.
Generally the issuers of asset backed bonds, notes or pass-through certificates
are special purpose entities and do not have any significant assets other than
the receivables securing such obligations. In general, the collateral
supporting asset backed securities is of shorter maturity than mortgage loans.
Instruments backed by pools of receivables are similar to mortgage-backed
securities in that they are subject to unscheduled prepayments of principal
prior to maturity. When the obligations are prepaid, the Series will ordinarily
reinvest the prepaid amounts in securities the yields of which reflect interest
rates prevailing at the time. Therefore, a Series' ability to maintain a
portfolio which includes high-yielding asset backed securities will be adversely
affected to the extent that prepayments of principal must be reinvested in
securities which have lower yields than the prepaid obligations. Moreover,
prepayments of securities purchased at a premium could result in a realized
loss. A Series will only invest in asset backed securities rated, at the time
of purchase, AA or better by S&P or Aa or better by Moody's or which, in the
opinion of the subadviser, are of comparable quality.
. Inverse Floaters (Loomis Sayles Balanced, Salomon Brothers Strategic Bond
Opportunities and Salomon Brothers U.S. Government Series)
The Series listed above may invest in inverse floaters, which are derivative
mortgage securities. Inverse floaters are structured as a class of security
that receives distributions on a pool of mortgage assets and whose yields move
in the opposite direction of short-term interest rates, sometimes, at an
accelerated rate. Inverse floaters may be issued by agencies or
instrumentalities of the U.S. Government, or by private issuers, including
savings and loan associations, mortgage banks, commercial banks, investment
banks and special purpose subsidiaries of the foregoing. Inverse floaters have
greater volatility than other types of mortgage securities in which the Series
invest (with the exception of stripped mortgage securities). Although inverse
floaters are purchased and sold by institutional investors through several
investment banking firms acting as brokers or dealers, the market for such
securities has not yet been fully developed. Accordingly, inverse floaters are
generally illiquid.
. Repurchase Agreements (All Series)
In a repurchase agreement, a Series buys securities from a seller, usually a
bank or brokerage firm, with the understanding that the seller will repurchase
the securities at a higher price at a later date. If the 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 market risk, although the Series may be subject
to various delays and risks of loss if the seller fails to meet its obligation
to repurchase.
The Goldman Sachs Midcap Value 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.
. Reverse Repurchase Agreements and Dollar Roll Agreements (Salomon Brothers
Strategic Bond Opportunities and Salomon Brothers U.S. Government Series)
The Salomon Brothers Strategic Bond Opportunities Series and Salomon Brothers
U.S. Government Securities Series may enter into reverse repurchase agreements
and dollar roll agreements with banks and brokers to enhance return.
Reverse repurchase agreements involve sales by the Series of portfolio assets
concurrently with an agreement by the Series to repurchase the same assets at a
later date at a fixed price. During the reverse repurchase agreement period,
the Series continues to receive principal and interest payments on these
securities and also has the opportunity to earn a return on the collateral
furnished by the counterparties to secure its obligation to redeliver the
securities.
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Dollar rolls are transactions in which the Series sells securities for delivery
in the current month and simultaneously contracts to repurchase substantially
similar (same type and coupon) securities on a specified future date. During
the roll period, the Series forgoes principal and interest paid on both the
securities sold and those to be purchased. The Series is compensated by the
difference between the current sales price and the forward price for the future
purchase (often referred to as the "drop") as well as by the interest earned on
the cash proceeds of the initial sale.
The Series will establish segregated accounts with the Fund's custodian in which
they will maintain certain assets equal in value to their obligations with
respect to reverse repurchase agreements and dollar rolls. Reverse repurchase
agreements and dollar rolls involve the risk that the market value of the
securities retained by the Series may decline below the price of the securities
the Series has sold but is obligated to repurchase under the agreement. In the
event the buyer of securities under a reverse repurchase agreement or dollar
roll files for bankruptcy or becomes insolvent, the Series' use of the proceeds
of the agreement may be restricted pending a determination by the other party or
its trustee or receiver whether to enforce the Series' obligation to repurchase
the securities. Reverse repurchase agreements and dollar rolls are not
considered borrowings by the Series for purpose of the Series' fundamental
investment restriction with respect to borrowings.
. Writing Options (Morgan Stanley International Magnum Equity, Davis Venture
Value, Goldman Sachs Midcap Value, Salomon Brothers Strategic Bond
Opportunities and Salomon Brothers U.S. Government Series)
A Series may seek to increase its current return by writing covered call options
and covered put options, with respect to securities it holds or intends to buy,
through the facilities of options exchanges and directly with market makers in
the over-the-counter market. A Series receives a premium from writing a call or
put option, which increases the Series' current return if the option expires
unexercised or is closed out at a net profit. A put option gives the purchaser
of the option, upon payment of the premium, the right to sell, and the writer of
the obligation the right to buy, the underlying security at the exercise price.
A call option gives the purchaser of the option, upon payment of the premium,
the right to buy, and the seller the obligation to sell, the underlying security
at the exercise price.
At times when a Series has written call options on a substantial portion of its
portfolio, the Series' ability to profit and its risk of loss from changes in
market prices of portfolio securities will be limited. Appreciation in
securities underlying the options would likely be partially or wholly offset by
losses on the options. The termination of options positions under such
conditions would generally result in the realization of short-term capital
losses, which would reduce the Series' current return. Accordingly, a Series
may seek to realize capital gains to offset realized losses by selling
securities.
As described in the Statement, over-the-counter options involve certain special
risks (including liquidity and credit risks) not necessarily present with
exchange-listed options. A Series will treat as illiquid any over-the-counter
options and assets maintained as "cover" for over-the-counter options that the
Series has written.
The options markets of foreign countries are small compared to those of the
United States and consequently are characterized in most cases by less liquidity
than are the U.S. markets. In addition, foreign markets may be subject to less
detailed reporting requirements and regulatory controls than U.S. markets. See
"Foreign Securities" below.
. Futures and Other Hedging Transactions (Morgan Stanley International Magnum
Equity, Davis Venture Value, Goldman Sachs Midcap Value, Westpeak Growth and
Income, Westpeak Stock Index, Loomis Sayles Balanced, Back Bay Advisors
Managed, Salomon Brothers Strategic Bond Opportunities and Salomon Brothers
U.S. Government Series)
Futures contracts are exchange-traded obligations to buy or sell a particular
commodity on a specified future date (or to pay or receive amounts based on the
value of a securities index or currency on that date).
The use of futures transactions entails certain special risks. In particular,
the variable degree of correlation between price movements of futures contracts
and price movements in the related securities or currency position of a Series
could create the possibility that losses on the futures contracts are greater
than gains in the value of the Series' position. In addition, futures markets
could be illiquid in some circumstances. As a result, in certain markets, a
Series might not be able to close out a transaction without incurring
substantial losses. Although a Series' use of futures transactions for hedging
should tend to minimize the risk of loss due to a decline in the value of the
hedged position, at the same time it will tend to limit any potential gain to a
Series that might result from an increase in value of the position. The daily
variation margin
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requirements for futures contracts create a greater ongoing potential financial
risk than would purchases of options, in which case the exposure is limited to
the cost of the initial premium.
Each of the Series listed above may, in the discretion of its subadviser, engage
in foreign currency exchange transactions in connection with the purchase and
sale of portfolio securities, to protect the value of specific portfolio
positions or in anticipation of changes in relative values of currencies in
which current or future Series portfolio holdings are denominated or quoted.
For hedging purposes, each of the Series may also buy put or call options on
securities that they hold or intend 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 in (to the extent of up to 5% of its total
net assets) futures and options transactions, including options on securities
indices and options on foreign currencies for the purpose of increasing total
return (i.e., for purposes other than hedging).
The Series may invest in options and futures contracts on various securities
indices to hedge against changes in the value of securities it holds or expects
to acquire or to increase total return. These Series may also invest in options
on index futures.
No Series will invest more than 5% of its net assets in futures or premiums for
options on futures that are traded on a U.S. commodities exchange.
Certain asset segregation requirements apply when a Series becomes obligated
under a hedging instrument. There is no assurance that a Series' hedging
strategies will be effective. These strategies involve costs and the risk of
loss to the Series. See the Statement for more information.
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. Swaps (Morgan Stanley International Magnum Equity and Salomon Brothers
Strategic Bond Opportunities Series)
The Morgan Stanley International Magnum Equity and Salomon Brothers Strategic
Bond Opportunities Series may enter into interest rate, currency and index
swaps. The Series will enter into these transactions primarily to seek to
preserve a return or spread on a particular investment or portion of its
portfolio, to protect against currency fluctuations, as a duration management
technique or to protect against any increase in the price of securities the
Series anticipates purchasing at a later date. Interest rate swaps involve the
exchange by the Series with another party of their respective commitments to pay
or receive interest (for example, an exchange of floating rate payments for
fixed rate payments with respect to a notional amount of principal). A currency
swap is an agreement to exchange cash flows on a notional amount based on
changes in the relative values of the specified currencies. The Series will
maintain cash and/or cash equivalents in a segregated custodial account to cover
its current obligations under swap agreements. Because swap agreements are not
exchange-traded, but are private contracts into which the Series and a swap
counterparty enter as principals, the Series may experience a loss or delay in
recovering assets if the counterparty were to default on its obligations.
. Structured Notes (Salomon Brothers Strategic Bond Opportunities Series)
The Salomon Brothers Strategic Bond Opportunities Series is permitted to invest
in a broad category of instruments known as "structured notes." These
instruments are debt obligations issued by industrial corporations, financial
institutions or governmental or international agencies. Traditional debt
obligations typically obligate the issuer to repay the principal plus a
specified rate of interest. Structured notes, by contrast, obligate the issuer
to pay amounts of principal or interest that are determined by reference to
changes in some external factor or factors. For example, the issuer's
obligations could be determined by reference to changes in the value of a
commodity (such as gold or oil), a foreign currency, an index of securities
(such as the S&P 500 Index) or an interest rate (such as the U.S. Treasury bill
rate). In some cases, the issuer's obligations are determined by reference to
changes over time in the difference (or "spread") between two or more external
factors (such as the U.S. prime lending rate and the London Inter-Bank Offering
Rate). In some cases, the issuer's obligations may fluctuate inversely with
changes in an external factor or factors (for example, if the U.S. prime lending
rate goes up, the issuer's interest payment obligations are reduced). In some
cases, the issuer's obligations may be determined by some multiple of the change
in an external factor or factors (for example, three times the change in the
U.S. Treasury bill rate). In some cases, the issuer's obligations remain fixed
(as with a traditional debt instrument) so long as an external factor or factors
do not change by more than the specified amount (for example, if the U.S.
Treasury bill rate does not exceed some specified maximum); but if the external
factor or factors change by more than the specified amount, the issuer's
obligations may be sharply increased or reduced.
Structured notes can serve many different purposes in the management of the
Series. For example, they can be used to increase the Series' exposure to
changes in the value of assets that the Series would not ordinarily purchase
directly (such as gold or oil). They can also be used to hedge the risks
associated with other investments the Series holds. For example, if a
structured note has an interest rate that fluctuates inversely with general
changes in market interest rates, the value of the structured note would
generally move in the opposite direction to the value of traditional debt
obligations, thus moderating the effect of interest rate changes in the value of
the Series' portfolio as a whole.
Structured notes involve special risks. As with any debt obligation, structured
notes involve the risk that the issuer will become insolvent or otherwise
default on its payment obligations. The risk is in addition to the risk that
the issuer's obligations (and thus the value of the Series' investment) will be
reduced because of changes in the external factor or factors to which the
obligations are linked. The value of structured notes will in many cases be
more volatile (that is, will change more rapidly or severely) than the value of
traditional debt instruments. Volatility will be especially high if the
issuer's obligations are determined by reference to some multiple of the change
in the external factor or factors. Many structured notes have limited or no
liquidity, so that the Series would be unable to dispose of the investment prior
to maturity. (The Series is not permitted to invest more than 15% of its net
assets in illiquid investments.) As with all investments, successful use of
structured notes depends in significant part on the accuracy of the subadviser's
analysis of the issuer's creditworthiness and financial prospects, and of the
subadviser's forecast as to changes in relevant economic and financial market
conditions and factors. In instances where the issuer of a structured note is a
foreign entity, the usual risks associated with investments in foreign
securities (described below) apply.
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. Foreign Securities (Loomis Sayles Small Cap, Morgan Stanley International
Magnum Equity, Alger Equity Growth, Capital Growth, Goldman Sachs Midcap
Value, Davis Venture Value, Westpeak Growth and Income, Loomis Sayles
Balanced, Back Bay Advisors Managed, Salomon Brothers Strategic Bond
Opportunities, Back Bay Advisors Bond Income and Salomon Brothers U.S.
Government Series)
Each of the Series listed above may invest in securities of issuers organized or
headquartered outside the United States or primarily traded outside the United
States ("foreign securities"). Each of the following Series will not purchase a
foreign security if, as a result, the Series' holdings of foreign securities
would exceed the corresponding 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%; and 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 paid, the amount of such currency required to be
converted into U.S. dollars will be greater than the equivalent amount in such
currency of such expenses at the time they were incurred.
Each Series may invest in foreign equity securities either by purchasing such
securities directly or by purchasing "depository receipts." Depository receipts
are instruments issued by a bank that represent an interest in equity securities
held by arrangement with the bank. Depository receipts can be either "sponsored"
or "unsponsored." Sponsored depository receipts are issued by banks in
cooperation with the issuer of the underlying equity securities. Unsponsored
depository receipts are arranged without involvement by the issuer of the
underlying equity securities. Less information about the issuer of the
underlying equity securities may be available in the case of unsponsored
depository receipts.
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. High Yield/High Risk Foreign Sovereign Debt Securities Salomon Brothers
Strategic Bond Opportunities Series)
Investing in fixed and floating rate high yield foreign sovereign debt
securities will expose the 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
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by many factors, including high rates of inflation, high interest rates,
currency exchange rate fluctuations or difficulties, political uncertainty or
instability, the country's cash flow position, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of its debt
service burden to the economy as a whole, the policy of the International
Monetary Fund, the World Bank and other international agencies, the obligor's
balance of payments, including export performance, its access to international
credit and investments, fluctuations in the international prices of commodities
which it imports or exports and the extent of its foreign reserves and access to
foreign exchange. Currency devaluations may also adversely affect the ability of
a sovereign obligor to obtain sufficient foreign exchange to service its
external debt.
If a foreign sovereign obligor cannot generate sufficient earnings from foreign
trade to service its external debt, it may need to depend on continuing loans
and aid from foreign governments, commercial banks and multilateral
organizations, and inflows of foreign investment. The commitment on the part of
these entities to make such disbursements may be conditioned on the government's
implementation of economic reforms or other requirements. Failure to meet such
conditions may result in the cancellation of such third parties' commitments to
lend funds, which may further impair the obligor's ability or willingness to
timely service its debts.
Certain debt obligations, customarily referred to as "Brady Bonds," are created
through the exchange of existing commercial bank loans to foreign entities for
new obligations in connection with debt restructuring under a plan introduced by
former U.S. Secretary of the Treasury, Nicholas F. Brady. Brady Bonds have been
issued only recently, and, accordingly, do not have a long payment history.
They may be collateralized or uncollateralized and issued in various currencies
(although most are dollar-denominated) and they are actively traded in the over-
the-counter secondary market.
The Series may purchase Brady Bonds with no or limited collateralization, and
will be relying for payment of interest and (except in the case of principal
collateralized Brady Bonds) principal primarily on the willingness and ability
of the foreign government to make payment in accordance with the terms of the
Brady Bonds. In the event of a default with respect to collateralized Brady
Bonds as a result of which the payment obligations of the issuer are
accelerated, the U.S. Treasury zero coupon obligations held as collateral for
the payment of principal will not be distributed to investors, nor will such
obligations be sold and the proceeds distributed. The collateral will be held
by the collateral agent to the scheduled maturity of the defaulted Brady Bonds,
which will continue to be outstanding, at which time the face amount of the
collateral will equal the principal payments which would have then been due on
the Brady Bonds in the normal course. In light of the residual risk of the
Brady Bonds and, among other factors, the history of default with respect to
commercial bank loans by public and private entities of countries issuing Brady
Bonds, investments in Brady Bonds are to be viewed as speculative.
Sovereign obligors in developing and emerging countries have in the past
experienced substantial difficulties in servicing their external debt
obligations, which has led to defaults on certain obligations and the
restructuring of certain indebtedness including among other things, reducing and
rescheduling interest and principal payments by negotiating new or amended
credit agreements or converting outstanding principal and unpaid interest to
Brady Bonds and obtaining new credit to finance interest payments. There can be
no assurance that the Brady Bonds and other foreign sovereign debt securities in
which the Series may invest will not be subject to similar restructuring
arrangements or to requests for new credit which may adversely affect the
Series' holdings.
. Loan Participations and Assignments (Salomon Brothers Strategic Bond
Opportunities Series)
The Salomon Brothers Strategic Bond Opportunities Series may invest in fixed and
floating rate loans ("Loans") arranged through private negotiations between a
foreign sovereign entity and one or more financial institutions ("Lenders").
The Series may invest in such Loans in the form of participations in Loans
("Participations") and assignments of all or a portion of Loans from third
parties ("Assignments"). Participations typically will result in the Series
having a contractual relationship only with the Lender, not with the borrower.
The Series will have the right to receive payments of principal, interest and
any fees to which it is entitled only from the Lender selling the Participation
and only upon receipt by the Lender of the payments from the borrower. In
connection with purchasing Participations, the Series generally will have no
right to enforce compliance by the borrower with the terms of the loan agreement
relating to the Loan, nor any rights of set-off against the borrower, and the
Series may not benefit directly from any collateral supporting the Loan in which
it has purchased the Participation. As a result, the Series will assume the
credit risk of 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
41
<PAGE>
purchases Assignments from Lenders, the Series will acquire direct rights
against the borrower on the Loan, except that under certain circumstances such
rights may be more limited than those held by the assigning Lender.
The Series may have difficulty disposing of Assignments and Participations.
Because the market for such instruments is not highly liquid, the Series
anticipates that such instruments could be sold only to a limited number of
institutional investors. The lack of a highly liquid secondary market may have
an adverse impact on the value of such instruments and will have an adverse
impact on the Series' ability to dispose of particular Assignments or
Participations in response to a specific economic event, such as deterioration
in the creditworthiness of the borrower. The Series currently intends to treat
all investments in Participations and Assignments as illiquid.
. When-Issued Securities (Morgan Stanley International Magnum Equity, Alger
Equity Growth, Davis Venture Value, Goldman Sachs Midcap Value, Salomon
Brothers Strategic Bond Opportunities and Salomon Brothers U.S. Government
Series)
If the value of a "when-issued" security being purchased falls between the time
a Series commits to buy it and the payment date, the Series may sustain a loss.
The risk of this loss is in addition to the Series' risk of loss on the
securities actually in its portfolio at the time. In addition, when the Series
buys a security on a when-issued basis, it is subject to the risk that market
rates of interest will increase before the time the security is delivered, with
the result that the yield on the security delivered to the Series may be lower
than the yield available on other, comparable securities at the time of
delivery. The Series will maintain assets in a segregated account in an amount
sufficient to satisfy its outstanding obligations to buy securities on a "when-
issued" basis.
. 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 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, Capital Growth, Davis Venture Value, Goldman Sachs Midcap
Value, Westpeak Growth and Income, Westpeak Stock Index and Back Bay Advisors
Managed Series)
Each of the Series listed above may invest up to 10% of its assets in securities
of other investment companies ("funds"), including funds that are advised by a
subadviser to the Series . Because of restrictions on direct investment by U.S.
entities in certain countries, a Series may choose to invest indirectly in such
countries by purchasing shares of another fund that is permitted to invest in
such countries, which may be the most practical or efficient way for the Series
to invest in such countries. In other cases, where the Series' adviser or
subadviser desires to make only a relatively small investment in a particular
country, investing through a fund that holds a diversified portfolio in that
country may be more effective than investing directly in issuers in that
country. As an investor in another investment company, a Series will bear its
share of the expenses of that investment company. These expenses are in addition
to the Series' own costs of operations. In some cases, investing in an
investment company may involve the payment of a premium over the value of the
assets held in that investment company's portfolio. The Davis Venture Value
Series may only invest in securities of investment companies investing primarily
in foreign securities.
The Goldman Sachs Midcap Value Series may also purchase Standard and Poor's
Depository Receipts ("SPDRs"). SPDRs are interests in a unit investment trust
that may be obtained from the trust or purchased in the secondary market (SPDRs
are listed on the American Stock Exchange).
. Lending of Portfolio Securities (Alger Equity Growth, Capital Growth, Davis
Venture Value, Goldman Sachs Midcap Value, Morgan Stanley International Magnum
Equity, Westpeak Stock Index, Back Bay Advisors Managed, Salomon Brothers
Strategic Bond Opportunities, Back Bay Advisors Bond Income and Salomon
Brothers U.S. Government Series)
To the extent that any of the above-listed Series lend that Series' portfolio
securities, such lending must be fully collateralized by cash, letters of credit
or U.S. Government Securities at all times, but involves some credit risk to the
Series if the other party should default on its obligations and the Series is
delayed in or prevented from recovering the collateral.
. Short Sales "Against the Box" (Alger Equity Growth, Morgan Stanley
International Magnum Equity, 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 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
42
<PAGE>
Series against the risk of losses in the value of its portfolio securities
because any unrealized losses with respect to such securities should be wholly
or partially offset by a corresponding gain in the short position. However, any
potential gains in such securities should be wholly or partially offset by a
corresponding loss in the short position. Short sales against the box may be
used to lock in a profit on a security when, for tax reasons or otherwise, a
subadviser does not want to sell the security.
. Illiquid Securities (All Series)
Each Series may invest up to 15% of its assets (10% in the case of the Back Bay
Advisors Money Market Series) in "illiquid securities," that is, securities
which are not readily resalable, including securities whose disposition is
restricted by federal securities laws. The Series may purchase Rule 144A
securities. These are privately offered securities that can be resold only to
certain qualified institutional buyers. Rule 144A securities are treated as
illiquid, unless the Series' adviser or subadviser has determined, under
guidelines established by the Fund's trustees, that the particular issue of Rule
144A securities is liquid.
. Zero Coupon Securities (Loomis Sayles Balanced, Back Bay Advisors Managed,
Salomon Brothers Strategic Bond Opportunities, Back Bay Advisors Bond Income
and Salomon Brothers U.S. Government Series)
Each Series listed above may invest in zero coupon securities. Zero coupon
securities involve special risk considerations. Zero coupon securities include
debt securities that pay no cash income but are sold at substantial discounts
from their value at maturity. When such a zero coupon security is held to
maturity, its entire return, which consists of the amortization of discount,
comes from the difference between its purchase price and its maturity value.
The difference is known at the time of purchase, so that investors holding zero
coupon securities until maturity know at the time of their investment what the
return on their investment will be. Certain other zero coupon securities which
also are sold at substantial discounts from their maturity value, provide for
the commencement of regular interest payments at a deferred date.
Zero coupon securities tend to be subject to greater price fluctuations in
response to changes in interest rates than are ordinary interest-paying debt
securities with similar maturities. The values of zero coupon securities
appreciate more during periods of declining interest rates and depreciates more
during periods of rising interest rates. Zero coupon securities may be issued
by a wide variety of corporate and governmental issuers. Although zero coupon
securities are generally not traded on a national securities exchange, many such
securities are widely traded by brokers and dealers and, if so, will not be
considered illiquid.
Current federal income tax law requires the holder of a zero coupon security (as
well as the holders of other securities, such as Brady Bonds, which may be
acquired at a discount) to accrue income with respect to these securities prior
to the receipt of cash payments. To maintain its qualification as a regulated
investment company and avoid liability for federal income and excise taxes, the
Series may be required to distribute income accrued with respect to these
securities and may have to dispose of portfolio securities under disadvantageous
circumstances in order to generate cash to satisfy these distribution
requirements.
. Real Estate Investment Trusts (Goldman Sachs Midcap Value Series)
The Goldman Sachs Midcap Value Series may invest in Real Estate Investment
Trusts ("REITs"), which 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. The Series will indirectly bear its proportionate share of any
expenses, including management fees, paid by each REIT in which it invests.
Portfolio Turnover
Portfolio turnover is not a limiting factor with respect to investment
decisions for any Series. For example, although the Capital Growth Series'
objective is long-term capital growth, it frequently sells securities to reflect
changes in market, industry or individual company conditions or outlook, even
though it may only have held those securities for a short period. High
portfolio turnover involves correspondingly greater brokerage commissions and
other transaction costs, which will be borne directly by the relevant Series.
For additional information about such costs see "Taxes" and "Management" below
43
<PAGE>
and "Portfolio Transactions and Brokerage" in the Statement. For information
about the past portfolio turnover rates of all the Series (other than the Back
Bay Advisors Money Market Series), see "Financial Highlights" above. Turnover
in excess of 100% involves higher levels of brokerage commissions and possibly
increased realization of taxable gains, as compared to many mutual funds.
Resolving Material Conflicts
Currently, shares in the Fund are available only to separate accounts
established by NELICO, MetLife or subsidiaries of MetLife as an investment
vehicle for variable life insurance or variable annuity products. In the
future, however, such shares may be offered to separate accounts of insurance
companies unaffiliated with NELICO or MetLife.
A potential for certain conflicts of interest exists between the interests of
variable life insurance contract owners and variable annuity contract owners.
Pursuant to conditions imposed in connection with related regulatory relief
granted by the SEC, the Fund's Board of Trustees has an obligation to monitor
events to identify conflicts that may arise from the sale of shares to both
variable life insurance and variable annuity separate accounts or to separate
accounts of insurance companies not affiliated with MetLife. Such events might
include changes in state insurance law or federal income tax law, changes in
investment management of any Series of the Fund or differences between voting
instructions given by variable life insurance and variable annuity contract
owners. Insurance companies investing in the Fund will be responsible for
proposing and executing any necessary remedial action and the Board of Trustees
has an obligation to determine whether such proposed action adequately remedies
any such conflicts.
PERFORMANCE INFORMATION
Information about the performance of the Series is set forth below and, from
time to time, the Fund may use this information in advertisements. Performance
-----------
information about a Series is based on that Series' past performance and is not
- -------------------------------------------------------------------------------
intended to indicate future performance. The Fund serves as the underlying
- ----------------------------------------
investment vehicle for variable life insurance or variable annuity products and
its shares cannot be purchased directly. Therefore, such performance
information does not reflect any of the charges assessed against the insurance
company separate accounts or the variable life insurance or variable 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.
44
<PAGE>
Total Return
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
Series 1988 1989 1990 1991 1992 1993
- ------ ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Loomis Sayles Small Cap Series(1) -- -- -- -- -- --
Morgan Stanley International Magnum Equity
Series(2) -- -- -- -- -- --
Alger Equity Growth Series -- -- -- -- -- --
Capital Growth Series (8.8)% 30.8% (3.5)% 54.0% (6.1)% 15.0%
Davis Venture Value Series -- -- -- -- --
Goldman Sachs Midcap Value Series(5) -- -- -- -- -- 14.7%(5)
Westpeak Growth and Income Series -- -- -- -- 14.2%(6)
Westpeak Stock Index Series (7) 16.3% 30.2% (4.1)% 30.4% 7.3% 9.7%
Loomis Sayles Balanced Series -- -- -- -- --
Back Bay Advisors Managed Series 9.5% 19.1% 3.2% 20.2% 6.7% 10.7%
Salomon Brothers Strategic Bond
Opportunities Series -- -- -- -- --
Back Bay Advisors Bond Income Series 8.4% 12.3% 8.1% 18.0% 8.2% 12.6%
Salomon Brothers U.S. Government Series -- -- -- -- --
Back Bay Advisors Money Market Series 7.4% 9.2% 8.2% 6.2% 3.8% 3.0%
S&P 500(9) 16.5% 31.6% (3.1)% 30.3% 7.6% 10.1%
Lehman Intermediate Government/Corporate
Bond Index(10) 6.8% 12.8% 9.2% 14.6% 7.2% 8.8%
Consumer Price Index(11) 4.4% 4.7% 6.1% 3.1% 2.9% 2.8%
Dow Jones Industrial Average(12) 16.1% 32.2% (1.0)% 24.2% 7.4% 16.9%
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
Average Annual
Total Return
Average Annual Average Annual Since
Total Return Total Return Commencement
Year Ended December 31, For the Ten For the Five of Offering
------------------------------- Years Ending Years Ending through
Series 1994 1995 1996 1997 12/31/97 12/31/97 12/31/97
- ------ ------- ------ ------ ---- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Loomis Sayles Small Cap Series (3.2)%(1) 28.9% 30.7%
Morgan Stanley International Magnum
Equity Series(2) 2.6%(3) 6.0% 6.7%
Alger Equity Growth Series (4.2)%(3) 48.8% 13.2%
Capital Growth Series (7.1)% 38.0% 21.1%
Davis Venture Value Series (3.5)%(3) 39.3% 25.8%
Goldman Sachs Midcap Value Series (0.3)% 30.4% 17.6%
Westpeak Growth and Income Series (1.2)% 36.5% 18.1%
Westpeak Stock Index Series 1.1% 36.9% 22.5%
Loomis Sayles Balanced Series (0.1)%(3) 24.8% 16.9%
Back Bay Advisors Managed Series (1.1)% 31.3% 15.1% (8)
Salomon Brothers Strategic Bond
Opportunities Series (1.4)%(3) 19.4% 14.4%
Back Bay Advisors Bond Income Series (3.4)% 21.2% 4.6%
Salomon Brothers U.S. Government Series 0.6%(3) 15.0% 3.3%
Back Bay Advisors Money Market Series 4.0% 5.6% 5.1%
S&P 500(9) 1.3% 37.4% 23.0%
Lehman Intermediate Government/Corporate
Bond Index(10) (2.0)% 15.3% 2.9%
Consumer Price Index(11) 2.8% 2.6% 3.3%
Dow Jones Industrial Average(12) 5.1% 37.0% 28.9%
</TABLE>
46
<PAGE>
(1) For the period beginning May 2, 1994, when the Loomis Sayles Small Cap
Series commenced operations, but did not become publicly available. Average
annual total return for the period May 2, 1994 through December 31, 1994 is
presented on an unannualized basis.
(2) Effective May 1, 1997, MSAM began managing the Series, succeeding Draycott
Partners, Ltd.
(3) Represents unannualized total return for the period beginning October 31,
1994 when the Morgan Stanley International Magnum Equity, Alger Equity
Growth, Davis Venture Value, Loomis Sayles Balanced, Salomon Brothers
Strategic Bond Opportunities and Salomon Brothers U.S. Government Series
commenced operations.
(4) The Capital Growth Series, Back Bay Advisors Bond Income Series and Back
Bay Advisors Money Market Series commenced operations on August 26, 1983
and their Average Annual Total Returns From Commencement of Offering have
been calculated for the period beginning with that date. These returns
would not change if they had been calculated for the period beginning with
September 1, 1983, which is the period for which the Average Annual Total
Returns Since Commencement of Offering have been calculated for the S&P
500, Lehman Intermediate Government/Corporate Bond Index, Consumer Price
Index and Dow Jones Industrial Average (unless otherwise indicated).
(5) On May 1, 1998, GSAM became subadviser to the Series, succeeding Loomis
Sayles.
(6) For the period beginning April 30, 1993, when the Goldman Sachs Midcap
Value Series became publicly available. The total return information is not
annualized for the period ended December 31, 1993.
(7) For the period beginning April 30, 1993, when the Westpeak Growth and
Income Series became publicly available. The total return information is
not annualized for the period ended December 31, 1993.
(8) For the period beginning May 1, 1987 when the Back Bay Advisors Managed
Series and Westpeak Stock Index Series became publicly available.
Operations commenced on March 30, 1987, but the Westpeak Stock Index Series
and Back Bay Advisors Managed Series did not become publicly available
until May 1, 1987.
(9) The S&P 500 is an unmanaged weighted index of the stock performance of 500
industrial, transportation, utility and financial companies. Investment
results shown assume the reinvestment of dividends.
(10) The Lehman Intermediate Government/Corporate Bond Index is a subset of the
Lehman Government/Corporate Bond Index covering all issues with maturities
between 1 and 10, years which is composed of taxable, publicly-issued, non-
convertible debt obligations issued or guaranteed by the U.S. Government or
its agencies, and another Lehman index that is composed of taxable, fixed
rate, publicly-issued, investment grade, non-convertible corporate debt
obligations.
(11) The Consumer Price Index, published by the U.S. Bureau of Labor Statistics,
is a statistical measure of changes, over time, in the prices of goods and
services.
(12) The Dow Jones Industrial Average is a market value-weighted and unmanaged
index of 30 large industrial stocks traded on the New York Stock Exchange.
PAST PERFORMANCE
Goldman Sachs Midcap Value Series
The total returns shown below are based on performance data furnished by
GSAM for the Goldman Sachs Midcap Equity Fund (the "Proprietary Fund"), a mutual
fund which has the same investment objective as that of the Goldman Sachs Midcap
Value Series and is managed using styles and strategies similar, though not
necessarily identical, to those employed by GSAM in managing the Goldman Sachs
Midcap Value Series and was the only account managed by GSAM using such styles
and strategies. The Proprietary Fund has been adjusted to give effect to the
annualized projected expenses of the Goldman Sachs Midcap Value Series. Pursuant
to the Expense Deferral Arrangement (described below), the Goldman Sachs Midcap
Value Series' expenses are expected to be 0.90% annually of the Series net
assets. The Proprietary Fund may not have been subject to the same types of
expenses to which the Goldman Sachs Midcap Value Series is subject. The
following information does not represent the Goldman Sachs Midcap Value Series'
performance and should not be considered a prediction of future performance of
the Goldman Sachs Midcap Value Series. The Goldman Sachs Midcap Value Series`
performance may be higher or lower than the performance of the Proprietary Fund
shown below.
47
<PAGE>
<TABLE>
<CAPTION>
Goldman Sachs Mid Lipper Midcap
Cap Equity Fund Fund Index Russell Midcap Index
----------------- ---------- --------------------
<S> <C> <C> <C>
Total Return for the Year Ended
December 31, 1997
Average Annual Total Return Since
Inception (August 1, 1995)
</TABLE>
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 market capitalization of the Russell Midcap Index was $770
million to $8.7 billion as of December 31, 1997.
The Lipper Midcap Index is a composite return of 10 midcap mutual funds with
substantially similar (but not necessarily identical) investment objectives and
policies to that which has been employed by GSAM in managing the Proprietary
Fund.
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, five mutual fund accounts
(including 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 Morgan Stanley International Magnum Equity Composite (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 styles and strategies substantially
similar (although not necessarily identical) to those employed by MSAM in
managing the Series. The Composite includes the Morgan Stanley International
Magnum Equity Series and all accounts with assets in excess of $25 million
managed by MSAM in a substantially similar style as the Series. The performance
data does not represent the Series' performance and does not include the Morgan
Stanley International Magnum Equity Series performance prior to MSAM becoming
investment subadviser to the Series on May 1, 1997.
Several of the accounts are not subject to the same types of expenses to which
the Morgan Stanley International Magnum Equity Series is subject, nor to the
diversification requirements, specific tax restrictions and investment
limitations and other restrictions imposed on the Series by the Investment
Company Act of 1940 or subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). The performance 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 Morgan Stanley
International Magnum Equity Series.
The performance data shown below for the Composite were calculated in
accordance with recommended standards of the Association for Investment
Management and Research ("AIMR"), retroactively applied to all time periods. The
investment results for the Composite are unaudited and are not intended to
predict or suggest the returns that might be experienced by the Morgan Stanley
International Magnum Equity Series. Investors should also be aware that the use
of methodology different from that used below to calculate performance could
result in different performance data.
<TABLE>
<CAPTION>
Morgan Stanley 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............
Total Return for the
Year Ended
December 31, 1997..........
Average Annual
Total Return Since
Inception (June 1, 1995)...
</TABLE>
* Represents total return since MSAM began managing the Series on May 1, 1997.
The Composite has been adjusted to give effect to the annualized expenses
projected for the Morgan Stanley International Magnum Equity Series. Pursuant to
the Expense Deferral
48
<PAGE>
Arrangement (described below under "Management") the Series' expenses are
generally limited to 1.30% annually of the Series net assets.
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 10 mutual
funds with substantially similar (but not necessarily identical) investment
objectives and policies to those which are employed by MSAM in managing the
Morgan Stanley International Magnum Equity Series.
Yield
Back Bay Advisors Money Market Series
- -------------------------------------
The Back Bay Advisors Money Market Series may advertise its yield and
"effective" (or "compound") yield (and its total return). The yield of the Back
Bay Advisors Money Market Series is the income earned by the Series over a
seven-day period on an annualized basis, i.e. the income earned in the period is
assumed to be earned every seven days over a 52-week period and is stated as a
percentage of the investment. "Effective" (or "compound") yield is calculated
similarly but, when annualized, the income earned by the investment is assumed
to be reinvested in the Series' shares and thus compounded in the course of a
52-week period. The effective yield will be higher than the yield because of
the compounding effect of this assumed reinvestment.
For the seven-day period ended December 31, 1997, the yield for the Back Bay
Advisors Money Market Series was ___%. The effective yield for the same period
was ___%.
Loomis Sayles Balanced, Back Bay Advisers Managed Salomon Brothers Strategic
- ----------------------------------------------------------------------------
Bond Opportunities, Back Bay Advisors Bond Income and Salomon Brothers U.S.
- ---------------------------------------------------------------------------
Government Series
- -----------------
Each of the Series listed above may 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. (and its affiliates.)
PUBLICATIONS
From time to time, articles about a Series regarding performance, rankings and
other Series characteristics may appear in national publications including, but
not limited to, The Wall Street Journal, Forbes, Fortune, CDA Investment
Technologies and Money Magazine. In particular, some or all of these
publications may publish their own rankings or performance reviews of mutual
funds, including the Fund. References to, or reprints, or portions of reprints
of such articles, which may include rankings that list the names of other funds
and their performance , may be used as Fund or variable contract sales
literature or advertising material.
INVESTMENT RESTRICTIONS
The following is a description of restrictions on the investments to be made
by the fourteen Series. Except as specifically listed below, and except for
restrictions marked with an asterisk, these restrictions may not be changed
without the approval of a majority of the outstanding voting securities of the
relevant Series.
Investment Restrictions Applicable to the Capital Growth, Westpeak Stock Index,
Back Bay Advisors Managed, Back Bay Advisors Bond Income and Back Bay Advisors
Money Market Series
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Each of the Series listed above will not:
(1) Purchase any securities (other than U.S. Government securities) if, as
a result, more than 5% of the Series' total assets (taken at current value)
would be invested in securities of a single issuer; provided, however, that
the Westpeak Stock Index Series and the Back Bay Advisors Managed Series may
each invest more than 5% (but not more than 25%) of its total assets (taken
at current value) in the securities of a single issuer if securities of any
such issuer represent more than 5%, capitalization weighted, of the stock
index that the Series attempts to track;
(2) Purchase any security (other than U.S. Government securities) if, as a
result, more than 25% of the Series' total assets (taken at current value)
would be invested in any one industry. For purposes of this restriction,
telephone, gas and electric public utilities are each regarded as separate
industries and finance companies whose financing activities are related
primarily to the activities of their parent companies are classified in the
industry of their parents. In the case of the Back Bay Advisors Money Market
Series and Back Bay Advisors Managed Series, this restriction does not apply
to bank obligations;
(3) Purchase securities on margin (but it may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities); or make short sales, except where, by virtue of ownership of
other securities, it has the right to obtain, without payment of further
consideration, securities equivalent in kind and amount to those sold; or
deposit or pledge more than 10% of its total assets (taken at current value)
as collateral for such sales. (Any deposit or payment by the Westpeak Stock
Index or Back Bay Advisors Managed Series of initial or maintenance margin in
connection with futures contracts shall not be considered the purchase of a
security on margin for the purposes of this restriction);
(4) Acquire more than 10% of the total value of any class of the
outstanding securities of any issuer (taking all preferred stock issues of an
issuer as a single class and all debt issues of an issuer as a single class)
or acquire more than 10% of the outstanding voting securities of any issuer;
(5) Borrow money, except as a temporary measure for extraordinary or
emergency purposes (but not for the purpose of investment) up to an amount
not in excess of 10% of its total assets (taken at cost), or 5% of its total
assets (taken at current value), whichever is lower; provided, however, that
the Back Bay Advisors Bond Income Series, the Capital Growth Series and the
Back Bay Advisors Managed Series may make loans of their portfolio
securities. (See "Loans of Portfolio Securities" above);
(6) Invest more than 5% of its total assets (taken at current value) in
securities of businesses (including predecessors) less than three years old;
(7) Purchase or retain securities of any issuer if, to the knowledge of
the Fund, officers and trustees of the Fund or officers and directors of any
investment adviser of the Fund who individually own beneficially more than
1/2 of 1% of the securities of that issuer, together own beneficially more
than 5% of the securities of that issuer;
(8) Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter
under the federal securities laws; or purchase any security restricted as to
disposition under the federal securities laws; provided, however, that,
subject to the Fund's limitation on illiquid investments stated below, each
of the Back Bay Advisors Bond Income, Capital Growth and Back Bay Advisors
Managed Series may invest up to 10% of its total assets (taken at current
value) in such restricted securities;
(9) Make investments for the purpose of exercising control or management;
(10) Participate on a joint or joint and several basis in any trading
account in securities. (The "bunching" of orders for the purchase or sale of
portfolio securities with MetLife or its affiliates, Back Bay Advisors, CGM,
Westpeak or accounts under their management to reduce acquisition costs, to
average prices among such accounts to facilitate such transactions, is not
considered participating in a trading account in securities);
(11) Invest in the securities of other investment companies, except in
connection with a merger, consolidation or similar transaction, and except
that the Back Bay Advisors Bond Income, the Capital Growth, Westpeak Stock
Index and Back Bay Advisors Managed Series may invest in securities of other
investment companies by purchases in the
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open market involving only customary broker's commissions. (Under the
Investment Company Act of 1940 (the "1940 Act") each Series generally may not
(a) invest more than 10% of its total assets (taken at current value) in the
securities of other investment companies, (b) own securities of any one
investment company having a value in excess of 5% of that Series' total
assets (taken at current value), or (c) own more than 3% of the outstanding
voting stock of any one investment company);
(12) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts, commodities or commodity contracts (except that the Westpeak Stock
Index Series and the Back Bay Advisors Managed Series may buy or sell futures
contracts on stock indexes and the Back Bay Advisors Managed Series may buy
or sell interest rate futures contracts) or real estate. This restriction
does not prevent any Series from purchasing securities of companies investing
in real estate or of companies which are not principally engaged in the
business of buying or selling such leases, rights or contracts;
(13) Pledge, mortgage or hypothecate more than 15% of its total assets
(taken at cost).
Restrictions (1) and (2) apply to securities subject to repurchase agreements
but not to the repurchase agreements themselves.
Each of the Series listed above will not purchase any illiquid security if,
as a result, more than 15% (10% in the case of the Back Bay Advisors Money
Market Series) of its net assets (taken at current value) would be invested in
such securities.
Investment Restrictions Applicable to Individual Series
In addition to the foregoing investment restrictions, the following
investment restrictions are applicable to individual Series as noted below.
Back Bay Advisors Money Market Series
The Back Bay Advisors Money Market Series will not:
(1) Make loans, except by purchase of debt obligations in which the Series
may invest consistently with its objective and investment policies. This
restriction does not apply to repurchase agreements.
(2) Write or purchase puts, calls or combinations thereof.
Back Bay Advisors Bond Income Series
The Back Bay Advisors Bond Income Series will not:
(1) Make loans, except by purchase of bonds, debentures, commercial paper,
corporate notes and similar evidences of indebtedness which are part of an
issue to the public or to financial institutions, by entering into repurchase
agreements or by lending portfolio securities to the extent set forth above
under "Investment Risks--Lending of Portfolio Securities" above;
(2) Write or purchase puts, calls or a combination thereof, except that
the Back Bay Advisors Bond Income Series may purchase warrants or other
rights to subscribe to securities of companies issuing such warrants or
rights, or of parents or subsidiaries of such companies, provided that such
warrants or other rights to subscribe are attached to, or a part of, a unit
offering involving other securities.
In order to comply with certain state requirements applicable to restriction
(13) above, as a matter of operating policy subject to change without
shareholder approval, the Series will not pledge more than 2% of its assets.
Capital Growth Series; Westpeak Stock Index Series
Neither the Capital Growth Series nor the Westpeak Stock Index Series will:
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(1) Make loans, except by purchase of bonds, debentures, commercial paper,
corporate notes, and similar evidences of indebtedness which are a part of an
issue to the public or to financial institutions, by entering into repurchase
agreements or by lending portfolio securities to the extent set forth under
"Investment Risks--Lending of Portfolio Securities" above;
(2) Purchase options or warrants if, as a result, more than 1% of its
total assets (taken at current value) would be invested in such securities;
(3) Write options or warrants.
As a matter of operating policy subject to change without shareholder
approval, the Capital Growth Series will not make loans of its portfolio
securities. In order to comply with certain state requirements applicable to
restriction (13) above, as a matter of operating policy subject to change
without shareholder approval, neither the Capital Growth Series nor the Westpeak
Stock Index Series will pledge more than 2% of its assets.
Back Bay Advisors Managed Series
The Back Bay Advisors Managed Series will not:
(1) Make loans, except by purchase of bonds, debentures, commercial paper,
corporate notes and similar evidences of indebtedness which are a part of an
issue to the public or to financial institutions, by entering into repurchase
agreements, or by lending portfolio securities to the extent set forth under
"Investment Risks--Lending of Portfolio Securities" above;
(2) Purchase options or warrants if, as a result, more than 1% of its
total assets (taken at current value) would be invested in such securities;
provided, however, that the Back Bay Advisors Managed Series may, without
regard to the foregoing percentage limit, purchase warrants or other rights
to subscribe to securities of companies issuing such warrants or rights, or
of parents or subsidiaries of such companies, provided that such warrants or
other rights to subscribe are attached to, or a part of a unit offering
involving, other securities.
In order to comply with certain state requirements applicable to restriction
(13) above, as a matter of operating policy subject to change without
shareholder approval, the Back Bay Advisors Managed Series will not pledge more
than 2% of its assets.
Investment Restrictions Applicable to the Loomis Sayles Small Cap, Morgan
Stanley International Magnum Equity, Alger Equity Growth, Davis Venture Value,
Goldman Sachs Midcap Value, Westpeak Growth and Income, Loomis Sayles Balanced,
Salomon Brothers Strategic Bond Opportunities and Salomon Brothers U.S.
Government Series
Each of the Series listed above will not:
*(1) With respect to 75% of the Series' total assets, purchase any
security (other than U.S. Government obligations) if, as a result, more than
5% of the Series' total assets (taken at current value) would then be
invested in securities of a single issuer or, with respect to all of the
Series' total assets, purchase any security (other than U.S. Government
obligations) if, as a result, more than 10% of such assets would than 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);
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*(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 to the extent set forth under
"Investment Risks--Lending of Portfolio Securities" above;
(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;
*(12) Purchase any illiquid security if, as a result, more than 15% of its
net assets (taken at current value) would be invested in such securities;
(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. Regulations specifying the
53
<PAGE>
diversification requirements have been issued by the Department of the Treasury.
The Series intend to comply with these requirements. State insurance laws and
regulations may impose additional limitations on the Series investments,
including a Series' ability to borrow, lend, and use options, future, and other
derivative instruments. In addition, such laws and regulations may require that
a Series' investments meet additional diversification or other reguirements.
MANAGEMENT
The Fund's Board of Trustees supervises the affairs of the Fund as conducted
by the Series' advisers and subadvisers. Pursuant to separate advisory
agreements, and subject in each case to the supervision of the Fund's Board of
Trustees, TNE Advisers, Inc. is the investment adviser of each of the Series
except the Capital Growth Series, for which CGM serves as investment adviser.
Series Advised by TNE Advisers, Inc.
With respect to each of the thirteen Series for which TNE Advisers, Inc.
serves as adviser, TNE Advisers, Inc. has sub-contracted day-to-day portfolio
management responsibility to a sub-adviser as follows:
<TABLE>
<CAPTION>
Series Subadviser
- -------------------------------------------------------- ----------------------------------------
<S> <C>
Morgan Stanley International Magnum Equity Series Morgan Stanley Asset Management Inc.
Alger Equity Growth Series Fred Alger Management, Inc.
Davis Venture Value Series Davis Selected Advisers, L.P.
Goldman Sachs Midcap Value Series Goldman Sachs Asset Management
Westpeak Growth and Income Series Westpeak Investment Advisors, L.P.
Westpeak Stock Index Series Westpeak Investment Advisors, L.P.
Loomis Sayles Balanced Series Loomis, Sayles & Company, L.P.
Back Bay Advisors Managed Series Back Bay Advisors, L.P.
Salomon Brothers Strategic Bond Opportunities Series Salomon Brothers Asset Management Inc.
Back Bay Advisors Bond Income Series Back Bay Advisors, L.P.
Salomon Brothers U.S. Government Series Salomon Brothers Asset Management Inc.
Back Bay Advisors Money Market Series Back Bay Advisors, L.P.
</TABLE>
TNE Advisers, Inc. ("TNE Advisers"), 501 Boylston Street, Boston Massachusetts
-----------------------------------
02116, was organized in 1994. It is a wholly-owned subsidiary of NELICO.
NELICO in turn is a wholly-owned subsidiary of MetLife. TNE Advisers oversees,
evaluates and monitors the subadvisers' provision of investment advisory
services to the Series and provides general business management and
administration to the Series. TNE Advisers has contracted with New England
Funds, L.P. to provide certain administrative services to support the Series.
Subject to the supervision of TNE Advisers, each subadviser manages its
Series in accordance with the Series' investment objectives and policies, makes
investment decisions for those Series, places orders to purchase and sell
securities for those Series and employs professional advisers and securities
analysts who provide research services to those Series. The Series advised by
TNE Advisers pay no direct fees to any of the subadvisers described below.
Loomis Sayles, Westpeak and Back Bay Advisors are each independently operated
subsidiaries, and CGM is an independently operated affiliate, of NEIC Operating
Partnership, L.P. ("NEICOP") The general partners of each of Loomis Sayles,
Westpeak and Back Bay Advisors are special purpose corporations which are
indirect wholly-owned subsidiaries of NEICOP. NEICOP's managing general partner,
New England Investment Companies, Inc., is an indirect wholly-owned subsidiary
of MetLife, a mutual life insurance company. MetLife owns directly 46% (and, in
the aggregate, directly and indirectly, approximately 47%) of the outstanding
limited partnership interests in NEICOP. NEICOP's advising general partner, New
England Investment Companies, L.P. ("NEIC"), is a publicly-traded company listed
on the New York Stock Exchange. New England Investment Companies Inc., is the
sole general partner of NEIC. NEICOP is the owner of a majority limited
partnership interest in CGM. Consequently, the subadvisers (Loomis Sayles,
Westpeak and Back Bay Advisors) of seven Series of the Fund are indirect wholly-
owned subsidiaries of NEICOP and an additional Series is advised by a majority-
owned subsidiary (CGM) of NEICOP. The subadvisers of the remaining six Series
offered through this Prospectus are not affiliated with MetLife, NEIC or NEICOP.
Loomis, Sayles & Company, L.P. ("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.
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<PAGE>
Jeffrey C. Petherick and Mary Champagne, Vice Presidents of Loomis Sayles,
have day-to-day management responsibility for the Loomis Sayles Small Cap
Series. Mr. Petherick has co-managed the Series since its inception and has
been employed by Loomis Sayles for more than five years. Ms. Champagne has co-
managed the Series since July 1995. Prior to joining Loomis Sayles in 1993, Ms.
Champagne served as a portfolio manager at NBD Bank for 10 years.
Carol C. McMurtrie, Tricia H. Mills and Roderic Dillon 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, and Mr. Dillon since August 1997. The portfolio management
team for the fixed-income portion of the Series consists of Meri Ann 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. Dillon, 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. Mr. Dillon rejoined Loomis Sayles in August 1997
following several years as principal of Dillon Capital Management.
Westpeak Investment Advisors, L.P. ("Westpeak"), 1011 Walnut Street, Boulder,
Colorado 80302, subadviser to the Westpeak Growth and Income and Westpeak Stock
Index Series, was organized in 1991. Gerald H. Scriver, President and Chief
Executive Officer of Westpeak and Philip J. Cooper, CFA, Senior Vice President
of Portfolio Management of Westpeak, have served as the portfolio managers of
the Westpeak Growth and Income Series since its inception in 1993 and as the
portfolio managers of the Westpeak Stock Index Series since August 1, 1993.
Both Mr. Scriver and Mr. Cooper have been with Westpeak since its inception in
1991.
Back Bay Advisors, L.P. ("Back Bay Advisors"), 399 Boylston Street, Boston,
Massachusetts 02116, subadviser to the Back Bay Advisors Money Market, Back Bay
Advisors Bond Income and Back Bay Advisors Managed Series, provides
discretionary investment management services to mutual funds and other
institutional investors. Catherine L. Bunting, Senior Vice President of Back
Bay Advisors, has served as the Back Bay Advisors Bond Income Series' portfolio
manager since January 1989. Peter Palfrey, Vice President of Back Bay Advisors,
has served as the Back Bay Advisors Managed Series' portfolio manager since
January 1994. Ms. Bunting has been employed by Back Bay Advisors for more than
five years. Mr. Palfrey, prior to joining Back Bay Advisors in 1993, was
Investment Vice President with Mutual of New York.
Morgan Stanley Asset Management Inc. ("MSAM"), with principal offices at 1221
Avenue of the Americas, New York, New York 10020, conducts a worldwide
investment management business, providing a broad range of portfolio management
services to customers in the United States and abroad. MSAM is a wholly-owned
subsidiary of Morgan Stanley, Dean Witter, Discover & 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. Previously she was a Principal and Executive Vice President
of Westwood Management Corp., a registered investment adviser.
Fred Alger Management, Inc. ("Alger Management"), 75 Maiden Lane, New York,
New York 10038, subadvises the Alger Equity Growth Series. Alger Management is
a wholly-owned subsidiary of Fred Alger & Company, Incorporated, which in turn
is a wholly-owned subsidiary of Alger Associates, Inc., a financial services
holding company. Fred M. Alger III and his brother, David D. Alger, are the
majority shareholders of Alger Associates, Inc. and may be deemed to control
that company and its subsidiaries. David D. Alger, Seilai Khoo and Ron Tartaro
are primarily responsible for the day-to-day management of the Alger Equity
Growth Series. David D. Alger has been employed by Alger Management as
Executive Vice President and Director of Research since 1971 and as President
since 1995, and he serves as portfolio manager for other mutual funds and
investment accounts managed by Alger Management. Ms. Khoo has been employed by
Alger Management since 1989 and as a Senior Vice President since 1995. Mr.
Tartaro has been employed by Alger Management since 1990 and as a Senior Vice
President since 1995. Each has served as portfolio manager of the Series since
its inception in October 1994.
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<PAGE>
Davis Selected Advisers, L.P. ("Davis Selected"), 124 East Marcy Street,
Santa Fe, New Mexico 87501, subadvises the Davis Venture Value Series. Venture
Advisers, Inc., which is controlled by Shelby M.C. Davis, is the sole general
partner of Davis Selected. Davis Selected provides advisory services to other
investment companies and institutions. Davis Selected may also delegate any of
its responsibilities to Davis Selected-NY Inc. ("DSA-NY"). DSA-NY, organized in
1996, is a wholly-owned subsidiary of Davis Selected located at 609 Fifth
Avenue, New York, New York 10017. Christopher C. Davis has been the portfolio
manager for the Series and other equity funds managed by Davis Selected since
February , 1997, and was co-portfolio manager of the Series with Shelby M.C.
Davis, from October 1, 1995 until February, 1997. Prior to his responsibilities
as co-portfolio manager, Christopher C. Davis worked closely with Shelby M.C.
Davis as assistant portfolio manager and research analyst beginning in September
1989.
Shelby M.C. Davis is Chief Investment Officer of Davis Selected. As Chief
Investment Officer, he is active in providing investment themes, strategies and
individual stock selections to the Series. He was the Series' primary portfolio
manager from its inception until February 1997. He is a director and officer of
certain investment companies managed by Davis Selected. He has been a director
of Davis Selected's general partner since 1969.
Salomon Brothers Asset Management Inc. ("SBAM"), 7 World Trade Center, New
York, New York 10048, the subadviser to the Salomon Brothers U.S. Government
Series and ("SBAM") the Salomon Brothers Strategic Bond Opportunities 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 affiliates
in London, Frankfurt and Hong Kong , provides a full range of fixed-income and
equity investment advisory services for individuals and institutional clients
around the world, including European and Far Eastern central banks, pension
funds, endowments, insurance companies, and serves as investment adviser to
various investment companies. In providing such services, SBAM and its
affiliates have access to more than 400 economists, mortgage, bond and sovereign
analysts. As of December 31, 1997, SBAM and its affiliates managed
approximately $___ billion in assets.
In connection with SBAM's service as subadviser to the Salomon Brothers
Strategic Bond Opportunities Series, SBAM's London based affiliate, Salomon
Brothers Asset Management Limited ("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 Salomon Brothers Strategic Bond
Opportunities 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.
SBAM Ltd is an indirect, wholly-owned subsidiary of Travelers. SBAM Limited 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.
Mr. Guterman, who joined SBAM in 1990, is currently a Managing Director and
Senior Portfolio Manager of SBAM, responsible for SBAM's investment company and
institutional portfolios which invest primarily in mortgage-backed securities
and U.S. Government issues. Responsible for the Series since Mr. Guterman joined
Salomon Brothers Inc. in 1983 working initially in the mortgage research group
where he became a Research Director and later traded derivative mortgage-backed
securities. He has acted as portfolio manager of the Series since October 1994.
Mr. Lavan joined SBAM in 1990 and is a Director and Portfolio Manager and has
served as a portfolio manager of the Salomon Brothers U.S. Government Series
since October 1994. Prior to joining SBAM, Mr. Lavan spent four years analyzing
portfolios for Salomon Brothers Inc 's Fixed-Income Sales Group and Product
Support Divisions. Mr. Wilby joined SBAM in 1989 and has served as portfolio
manager of the Salomon Brothers Strategic Bond Opportunities Series since
October 1994. Mr. Wilby is a Managing Director of Salomon Brothers Inc., and
SBAM and Senior Portfolio Manager of SBAM, responsible for investment company
and institutional portfolio investments in high yield U.S. corporate debt
securities and high yield foreign sovereign debt securities. Ms. Semmel joined
SBAM in __ as a Director and Portfolio Manager. Prior to joining SBAM, Ms.
Semmel spent four years as a high yield bond analyst at MSAM and has
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<PAGE>
served as portfolio manager of the Series since October 1994. Mr. Scott has been
with SBAM Ltd since April 1994, is a Director and Senior Portfolio Manager and
has served as 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.
Goldman Sachs Asset Management ("GSAM"), One New York Plaza, New York, New
York, 10004, a separate operating division of Goldman, Sachs & Co. ("Goldman
Sachs"), serves as subadviser to the Goldman Sachs Midcap Value Series. G. Lee
Anderson, Vice President, Lawrence S. Sibley, Vice President and Ronald E.
Gutfleish, Managing Director, have served as portfolio managers of the Goldman
Sachs Midcap Value Series since May 1998. Mr. Anderson joined GSAM in 1992.
Prior to that, he was a research analyst in the investment research department
of Goldman Sachs. 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. Berstein. 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.
Fees and Expenses. TNE Advisers is paid a management fee from the Series it
manages as follows:
<TABLE>
<CAPTION>
Annual Management fee rate payable by Series to
Series TNE Advisers (% 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
Davis Venture Value Series 0.75% of all assets
Goldman Sachs Midcap Value Series 0.75% of all assets
Westpeak Growth and Income Series 0.70% of the first $200 million
0.65% of the next $300 million
0.60% of amounts in excess of $500 million
Westpeak Stock Index Series 0.25% of all assets
Loomis Sayles Balanced Series 0.70% of all assets
Back Bay Advisors Managed Series 0.50% of all assets
Salomon Brothers Strategic Bond Opportunities Series 0.65% of all assets
Back Bay Advisors Bond Income Series 0.40% of the first $400 million
0.35% of the next $300 million
0.30% of the next $300 million
0.25% of amounts in excess of $1 billion
Salomon Brothers U.S. Government Series 0.55% of all assets
Back Bay Advisors Money Market Series 0.35% of the first $500 million
0.30% of the next $500 million
0.25% of amounts in excess of $1 billion
</TABLE>
57
<PAGE>
Subadvisory Fees. TNE Advisers pays each subadviser at the following rates
for providing subadvisory services to the following Series:
<TABLE>
<CAPTION>
Annual Percentage Rates
Paid by TNE Advisers to
Series the Respective Subadvisers Average Daily Net Asset Value Levels
- ------------------------------------------------ --------------------------- ------------------------------------
<S> <C> <C>
Loomis Sayles Small Cap Series 0.55% of the first $25 million
0.50% of the next $75 million
0.45% of the next $100 million
0.40% of amounts in excess of $200 million
Morgan Stanley International Magnum 0.75% of the first $30 million
Equity Series 0.60% of the next $40 million
0.45% of the next $30 million
0.40% of amounts in excess of $100 million
Alger Equity Growth Series 0.45% of the first $100 million
0.40% of the next $400 million
0.35% of amounts in excess of $500 million
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
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
Westpeak Growth and Income Series 0.50% of the first $25 million
0.40% of the next $75 million
0.35% of the next $100 million
0.30% of amounts in excess of $200 million
Westpeak Stock Index Series 0.10% of all assets
Loomis Sayles Balanced Series 0.50% of the first $25 million
0.40% of the next $75 million
0.30% of amounts in excess of $100 million
Back Bay Advisors Managed Series 0.25% of the first $50 million
0.20% of amounts in excess of $50 million
Salomon Brothers Strategic Bond 0.35% of the first $50 million
Opportunities Series 0.30% of the next $150 million
0.25% of the next $300 million
0.20% of amounts in excess of $500 million
Back Bay Advisers Bond Income Series 0.25% of the first $50 million
0.20% of the next $200 million
0.15% of amounts in excess of $250 million
Salomon Brothers U.S. Government Series 0.225% of the first $200 million
0.150% of the next $300 million
0.100% of amounts in excess of $500 million
Back Bay Advisors Money Market Series 0.15% of the first $100 million
0.10% of amounts in excess of $100 million
</TABLE>
58
<PAGE>
Adviser of the Capital Growth Series
CGM, One International Place, Boston, Massachusetts 02110, adviser to the
Capital Growth Series, is an investment advisory firm organized in 1989 which
manages seven mutual fund portfolios and advisory accounts for other clients.
The sole general partner of CGM is a corporation owned in equal shares by Robert
L. Kemp and G. Kenneth Heebner. Mr. Heebner, Senior Portfolio Manager of CGM,
has served as portfolio manager of the Capital Growth Series since August of
1983.
The Capital Growth Series pays its adviser, CGM, a management fee at an
annual rate of 0.70% of the first $200 million of average daily net assets,
0.65% of the next $300 million of such assets and 0.60% of such assets in excess
of $500 million. For advisory services rendered during the fiscal year ended
December 31, 1997, CGM was paid ___% of the Capital Growth Series' average net
assets in advisory fees.
Voluntary Expense Agreement
Pursuant to a voluntary expense agreement relating to the Westpeak Growth and
Income , Westpeak Stock Index, Back Bay Advisors Managed, Back Bay Advisors Bond
Income and Back Bay Advisors Money Market Series, TNE Advisers bears the
expenses (other than advisory fees and any brokerage costs, interest, taxes
or extraordinary expenses) of the Series in excess of 0.15% of the respective
Series' average daily net assets. 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% of
the Series' average daily net assets. Similar voluntary expense agreements with
The New England have been in effect with respect to the Capital Growth Series
until April 30, 1996. As a result of the current voluntary expense agreements
(and assuming the Series incur the same level of management fees as in 1997 and
no taxes, interest or extraordinary expenses), these Series' expense ratios
during this prospectus' effectiveness, assuming the continuation of the
voluntary expense agreement, are expected to be as follows:
<TABLE>
<CAPTION>
Total Expense Ratio
Series Under Current Voluntary Expense Agreement
- ----------------------------------------------------------------- -----------------------------------------
<S> <C>
Back Bay Advisors Money Market Series 0.50%
Back Bay Advisors Bond Income Series 0.55%
Back Bay Advisors Managed Series 0.64%
Westpeak Growth and Income Series 0.85%
Westpeak Stock Index Series 0.40%
Loomis Sayles Small Cap Series 1.00%
</TABLE>
TNE Advisers may terminate these expense agreements at any time. If these
expense agreements were terminated, the expense ratios may be higher.
Expense Deferral Arrangement
Pursuant to an expense deferral arrangement relating to the Morgan Stanley
International Magnum Equity Series (formerly, the Draycott International Equity
Series), the Alger Equity Growth Series, the Davis Venture Value Series, the
Loomis Sayles Balanced Series, the Salomon Brothers Strategic Bond Opportunities
Series, the Salomon Brothers U.S. Government Series, and beginning May 1, 1998
the Goldman Sachs Midcap Value 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 the Series to
repay TNE Advisers such expenses in future years, if any, when a Series'
expenses fall below the stated expense limit that pertains to that Series; such
deferred expenses may be charged to a Series in a subsequent year to the extent
that the charge does not cause the total expenses in such subsequent year to
exceed the Series' stated expense limit; provided, however, that no Series is
obligated to repay any expense paid by TNE Advisers more than two years after
the end of the fiscal year in which such expense was incurred. These expense
limits can be prospectively discontinued by TNE Advisers 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
stated expense limits are as follows:
59
<PAGE>
<TABLE>
<CAPTION>
Series Expense Limit Under Deferral Arrangement
- ----------------------------------------------------------------- ----------------------------------------
<S> <C>
Morgan Stanley International Magnum Equity Series 1.30%
Alger Equity Growth Series 0.90%
Davis Venture Value Series 0.90%
Goldman Sachs Midcap Value Series 0.90%
Loomis Sayles Balanced Series 0.85%
Salomon Brothers Strategic Bond Opportunities Series 0.85%
Salomon Brothers U.S. Government Series 0.70%
</TABLE>
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.
The Fund 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
Series the year ended 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%
Capital Growth Series 0.69%
Goldman Sachs Midcap Value Series 0.85%
Davis Venture Value Series 0.90%
Westpeak Growth and Income Series 0.85%
Westpeak Stock Index Series 0.40%
Loomis Sayles Balanced Series 0.85%
Back Bay Advisors Managed Series 0.62%
Salomon Brothers Strategic Bond Opportunities Series 0.85%
Back Bay Advisors Bond Income Series 0.52%
Salomon Brothers U.S. Government Series 0.70%
Back Bay Advisors Money Market Series 0.50%
</TABLE>
60
<PAGE>
If the voluntary expense agreement and expense deferral arrangement described
above had not been in effect, the Series' expenses for the year ended December
31, 1997 would have been:
<TABLE>
<CAPTION>
Total Expenses (as a percentage of net assets) without
voluntary expense agreement or expense deferral arrangement
Series for the year ended December 31, 1997
- ----------------------------------------------------------------- ---------------------------------------------------------------
<S> <C>
Loomis Sayles Small Cap Series 1.29%
Morgan Stanley International Magnum Equity Series 1.66%
Alger Equity Growth Series 0.90%
Capital Growth Series 0.69%
Davis Venture Value Series 0.96%
Goldman Sachs Midcap Value Series 0.92%
Westpeak Growth and Income Series 0.91%
Westpeak Stock Index Series 0.50%
Loomis Sayles Balanced Series 0.99%
Back Bay Advisors Managed Series 0.62%
Salomon Brothers Strategic Bond Opportunities Series 1.19%
Back Bay Advisors Bond Income Series 0.52%
Salomon Brothers U.S. Government Series 1.37%
Back Bay Advisors Money Market Series 0.50%
</TABLE>
These expense figures do not include portfolio brokerage commissions, which
are not deducted from the Series' assets in the same manner as other charges and
expenses; rather, brokerage commissions are part of the purchase price paid for
portfolio securities and reduce the proceeds received on the sale of portfolio
securities.
For the year ended December 31, 1997, brokerage commissions paid by each
Series were as follows:
<TABLE>
<CAPTION>
Series Commissions Paid % of Average Net Assets
- ------------------------------------------------------------- ---------------- -----------------------
<S> <C> <C>
Loomis Sayles Small Cap Series
Morgan Stanley International Magnum Equity Series
Alger Equity Growth Series
Capital Growth Series
Davis Venture Value Series
Goldman Sachs Midcap Value Series
Westpeak Growth and Income Series
Westpeak Stock Index Series
Loomis Sayles Balanced Series
Back Bay Advisors Managed Series
</TABLE>
The Alger Equity Growth, Morgan Stanley International Magnum Equity, Davis
Venture Value, and Goldman Sachs Midcap Value Series may pay brokerage
commissions to brokerage firms affiliated with each Series respective
subadviser. Portfolio transactions of the Salomon Brothers Strategic Bond
Opportunities Series, Back Bay Advisors Bond Income Series, Salomon Brothers
U.S. Government Series and Back Bay Advisors Money Market Series and portfolio
transactions of the Back Bay Advisors Managed Series and the Loomis Sayles
Balanced Series in bonds, notes and money market instruments are generally
effected on a net basis without a stated commission.
Miscellaneous Arrangements
TNE Advisers has contracted with New England Funds, L.P. to provide executive
and other personnel for the administration of the affairs of the Series advised
by TNE Advisers. Subject to procedures adopted by the Fund's Board of Trustees,
Fund brokerage transactions may be executed by brokers that are affiliated with
any adviser or subadviser. New England Funds, L.P. is a wholly owned subsidiary
of NEICOP.
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 NELICO.
61
<PAGE>
SALE AND REDEMPTION OF SHARES
Shares of each Series are purchased or redeemed depending, among other
things, on the amount of premium payments invested and the surrender and
transfer requests effected on any given day pursuant to the variable life
insurance and variable annuity contracts supported by the Fund. Such
transactions can be made only on those days during which the New York Stock
Exchange (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 VALUES AND PORTFOLIO VALUATION
Loomis Sayles, MSAM, Alger Management, CGM, Davis Selected, Westpeak, Back
Bay Advisors, GSAM and SBAM, under the direction of the Fund's Board of
Trustees, determine the value of each Series' securities. The net asset value
of each Series' shares is determined as of the close of regular trading on the
NYSE each day it is open. Each Series' total net assets are divided by the
number of outstanding shares of that Series to determine the net asset value per
share for that Series.
The Back Bay Advisors Money Market Series' investment portfolio, and any
fixed-income securities with remaining maturities of 60 days or less held by any
other Series, are valued at amortized cost. Other portfolio securities of each
Series (other than the Back Bay Advisors Money Market Series) are valued at
market value where current market quotations are readily available and otherwise
are taken at fair value as determined in good faith by the Fund's Board of
Trustees, although the actual calculations may be made by persons acting
pursuant to the direction of the Board.
The Back Bay Advisors Money Market Series seeks to maintain a constant net
asset value per share of $100, although this cannot be assured. The net asset
value per share for the other Series will vary depending on the value of each
Series' investment portfolio.
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Back Bay Advisors Money Market Series
The net investment income of the Back Bay Advisors Money Market Series is
declared daily and paid monthly as a dividend. Although the Back Bay Advisors
Money Market Series does not expect to realize any long-term capital gains, if
such gains are realized they will be distributed once a year.
Other Series
It is the policy of each Series other than the Back Bay Advisors Money Market
Series to pay annually as dividends substantially all net investment income and
to distribute annually all net realized capital gains, if any, after offsetting
any capital loss carryovers. See "Taxes." Dividends from net investment income
may be paid more or less often if the Fund's Board of Trustees deems it
appropriate.
Federal income tax law requires each Series to distribute prior to calendar
year-end virtually all of its ordinary income for such year and virtually all of
the capital gain net income realized by the Series in the one-year period ending
October 31 (or December 31, if the Series so elects) of such year and not
previously distributed.
Dividends and distributions of each Series are automatically reinvested in
shares of the respective Series.
62
<PAGE>
TAXES
Each Series is treated as a separate entity for federal income tax purposes
and intends to qualify as a regulated investment company under the Code, as
amended. So long as a Series distributes all of its net investment income and
net capital gains to its shareholders, the Series itself does not pay any
federal income tax. Dividends from net investment income of each of the Series
and distributions of each Series' net short-term gains, if any, are treated as
ordinary income to its shareholders. Distributions of any Series' net realized
long-term capital gains, if any, are treated as long-term capital gains to its
shareholders. Whether or not taxes must be paid by the shareholders of a Series
on distributions received from that Series will depend on the tax status of
NELICO's or MetLife's separate accounts and the tax status of any other
shareholders. For the purposes of the foregoing, each Series' shareholders are
the separate accounts investing directly in the Fund and not the owners of the
variable life insurance or variable annuity contracts for which the Fund serves
as an investment vehicle. For a description of the tax consequences for such
contract owners, see the relevant prospectus applicable to such contracts.
ORGANIZATION AND CAPITALIZATION OF THE FUND
The Fund was originally organized in 1983 as a Massachusetts corporation, and
was reorganized as a Massachusetts business trust on February 27, 1987. The
Fund is registered as a diversified, open-end management company under the 1940
Act, and is authorized to issue an unlimited number of shares of each Series.
Shareholders may address inquiries about the Fund to New England Securities, 399
Boylston Street, Boston, Massachusetts 02116.
As of the date of this prospectus, all of the outstanding voting securities
of the Fund are owned by separate accounts of MetLife and/or NELICO, and may,
from time to time, be owned by those separate accounts and the general account
of MetLife. Therefore, MetLife and NELICO are presumed to be in control (as
that term is defined in the 1940 Act) of the Fund. However, the staff of the
SEC is presently of the view that MetLife and NELICO are each required to vote
their Fund shares that are held in a separate account that is a registered
investment company under the 1940 Act (and, to the extent voting privileges are
granted by the issuing insurance company, in unregistered separate accounts) in
the same proportion as the voting instructions received from owners of the
variable life insurance or variable annuity contracts issued by the separate
account, and that MetLife is required to vote any shares held in its general
account (or in any unregistered separate account that does not have voting
privileges) in the same proportion as all other Fund shares are voted. MetLife
and NELICO currently intend to vote their shares in a manner consistent with
this view.
The Fund does not generally hold annual meetings of shareholders and will
hold shareholders meetings only when required by law. Shareholders may remove
trustees from office by votes cast at a shareholder meeting or by written
consent.
TRANSFER AGENT
The transfer agent and the dividend paying agent for the Fund is NELICO, 501
Boylston Street, Boston, Massachusetts 02116.
VOTING RIGHTS
Fund shareholders are entitled to one vote for each full share held (with
fractional votes for fractional shares held). NELICO and MetLife are the legal
owners of shares attributable to variable life insurance and variable annuity
contracts issued by their separate accounts, and have the right to vote those
shares. Pursuant to the current view of the SEC staff described above, NELICO
and MetLife will vote their shares in accordance with instructions received from
owners of variable life insurance and variable annuity contracts issued by
separate accounts that are registered under the 1940 Act. All Fund shares held
by separate accounts of NELICO and MetLife that are registered under the 1940
Act (and, to the extent voting privileges are granted by the issuing insurance
company, by unregistered separate accounts) for which no timely 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.
63
<PAGE>
APPENDIX A
AVERAGE MONTHLY PORTFOLIO COMPOSITION TABLE OF THE SALOMON BROTHERS STRATEGIC
BOND OPPORTUNITIES SERIES FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Percentage
of Net
Security Assets
- -------- ----------
<S> <C>
Preferred Stock.............................................................................
Short-term Obligations and Other Assets.....................................................
Common Stock................................................................................
Debt -- Unrated.............................................................................
Debt -- Standard and Poor's Rating
AAA....................................................................................
AA.....................................................................................
A......................................................................................
BBB....................................................................................
BB.....................................................................................
B......................................................................................
CCC....................................................................................
</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 Salomon Brothers Strategic Bond Opportunities 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.
AVERAGE MONTHLY PORTFOLIO COMPOSITION TABLE OF THE
BACK BAY ADVISORS BOND INCOME SERIES FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Percentage
of Net
Security Assets
- -------- ----------
<S> <C>
Preferred Stock.............................................................................
Short-term Obligations and Other Assets.....................................................
Common Stock................................................................................
Debt -- Unrated.............................................................................
Debt -- Standard and Poor's Rating
AAA....................................................................................
AA.....................................................................................
A......................................................................................
BBB....................................................................................
BB.....................................................................................
B......................................................................................
CCC....................................................................................
CD.....................................................................................
</TABLE>
The chart above indicates the composition of the Back Bay Advisors Bond Income
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 Back Bay Advisors Bond Income Series' net assets invested in
each category as of the end of each month during the year. Back Bay Advisors
does not rely primarily on ratings designed by any rating agency in making
investment decisions. The chart does not necessarily indicate what the
composition of the Series' portfolio will be in subsequent fiscal years.
64
<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.
65
<PAGE>
NEW ENGLAND ZENITH FUND
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1998
This Statement of Additional Information is not a prospectus. This Statement of
Additional Information relates to the Prospectus dated May 1, 1998, and should
be read in conjunction therewith. A copy of the Prospectus may be obtained from
New England Securities Corporation, 399 Boylston Street, Boston, Massachusetts
02116.
1
<PAGE>
TABLE OF CONTENTS
Page
----
Investment Objectives and Policies
Miscellaneous Investment Practices
Determination of Net Asset Values
Fund Performance
Trustees and Officers
Advisory Arrangements
Distribution Agreement
Other Services
Portfolio Transactions and Brokerage
Description of the Fund
Appendix A-1 (Description of Bond Ratings)
Appendix A-2 (Description of Commercial Paper Ratings)
Appendix B
Appendix C
2
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of each Series (collectively and
individually the "Series") of New England Zenith Fund (the "Fund") are
summarized on the front page of the Prospectus and in the text of the Prospectus
following the caption "Investment Objectives and Policies." There can be no
assurance that any of the Series will achieve its objective. The investment
policies of each Series set forth in the Prospectus and in this Statement of
Additional Information may be changed without shareholder approval, except for
any policy as to which the Prospectus or this Statement of Additional
Information explicitly indicates that such approval is required, and except for
the investment objectives of the Money Market, Bond Income, Capital Growth,
Growth and Income, Stock Index, Managed and Small Cap Series, which have
fundamental investment objectives.
The terms "shareholder approval" and "approval of a majority of the
outstanding voting securities," as used in the Prospectus and this Statement of
Additional Information, mean, with respect to a Series, approval by the lesser
of (i) 67% of the shares of the Series represented at a meeting at which more
than 50% of the outstanding shares of such Series are represented or (ii) more
than 50% of the outstanding shares of such Series.
Loomis Sayles Small Cap Series
As indicated in the Prospectus following the caption "Investment Objective and
Policies -- Loomis Sayles Small Cap Series," the Loomis Sayles Small Cap Series
seeks to attain its investment objective of long-term capital growth through
investments in common stocks or their equivalent.
Loomis Sayles & Company, L.P. ("Loomis Sayles"), the Series' subadviser,
manages the Series by investing primarily in stocks of small cap companies with
good earnings growth potential that Loomis Sayles believes are undervalued by
the market. Normally, the Series will invest at least 65% of its assets in
companies with market capitalization in the range of the average capitalization
of those companies which make up the Russell 2000 Index. The Series will invest
in companies which have better than average growth rates at below average
price/earnings ratios and have strong balance sheets and cash flow. Loomis
Sayles seeks to build a core small cap portfolio of solid growth company stocks,
with a smaller emphasis on special situations and turnarounds (companies that
have experienced significant business problems but which Loomis Sayles believes
have favorable prospects for recovery), as well as unrecognized stocks.
Under unusual market conditions as determined by Loomis Sayles, all or any
portion of the Series may be invested, for temporary, defensive purposes, in
short-term debt instruments or in cash. In addition, under normal conditions, a
portion of the Series' assets may be invested in short-term assets for liquidity
purposes or pending investment in other securities. Short-term investments may
include U.S. Government securities, certificates of deposit, commercial paper
and other obligations of corporate issuers rated in the top two rating
categories by a major rating agency or, if unrated, determined to be of
comparable quality by the subadviser, and repurchase agreements that are fully
collateralized by cash, U.S. Government securities or high-quality money market
instruments.
Morgan Stanley International Magnum Equity Series
As disclosed in the Prospectus under the caption "Investment Objectives and
Policies -- Morgan Stanley International Magnum Equity Series," the Morgan
Stanley International Magnum Equity Series seeks to attain its investment
objective of long-term capital appreciation primarily through investment in
international equity securities.
The Series will invest primarily in international equity securities; however,
the Series' investment objective will be long-term capital appreciation. The
production of any current income will be incidental to this objective. The
countries in which the Series may invest are those represented in the Morgan
Stanley Capital International Index (the "EAFE Index"), which includes
Australia, Japan, New Zealand, most of the nations in Western Europe and certain
developed countries in Asia such as Hong Kong and Singapore. The Series may also
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 different countries outside the United
States.
3
<PAGE>
In managing the Series' portfolio, Morgan Stanley Asset Management, Inc.
("MSAM") will first determine what percentage of the Series' assets should be
invested in each region represented in the EAFE Index. This determination will
be based on projections of comparative interest rates, currencies, corporate
profits and economic growth among the various regions represented in the EAFE
Index. After these regional allocations are determined, the portfolio manager
for each region selects the stocks of issuers in these respective region.
Alger Equity Growth Series
As disclosed in the Prospectus under the caption "Investment Objectives and
Policies -- Alger Equity Growth Series," the Alger Equity Growth Series seeks to
attain its investment objective of long-term capital appreciation by investing
primarily in a diversified, actively managed portfolio of equity securities,
principally in companies having a total market capitalization of $1 billion or
greater. These companies may still be in the developmental stage, may be older
companies that appear to be entering a new stage of growth progress, or may be
companies providing products or services with a high unit volume growth rate.
Capital Growth Series
As disclosed in the Prospectus under the caption "Investment Objectives and
Policies -- Capital Growth Series," the Capital Growth Series seeks to attain
its investment objective of long-term growth of capital through investment
primarily in equity securities of companies whose earnings are expected to grow
at a faster rate than the United States economy. The selection of common stocks
for the Capital Growth Series' investment portfolio is based on the assessment
of the Series' adviser, Capital Growth Management Limited Partnership ("CGM"),
that the common stock is attractively priced relative to its earnings and growth
potential.
The Series does not consider current income as a significant factor in
selecting its investments. However, during periods when management considers
that economic or market conditions make it desirable, the Series may take a
defensive position by investing a substantial portion of its assets in cash or
fixed-income securities (bonds, notes and money market instruments). No
estimate can be made as to when or for how long the Series will employ such
defensive strategies; however, in the past, such periods have been as long as
one year.
The Capital Growth Series does not currently intend to invest in restricted
securities, options or warrants although, subject to its investment
restrictions, it may do so in the future. See "Investment Restrictions."
Although the Capital Growth Series' objective is long-term capital growth, it
frequently sells securities to reflect changes in market, industry or individual
company conditions or outlook even though it may only have held those securities
for a short period. As a result of these policies, the Capital Growth Series,
under certain market conditions, may experience high portfolio turnover,
although specific portfolio turnover rates are impossible to predict. In recent
years, the portfolio turnover rate of the Capital Growth Series has fluctuated
considerably as a result of strategic shifts in portfolio holdings designed to
maintain an optimum portfolio structure in view of general market conditions and
movements in individual stock prices.
4
<PAGE>
Davis Venture Value Series
As disclosed in the Prospectus under the caption "Investment Objectives and
Policies -- Davis Venture Value Series," the Davis Venture Value Series seeks to
attain its investment objective of growth of capital by investing in domestic
common stocks that the Series' subadviser believes have capital growth potential
due to factors such as undervalued assets or earnings potential, product
development and demand, favorable operating ratios, resources for expansion,
management abilities, reasonableness of market price, and favorable overall
business prospects. The Series will generally invest predominantly in equity
securities of companies with market capitalizations of at least $250 million.
It may also invest in issues with smaller capitalizations.
Goldman Sachs Midcap Value Series
As disclosed in the prospectus under the caption "Investment Objectives and
Policies -- Goldman Sachs Midcap Value Series," Goldman Sachs Midcap Value
Series seeks to provide investors with long-term capital appreciation. Goldman
Sachs Asset Management ("GSAM") acts as subadviser and invests, under normal
circumstances, substantially all of the Series' assets in equity securities and
at least 65% of the Series' total assets in equity securities of companies with
public stock market capitalizations (based upon shares available for trading on
an unrestricted basis) of between $500 million and $10 billion at the time of
investment. If the capitalization of an issuer increases above or decreases to
outside 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 their issuer's 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 the 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 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 the Series' total assets in fixed income
securities, including up to 10% of its total assets in fixed-income securities
rated BB or lower by S&P or Ba or lower by Moody's. In addition, although the
Series will invest primarily in publicly traded U.S. securities, up to 25% of
its total assets may be invested in foreign securities, including up to 15% of
its assets in securities of issuers of emerging markets (as from time to time
determined by GSAM) and securities quoted in foreign currencies.
In addition to the techniques and investments described above, the Series may
with respect to no more than 5% of its net assets, engage in the following
techniques and investments (i) warrants and stock purchase rights and (ii)
custodial receipts.
Westpeak Growth and Income Series
As disclosed in the Prospectus under the caption "Investment Objectives and
Policies -- Westpeak Growth and Income Series," the Westpeak Growth and Income
Series seeks long-term total return (capital appreciation and dividend income)
through investment in equity securities, both in securities that the Series'
subadviser, Westpeak Investment Advisors, L.P. ("Westpeak"), believes are
undervalued ("value" style) and securities of companies that Westpeak believes
have growth potential ("growth" style). The Westpeak Growth and Income Series
will ordinarily invest substantially all of its assets in equity securities.
Although the Westpeak Growth and Income Series' objective is long-term total
return, it may sell securities to reflect changes in Westpeak's assessment of
the relative attractiveness of particular investments. As a result, the
Westpeak Growth and Income Series, under certain market conditions, may
experience high portfolio turnover. High portfolio turnover involves
correspondingly higher brokerage commissions than would be experienced by a
similar fund with lower turnover.
The assets of the Westpeak Growth and Income Series that are not invested in
equity securities will be held in cash or invested as described below under
"Miscellaneous Investment Practices--Money Market Instruments."
Westpeak Stock Index Series
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<PAGE>
As disclosed in the Prospectus under the caption "Investment Objectives and
Policies -- Westpeak Stock Index Series," the Westpeak Stock Index Series uses
the Standard & Poor's 500 Composite Stock Index ("S&P 500 Index") as the
standard of performance comparison because that index currently represents a
significant percentage of the total market value of all United States publicly
traded common stocks, is well known to investors, and is commonly regarded as
representative of the performance of United States publicly traded common stocks
taken as a whole.
The S&P 500 Index is composed of 500 common stocks, most of which are listed
on the New York Stock Exchange. Standard & Poor's, which is not a sponsor of or
in any other way affiliated with the Series, chooses the 500 stocks included in
the S&P 500 Index on the basis of market value and industry diversification.
The S&P 500 Index assigns relative values to the stocks included in the index,
weighted according to each stock's total market value relative to the total
market value of the other stocks included in the index. The stocks included in
the S&P 500 Index may change from time to time.
The Westpeak Stock Index Series is not managed through traditional methods of
investment management, which typically attempt to use economic, financial and
market analysis to select undervalued stocks or stocks of companies that may
experience above-average growth, nor will the adverse financial situation of a
company necessarily result in the elimination of its stock from the Westpeak
Stock Index Series' portfolio. As described in the Prospectus, stocks will be
selected in an attempt to approximate the performance of the S&P 500 Index and
to minimize tracking error. From time to time, adjustments may be made in the
Westpeak Stock Index Series' investment portfolio, but such changes should be
infrequent compared to those of most management investment companies. Westpeak
currently expects that such adjustments will ordinarily be made on a monthly
basis, but such adjustments could be made more or less frequently, depending on
changes in the size of the Westpeak Stock Index Series, among other factors. As
a consequence of the relative infrequency of portfolio adjustments, brokerage
and other transaction costs are expected to be relatively low. However, these
costs and other expenses may cause the return of the Westpeak Stock Index Series
to be lower than the return of the S&P 500 Index. In addition, the relative
infrequency of portfolio adjustments may result in increased tracking error, to
the extent that new cash that has come into the Series is held, or invested in
money market instruments and repurchase agreements, pending the next portfolio
adjustment, rather than invested immediately in common stocks included in the
S&P 500 Index.
It is the Westpeak Stock Index Series' policy to be fully invested in common
stocks. However, the Westpeak Stock Index Series may hold a portion of its
assets, which will not exceed 5% (not including additional cash that has come
into the Series and is pending investment in common stocks), in cash to meet
redemptions and other day-to-day operating expenses. The Series may also engage
in futures transactions to reduce tracking error. In addition, the Westpeak
Stock Index Series may invest cash temporarily in money market instruments and
repurchase agreements, as described below under "Miscellaneous Investment
Practices -- Money Market Instruments". Such temporary investments will only be
made with cash held to maintain liquidity or pending investment, and will not be
made for defensive purposes in the event or in anticipation of a general decline
in the market prices of stocks in which the Series invests. A defensive
investment posture is precluded by the Westpeak Stock Index Series' investment
objective to provide investment results that correspond to the price and yield
performance of a universe of common stocks. Investors in the Westpeak Stock
Index Series therefore bear the risk of general declines in stock prices in the
stock markets.
The index that the Westpeak Stock Index Series uses as a standard of
comparison in seeking to achieve its objective may be changed without
shareholder approval. At some time in the future, another index may be selected
if such a standard of comparison is deemed more appropriate than the S&P 500
Index as an indicator of the performance of United States publicly traded common
stocks.
Loomis Sayles Balanced Series
As disclosed in the Prospectus under the caption "Investment Objectives and
Policies -- Loomis Sayles Balanced Series," the Loomis Sayles Balanced Series
seeks to attain its investment objective of reasonable long-term investment
return from a combination of long-term capital appreciation and moderate current
income.
The Series is "flexibly managed" in that sometimes it invests more heavily in
equity securities and at other times it invests more heavily in fixed-income
securities, depending on its subadviser's view of the economic and
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<PAGE>
investment outlook. Most of the Series' investments are normally in dividend-
paying common stocks of recognized investment quality that are expected to
achieve growth in earnings and dividends over the long-term. Fixed-income
securities include notes, bonds, non-convertible preferred stock and money
market instruments. The Series may invest in adjustable rate mortgage
securities, asset-backed securities, STRIPs and inverse floaters, subject to a
limit of 5% of the Series' assets for each of these types of instruments. The
Series invests at least 25% of its assets in fixed-income senior securities and,
under normal market conditions, more than 50% of its assets in equity
securities. The Series also may invest in foreign securities.
Back Bay Advisors Managed Series
As indicated in the Prospectus following the caption "Investment Objective
and Policies -- Back Bay Advisors Managed Series," the Back Bay Advisors Managed
Series' investment portfolio will generally contain a mix of (1) common stocks,
(2) notes and bonds and (3) money market instruments. Each of these categories
of investments involves certain risks.
The text of the Prospectus following the caption "Investment Objective and
Policies -- Back Bay Advisors Money Market Series," contains a description of
the money market instruments and related repurchase agreements in which the Back
Bay Advisors Managed Series may invest; for a fuller description, see
"Miscellaneous Investment Practices--Money Market Instruments," below.
The portion of the Back Bay Advisors Managed Series' investment portfolio
consisting of notes and bonds will be invested in bonds of the types in which
the Back Bay Advisors Bond Income Series is permitted to invest. These
investments may include bonds rated B or higher by S&P or Moody's (or unrated
bonds of similar quality). The risks associated with lesser rated and unrated
bonds are described in the Prospectus under "Investment Objectives and
Policies--Back Bay Advisors Bond Income Series". The Series will purchase and
sell securities for the bond portion of its portfolio in anticipation of or in
response to changes in yield relationships, markets or economic conditions. The
bond portion of the Series' investment portfolio will also be invested to take
advantage of temporary disparities in the relative values of certain sectors of
the market for fixed-income securities. As a result of these policies, the bond
portion of the Series' portfolio, under certain market conditions, may
experience high portfolio turnover.
Because the securities in its portfolio are subject to price declines as well
as price advances, at times the net asset value per Back Bay Advisors Managed
Series share may be less than a shareholder's original cost. There can be no
assurance that the Back Bay Advisors Managed Series' investment objective will
be attained.
Salomon Brothers Strategic Bond Opportunities Series
As disclosed in the Prospectus under the caption "Investment Objectives and
Policies -- Salomon Brothers Strategic Bond Opportunities Series," the Salomon
Brothers Strategic Bond Opportunities Series seeks to attain its investment
objective of a high level of total return consistent with preservation of
capital by assessing the relative risks and opportunities available in various
market segments and allocating assets primarily among U.S. Government
obligations, mortgage backed securities, domestic corporate debt and
international debt securities rated investment grade (BBB or higher by S&P or
Baa or higher by Moody's) and domestic and sovereign corporate debt and
international debt securities rated below investment grade.
Back Bay Advisors Bond Income Series
The text of the Prospectus following the caption "Investment Objectives and
Policies -- Back Bay Advisors Bond Income Series" gives a description of the
securities in which the Back Bay Advisors Bond Income Series may invest.
Although at least 80% of the Series' bond investments will carry ratings higher
than BBB or Baa by S&P or Moody's, the Series may purchase non-rated or lower-
rated bonds which may be traded only over-the-counter. Nonrated bonds are so
categorized because the bond's rating has been suspended or because the issuer
did not seek a rating of the bonds from Moody's or Standard & Poor's.
As described in the Prospectus, the average maturity of the Back Bay Advisors
Bond Income Series' portfolio will usually be between five and fifteen years.
Depending on market conditions, the Back Bay Advisors Bond Income Series may
take a defensive position by investing a substantial portion of its assets in
the money market
7
<PAGE>
instruments eligible for purchase by the Back Bay Advisors Money Market Series.
No estimate can be made as to when or for how long the Series would employ such
defensive strategies.
The Back Bay Advisors Bond Income Series purchases and sells portfolio
investments in anticipation of or in response to changes in yield relationships,
markets or economic conditions. The Back Bay Advisors Bond Income Series also
invests to take advantage of temporary disparities in the relative values of
certain sectors of the market for fixed-income securities. As a result of these
policies, the Back Bay Advisors Bond Income Series, under certain market
conditions, may experience high portfolio turnover, although specific portfolio
turnover rates are impossible to predict.
Moreover, since all securities are subject to price declines as well as price
advances, at times the net asset value per Back Bay Advisors Bond Income Series
share may be less than a shareholder's original cost. In recent years, prices
for fixed-income securities have generally been more volatile than they were in
prior periods, and this has increased the market risk of holding such
securities.
Salomon Brothers U.S. Government Series
As disclosed in the Prospectus under the caption "Investment Objectives and
Policies -- Salomon Brothers U.S. Government Series," the Salomon Brothers U.S.
Government Series seeks to attain its investment objective of providing a high
level of current income consistent with preservation of capital and maintenance
of liquidity by investing primarily in debt obligations and, to the extent
allowed by state law and regulation, in mortgage backed securities issued or
guaranteed by the U. S. Government its agencies, authorities or
instrumentalities or derivative securities such as collateralized mortgage
obligations ("CMOs") backed by such securities.
Back Bay Advisors Money Market Series
The text of the Prospectus following the caption "Investment Objectives and
Policies -- Back Bay Advisors Money Market Series" gives a description of the
money market instruments in which the Back Bay Advisors Money Market Series may
invest. For a fuller description of those money market instruments and some of
the risks relating thereto, see "Money Market Instruments," below. The Back Bay
Advisors Money Market Series will invest only in securities which the Series'
subadviser, Back Bay Advisors, L.P. ("Back Bay Advisors"), acting pursuant to
guidelines established by the Fund's Board of Trustees, has determined are of
high quality and present minimal credit risk.
As indicated in the Prospectus, all the Back Bay Advisors Money Market Series'
money market instruments mature in less than 397 days and the average maturity
of the Back Bay Advisors Money Market Series' portfolio securities based on
their dollar value will not exceed 90 days at the time of each investment.
Money market instruments maturing in less than 397 days tend to yield less than
obligations of comparable quality having longer maturities. See "Valuation of
Portfolio Securities" and "Fund Performance." Where obligations of greater than
one year are used to secure the Back Bay Advisors Money Market Series'
repurchase agreements, the repurchase agreements themselves will have very short
maturities. If the disposition of a portfolio security results in a dollar-
weighted average portfolio maturity in excess of 90 days, the Back Bay Advisors
Money Market Series will invest its available cash in such a manner as to reduce
its dollar-weighted average portfolio maturity to 90 days or less as soon as
reasonably practicable.
In seeking to provide the highest possible level of current income consistent
with preservation of capital, the Back Bay Advisors Money Market Series may not
necessarily invest in money market instruments paying the highest available
yield at a particular time. The Back Bay Advisors Money Market Series,
consistent with its investment objective, attempts to maximize income by
engaging in portfolio trading and by buying and selling portfolio investments in
anticipation of or in response to changing economic and money market conditions
and trends. The Series may also invest to take advantage of what are believed
to be temporary disparities in the yields of different segments of the high
grade money market or among particular instruments within the same segment of
the market. These policies, as well as the relatively short maturity of
obligations to be purchased by the Series, may result in frequent changes in the
Series' investment portfolio of money market instruments.
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The value of the securities in the Series' investment portfolio can be
expected to vary inversely to changes in prevailing interest rates. Thus, if
interest rates increase after a security is purchased, that security, if sold,
might be sold at less than cost. Conversely, if interest rates decline after
purchase, the security, if sold, might be sold at a profit. In either instance,
if the security were held to maturity, no gain or loss would normally be
realized as a result of these fluctuations. Substantial redemptions of shares
of the Back Bay Advisors Money Market Series could require the sale of portfolio
investments at a time when a sale might not be desirable.
MISCELLANEOUS INVESTMENT PRACTICES
The following information relates to some of the certain investment practices
in which certain Series may engage. The table indicates which Series may engage
in each of these practices.
<TABLE>
<CAPTION>
Practices Series
- --------- ------
<S> <C>
Money Market Instruments All Series
U.S. Government Securities All Series
Convertible Securities Morgan Stanley International Magnum Equity Series
Alger Equity Growth Series
Capital Growth Series
Goldman Sachs Midcap Value Series
Loomis Sayles Balanced Series
Back Bay Advisors Managed Series
Salomon Brothers Strategic Bond Opportunities Series
Back Bay Advisors Bond Income Series
Reverse Repurchase Agreements and Dollar Rolls Salomon Brothers Strategic Bond Opportunities Series
Salomon Brothers U.S. Government Series
Lending of Portfolio Securities Alger Equity Growth Series
Davis Venture Value Series
Goldman Sachs Midcap Value Series
Back Bay Advisors Managed Series
Salomon Brothers Strategic Bond Opportunities Series
Back Bay Advisors Bond Income Series
Salomon Brothers U.S. Government Series
Morgan Stanley International Magnum Equity Series
Privately-Issued Mortgage Securities Salomon Brothers Strategic Bond Opportunities Series
Salomon Brothers U.S. Government Series
Goldman Sachs Midcap Value Series
Asset-Backed Securities; Types of Credit Support Goldman Sachs Midcap Value Series
Loomis Sayles Balanced Series
Salomon Brothers Strategic Bond Opportunities Series
Salomon Brothers U.S. Government Series
STRIPs Loomis Sayles Balanced Series
Salomon Brothers Strategic Bond Opportunities Series
Salomon Brothers U.S. Government Series
Stripped Mortgage Securities Salomon Brothers Strategic Bond Opportunities Series
Salomon Brothers U.S. Government Series
Loomis Sayles Balanced Fund
Swaps, Caps, Floors, Collars, Etc. Salomon Brothers Strategic Bond Opportunities Series
Goldman Sachs Midcap Value Series
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Eurodollar Futures and Options Salomon Brothers Strategic Bond Opportunities Series
Salomon Brothers U.S. Government Series
High Yield/High Risk Foreign Sovereign Debt Salomon Brothers Strategic Bond Opportunities Series
Securities
Futures and Options Morgan Stanley International Magnum Equity Series
Davis Venture Value Series
Goldman Sachs Midcap Value Series
Westpeak Growth and Income Series
Westpeak Stock Index Series
Loomis Sayles Balanced Series
Back Bay Advisors Managed Series
Salomon Brothers Strategic Bond Opportunities Series
Salomon Brothers U.S. Government Series
Options on Securities and Securities Goldman Sachs Midcap Value Series
Indices; Options on Foreign Contracts;
Futures Contracts and Options on
Futures Contracts; Options on Foreign
Currency
Foreign Currency Hedging Transactions Morgan Stanley International Magnum Equity Series
Davis Venture Value Series
Goldman Sachs Midcap Value Series
Salomon Brothers Strategic Bond Opportunities Series
Real Estate Investment Trusts Goldman Sachs Midcap Value Series
Emerging Markets Goldman Sachs Midcap Value Series
</TABLE>
Money Market Instruments - Obligations of foreign branches of U.S. banks and
- ------------------------
other foreign securities are subject to risks of foreign political, economic and
legal developments, which include foreign governmental restrictions adversely
affecting payment of principal and interest on the obligations, foreign
withholding and other taxes on interest income, and difficulties in obtaining
and enforcing a judgment against a foreign branch of a domestic bank. With
respect to bank obligations, different risks may result from the fact that
foreign banks are not necessarily subject to the same or similar regulatory
requirements that apply to domestic banks. For instance, such branches may not
be subject to the types of requirements imposed on domestic banks with respect
to mandatory reserves, loan limitations, examinations, accounting, auditing,
recordkeeping and the public availability of information. Obligations of such
branches will be purchased by the Series only when the Series' adviser or
subadviser believes the risks are minimal.
The following constitutes a description of the money market instruments which
may be purchased by the Back Bay Advisors Money Market Series, and by any of the
Series, some of which may only invest for temporary defensive purposes.
U.S. Government Securities -- are bills, certificates of indebtedness, notes
and bonds issued by agencies, authorities and instrumentalities of the U.S.
Government. Some obligations, such as those issued by the U.S. Treasury, the
Government National Mortgage Association, the Farmers' Home Administration and
the Small Business Administration, are backed by the full faith and credit of
the U.S. Treasury. Other obligations are backed by the right of the issuer to
borrow from the U.S. Treasury or by the credit of the agency, authority or
instrumentality itself. Such obligations include, but are not limited to,
obligations issued by the Tennessee Valley Authority, the Bank for Cooperatives,
Federal Home Loan Banks, Federal Intermediate Credit Banks, Federal Land Banks
and the Federal National Mortgage Association.
Repurchase Agreements -- are agreements by which a Series purchases a security
(usually a U.S. Government Security) and obtains a simultaneous commitment from
the seller (a member bank of the Federal Reserve System or, to the extent
permitted by the 1940 Act, a recognized securities dealer) to repurchase the
security at an agreed upon price and date. The resale price is in excess of the
purchase price and reflects an agreed upon market rate unrelated to the coupon
rate on the purchased security. Such transactions afford the Series the
opportunity to earn a return on temporarily available cash at minimal market
risk. While the underlying security may be a bill, certificate of indebtedness,
note or bond issued by an agency, authority or instrumentality of the United
States Government, the obligation of the seller is not guaranteed by the U.S.
Government and there is a risk that the seller may fail to repurchase the
underlying security. In such event, the Series may be able to exercise rights
with
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<PAGE>
respect to the underlying security, including possible disposition of the
security in the market. However, the Series may be subject to various delays and
risks of loss, including (a) possible declines in the value of the underlying
security during the period while the Series seeks to enforce its rights thereto,
(b) possible reduced levels of income and lack of access to income during this
period and (c) inability to enforce rights and the expenses involved in
attempted enforcement.
In addition, the Goldman Sachs Midcap Value Series, together with other
registered investment companies managed by Goldman Sachs Asset Management or its
affiliates, may transfer uninvested cash balances into a single joint account,
the daily aggregate balance of which will be invested in one or more repurchase
agreements.
Certificates of Deposit -- are certificates issued against funds deposited in
a bank, are for a definite period of time, earn a specified rate of return and
are normally negotiable.
Bankers' Acceptances -- are short-term credit instruments used to finance the
import, export, transfer or storage of goods. They are termed "accepted" when a
bank guarantees their payment at maturity.
Eurodollar Obligations -- are obligations of foreign branches of U.S. banks.
Commercial Paper -- refers to promissory notes issued by corporations in
order to finance their short-term credit needs. For a description of commercial
paper ratings see Appendix A-1.
U.S. Government Securities - The Series may invest in some or all of the
--------------------------
following U.S. Government Securities, as well as in other types of securities
issued or guaranteed by the U.S. Government or its agencies, authorities or
instrumentalities:
. U.S. Treasury Bills - Direct obligations of the United States Treasury which
are issued in maturities of one year or less. No interest is paid on Treasury
bills; instead, they are issued at a discount and repaid at full face value when
they mature. They are backed by the full faith and credit of the United States
Government.
. U.S. Treasury Notes and Bonds - Direct obligations of the United States
Treasury issued in maturities that vary between one and 40 years, with interest
normally payable every six months. These obligations are backed by the full
faith and credit of the United States Government.
. "Ginnie Maes" - Debt securities issued by a mortgage banker or other
mortgagee which represent an interest in a pool of mortgages insured by the
Federal Housing Administration or the Farmer's Home Administration or guaranteed
by the Veterans Administration. The Government National Mortgage Association
("GNMA") guarantees the timely payment of principal and interest when such
payments are due, whether or not these amounts are collected by the issuer of
these certificates on the underlying mortgages. Mortgages included in single
family or multi-family residential mortgage pools backing an issue of Ginnie
Maes have a maximum maturity of up to 30 years. Scheduled payments of principal
and interest are made to the registered holders of Ginnie Maes (such as the
Fund) each month. Unscheduled prepayments may be made by homeowners, or as a
result of a default. Prepayments are passed through to the registered holder
(such as the Fund, which reinvests any prepayments) of Ginnie Maes along with
regular monthly payments of principal and interest.
. "Fannie Maes" - The Federal National Mortgage Association ("FNMA") is a
government-sponsored corporation owned entirely by private stockholders that
purchases residential mortgages from a list of approved seller/servicers.
Fannie Maes are pass-through securities issued by FNMA that are guaranteed as to
timely payment of principal and interest by FNMA but are not backed by the full
faith and credit of the United States Government.
. "Freddie Macs" - The Federal Home Loan Mortgage Corporation ("FHLMC") is a
corporate instrumentality of the United States Government. Freddie Macs are
participation certificates issued by FHLMC that represent an interest in
residential mortgages from FHLMC's National Portfolio. FHLMC guarantees the
timely payment of interest and ultimate collection of principal, but Freddie
Macs are not backed by the full faith and credit of the United States
Government.
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As described in the prospectus, U.S. Government Securities do not involve the
credit risks associated with investments in other types of fixed-income
securities, although, as a result, the yields available from U.S. Government
Securities are generally lower than the yields available from corporate fixed-
income securities. Like other fixed-income securities, however, the values of
U.S. Government Securities change as interest rates fluctuate. Fluctuations in
the value of portfolio securities will not affect interest income on existing
portfolio securities but will be reflected in the Series' net asset value.
Since the magnitude of these fluctuations will generally be greater at times
when the Series' average maturity is longer, under certain market conditions, a
Series may, for temporary defensive purposes, accept lower current income from
short-term investments rather than investing in higher yielding long-term
securities.
Convertible Securities - The Series listed above may invest in convertible
----------------------
securities, including corporate bonds, notes or preferred stocks of U.S. or
foreign issuers that can be converted into (that is, exchanged for) common
stocks or other equity securities. Convertible securities also include other
securities, such as warrants, that provide an opportunity for equity
participation. Because convertible securities can be converted into equity
securities, their values will normally vary in some proportion with those of the
underlying equity securities. Convertible securities usually provide a higher
yield than the underlying equity, however, so that the price decline of a
convertible security may sometimes be less substantial than that of the
underlying equity security.
Reverse Repurchase Agreements and Dollar Roll Agreements - The Series may
--------------------------------------------------------
enter into reverse repurchase agreements and dollar roll agreements with
qualified institutions to seek to enhance returns.
Reverse repurchase agreements involve sales by the Series of portfolio assets
concurrently with an agreement by the Series to repurchase the same assets at a
later date at a fixed price. During the reverse repurchase agreement period,
the Series continues to receive principal and interest payments on these
securities.
The Series may enter into dollar rolls in which the Series sells securities
for delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type and coupon) securities on a specified future
date. During the roll period, the Series forgoes principal and interest paid on
the securities. The Series is compensated by the difference between the current
sales price and the forward price for the future purchase (often referred to as
the "drop") as well as by the interest earned on the cash proceeds of the
initial sale.
The Series will establish a segregated account with its custodian in which it
will maintain liquid assets equal in value to its obligations in respect of
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 files for bankruptcy or
becomes insolvent, the Series' use of the proceeds of the agreement may be
restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Series' obligation to repurchase the
securities. Reverse repurchase agreements and dollar rolls are considered
borrowings by the Series.
Lending of Portfolio Securities - The Series listed above may lend its
-------------------------------
portfolio securities to broker-dealers under contracts calling for cash
collateral equal to at least the market value of the securities loaned, marked
to market on a daily basis. (The Series (except the Salomon Brothers U.S.
Government Series and the Goldman Sachs Midcap Value Series) at the present
time have no intention to engage in the lending of portfolio securities.) The
Series will continue to benefit from interest or dividends on the securities
loaned and will also receive interest through investment of the cash collateral
in short-term liquid investments, which may include shares of money market funds
subject to any investment restriction described in the Prospectus. No loans
will be made if, as a result, the aggregate amount of such loans outstanding at
any one time would exceed 15% of the respective Series' total assets (taken at
current value). Any voting rights, or rights to consent, relating to securities
loaned pass to the borrower. However, if a material event affecting the
investment occurs, such loans will be called so that the securities may be voted
by the Series. A Series pays various fees in connection with such loans,
including shipping fees and reasonable custodian and placement fees.
Privately-Issued Mortgage Securities - The Series listed above may invest in
------------------------------------
privately-issued pass through securities that provide for the monthly principal
and interest payments made by individual borrowers to pass through to investors
on a corporate basis, and in privately issued collateralized mortgage
obligations ("CMOs"; see the general description under "Investment Risks" in the
Prospectus). Privately-issued mortgage securities
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are issued by private originators of, or investors in, mortgage loans, including
mortgage bankers, commercial banks, investment banks, savings and loan
associations and special purpose subsidiaries of the foregoing. Since
privately-issued mortgage certificates are not guaranteed by an entity having
the credit status of GNMA or FHLMC, such securities generally are structured
with one or more types of credit enhancement. For a description of the types of
credit enhancements that may accompany privately-issued mortgage securities, see
"Types of Credit Support" below. A Series will not limit its investments to
asset-backed securities with credit enhancements.
Asset Backed Securities As with mortgage securities, asset-backed securities
-----------------------
are often backed by a pool of assets representing the obligation of a number of
different parties and use similar credit enhancement techniques. For a
description of the types of credit enhancement that may accompany privately-
issued mortgage securities, see "Types of Credit Support" below. A Series will
not limit its investments to asset-backed securities with credit enhancements.
Although asset-backed securities are not generally traded on a national
securities exchange, many such securities are widely traded by brokers and
dealers, and in such cases will not be considered illiquid securities for the
purposes of the investment policy that limits a Series' investments in illiquid
securities to 15% of net assets.
Types of Credit Support - Mortgage securities and asset-backed securities are
-----------------------
often backed by a pool of assets representing the obligations of a number of
different parties. To lessen the effect of failure by obligors on underlying
assets to make payments, such securities may contain elements of credit support.
Such credit support falls into two categories: (i) liquidity protection and
(ii) protection against losses resulting from ultimate default by an obligor on
the underlying assets. Liquidity protection refers to the provision of
advances, generally by the entity administering the pool of assets, to ensure
that the pass-through of payments due on the underlying pool occurs in a timely
fashion. Protection against losses resulting from ultimate default enhances the
likelihood of ultimate payment of the obligations on at least a portion of the
assets in the pool. Such protection may be provided through guarantees,
insurance policies or letters of credit obtained by the issuer or sponsor from
third parties, through various means of structuring the transaction or through a
combination of such approaches. A Series will not pay any additional fees for
such credit support, although the existence of credit support may increase the
price of a security.
The ratings of mortgage securities and asset-backed securities for which
third-party credit enhancement provides liquidity protection or protection
against losses from default are generally dependent upon the continued
creditworthiness of the provider of the credit enhancement. The ratings of such
securities could be subject to reduction in the event of deterioration in the
creditworthiness of the credit enhancement provider even in cases where the
delinquency and loss experience on the underlying pool of assets is better than
expected.
Examples of credit support arising out of the structure of the transaction
include "senior subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal and
interest, with the result that defaults on the underlying assets are borne first
by the holders of the subordinated class), creation of "reserve funds" (where
cash or investments, sometimes funded from a portion of the payments on the
underlying assets, are held in reserve against future losses) and "over-
collateralization" (where the scheduled payments on, or the principal amount of,
the underlying assets exceed those required to make payment of the securities
and pay any servicing or other fees). The degree of credit support provided for
each issue is generally based on historical information with respect to the
level of credit risk associated with the underlying assets. Delinquency or loss
in excess of that which is anticipated could adversely affect the return on an
investment in such security.
STRIPs - In addition to the U.S. Government securities discussed above, the
------
Series listed above may invest in separately traded interest components of
securities issued or guaranteed by the United States Treasury. The interest
components of selected securities are traded independently under the Separate
Trading of Registered Interest and Principal of Securities program ("STRIPs").
Under the STRIPs program, the interest components are individually numbered and
separately issued by the United States Treasury at the request of depository
financial institutions, which then trade the component parts independently.
Stripped Mortgage Securities - Stripped mortgage securities are derivative
----------------------------
multiclass mortgage securities. Stripped mortgage securities may be issued by
agencies or instrumentalities of the U.S. Government, or by private issuers,
including savings and loan associations, mortgage banks, commercial banks,
investment banks
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and special purpose subsidiaries of the foregoing. Stripped mortgage securities
have greater volatility than other types of mortgage securities in which the
Series invests. Although stripped mortgage securities are purchased and sold by
institutional investors through several investment banking firms acting as
brokers or dealers, the market for such securities has not yet been fully
developed. Accordingly, stripped mortgage securities are generally illiquid.
Stripped mortgage securities are usually structured with two classes that
receive different proportions of the interest and principal distributions on a
pool of mortgage assets. A common type of stripped mortgage security will have
one class receiving some of the interest and most of the principal from the
mortgage assets, while the other class will receive most of the interest and the
remainder of the principal. In the most extreme case, one class will receive
all of the interest (the interest-only or "IO" class), while the other class
will receive all of the principal (the principal-only or "PO" class). The yield
to maturity on an IO class is extremely sensitive not only to changes in
prevailing interest rates but also the rate of principal payments (including
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on the Series' yield to
maturity. If the underlying mortgage assets experience greater than anticipated
prepayments of principal, the Series may fail to fully recoup its initial
investment in these securities even if the securities are rated in a top rating
category.
As interest rates rise and fall, the value of IOs tends to move in the same
direction as interest rates. The value of other mortgage securities, like other
debt instruments, will tend to move in the opposite direction of interest rates.
Accordingly, investing in IOs, in conjunction with the other mortgage securities
described herein, may reduce fluctuations in a Series' net asset value.
In addition to the stripped mortgage securities described above, the Series
listed above may invest in similar securities such as "Super POs," "Levered IOs"
and "IOettes," all of which are more volatile than conventional POs or IOs.
Risks associated with instruments such as Super POs are similar in nature to
those risks related to investments in POs. Risks connected with Levered IOs and
IOettes are similar in nature to those associated with IOs. The Series may also
invest in other similar instruments developed in the future that are deemed
consistent with the investment objectives, policies and restrictions of the
Series.
Under the Internal Revenue Code of 1986, as amended (the "Code"), POs may
generate taxable income from the current accrual of original issue discount,
without a corresponding distribution of cash to the portfolio.
Swaps, Caps, Floors, Collars, Etc. - The Series listed above may enter into
----------------------------------
interest rate, currency and index swaps, the purchase or sale of related caps,
floors and collars and other derivatives. A Series will enter into these
transactions primarily to seek to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities a portfolio anticipates purchasing at a
later date. A Series will use these transactions for non-speculative purposes
and will not sell interest rate caps or floors if it does not own securities or
other instruments providing the income the portfolio may be obligated to pay.
Interest rate swaps involve the exchange by a Series with another party of their
respective commitments to pay or receive interest (for example, an exchange of
floating rate payments for fixed rate payments with respect to a notional amount
of principal). The purchase of an interest rate cap entitles the purchaser to
receive payments on a notional principal amount from the party selling the cap
to the extent that a specified index exceeds a predetermined interest rate or
amount. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling the interest rate floor to the extent that a specified index falls below
a predetermined interest rate or amount. A collar is a combination of a cap and
a floor that preserves a certain return within a predetermined range of interest
rates or values. A currency swap is an agreement to exchange cash flows on a
notional amount based on changes in the values of the reference currencies.
A Series will usually enter into interest rate swaps on a net basis, that is,
two payment streams are netted out in a cash settlement on the payment date or
dates specified in the instrument, with the portfolio receiving or paying, as
the case may be, only the net amount of the two payments. To the extent that a
Series maintains in a segregated account with its custodian liquid assets
sufficient to meet its obligations under swaps, caps, floors, collars and other
similar derivatives (see below) these investments will not constitute senior
securities under the Investment Company Act of 1940 (the "1940 Act"), as
amended, and, thus, will not be treated as being subject to the Series'
borrowing restrictions. A Series will not enter into any swap, cap, floor,
collar or other derivative
14
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transaction unless the counterparty is deemed creditworthy by that Series'
subadviser. If a counterparty defaults, the Series may have contractual
remedies pursuant to the agreements related to the transaction. The swap market
has grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and, for that
reason, they are less liquid than swaps.
The liquidity of swap agreements will be determined by a Series' subadviser
based on various factors, including (1) the frequency of trades and quotations,
(2) the number of dealers and prospective purchasers in the marketplace, (3)
dealer undertakings to make a market, (4) the nature of the security (including
any demand or tender features), and (5) the nature of the marketplace for trades
(including the ability to assign or offset a portfolio's rights and obligations
relating to the investment). Such determination will govern whether a swap will
be deemed to be within the 15% restriction on investments in securities that are
not readily marketable.
Each Series will maintain cash and appropriate liquid assets in a segregated
custodial account to cover its current obligations under swap agreements. If a
Series enters into a swap agreement on a net basis, it will segregate assets
with a daily value at least equal to the excess, if any, of the Series' accrued
obligations under the swap agreement over the accrued amount the Series is
entitled to receive under the agreement. If a Series enters into a swap
agreement on other than a net basis, it will segregate assets with a value equal
to the full amount of the Series' accrued obligations under the agreement.
Eurodollar Futures and Options - The Series listed above may make investments
------------------------------
in Eurodollar instruments, which are typically dollar-denominated futures
contracts or options on those contracts that are linked to the London Interbank
Offered Rate ("LIBOR"), although foreign currency denominated instruments are
available from time to time. Eurodollar futures contracts enable purchasers to
obtain a fixed rate for the lending of funds and sellers to obtain a fixed rate
for borrowings. A Series might use Eurodollar futures contracts and options
thereon to hedge against changes in LIBOR, to which many interest rate swaps and
fixed income instruments are linked.
High Yield/High Risk Foreign Sovereign Debt Securities - The Series listed
------------------------------------------------------
above may invest in the sovereign debt of foreign countries which have issued or
have announced plans to issue Brady Bonds, and expect that a substantial portion
of their investments in sovereign debt securities will consist of Brady Bonds.
Brady Bonds are debt securities issued under the framework of the Brady Plan, an
initiative announced by then U.S. Treasury Secretary Nicholas F. Brady in 1989
as a mechanism for debtor nations to restructure their outstanding external
commercial bank indebtedness. In restructuring its external debt under the
Brady Plan framework, a debtor nation negotiates with its existing bank lenders
as well as multilateral institutions such as the World Bank and the
International Monetary Fund (the "IMF"). The Brady Plan framework, as it has
developed, contemplates the exchange of commercial bank debt for newly issued
bonds (Brady Bonds). Brady Bonds may also be issued in respect of new money
being advanced by existing lenders in connection with the debt restructuring.
The World Bank and/or the IMF support the restructuring by providing funds
pursuant to loan agreements or other arrangements which enable the debtor nation
to collateralize the new Brady Bonds or to repurchase outstanding bank debt at a
discount. Under these arrangements with the World Bank or the IMF, debtor
nations have been required to agree to the implementation of certain domestic
monetary and fiscal reforms. Such reforms have included the liberalization of
trade and foreign investment, the privatization of state-owned enterprises and
the setting of targets for public spending and borrowing. These policies and
programs seek to promote the debtor country's economic growth and development.
Investors should recognize that the Brady Plan only sets forth general guiding
principles for economic reform and debt reduction, emphasizing that solutions
must be negotiated on a case-by-case basis between debtor nations and their
creditors. Investors should recognize that Brady Bonds have been issued only
recently, and accordingly do not have a long payment history.
Agreements implemented under the Brady Plan to date are designed to achieve
debt and debt-service reduction through specific options negotiated by a debtor
nation with its creditors. As a result, the financial packages offered by each
country differ. The types of options have included the exchange of outstanding
commercial bank debt for bonds issued at 100% of face value of such debt, which
carry a below-market stated rate of interest (generally known as par bonds),
bonds issued at a discount from face value of such debt (generally known as
discount bonds), bonds bearing an interest rate which increases over time and
bonds issued
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in exchange for the advancement of new money by existing lenders. Regardless of
the stated face amount and stated interest rate of the various types of Brady
Bonds, a Series will purchase Brady Bonds in secondary markets, as described
below, in which the price and yield to the investor reflect market conditions at
the time of purchase. Brady Bonds issued to date have traded at a deep discount
from their face value. Certain Brady Bonds have been collateralized as to
principal due at maturity (typically 30 years from the date of issuance) by U.S.
Treasury zero coupon bonds with a maturity equal to the final maturity of such
Brady Bonds, although the collateral is not available to investors until the
final maturity of the Brady Bonds. Collateral purchases are financed by the
IMF, the World Bank and the debtor nations' reserves. In addition, interest
payments on certain types of Brady Bonds may be collateralized by cash or high-
grade securities in amounts that typically represent between 12 and 18 months of
interest accruals on these instruments with the balance of the interest accruals
being uncollateralized. A Series may purchase Brady Bonds with no or limited
collateralization, and will be relying for payment of interest and (except in
the case of principal collateralized Brady Bonds) principal primarily on the
willingness and ability of the foreign government to make payment in accordance
with the terms of the Brady Bonds. Brady Bonds issued to date are purchased and
sold in secondary markets through U.S. securities dealers and other financial
institutions and are generally maintained through European transnational
securities depositories.
Futures and Options
- -------------------
Futures Contracts. A futures contract is an agreement between two parties to
buy and sell a commodity or financial instrument (e.g., an interest-bearing
security, a currency or, in the case of futures contracts on the S&P 500 Index,
the value of the basket of securities comprising the Index) for a specified
price on a specified future date. In the case of futures on an index, the
seller and buyer agree to settle in cash, at a future date, based on the
difference in value of the contract between the date it is opened and the
settlement date. The value of each contract is equal to the value of the index
from time to time multiplied by a specified dollar amount. For example, long-
term municipal bond index futures trade in contracts equal to $1000 multiplied
by the Bond Buyer Municipal Bond Index.
When a trader, such as a Series, enters into a futures contract, it is
required to deposit with (or for the benefit of) its broker, as "initial
margin," an amount of cash or short-term high-quality securities (such as U.S.
Treasury Bills) equal to approximately 2% to 20% of the delivery or settlement
price of the contract (depending on applicable exchange rules). Initial margin
is held to secure the performance of the holder of the futures contract. As the
value of the contract changes, the value of futures contract positions increases
or declines. At the end of each trading day, the amount of such increase or
decline is received or paid respectively by and to the holders of these
positions. The amount received or paid is known as "variation margin" or
"maintenance margin." A Series with a long position in a futures contract will
establish a segregated account with the Series' custodian containing liquid
assets equal to the purchase price of the contract (less any margin on deposit).
For short positions in futures contracts, a Series will establish a segregated
account with the custodian with liquid assets that, when added to the amounts
deposited as margin, equal the market value of the instruments or currency
underlying the futures contracts.
Although futures contracts by their terms may require actual delivery and
acceptance of securities, in most cases the contracts are closed out before
settlement. Closing out a futures sale is effected by purchasing a futures
contract for the same aggregate amount of the specific type of financial
instrument or commodity and with the same delivery date. Similarly, the closing
out of a futures purchase is effected by the purchaser selling an offsetting
futures contract.
Gain or loss on a futures position is equal to the net variation margin
received or paid over the time the position is held, plus or minus the amount
received or paid when the position is closed, minus brokerage commissions.
The Westpeak Stock Index Series may purchase and sell futures contracts on the
S&P 500 Index solely for the purpose of reducing the risk of tracking error
arising from holding cash from new investments in the Series or in anticipation
of shareholder redemptions. The Back Bay Advisors Managed Series may purchase
and sell futures contracts on interest-bearing securities or indices thereof, or
on indices of stock prices (such as the S&P 500 Index), to increase or decrease
its portfolio exposure to common stocks or to increase or decrease its portfolio
exposure to notes and bonds. The Westpeak Growth and Income Series may engage
in transactions in futures contracts solely
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for the purpose of maintaining full exposure of the portfolio to the movements
of broad equity markets at times when the Series holds a cash position pending
investment in stocks or in anticipation of redemptions.
Options. An option on a futures contract obligates the writer, in return for
the premium received, to assume a position in a futures contract (a short
position if the option is a call and a long position if the option is a put), at
a specified exercise price at any time during the period of the option. Upon
exercise of the option, the delivery of the futures position by the writer of
the option to the holder of the option generally will be accompanied by delivery
of the accumulated balance in the writer's futures margin account, which
represents the amount by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option. The premium paid by the purchaser of an
option will reflect, among other things, the relationship of the exercise price
to the market price and volatility of the underlying contract, the remaining
term of the option, supply and demand and interest rates. Options on futures
contracts traded in the United States may only be traded on a United States
board of trade licensed by the Commodity Futures Trading Commission.
An option on a security entitles the holder to receive (in the case of a call
option) or to sell (in the case of a put option) a particular security at a
specified exercise price. An "American style" option allows exercise of the
option at any time during the term of the option. A "European style" option
allows an option to be exercised only at the end of its term. Options on
securities may be traded on or off a national securities exchange.
A call option on a futures contract written by a Series is considered by the
Series to be covered if the Series owns the security subject to the underlying
futures contract or other securities whose values are expected to move in tandem
with the values of the securities subject to such futures contract, based on
historical price movement volatility relationships. A call option on a security
written by a Series is considered to be covered if the Series owns a security
deliverable under the option. A written call option is also covered if the
Series holds a call on the same futures contract or security as the call written
where the exercise price of the call held (a) is equal to or less than the
exercise price of the call written or (b) is greater than the exercise price of
the call written if the difference is maintained by the Series in liquid assets
in a segregated account with its custodian.
A put option on a futures contract written by a Series, or a put option on a
security written by a Series, is covered if the Series maintains cash, U.S.
Treasury bills or other high-grade liquid debt obligations with a value equal to
the exercise price in a segregated account with the Series' custodian, or else
holds a put on the same futures contract (or security, as the case may be) as
the put written where the exercise price of the put held is equal to or greater
than the exercise price of the put written.
If the writer of an option wishes to terminate its position, it may effect a
closing purchase transaction by buying an option identical to the option
previously written. The effect of the purchase is that the writer's position
will be canceled. Likewise, the holder of an option may liquidate its position
by selling an option identical to the option previously purchased.
Closing a written call option will permit the Series to write another call
option on the portfolio securities used to cover the closed call option.
Closing a written put option will permit the Series to write another put option
secured by the segregated cash, U.S. Treasury bills or other high-grade liquid
obligations used to secure the closed put option. Also, effecting a closing
transaction will permit the cash or proceeds from the concurrent sale of any
futures contract or securities subject to the option to be used for other Series
investments. If a Series desires to sell particular securities covering a
written call option position, it will close out its position or will designate
from its portfolio comparable securities to cover the option prior to or
concurrent with the sale of the covering securities.
The Series will realize a profit from closing out an option if the price of
the offsetting position is less than the premium received from writing the
option or is more than the premium paid to purchase the option; the Series will
realize a loss from closing out an option transaction if the price of the
offsetting option position is more than the premium received from writing the
option or is less than the premium paid to purchase the option. Because
increases in the market price of a call option will generally reflect increases
in the market price of the covering securities, any loss resulting from the
closing of a written call option position is expected to be offset in whole or
in part by appreciation of such covering securities.
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<PAGE>
Since premiums on options having an exercise price close to the value of the
underlying securities or futures contracts usually have a time value component
(i.e. a value that diminishes as the time within which the option can be
exercised grows shorter) an option writer may profit from the lapse of time even
though the value of the futures contract (or security in some cases) underlying
the option (and of the security deliverable under the futures contract) has not
changed. Consequently, profit from option writing may or may not be offset by a
decline in the value of securities covering the option. If the profit is not
entirely offset, the Series will have a net gain from the options transaction,
and the Series' total return will be enhanced. Likewise, the profit or loss
from writing put options may or may not be offset in whole or in part by changes
in the market value of securities acquired by the Series when the put options
are closed.
An over-the-counter option (an option not traded on a national securities
exchange) may be closed out only with the other party to the original option
transaction. While a Series will seek to enter into over-the-counter options
only with dealers who agree to or are expected to be capable of entering into
closing transactions with the Series, there can be no assurance that the Series
will be able to liquidate an over-the-counter option at a favorable price at any
time prior to its expiration. Accordingly, the Series might have to exercise an
over-the-counter option it holds in order to realize any profit thereon and
thereby would incur transactions costs on the purchase or sale of the underlying
assets. If the Series cannot close out a covered call option written by it, it
will not be able to sell the underlying security until the option expires or is
exercised. Furthermore, over-the-counter options are not subject to the
protections afforded purchasers of listed options by the Options Clearing
Corporation or other clearing organization.
The staff of the Securities and Exchange Commission (the "SEC") has taken the
position that over-the-counter options on U.S. Government Securities and the
assets used as cover for written over-the-counter options on U.S. Government
Securities should generally be treated as illiquid securities. However, if a
dealer recognized by the Federal Reserve Bank of New York as a "primary dealer"
in U.S. Government Securities is the other party to an option contract written
by a mutual fund such as a Series, and such Series has the absolute right to
repurchase the option from the dealer at a formula price established in a
contract with the dealer, the SEC staff has agreed that the Series only needs to
treat as illiquid that amount of the "cover" assets equal to the amount by which
(i) the formula price exceeds (ii) any amount by which the market value of the
securities subject to the options exceeds the exercise price of the option (the
amount by which the option is "in-the-money").
Risks Related to Futures and Options. The use of futures contracts and
options involves risks. One risk arises because of the imperfect correlation
between movements in the price of futures contracts or options and movements in
the price of the underlying securities or index. The Series' use of futures
contracts or options will not be fully effective unless the Series can
compensate for such imperfect correlation. There is no assurance that the
Series will be able to effect such compensation.
The correlation between the price movement of a futures contract or option and
the related security (or index) may be distorted due to differences in the
nature of the markets. If the price of the futures contract or option moves
more than the price of the security or index, the Series would experience either
a loss or a gain on the future or option that is not completely offset by
movements in the price of the security or index. In an attempt to compensate
for imperfect price movement correlations, a Series may purchase or sell futures
contracts or options in a greater amount than the related securities or index
position if the volatility of the related securities or index is historically
greater than the volatility of the futures contracts or options. Conversely,
the Series may purchase or sell fewer contracts or options if the volatility of
the price of the securities or index is historically less than that of the
contracts or options.
There are many reasons why changes in the values of futures contracts or
options may not correlate perfectly with changes in the value of the underlying
security of index. For example, all participants in the futures market are
subject to margin deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through offsetting transactions, which could distort the normal relationship
between the index and futures markets. Secondly, the deposit requirements in
the futures market are less onerous than margin requirements in the securities
market, and as a result the futures market may attract more speculators than
does the securities market. In addition, trading hours for index futures or
options may not correspond perfectly to hours of trading on the exchange where
the underlying securities trade. This may result in a disparity between the
price of futures or options and the value of the underlying security or index
due to the lack of continuous arbitrage between the futures or options price and
the value of the
18
<PAGE>
underlying security or index. Hedging transactions using securities indices
also involve the risk that movements in the price of the index may not correlate
with price movements of the particular portfolio securities being hedged (since
a Series will typically not own all of the securities included in a particular
index.)
Price movement correlation also may be distorted by the limited liquidity of
certain futures or options markets and the participation of speculators in such
markets. If an insufficient number of contracts are traded, commercial users
may not deal in futures contracts or options because they do not want to assume
the risk that they may not be able to close out their positions within a
reasonable amount of time. In such instance, futures and options market prices
may be driven by different forces than those driving the market in the
underlying securities, and price spreads between these markets may widen. The
participation of speculators in the market generally enhances its liquidity.
Nonetheless, speculative trading spreads between futures markets may create
temporary price distortions unrelated to the market in the underlying
securities.
Positions in futures contracts and related options are established or closed
out only on an exchange or board of trade regulated by the Commodity Futures
Trading Commission. There is no assurance that a liquid market on an exchange
or board of trade will exist for any particular contract or at any particular
time. The liquidity of markets in futures contracts may be adversely affected
by "daily price fluctuation limits" established by commodity exchanges which
limit the amount of fluctuation in a futures price during a single trading day.
Once the daily limit has been reached in a contract, no trades may be entered
into at a price beyond the limit, which may prevent the liquidation of open
futures positions. Prices have in the past exceeded the daily limit on a number
of consecutive trading days. If there is not a liquid market at a particular
time, it may not be possible to close a futures position at such time, and, in
the event of adverse price movements, the Series would continue to be required
to make daily cash payments of variation margin. However, if futures or options
are used to hedge portfolio securities, an increase in the price of the
securities, if any, may partially or completely offset losses on the futures
contract.
An exchange-traded option may be closed out only on a national securities or
commodities exchange which generally provides a liquid secondary market for an
option of the same series. If a liquid secondary market for an exchange-traded
option does not exist, it might not be possible to effect a closing transaction
with respect to a particular option, with the result that the Series would have
to exercise the option in order to realize any profit. If the Series that has
written an option is unable to effect a closing purchase transaction in a
secondary market, it will not be able to sell the underlying security until the
option expires or it delivers the underlying security upon exercise. Reasons
for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (v) the facilities of an exchange or
the Options Clearing Corporation or other clearing organization may not at all
times be adequate to handle current trading volume or (vi) one or more exchanges
could, for economic or other reasons, decide or be compelled at some future date
to discontinue the trading of options (or a particular class or series of
options), in which event the secondary market on that exchange (or in that class
or series of options) would cease to exist, although outstanding options on that
exchange that had been issued by the Options Clearing Corporation as a result of
trades on that exchange would continue to be exercisable in accordance with
their terms.
Because the specific procedures for trading foreign futures and options on
futures exchanges are still evolving, additional or different margin
requirements as well as settlement procedures may be applicable to foreign
futures and options at the time the Series purchases foreign futures or options.
The successful use of transactions in futures and options depends in part on
the ability of the Series to forecast correctly the direction and extent of
interest rate or securities price movements within a given time frame. To the
extent interest rates or securities prices move in a direction opposite to that
anticipated, a Series may realize a loss that is not fully or partially offset
by an increase in the value of portfolio securities. In addition, whether or
not interest rates or securities prices move during the period that the Series
holds futures or options positions, the Series will pay the cost of taking those
positions (i.e., brokerage costs). As a result, the Series' total return for
such period may be less than if it had not engaged in the futures or option
transaction.
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<PAGE>
Future Developments. The above discussion relates to the Series' proposed use
of futures contracts, options and options on futures contracts currently
available. The relevant markets and related regulations are still in the
developing stage. In the event of future regulatory or market developments, the
Series may also use additional types of futures contracts or options and other
similar or related investment techniques.
Options on Securities and Securities Indices; Options on Foreign Contracts;
Futures Contracts and Options on Futures Contracts; Options on Foreign currency.
- -------------------------------------------------------------------------------
[Disclosure to Follow]
Foreign Currency Hedging Transactions - To protect against a change in the
-------------------------------------
foreign currency exchange rate between the date on which a Series contracts to
purchase or sell a security that settles in a foreign currency and the
settlement date for the purchase or sale, or to "lock in" the equivalent of a
dividend or interest payment in another currency, the Series might purchase or
sell a foreign currency on a spot (or cash) basis at the prevailing spot rate.
If conditions warrant, a Series may also enter into contracts with banks or
broker-dealers to purchase or sell foreign currencies at a future date ("forward
contracts"). The Series will maintain cash or high-quality debt obligations in
a segregated account with the custodian in an amount at least equal to (i) the
difference between the current value of the Series' liquid holdings that settle
in the relevant currency and the Series' outstanding net obligations under
currency forward contracts in that currency, or (ii) the current amount, if any,
that would be required to be paid to enter into an offsetting forward currency
contract which would have the effect of closing out the original forward
contract. The Series' use of currency hedging transactions may be limited by
tax considerations. The Series may also purchase or sell foreign currency
futures contracts traded on futures exchanges. Foreign currency futures
contract transactions involve risks similar to those of other futures
transactions. See "Futures and Options," above.
Real Estate Investment Trusts ("REITs") - REITs are pooled investment vehicles
---------------------------------------
which invest primarily in investment in income producing real estate or real
estate related loans or interest. REITs are generally classified as equity
REITs, mortgage REITs or a combination of equity and mortgage REITs. Equity
REITs invest the majority of their assets directly in real property and derive
income primarily from the collection of rents. Equity REITs can also realize
capital gains by selling properties that have appreciated in value. Mortgage
REITs invest the majority of their assets in real estate mortgages and derive
income from the collection of interest payments. Like regulated investment
companies such as the Series, REITs are not taxed on income distributed to
shareholders provided that they comply with certain requirements under the
Internal Revenue Code. The Goldman Sachs Midcap Value Series will indirectly
bear its proportionate share of any expenses paid by REITs in which it invests
in addition to the expenses paid by the Series.
Investing in REITs involves certain unique risks. Equity REITs may be
affected by changes in the value of the underlying property owned by such REITs,
while mortgage REITs may be affected by the quality of any credit extended.
REITs are dependent upon management skills, are not diversified (except to the
extent the Internal Revenue Code requires), and are subject to the risk of
financing projects. REITs are subject to heavy cash flow dependency, defaults
by borrowers, self-liquidation, and the possibility of failing to qualify for
the exemption from tax for distributed income under the Internal Revenue Code
and failing to maintain their exemption from the Investment Company Act of 1940.
REITs, and mortgage REITs in particular, are also subject to interest rate risk.
. Emerging Markets
----------------
Investing in the securities of issuers in emerging countries involves risks in
addition to those discussed in the Prospectus. The Goldman Sachs Midcap Value
Series may invest up to 15% of its total assets in securities of issuers in
emerging countries. Emerging countries are generally located in the Asia-Pacific
region, Eastern Europe, Latin and South America and Africa. The Series' purchase
and sale of portfolio securities in certain emerging countries may be
constrained by limitations as to daily changes in the prices of listed
securities, periodic trading or settlement volume and/or limitations on
aggregate holdings of foreign investors. Such limitations may be computed based
on the aggregate trading volume by or holdings of the Series, the subadvisor,
its affiliates and their respective clients and other service providers. The
Series may not be able to sell securities in circumstances where price, trading
or settlement volume limitations have been reached.
Foreign investment in the securities markets of certain emerging countries is
restricted or controlled to varying degrees which may limit investment in such
countries or increase the administrative costs of such investments. For
example, certain Asian countries require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to only a
specified percentage of an issuer's outstanding securities or a specific class
of securities which may have less advantageous terms (including price) than
securities of the issuer available for purchase by nationals. In addition,
certain countries may restrict or prohibit investment opportunities in issuers
or industries deemed important to national interests. Such restrictions may
affect the market price, liquidity and rights of securities that may be
purchased by the Series. The repatriation of both investment income and capital
from certain emerging countries is subject to restrictions such as the need for
governmental consents. Due to restrictions on direct investment in equity
securities in certain Asian countries, such as Taiwan, it is anticipated that
the Series may invest in such countries only through other investment funds in
such countries. See "Investment Company Securities."
Many emerging countries may be subject to a greater degree of economic,
political and social instability than is the case in Western Europe, the United
States, Canada, Australia, New Zealand and Japan. Many emerging countries do
not have fully democratic governments. For example, governments of some
emerging countries are authoritarian in nature or have been installed or
removed as a result of military coups, while governments in other emerging
countries have periodically used force to suppress civil dissent. Disparities
of wealth, the pace and success of democratization, and ethnic, religious and
racial disaffection, among other factors, have also led to social unrest,
violence and/or labor unrest in some Asian and other emerging countries.
Unanticipated political or social developments may affect the value of Series'
investments. Investing in merging countries involves the risk of loss due to
expropriation, nationalization, confiscation of assets and property or the
imposition of restrictions on foreign investments and on repatriation of capital
invested. Economies in individual emerging countries may differ favorably or
unfavorably from the U. S. economy in such respects as growth of gross domestic
product, rates of inflation, currency valuation, capital reinvestment, resource
self-sufficiency and balance of payments positions. Many emerging countries
have experienced currency devaluations and substantial and, in some cases,
extremely high rates of inflation, which have a negative effect on the economies
and securities markets of such emerging countries. Economies in emerging
countries generally are dependent heavily upon commodity prices and
international trade and, accordingly, have been and may continue to be affected
adversely by the economies of their trading partners, trade barriers, exchange
controls, managed adjustments in relative currency values and other
protectionist measures imposed or negotiated by the countries with which they
trade.
Brokerage commissions, custodial services and other costs relating to investment
in international securities markets generally are more expensive than in the
United States. The Series' investments in emerging countries may also be
subject to withholding or other taxes, which may be significant and may reduce
the return from an investment in such countries to the Series. Settlement
procedures in emerging countries are frequently less developed and reliable than
those in the United States and may involve the Series' delivery of securities
before receipt of payment for their sale. In addition, significant delays are
common in certain markets in registering the transfer of securities. Settlement
or registration problems may make it more difficult for the Series to value its
portfolio securities and could cause the Series to miss attractive investment
opportunities, to have a portion of its assets uninvested or to incur losses due
to the failure of a counterparty to pay for securities the Series' has delivered
or the Series' inability to complete its contractual obligations.
Currently, there is no market or only a limited market for many of the
management techniques and instruments with respect to the currencies and
securities markets of the emerging countries. Consequently, there can be no
assurance that suitable instruments for hedging currency and market-related
risks will be available at the times when the Series' wishes to use them.
20
<PAGE>
DETERMINATION OF NET ASSET VALUES
As described in the text of the Prospectus following the caption "Net Asset
Values and Portfolio Valuation," the value of each Series' portfolio assets is
determined by that Series' adviser (subadviser, in the case of Series that have
a subadviser). The net asset value of each Series' shares is determined as of
the close of regular trading on the New York Stock Exchange on each day the New
York Stock Exchange is open and there is a sufficient degree of trading in a
Series' portfolio securities that the current net asset value of a Series'
shares is materially affected. The New York Stock Exchange is currently
expected to be closed on weekend days and on the following holidays each year:
New Year's Day, Martin Luther King Day, Presidents Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Expenses
of each Series are paid or accrued each day.
All Series (other than the Back Bay Advisors Money Market Series)
As described in the text of the Prospectus following the caption "Net Asset
Values and Portfolio Valuation," each Series other than the Back Bay Advisors
Money Market Series values its securities in the same manner, as set forth
below.
Equity Securities
Equity securities traded on a national securities exchange or exchanges or the
NASDAQ National Market System are valued at their last sale price on the
principal exchange or system, as appropriate. Each security traded on a
national securities exchange or exchanges on the NASDAQ National Market System
for which there is no reported sale during the day, and each over-the-counter
security is valued, at the last reported bid price. Other securities for which
current market quotations are not readily available (including restricted
securities, if any) and all other assets are taken at fair value as determined
in good faith by the Series' adviser or Sub-adviser acting under the supervision
of the Board of Trustees, although the actual calculations may be made by a
pricing service selected by the Series' adviser or Sub-adviser acting pursuant
to the direction of the Board. Such valuations are determined by using methods
based on market transactions for comparable securities and on various
relationships between securities which are generally recognized by institutional
traders.
Fixed-Income Securities
Fixed-income Securities (other than short term obligations maturing in 60 days
or less, which are valued using the amortized cost method, which approximates
market value), are valued on the basis of market valuations furnished by a
pricing service selected by the Series' adviser or sub-adviser, pursuant to the
authorization of the Board of Trustees. The pricing service employed will be
one that determines valuations of normal institutional-sized trading units of
long-term debt securities. Such valuations are determined by using methods
based on market transactions for comparable securities and on various
relationships between securities which are generally recognized by institutional
traders. Other securities for which current market quotations are not available
are valued at fair value as determined in good faith by the Series' adviser or
sub-adviser acting under the supervision of the Board of Trustees, although the
actual calculations may be made by a pricing service selected by the Series'
adviser or sub-adviser acting pursuant to the direction of the Board.
Back Bay Advisors Money Market Series
As described in the text of the Prospectus following the caption "Net Asset
Values and Portfolio Valuation," the portfolio of the Back Bay Advisors Money
Market Series will be valued at amortized cost. Under the amortized cost method
of valuation, securities are valued at cost on the date of purchase. Thereafter
the values of securities purchased at a discount or premium are increased or
decreased incrementally each day so that at maturity the purchase discount or
premium is fully amortized and the value of the security is equal to its
principal amount. Due to fluctuations in interest rates, the amortized cost
value of the securities of the Back Bay Advisors Money Market Series may at
times be more or less than their market value.
By using amortized cost valuation, the Back Bay Advisors Money Market Series
seeks to maintain a constant net asset value of $100 per share despite minor
shifts in the market value of its portfolio securities. The yield on a
shareholder's investment may be more or less than that which would be recognized
if the net asset value per share of the Back Bay Advisors Money Market Series
were not constant and were permitted to fluctuate with the
21
<PAGE>
market value of the portfolio securities of the Back Bay Advisors Money Market
Series. However, as a result of the following procedures, the Fund believes any
difference will normally be minimal. Quarterly, the Trustees monitor the
deviation between the net asset value per share of the Back Bay Advisors Money
Market Series as determined by using available market quotations and its
amortized cost price per share. Back Bay Advisors makes such comparisons at
least weekly and will advise the Trustees promptly in the event of any
significant deviation. If the deviation exceeds 1/2 of 1% for the Back Bay
Advisors Money Market Series, the Board of Trustees will consider what action,
if any, should be initiated to provide fair valuation of the portfolio
securities of the Back Bay Advisors Money Market Series and prevent material
dilution or other unfair results to shareholders. Such action may include
selling portfolio securities prior to maturity; withholding dividends; or
utilizing a net asset value per share as determined by using available market
quotations.
FUND PERFORMANCE
Calculations of Yield and Return
- --------------------------------
Yield of the Back Bay Advisors Bond Income Series, the Salomon Brothers U.S.
----------------------------------------------------------------------------
Government Series and the Salomon Brothers Strategic Bond Opportunities Series.
- ------------------------------------------------------------------------------
As summarized in the Prospectus under the caption "Performance Information," the
yield of each of these Series will be computed in accordance with the SEC's
standardized formula by annualizing net investment income per share for a recent
30-day period and dividing that amount by a share's net asset value (reduced by
any earned income expected to be declared shortly as a dividend) on the last
trading day of that period. Net investment income will reflect amortization of
any market value premium or discount of fixed-income securities (except for
obligations backed by mortgages or other assets) and may include recognition of
a pro rata portion of the stated dividend rate of dividend paying portfolio
securities.
These Series' yield will vary from time to time depending upon market
conditions, the composition of the Series' portfolio and the operating expenses
of the Series. These factors and possible differences in the methods used in
calculating yield should be considered when comparing the Back Bay Advisors Bond
Income Series' yield to yields published for other investment companies and
other investment vehicles. Yield should also be considered relative to changes
in the value of the Series' shares and to the relative risks associated with the
investment objectives and policies of the Series. Yield information may be
useful in reviewing such Series' performance and providing a basis for
comparison with other investment alternatives, although the yields of the Series
do not take into account any of the fees imposed in connection with the purchase
of variable life insurance policies or variable annuity contracts offered by New
England Life Insurance Company ("NELICO") or Metropolitan Life Insurance Company
("MetLife"). Yield may be stated with or without giving effect to any expense
limitations in effect for the Series.
At any time in the future, yields may be higher or lower than past yields and
there can be no assurance that any historical results will continue.
Investors are specifically advised that share prices, expressed as the net
asset value per share, will vary just as yields will vary. An investor's focus
on the yield of a Series to the exclusion of consideration of the share price
may result in the investor's misunderstanding the total return he or she may
derive from the Series.
Yield of the Back Bay Advisors Money Market Series. The Back Bay Advisors
--------------------------------------------------
Money Market Series' yield represents the net change, exclusive of capital
changes, in the value of a hypothetical account having a balance of one share at
the beginning of the period for which yield is determined (the "base period").
Current yield for the base period (for example, seven calendar days) is
calculated by dividing (i) the net change in the value of the account for the
base period by (ii) the number of days in the base period. The resulting number
is then multiplied by 365 in order to determine such net change on an annualized
basis. This amount is divided by the value of the account as of the beginning
of the base period, normally $100, in order to state the current yield as a
percentage. Yield may also be calculated on an "effective" or a "compound"
basis, which assumes continual reinvestment throughout an entire year of net
income earned at the same rate as net income is earned by the account for the
base period. Yield is calculated without regard to realized and unrealized
gains and losses. The yield of the Back Bay Advisors Money Market Series will
vary depending on prevailing interest rates, the operating expenses of the
Series and the quality, maturity and type of instruments held in the portfolio
of that Series. Yield information may be useful in reviewing such Series'
performance and providing a basis for comparison with other investment
22
<PAGE>
alternatives, although the yield of the Back Bay Advisors Money Market Series
does not take into account any of the fees imposed in connection with the
purchase of variable insurance policies or variable annuity contracts offered by
NELICO or MetLife. However, unlike certain bank deposits or other investments
which pay a fixed yield for a stated period of time, money market fund yields
fluctuate. Consequently no yield quotation should be considered as
representative of what the yield of the Back Bay Advisors Money Market Series
may be for any specified period in the future.
Calculation of Total Return. As summarized in the Prospectus under the
---------------------------
heading "Performance Information," total return is a measure of the change in
value of an investment in a Series over the period covered, which assumes that
any dividends or capital gain distributions are automatically reinvested in the
Series rather than paid to the investor in cash. Total return may be higher or
lower than past performance and there can be no assurance that any historical
results will continue.
The formula for total return used by a Series includes three steps: (1) adding
to the total number of shares purchased by a hypothetical $1,000 investment in a
Series all additional shares that would have been purchased if all dividends and
distributions paid or distributed during the period had been automatically
reinvested; (2) calculating the value of the hypothetical initial investment as
of the end of the period by multiplying the total number of shares owned at the
end of the period by the net asset value per share on the last trading day of
the period; and (3) dividing this account value for the hypothetical investor by
the amount of the initial investment and annualizing the result for periods of
less than one year. Total return reflects the bearing or deferral of certain
expenses by New England Mutual Life Insurance Company ("The New England") or TNE
Advisers, Inc.. Total return would be lower for these Series if these expense
arrangements had not been in effect. Total return does not reflect charges
assessed against the insurance company separate accounts or the variable life
insurance or variable annuity products for which the Fund serves as an
investment vehicle. Total return may be stated alone or may be accompanied by
investment return information for those separate accounts or the variable life
insurance or variable annuity products.
Performance Comparisons
- -----------------------
Yield and Total Return. Each Series may, from time to time, include its total
----------------------
return in advertisements or in other written information furnished to present
and prospective owners of the variable life insurance and variable annuity
contracts supported by the Fund. The Back Bay Advisors Bond Income Series, the
Salomon Brothers U.S. Government Series, the Salomon Brothers Strategic Bond
Opportunities Series and the Back Bay Advisors Money Market Series may, from
time to time, also include their yield in such advertisements or other written
information. These results may include comparisons to the yields of money
market funds reporting to IBC/Donoghue's Money Fund Report ("Donoghue's
Report"). In addition, each Series may, from time to time, provide a ranking of
such performance figures relative to similar figures for mutual funds whose
performance has been monitored by Lipper Analytical Services, Inc. ("Lipper").
Performance information about a Series is based on the Series' past performance
and is not intended to indicate future performance.
Donoghue's Report is an independent service that collects data from over 1,000
money market funds weekly and reports on the assets, 7- and 30-day yields, 12-
month yields, average maturities and portfolio breakdowns of such funds. 12-
month yields represent total return assuming reinvestment of dividends for up to
one year.
Lipper is an independent service that monitors the performance of over 750
variable annuity and variable life mutual funds, calculates total return and, in
some cases, yield for such funds.
Total return (and yield in the case of the Back Bay Advisors Bond Income
Series, the Back Bay Advisors Money Market Series, the Salomon Brothers U.S.
Government Series and the Salomon Brothers Strategic Bond Opportunities Series)
may also be used to compare the performance of a Series against certain widely
acknowledged standards or indices for stock and bond market performance,
including, but not limited to, the S&P 500 Index, the Dow Jones Industrial
Average, the Lehman Government/Corporate Bond Index, the Lehman Intermediate
Government/Corporate Bond Index, the S&P/BARRA Growth Index, the S&P/BARRA Value
Index, the Lipper Variable Balanced Fund Average, the Lipper Variable Growth and
Income Average, the Lipper Variable A-Rated Corporate Bond Fund Average, the
Lipper Variable Flexible Portfolio Fund Average, the Lipper Variable General
Bond Fund Average, the Lipper Variable Growth Fund Average, the Lipper Variable
International Fund Average, the Lipper Variable Intermediate Investment Grade
Debt Fund Average, the Lipper
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Variable Small Company Fund Average, the Lipper Variable S&P 500 Index Fund
Average, the Lipper Variable U.S. Mortgage and GNMA Fund Average, the Russell
2000 Index, the Russell Midcap Index, the Lehman Brothers Aggregate Bond Index,
the Lehman Brothers Intermediate Government Bond Index and the Morgan Stanley
Capital International Europe, Australia, Far East Index, or against the U.S.
Bureau of Labor Statistics' Consumer Price Index.
The S&P 500 Index is a market value-weighted and unmanaged index showing the
changes in the aggregate market value of 500 stocks relative to the base period
1941-43. The S&P 500 Index is composed almost entirely of common stocks of
companies listed on the New York Stock Exchange, although the common stocks of a
few companies listed on the American Stock Exchange or traded over-the-counter
are included. The 500 companies represented include 385 industrial, 15
transportation, 55 financial services and 45 utilities concerns.
The Dow Jones Industrial Average ("DJIA") is a market value-weighted and
unmanaged index of 30 large industrial stocks traded on the New York Stock
Exchange.
The Lehman Government/Corporate Bond Index is a measure of the market value of
approximately 5,300 bonds with a face value currently in excess of $1.3
trillion. To be included in the Lehman Government/Corporate Bond Index, an
issue must have amounts outstanding in excess of $1 million, have at least one
year to maturity and be rated "Baa" or higher ("investment grade") by a
nationally recognized rating agency.
The Lehman Intermediate Government/Corporate Bond Index is an unmanaged index
of investment grade bonds issued by the U.S. Government and U.S. corporations
having maturities between one and ten years.
The Consumer Price Index, published by the U.S. Bureau of Labor Statistics, is
a statistical measure of changes, over time, in the prices of goods and services
in major expenditure groups.
The S&P/BARRA Growth Index is an unmanaged index of more than 150 large
capitalization stocks that have high historical earnings growth and predicted
above average earnings growth. The S&P/BARRA Value Index is an unmanaged index
of more than 300 large capitalization stocks characterized by low price-to-book
ratios, high yield and low price-to-earnings ratios. Both the S&P/BARRA Growth
Index and the S&P/BARRA Value Index are compiled by BARRA.
The Lipper International Fund Index is an index of 30 international funds
which are determined to reflect the general movement of the entire universe of
international funds tracked by Lipper Analytical Services.
The Lipper Variable Balanced Fund Average is a measure of the performance of
the largest open-end balanced mutual funds.
The Lipper Variable Growth and Income Average represents a grouping of funds
underlying annuity products which have growth and income as their investment
objectives.
The Lipper Variable A-Rated Corporate Bond Fund Average is an average of the
total return performance (calculated on net asset value) of funds with similar
investment objectives as calculated by Lipper Analytical Services.
Lipper Variable Flexible Portfolio Fund Average is an average of the total
return performance (calculated on net asset value) of funds with similar
investment objectives as calculated by Lipper Analytical Services.
The Lipper Variable General Bond Fund Average is an average of the total
return performance (calculated on net asset value) of funds with similar
investment objectives as calculated by Lipper Analytical Services.
Lipper Variable Growth Fund Average is an average of the total return
performance (calculated on net asset value) of funds with similar investment
objectives as calculated by Lipper Analytical Services.
The Lipper Variable International Fund Average is an average of the total
return performance (calculated on net asset value) of funds with similar
investment objectives as calculated by Lipper Analytical Services.
24
<PAGE>
The Lipper Variable Intermediate Investment Grade Debt Fund Average is an
average of the total return performance (calculated on net asset value) of funds
with similar investment objectives as calculated by Lipper Analytical Services.
The Lipper Variable Small Company Fund Average is an average of the total
return performance (calculated on net asset value) of funds with similar
investment objectives as calculated by Lipper Analytical Services.
The Lipper Variable S&P 500 Index Fund Average is an average of the total
return performance (calculated on net asset value) of funds with similar
investment objectives as calculated by Lipper Analytical Services.
The Lehman Brothers Aggregate Bond Index is an index which includes most
obligations of the U.S. Treasury, agencies and quasi-federal corporations, most
publicly issued investment grade corporate bonds, and most bonds backed by
mortgage pools of GNMA, FNMA and FHLMC.
The Lehman Brothers Intermediate Government Bond Index is an index which
includes most obligations of the U.S. Treasury, agencies and quasi-federal
corporations having maturities of one to ten years.
The Russell 2000 Index is an unmanaged index which consists of 2000 small
market capitalization stocks having an average market cap of $160 million.
The Russell Midcap Index is an unmanaged index which consists of 800 of the
smallest companies in the Russell 1000 Index. The Russell 1000 Index represents
the largest 1000 U.S. companies.
The Morgan Stanley Capital International Europe, AustralAsia, Far East Index
is an arithmetical average (weighted by market value) of the performance (in
U.S. dollars) of over 1,000 companies representing the stock markets of Europe,
Australia, New Zealand and the Far East.
From time to time, articles about a Series regarding performance, rankings and
other Series characteristics may appear in national publications including, but
not limited to, the Wall Street Journal, Forbes, Fortune, CDA Investment
Technologies and Money Magazine (see Appendix B). In particular, some or all of
these publications may publish their own rankings or performance reviews of
mutual funds, including the Fund. References to or reprints or portions of
reprints of such articles, which may be include rankings that list the names of
other funds and their performance, may be used as Fund or variable contract
sales literature or advertising material.
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<PAGE>
The following table presents certain total return information for certain
Series and certain indexes and averages for periods ended December 31, 1997:
<TABLE>
5-Year 10-Year
Average Average
Annual Annual
Total Return Total Return Total Return For Total Return Total Return
For The For the 5-Year the 10-Year for the period for the period
Year Ended Period Ended Period Ended ended ended
12/31/97 12/31/97 12/31/97 12/31/97 12/31/97
------------ -------------- ------------------ -------------- -------------------
<S> <C> <C> <C> <C> <C>
Loomis Sayles Small Cap
Series
Morgan Stanley
International
Magnum Equity Series(a)
Alger Equity Growth
Series
Capital Growth
Series
Davis Venture Value
Series
Goldman Sachs Midcap
Value Series(b)
Westpeak Growth and
Income Series
Westpeak Stock
Index Series
Loomis Sayles Balanced
Series
Back Bay Advisors
Managed Series
Salomon Brothers
Strategic
Bond Opportunities Series
Back Bay Advisors Bond
Income Series
Salomon Brothers
U.S. Government Series
Back Bay Advisors
Money Market Series
S & P 500
</TABLE>
26
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Lehman Government/
Corporate Index
Consumer Price Index
DJIA
</TABLE>
(a) On May 1, 1997, Morgan Stanley Asset Management Inc. succeeded Draycott
Partners, Ltd. as subadviser to the Morgan Stanley International Magnum
Equity Series.
(b) On May 1, 1998 Golman Sachs Asset Management succeeded Loomis, Sayles &
Company, L. P. as subadviser to the Goldman Sachs Midcap Value Series.
No brokerage commissions or other fees were factored into the values of the
S&P 500, which is an index of an unmanaged group of common stocks. No
adjustments have been made for a shareholder's tax liability on dividends and
capital gains distributions.
Since commencing operations on May 1, 1994, the Loomis Sayles Small Cap
Series has made the following distributions of income: on 12/28/94 $0.15 per
share; on 12/29/95 $0.78 per share and on 9/16/96 $0.036 and on 12/31/96 $1.03
per share. Over the same period, the Loomis Sayles Small Cap Series had made the
following distributions of realized capital gains: none on 12/28/94; on 12/29/95
$4.81 per share; on 9/16/96 $0.9580 and on 12/31/96 $8.60 per share; on 12/--/97
$---- per share.
Since commencing operations on October 31, 1994, the Morgan Stanley
International Magnum Equity Series has made the following distributions of
income: on 12/28/94 $ 0.02 per share; on 12/29/95 $0.12 per share; on 12/31/96
$0.015 per share; on 12/--/97 $---- per share. Over the same period, the Morgan
Stanley International Magnum Equity Series has made the following distributions
of realized capital gains: on 12/28/94, 12/29/95, 12/31/96, and 12/31/97 no
realized capital gains paid-in capital of $0.01, none and $0.16, respectively.
Since commencing operations on October 31, 1994, the Alger Equity Growth
Series has made the following distributions of income: on 12/28/94 $0.02 per
share; on 12/29/95 $0.01 per share, on 12/31/96 $0.027 per share, and on 12/--
/97 $-.-- per share.. Over the same period, the Alger Equity Growth Series has
made the following distributions of realized capital gains: on 12/28/94 no
realized capital gains; on 12/29/95 $0.41 per share; no realized capital gains
on 12/31/96, and -- realized capital gains on 12/--/97.
Since inception, the Capital Growth Series has made the following
distributions of income: on 1/20/84 $0.21 per share; on 1/25/85 $1.12 per share;
on 1/24/86 $0.90 per share; on 1/23/87 $0.44 per share; on 12/31/87 $0.66 per
share; on 12/29/88 $9.55 per share; on 9/14/89 $0.13 per share; on 12/29/89
$2.59 per share; on 12/28/90 $2.11 per share; on 12/27/91 $3.22 per share; on
12/29/92 $4.07; on 12/29/93 $2.18 per share; on 12/28/94 $5.15 per share; on
12/29/95 $3.48 and on 9/16/96 $0.012 per share; on 12/31/96 $3.07 per share.
Over the same period, the Capital Growth Series has made the following
distributions of realized capital gains: on 1/20/84, $0.49 per share; on 1/24/86
$45.74 per share; on 1/23/87, $122.84 per share; on 12/31/87, $19.59 per share;
on 1/28/88, $0.30 per share; on 12/28/90, none; on 12/27/91, $32.37 per share;
on 12/31/92, none; on 12/29/93 $16.75 per share; on 7/22/94 $0.41 per share; on
12/28/94 $8.92 per share; on 12/29/95 $52.58 per share; on 9/16/96, $8.339 and
on 12/31/96, $13.94 per share; ; and on 12/--/97 $---- per share..
Since commencing the sale of shares on April 30, 1993, the Goldman Sachs
Midcap Value Series has made the following distributions of income: on 12/29/93,
$0.175 per share; on 12/28/94, $0.60 per share; on 12/29/95, $0.40 per share
and on 9/16/96, $0.016 and on 12/31/96, $0.10 per share; and on 12/--/97 $----
per share. Over the same period, the Goldman Sachs Midcap Value Series has made
the following distributions of realized capital gains: on 12/29/93, $0.885 per
share; on 12/28/94, none; on 12/29/95, $4.15 per share and on 9/16/96, $2.082
and on 12/31/96, $7.335 per share; and on 12/--/97 $---- per share.
Since commencing operations on October 31, 1994, the Davis Venture Value
Series has made the following distributions of income: on 12/28/94 $0.03 per
share; on 12/29/95 $0.10 per share and on 9/16/96 $0.002 and on
27
<PAGE>
12/31/96 $0.125 per share; and on 12/--/97 $---- per share. Over the same
period, the Series has made the following distributions of realized capital
gains: on 12/28/94 no realized capital gains; on 12/29/95 $0.20 per share and on
9/16/96 $0.018 and on 12/31/96 $0.25 per share; and on 12/--/97 $---- per share.
Since commencing the sale of shares on April 30, 1993, the Westpeak Growth
and Income Series has made the following distributions of income: on 12/29/93
$0.92 per share; on 12/28/94 $1.92 per share; on 12/29/95 $1.71 per share and on
9/16/96 $0.032 and on 12/31/96 $1.79 per share; and on 12/--/97 $---- per share.
Over the same period, the Westpeak Growth and Income Series has made the
following distributions of realized capital gains: on 12/29/93 $1.01 per share;
on 12/28/94 no capital gains but a distribution of paid-in capital was made on
12/28/94 of $0.02 per share; on 12/29/95 capital gains of $5.69 per share and on
9/16/96 $1.068 on 12/31/96 $12.12 per share; and on 12/--/97 $---- per share.
Since commencing the sale of shares on May 1, 1987, the Westpeak Stock
Index Series has made the following distributions of income: on 12/31/87 $2.23
per share; on 12/29/88 $3.44 per share; on 12/27/89 $3.74 per share; on 12/28/90
$3.99 per share; on 12/27/91 $3.56 per share; on 12/29/92 $8.35 per share; on
12/29/93 $1.54 per share; on 12/28/94 $1.82 per share; on 12/29/95 $1.85 per
share and on 9/16/96$0.033 and on 12/31/96 $1.895 per share; and on 12/--/97
$----per share. Over the same period, the Westpeak Stock Index Series has made
the following distributions of realized capital gains: on 12/31/87 $0.41 per
share; on 12/29/88 $0.81 per share; on 12/27/89 $1.64 per share; on 12/28/90
none; on 1/29/91 $0.05; on 12/27/91 $0.39 per share; on 12/29/92 $67.41 per
share; on 5/20/93 $0.29 per share; on 12/29/93 $0.695 per share and on 12/28/94
$0.16 per share and a distribution of paid-in capital on 12/28/94 of $0.03 per
share; on 12/29/95 $1.18 per share and on 9/16/96 $0.044 and on 12/31/96 $0.87
per share; and on 12/--/97 $---- per share..
Since commencing operations October 31, 1994, the Loomis Sayles Balanced
Series has made the following distributions of income: on 12/28/94 $0.05 per
share; on 12/29/95 $0.26 per share and on 9/16/96 $0.001 and on 12/31/96 $0.27
per share; and on 12/--/97 $---- per share. Over the same period, the Loomis
Sayles Balanced Series has made the following distributions of realized capital
gains: on 12/28/94 none; on 12/29/95 $0.19 per share and on 9/16/96 $0.044 and
on 12/31/96 $0.10 per share; and on 12/--/97 $---- per share.
Since commencing the sale of shares on May 1, 1987, the Back Bay Advisors
Managed Series has made the following distributions of income: on 12/31/87 $2.73
per share; on 12/29/88 $5.24 per share; on 12/27/89 $4.22 per share; on 12/28/90
$5.52 per share; on 12/27/91 $6.41 per share; on 12/29/92 $5.13 per share; on
5/20/93 $0.02 per share; on 12/29/93 $4.36 per share; on 12/28/94 $5.38 per
share; on 12/29/95 $6.57 per share and on 9/16/96 $0.059 and on 12/31/96 $6.38
per share; and on 12/--/97 $---- per share. Over the same period, the Back Bay
Advisors Managed Series has made the following distributions of realized capital
gains: on 12/29/88 $0.38; on 12/27/89 $0.38; on 12/28/90 none; on 12/27/91 $1.15
per share; on 12/29/92 $1.07 per share; on 12/29/93 $2.65 per share; on
12/28/94 none; on 12/29/95 $0.88 per share and on 9/16/96 $0.409 and on 12/31/96
$11.045 per share; and on 12/--/97 $---- per share.
Since commencing on October 31, 1994, the Salomon Brothers Strategic Bond
Opportunities Series has made the following distributions of income: on 12/28/94
$ 0.12 per share; on 12/29/95 $0.55 per share and on 9/16/96 $0.011 and on
12/31/96 $0.59 per share; and on 12/--/97 $---- per share. Over the same
period, the Series has made the following distributions of realized capital
gains: on 12/28/94 no realized capital gains; on 12/29/95 $0.22 per share and
on 9/16/96 $0.011 and on 12/31/96 $0.174 per share; and on 12/--/97 $---- per
share.
Since inception, the Back Bay Advisors Bond Income Series has made the
following distributions of income: on 1/20/84 $3.76 per share; on 1/25/85 $11.60
per share; on 1/24/86 $11.09 per share; on 1/23/87 $10.04 per share; on 12/31/87
$8.67 per share; on 12/29/88 $10.70 per share; on 12/27/89 $6.91 per share; on
12/28/90 $7.46 per share; on 12/27/91 $9.47 per share; on 12/29/92 $6.87 per
share; on 12/29/93 $6.25 per share; on 12/28/94 $7.05 per share; on 12/29/95
$7.05 per share and on 12/31/96 $7.70 per share; and on 12/--/97 $---- per
share. Over the same period, the Back Bay Advisors Bond Income Series has made
the following distributions of realized capital gains: on 1/20/84 $0.11 per
share; on 1/24/86 $1.67 per share; on 1/23/87 $11.10 per share; on 12/28/90
none; on 12/27/91 $2.13 per share; on 12/29/92 $1.57 per share; on 12/29/93
$4.16 per share; on 12/28/94 none; on 12/29/95 none and on 9/16/96 $0.035 per
share and on 12/31/96 $0.315.per share; and on 12/--/97 $---- per share.
Since commencing operations on October 31, 1994, the Salomon Brothers U.S.
Government Series has made the following distributions of income: on 12/28/94 $
0.10 per share; on 12/29/95 $0.33 per share and on
28
<PAGE>
9/16/96$0.002 and on 12/31/96 $0.56 per share; and on 12/--/97 $---- per share.
Over the same period, the Salomon Brothers U.S. Government Series has made the
following distributions of realized capital gains: on 12/28/94 no realized
capital gains; on 12/29/95 $0.08 and on 9/16/96 $0.015 and on 12/31/96 none per
share; and on 12/--/97 $---- per share.
TRUSTEES AND OFFICERS
Trustees and officers of the Fund (ages in parentheses) and their principal
occupations during the past five years or more are as follows:
NANCY HAWTHORNE (47) -- Trustee; Pilot House, Lewis Wharf, Boston, MA 02110;
-------
formerly, Chief Executive Officer and Manageing Partner, Hawthorne, Krauss
and Associates,Executive Vice President, Enterprise Transformation MediaOne,
Inc.; formerly, Senior Vice President and Chief Financial Officer,
Continental Cablevision, Inc. (cable television operator); Director, Perini
Corporation (construction), Director, Avid Technologies, Director, Commercial
Union Assurance Co.
JOSEPH M. HINCHEY (73) -- Trustee; 193 Wamphassuc Road, Stonington, Connecticut
-------
06378; Retired; formerly, Senior Vice President-Finance, Analog Devices, Inc.
(manufacturer of electronic devices); Trustee, Union College and Citizens
Scholarship Foundation of America, Inc.;.
ROBERT B. KITTREDGE (77) -- Trustee; 21 Sturdivant Road, Cumberland Foreside, ME
-------
04110; Retired; Trustee, CGM Trust and CGM Capital Development Fund;
formerly, Vice President, General Counsel and Director, Loomis, Sayles &
Company, Inc.
LAURENS MACLURE (73) -- Trustee; 183 Sohier Street, Cohasset, MA 02025; Retired;
-------
Trustee, CGM Trust and CGM Capital Development Fund; Director, Blue Cross of
Massachusetts (health insurance).
DALE ROGERS MARSHALL (61) -- Trustee; 26 East Main Street, Norton, MA 02766;
-------
President, Wheaton College; formerly, Academic Dean, Wellesley College.
JOHN J. ARENA, (60) -- Trustee; 330 Beacon Street, Boston, MA 02116; Retired;
-------
formerly, Vice Chairman of the Board of Directors of Bay Banks, Inc. and
President of BayBank Investment Management, BayBanks, Inc.
JOHN W. FLYNN, (58) -- Trustee; 791 Main Street, Warren, RI 02885; Retired;
-------
formerly, Vice Chairman, Chief Financial Officer, Fleet Financial Group.
JOHN T. LUDES, (61) -- Trustee; 1700 E. Putnam Avenue, Old Greenwich, CT 06870;
-------
President and Chief Operating Officer, American Brands; formerly, President
and CEO, Acushnet Company.
FREDERICK K. ZIMMERMANN* (46) -- Chairman of the Board, Chief Executive Officer,
-----------------------------------------------
President and Trustee; Chief Investment Officer and Executive Vice
---------------------
President, NELICO; formerly, Senior Vice President, Vice President and
Controller, The New England; Chairman of the Board and President, TNE
Advisers, Inc.; Director and Vice President - Investments, NELICO until 1996;
Chairman of the Board and President, New England Pension and Annuity Company.
ANNE M. GOGGIN* (49) -- Senior Vice President and Trustee; Senior Vice President
---------------------------------
and Associate General Counsel, NELICO; Vice President, General Counsel,
Secretary and Clerk, New England Securities Corp., Vice President and
Counsel, The New England (1994-1996); formerly, Second Vice President and
Counsel, The New England.
JOHN F. GUTHRIE (54) -- Senior Vice President; Vice President, NELICO; Senior
---------------------
Vice President, TNE Advisers, Inc.; formerly, Vice President-Portfolio
Strategy, The New England.
ALAN C. LELAND (45) -- Senior Vice President; Senior Vice President, NELICO;
---------------------
Chief Financial Officer, TNE Advisers, Inc.; formerly, Vice President, The
New England.
29
<PAGE>
MAURA A. MURPHY (38) -- Secretary; Counsel and Assistant Secretary, NELICO;
--------
Secretary and Chief Legal Officer, TNE Advisers, Inc.; formerly Attorney and
Assistant Secretary for The New England and Attorney for the Securities and
Exchange Commission.
FRANK NESVET (53) -- Treasurer; Senior Vice President and Chief Financial
----------
Officer, New England Funds, L.P.; formerly, Executive Vice President,
SuperShare Services Corporation.
* Denotes trustee who is an "interested person" as defined in the Investement
Company Act of 1940, as amended
Messrs. Arena, Hinchey and Zimmermann serve as members of the Executive
Committee of the Board of Trustees. The Executive Committee is authorized to
exercise broad decision-making responsibility, on behalf of the Fund's Board of
Trustees, with respect to issues that require immediate response and for which
it is difficult or impractical to contact all of the members of the Board within
the time frame required for the decision.
Previous positions during the past five years with NELICO or its
predecessor, The New England, or Back Bay Advisors, CGM, Westpeak, Loomis Sayles
or New England Funds, L.P. are omitted, if not materially different. The Fund's
Trustees also serve as managers of New England Variable Annuity Fund I ("NEVA"),
for which New England Securities Corporation acts as a principal underwriter and
CGM acts as investment adviser.
Except as indicated above, the address of each trustee and officer of the
Fund affiliated with NELICO is 501 Boylston Street, Boston, Massachusetts 02116.
The address of each trustee or officer of the Fund affiliated with New England
Funds, L.P. or New England Securities Corporation is 399 Boylston Street,
Boston, Massachusetts.
The officers and trustees of the Fund who are "interested persons" receive
no compensation from the Fund, for their services in such capacities, although
they do receive compensation from NELICO, or New England Funds, L.P. for
services rendered in other capacities.
Trustees Fees
- -------------
The Fund pays no compensation to its officers or to its trustees who are
interested persons thereof.
Each trustee who is not an interested person receives for serving as
Trustee of the Fund and on the board of managers of NEVA a retainer fee at an
annual rate of $20,000, and meeting attendance fees of $2,500 for each board
meeting attended. In addition, the chairman of the Contract Review and
Governance Committee receives a retainer at the annual rate of $6,000, and the
chairman of the Audit Committee receives a retainer at the annual rate of
$4,000. The compensation is allocated among the Series and NEVA based on a
formula that takes into account, among other factors, the assets of each Series
and NEVA.
During the fiscal year ended December 31, 1997, the persons who were then
trustees of the Fund received the amounts set forth below for serving as a
trustee of the Fund and for also serving on the governing board of NEVA.
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation from the Fund
from the Fund and NEVA
Name of Trustee in 1997 in 1997
- --------------- ------- -------
Nancy Hawthorne $ $
<S> <C> <C>
Joseph M. Hinchey
Richard S. Humphrey, Jr. (b)
Robert B. Kittredge (a)
Laurens MacLure (a)
Dale Rogers Marshall
Joseph F. Turley (b)
John J. Arena
John. W. Flynn
John T. Ludes
</TABLE>
________________
30
<PAGE>
(a) Also includes compensation paid by the portfolios of the CGM Funds, a
group of mutual funds for which CGM, the investment adviser of the
Fund's Capital Growth Series, serves as investment adviser.
(b) Retired from service as a trustee of the Fund effective December 31,
1997
The Fund provides no pension or retirement benefits to trustees, but has
adopted a deferred payment arrangement under which each trustee may elect not to
receive fees from the Fund on a current basis but to receive in a subsequent
period an amount equal to the value that such fees would have if they had been
invested in each Series on the normal payment date for such fees. As a result
of this method of calculating the deferred payments, each Series, upon making
the deferred payments, will be in the same financial position as if the fees had
been paid on the normal payment dates.
At February 1, 1997, the officers and trustees of the Fund as a group owned
less than 1% of the outstanding shares of the Fund.
ADVISORY ARRANGEMENTS
Advisory Structure. Pursuant to separate advisory agreements dated
-------------------
August 30, 1996 (May 1, 1998 in the case of the Goldman Sachs Midcap Value
Series), TNE Advisers, Inc. has agreed to manage the investment and reinvestment
of assets of the Morgan Stanley International Magnum Equity, Alger Equity
Growth, Davis Venture Value, Loomis Sayles Balanced, Salomon Brothers Strategic
Bond Opportunities, Salomon Brothers U.S. Government Series, Loomis Sayles Small
Cap, Goldman Sachs Midcap Value, Westpeak Growth and Income, Westpeak Stock
Index, Back Bay Advisors Managed, Back Bay Advisors Bond Income and Back Bay
Advisors Money Market Series. TNE Advisers, Inc. has delegated certain of these
responsibilities, including responsibility for determining what investments such
Series should purchase, hold or sell and directing all trading for the Series'
account, for each of the above Series to subadvisers under subadvisory
agreements described below. Pursuant to an advisory agreement dated August 30,
1996, CGM has agreed to manage the investment and reinvestment of the assets of
the Capital Growth Series.
In each case, advisory services are provided subject to the supervision and
control of the Fund's trustees. Each advisory agreement also provides that the
relevant investment adviser will furnish or pay the expenses of the applicable
Series for office space, facilities and equipment, services of executive and
other personnel of the Fund and certain administrative services. TNE Advisers,
Inc. has subcontracted with New England Funds, L.P. to provide, at no extra cost
to the Series it advises, certain administrative services to the Fund. CGM, in
the case of the Capital Growth Series, has subcontracted with New England Funds,
L.P. to provide such services to that Series.
TNE Advisers, Inc. is a wholly-owned subsidiary of New England Life
Holdings, Inc., which is a wholly-owned subsidiary of NELICO, which in turn is a
wholly owned subsidiary of MetLife New England Holdings, Inc. ("MetLife
Holdings"). MetLife Holdings is wholly owned by MetLife, a mutual insurance
company. TNE Advisers, Inc. oversees, evaluates and monitors the subadvisers'
provision of investment advisory services to all of the Series (except the
Capital Growth Series) and provides general business management and
administration to all of the Series (except the Capital Growth Series).
Subject to the supervision of TNE Advisers, Inc. each subadviser, pursuant
to Subadvisory Agreements dated August 30, 1996 (December 16, 1996 in the case
of the Davis Venture Value Series; May 31, 1997 in the case of the Morgan
Stanley International Magnum Equity Series ; November 28, 1997 in the case of
the Salomon Brothers Strategic Bond Opportunities and Salomon Brothers U. S.
Government Series; and May 1, 1998 in the case of the Goldman Sachs Midcap Value
Series), manages the assets of its Series in accordance with that Series'
investment objective and policies, makes investment decisions for that Series
and employs professional advisers and securities analysts who provide research
services to that Series. The Series pay no direct fees to any of the
subadvisers.
Back Bay Advisors, formed in 1986, is a limited partnership whose sole
general partner, Back Bay Advisors, Inc., is a wholly-owned subsidiary of NEIC
Holdings, Inc. ("NEIC Holdings"), which in turn is a wholly owned subsidiary of
NEIC Operating Partnership L.P. ("NEICOP"). NEICOP owns the entire limited
partnership
31
<PAGE>
interest in Back Bay Advisors. NEICOP's managing general partner, New England
Investment Companies, Inc. ("NEIC, Inc."), is a wholly owned subsidiary of
MetLife Holdings, which in turn is a wholly owned subsidiary of MetLife. MetLife
owns directly 46% (and in aggregate, directly and indirectly, 47%) of the
outstanding limited partnership interest in NEICOP. NEICOP's advising general
partner, New England Investment Companies, L.P. ("NEIC"), is a publicly-traded
company listed on the New York Stock Exchange. NEIC, Inc. is the sole general
partner of NEIC. NEICOP's 14 principal subsidiary or affiliated assets
management firms, collectively, had more than $___ billion of assets under
management as of March 31, 1998. Back Bay Advisors provides investment
management services to institutional clients, including other registered
investment companies and accounts of NELICO and its affiliates. Back Bay
Advisors specializes in fixed-income management and currently manages over $7
billion in total assets; it is subadviser to the Back Bay Advisors Managed, Back
Bay Advisors Bond Income and Back Bay Advisors Money Market Series.
Loomis Sayles, subadviser to the Loomis Sayles Small Cap and Loomis Sayles
Balanced Series, was organized in 1926 and is one of the oldest and largest
investment counsel firms in the country. An important feature of the Loomis
Sayles investment approach is its emphasis on investment research.
Recommendations and reports of the Loomis Sayles research department are
circulated throughout the Loomis Sayles organization and are available to the
individuals in the Loomis Sayles organization who have been assigned the
responsibility for making investment decisions for the Series' portfolios.
Loomis Sayles provides investment advice to numerous other institutional and
individual clients. These clients include other registered investment companies
and some accounts of NELICO and its affiliates ("New England Accounts"). Loomis
Sayles is a limited partnership whose sole general partner is Loomis, Sayles &
Company, Incorporated is a wholly owned subsidiary of NEIC Holdings. NEICOP
owns the entire limited partnership interest in Loomis Sayles.
MSAM conducts worldwide investment management business, providing a broad
range of portfolio management services to customers in the United States and
abroad. MSAM is a wholly-owned subsidiary of Morgan Stanley, Dean Witter,
Discover & Co., which is a preeminent financial services firm that maintains a
leading market positions in each of its three primary businesses - securities,
asset management and credit services. MSAM serves as adviser to numerous open-
end and closed-end investment companies.
Fred Alger Management, Inc. ("Alger Management"), provides investment
management services to mutual funds and to other institutions and individuals;
it is subadviser to the Alger Equity Growth Series. Alger Management is a
wholly-owned subsidiary of Fred Alger Company, Inc., which in turn is a wholly-
owned subsidiary of Alger Associates, Inc., a financial services holding
company. Fred M. Alger III and his brother, David D. Alger are majority owners
of Alger Associates, Inc. and may be deemed to control that company and its
subsidiaries.
CGM is a limited partnership whose general partner, Kenbob, Inc., is a
corporation controlled equally by Robert L. Kemp and G. Kenneth Heebner, _____
and _____of CGM, respectively. In addition to advising the Capital Growth
Series, CGM acts as investment adviser of CGM Capital Development Fund, CGM
Trust, NEVA and New England Growth Fund of the New England Funds. CGM also
provides investment advice to other institutional and individual clients.
Westpeak Investment Advisors, L.P. ("Westpeak") is a limited partnership
whose sole general partner, Westpeak Investment Advisors, Inc., is a wholly-
owned subsidiary of NEIC Holdings. NEICOP owns the entire limited partnership
interest in Westpeak. Organized in 1991, Westpeak provides investment
management services to mutual fund and other institutional clients, including
accounts of MetLife and its affiliates; it is subadviser to the Westpeak Growth
and Income and Westpeak Stock Index Series.
Davis Selected Advisers, L.P. ("Davis Selected") provides investment
advisory services for mutual funds and other clients; it is subadviser to the
Davis Venture Value Series. Venture Advisers, Inc., the general partner of Davis
Selected, is controlled by Shelby M.C. Davis, President of Davis Selected. Davis
Selected may also delegate any of its responsibilities to its wholly-owned
subsidiary Davis Selected - NY ("DSA-NY").
Salomon Brothers Asset Management Inc ("SBAM"), provides investment
advisory services for individuals, other mutual funds and institutional clients;
it is subadviser to the Salomon Brothers U.S. Government Series and together
with its affiliate, Salomon Brothers Asset Management Limited ("SBAM Ltd."), the
Salomon Brothers Strategic Bond Opportunities Series.
32
<PAGE>
SBAM and SBAM, Ltd. are wholly-owned subsidiaries of Salomon Smith Barney
Holdings, Inc., which is a wholly owned subsidiary of Travelers Group Inc.
("Travelers"). Travelers is a diversified financial services company engaged in
the investment services, asset management, consumer finance and life and
property casualty insurance services.
Goldman Sachs Asset Management ("GSAM") is a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"). Goldman Sachs provides a wide range of
fully discretionary investment advisory services including quantitatively driven
and actively managed U.S. and international equity portfolios, U.S. and global
fixed income portfolios, commodity and currency products, and money markets.
Advisory Fees. Each Series pays its adviser compensation at the annual
--------------
percentage rates of the corresponding levels of that Series' average daily net
asset values (the adviser of the Capital Growth Series is CGM, the adviser of
each other Series is TNE Advisers), subject to any fee reductions or deferrals
as described in the Prospectus under "Voluntary Expense Agreement" or "Expense
Deferral Arrangement."
<TABLE>
<CAPTION>
Annual Average Daily Net
Series Percentage Rate Asset Value Levels
------ --------------- ------------------
<S> <C> <C>
Loomis Sayles Small Cap Series 1.00% all assets
Morgan Stanley International Magnum Equity Series 0.90% all assets
Alger Equity Growth Series 0.75% all assets
Capital Growth Series 0.70% the first $200 million
0.65% the next $300 million
0.60% amounts in excess of $500 million
Goldman Sachs Midcap Value Series+ 0.75% all assets
Davis Venture Value Series 0.75% all assets
Westpeak Growth and Income Series 0.70% the first $200 million
0.65% the next $300 million
0.60% amounts in excess of $500 million
Westpeak Stock Index Series 0.25% all assets
Loomis Sayles Balanced Series 0.70% all assets
Back Bay Advisors Managed Series 0.50% all assets
Salomon Brothers Strategic Bond Opportunities Series 0.65% all assets
Back Bay Advisors Bond Income Series 0.40% the first $400 million
0.35% the next $300 million
0.30% the next $300 million
0.25% amounts in excess of $1 billion
Salomon Brothers U.S. Government Series 0.55% all assets
</TABLE>
33
<PAGE>
<TABLE>
<S> <C> <C>
Back Bay Advisors Money Market Series 0.35% the first $500 million
0.30% the next $500 million
0.25% amounts in excess of $1 billion
</TABLE>
+Prior to May 1, 1998 the advisory fee payable by the Goldman Sachs Midcap Value
Series was at the annual rate of 0.70% of the first $200 million of the Series'
average daily net assets, 0.65% of the next $300 million of such assets and
0.60% of such assets in excess of $500 million.
Sub-Advisory Fees. TNE Advisers pays each sub-adviser at the following
rates for providing sub-advisory services to the following Series:
<TABLE>
<CAPTION>
Annual Percentage Rates Paid
by TNE Advisers to the Average Daily Net Asset
Series Respective Sub-advisers Value Levels
- ------ ----------------------- ------------
<S> <C> <C>
Loomis Sayles Small Cap Series 0.55% of the first $25 million
0.50% of the next $75 million
0.45% of the next $100 million
0.40% of amounts in excess of $200 million
Morgan Stanley International Magnum 0.75% of the first $100 million
Equity Series* 0.60% of the next $40 million
0.45% of the next $30 million
0.40% of amounts in excess of $100 million
Alger Equity Growth Series** 0.45% of the first $100 million
0.40% of the next $400 million
0.35% of amounts in excess of $500 million
Goldman Sachs Midcap Value 0.45% of the first $100 million
Series*** 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
Westpeak Stock Index Series
0.10% of all assets
Loomis Sayles Balanced Series
0.50% of the first $25 million
0.40% of the next $75 million
0.30% of amounts in excess of $100 million
Back Bay Advisors Managed Series
0.25% of the first $50 million
0.20% of amounts in excess of $50 million
Salomon Brothers Strategic Bond
Opportunities Series 0.35% of the first $50 million
</TABLE>
34
<PAGE>
0.30% of the next $150 million
0.25% of the next $300 million
0.20% of amounts in excess of $500
million
Back Bay Advisers Bond Income
Series 0.25% of the first $50 million
0.20% of the next $200 million
0.15% of amounts in excess of $250
million
Salomon Brothers U.S. Government
Series 0.225% of the first $200 million
0.150% of the next $300 million
0.100% of amounts in excess of $500
million
Back Bay Advisors Money Market
Series 0.15% of the first $100 million
0.10% of amounts in excess of $100
million
*Prior to May 1, 1997 the subadvisory fee rate payable for the Morgan Stanley
International Magnum Equity Series was 0.75% of the first $10 million of the
Series' average net assets, 0.60% of the next $40 million of such assets, 0.45%
of such assets in excess of $50 million.
**Prior to May 1, 1996, the advisory fee rate for the Alger Equity Growth
Series was 0.70% of average net assets and the sub-advisory fee rate was 0.45%
of the first $10 million of average net assets, 0.40% of the next $90 million of
such assets, 0.35% of the next $150 million of such assets, 0.30% of the next
$250 million of such assets and 0.25% of such assets in excess of $500 million.
Effective May 1, 1996, Alger Management has agreed with TNE Advisers, Inc. that
the sub-advisory fee payable by TNE Advisers, Inc. to Alger Management will be
reduced by 0.05% of the first $240 million of the excess of the Series' average
daily net assets over $10 million, and by 0.10% of the excess of the Series'
average daily net assets over $250 million. This fee reduction benefits TNE
Advisers, Inc., but does not reduce the advisory fees payable by the Series.
The fee reduction agreement will expire on (a) January 1, 1998 or (b) at such
time as TNE Advisers, Inc. has recovered certain expenses (generally, those
expenses borne by TNE Advisers, Inc. under the Expense Deferral Arrangement
prior to January 1, 1996 which are not recovered from the Series), whichever
comes first.
***Prior to May 1, 1998, the subadvisory fee rate payable for the Goldman Sachs
Midcap Value Series was 0.50% of the first $25 million of average daily net
assets, 0.40% of the next $75 million of such assets, 0.35% of the next $100
million of such assets, and 0.30% of such assets in excess of $200 million.
In connection with SBAM's service as subadviser to the Strategic Bond
Opportunities Series, SBAM's London based affiliate, SBAM Ltd. (Victoria Plaza,
111 Buckingham Palace Road, London SW1W OSB, England) serves as subadviser to
SBAM relating to currency transactions and investments in non-dollar denominated
debt securities for the benefit of the Salomon Brothers Strategic Bond
Opportunities Series. For these services, SBAM has agreed to pay SBAM Ltd. one-
third of the compensation that SBAM receives for serving as subadviser to the
Series. SBAM Ltd. is an indirect, wholly-owned subsidiary of Travelers.
In connection with Davis Selected's service as subadviser to the Davis Venture
Value Series, Davis Selected may delegate any and all responsiblities to its New
York based affiliate, DSA-NY, 609 Fifth Avenue, New York, New York 10017. As
compensation to DSA-NY, Davis Selected will compensate DSA-NY for all reasonable
direct and indirect costs associated with DSA-NY's performance of services
provided to Davis Selected.
For the periods below, the following amounts of advisory fees were paid by
each Series:
<TABLE>
<CAPTION>
January 1, 1995 to April 30, 1995 May 1, 1995 to December 31, 1995 January 1, 1995 to December 31, 1995
--------------------------------- -------------------------------- ------------------------------------
Series Amount Paid Adviser Paid Amount Paid Adviser Paid Amount Paid Adviser Paid
- ------ --------------- ---------------- --------------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Loomis Sayles Small TNE Advisers,
Cap Series $ 22,671 Loomis Sayles $124,433 Inc. -- --
</TABLE>
35
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Morgan Stanley
International Mag TNE Advisers,
Equity Series -- -- -- -- $ 85,666 Inc.
Alger Equity Growth TNE Advisers,
Series -- -- -- -- $ 144,943 Inc.
Capital Growth
Series -- -- -- -- $5,232,562 CGM
Goldman Sachs
Midcap Value $ 65,057 Loomis Sayles $195,829 TNE Advisers, -- --
Inc.
Davis Venture Value TNE Advisers,
Series -- -- -- -- $ 131,969 Inc.
Westpeak Growth and TNE Advisers,
Income Series $ 59,980 Westpeak $182,648 Inc. -- --
Westpeak Stock TNE Advisers,
Index Series $ 33,568 Westpeak $ 88,791 Inc. -- --
Loomis Sayles TNE Advisers,
Balanced Series -- -- -- -- $ 65,752 Inc.
Back Bay Advisors Back Bay TNE Advisers,
Managed Series $207,821 Advisors $467,918 Inc. -- --
Salomon Brothers
Strategic Bond TNE Advisers,
Opportunities Series -- -- -- -- $ 35,085 Inc.
Back Bay Advisors Back Bay TNE Advisers,
Bond Income Series $173,139 Advisors $399,140 Inc. -- --
Salomon Brothers
U.S. Government TNE Advisers,
Series -- -- -- -- $ 20,446 Inc.
Back Bay Advisors Back Bay TNE Advisers,
Money Market Series $ 84,329 Advisors $193,678 Inc. -- --
</TABLE>
For the fiscal years ended December 31, 1996 and 1997, each Series (except the
Capital Growth Series) paid the following amounts in advisory fees to TNE
Advisers, Inc.
<TABLE>
<CAPTION>
Amount Paid to TNE Advisers, Inc.
---------------------------------
Series 1996 1997
- ------ -------- ---------
<S> <C> <C>
Loomis Sayles Small Cap $240,646
Morgan Stanley International Magnum Equity Series (1) 70,553
Alger Equity Growth Series 281,325
Goldman Sachs Midcap Value Series (2) 169,578
Davis Venture Value Series 198,620
Westpeak Growth and Income Series 165,074
Westpeak Stock Index Series 102,444
Loomis Sayles Balanced Series 83,980
</TABLE>
36
<PAGE>
<TABLE>
<S> <C>
Back Bay Advisors Managed Series 430,920
Salomon Brothers Strategic Bond Opportunities Series 60,044
Back Bay Advisors Bond Income Series 311,174
Salomon Brothers U.S. Government Series 35,234
Back Bay Advisors Money Market Series 201,904
</TABLE>
(1) Prior to May 1, 1997, the Morgan Stanley International Magnum Equity Series
was subadvised by Draycott Partners, Ltd. and was called the Draycott
International Equity Series.
(2) Prior to May 1, 1998, the Goldman Sachs Midcap Value Series was subadvised
by Loomis, Sayles & Company, L.P. On January 28, 1998, the Board of
Trustess approved a new subadvisory agreement by and between TNE Advisoers,
Inc. Goldman Sachs Asset Management, which was approved by shareholders on
April 10, 1998, and the Series consequently changed its name from Loomis
Sayles Avanti Growth Series to Goldman Sachs Midcap Value Series.
For the fiscal years ended December 31, 1996 and 1997, the Capital Growth
Series paid CGM a total of $6,398,659 and $--- respectively, in advisory fees.
Each advisory and subadvisory agreement provides that it will continue in
effect after two years from the date of its execution only if it is approved at
least annually thereafter (i) by the trustees of the Fund or by vote of a
majority of the outstanding voting securities of the applicable Series and (ii)
by vote of a majority of the trustees who are not interested persons of (i) the
Fund or (ii) the applicable Series' investment adviser or subadviser. Any
amendment to any advisory or subadvisory agreement must be approved by vote of a
majority of the outstanding voting securities of the applicable Series and by
vote of a majority of the trustees who are not interested persons of (i) the
Fund or (ii) the applicable Series' investment adviser or subadviser. Each
agreement may be terminated without penalty by the trustees or by the
shareholders of the applicable Series, upon sixty days' written notice, or by
the applicable Series' investment adviser, upon ninety days' written notice, and
each terminates automatically in the event of its assignment. In addition, each
subadvisory agreement may be terminated without penalty upon ninety days'
written notice by the relevant subadviser. Each advisory agreement will
automatically terminate if the Fund shall at any time be required by New England
Securities, which is a wholly-owned subsidiary of NELICO, to eliminate all
reference to the words "New England" in its name, unless the continuance of such
agreement after such change of name is approved by a majority of the outstanding
voting securities of the applicable Series and by a majority of the trustees who
are not interested persons of (i) the Fund or (ii) the applicable Series'
investment adviser.
Each advisory agreement provides that if the total ordinary business expenses
of a particular Series for any fiscal year exceed the lowest applicable
limitations (based on a percentage of average net assets or income) prescribed
by any state in which shares of that Series are qualified for sale, the
applicable Series' investment adviser shall pay such excess. Each advisory
agreement provides, however, that the advisory fee shall not be reduced nor
shall any of such expenses be paid to an extent or under circumstances which
might result in the inability of any Series or of the Fund, taken as a whole, to
qualify as a regulated investment company under the Internal Revenue Code of
1986, as amended. The term "expenses" for this purpose excludes brokerage
commissions, taxes, interest and extraordinary expenses.
As required by state insurance licensing authorities, each Series' investment
adviser has also undertaken, separately from the advisory agreements, to be
liable for negligence in the performance of any administrative services with
respect to the Fund which are supplemental to their management of the investment
and reinvestment of that Series' assets.
Each advisory and subadvisory agreement provides that the relevant investment
adviser or subadviser shall not be subject to any liability in connection with
the performance of its services thereunder in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties.
Certain officers and employees of Back Bay Advisors have responsibility for
portfolio management of the other advisory accounts and clients (including other
Series of the Fund and other registered investment companies, and accounts of
affiliates of Back Bay Advisors) that may invest in securities in which the
Series for which Back Bay Advisors acts as a subadviser may invest. Where Back
Bay Advisors determines that an investment purchase or sale opportunity is
appropriate and desirable for more than one advisory account,
37
<PAGE>
purchase and sale orders may be executed separately or may be combined and, to
the extent practicable, allocated by Back Bay Advisors to the participating
accounts.
Where advisory accounts have competing interests in a limited investment
opportunity, Back Bay Advisors will allocate an investment purchase opportunity
based on the relative time that competing accounts have had funds available for
investment, and the relative amounts of available funds, and will allocate an
investment sale opportunity based on relative cash requirements and the time
that the competing accounts have had investments available for sale. It is Back
Bay Advisors' policy to allocate, to the extent practicable, investment
opportunities to each client over a period of time on a fair and equitable basis
relative to its other clients.
It is believed that the ability of the Series for which Back Bay Advisors acts
as subadviser to participate in larger volume transactions in this manner will
in some cases produce better executions for the Series. However, in some cases,
this procedure could have a detrimental effect on the price and amount of a
security available to a Series or the price at which a security may be sold.
The trustees are of the view that the benefits of retaining Back Bay Advisors as
subadviser outweigh the disadvantages, if any, that might result from
participating in such transactions.
Certain officers of Loomis Sayles have responsibility for the management of
other client portfolios. The Detroit office of Loomis Sayles buys and sell
portfolio securities for the Loomis Sayles Small Cap Series. The Pasadena
office buys and sells portfolio securities for the Loomis Sayles Balanced
Series. These and other offices of Loomis Sayles buy securities independently
of one another. The other investment companies and clients served by Loomis
Sayles sometimes invest in securities in which the Series advised by Loomis
Sayles also invest. If one of these Series and such other clients advised by
the same office of Loomis Sayles desire to buy or sell the same portfolio
securities at about the same time, purchases and sales will be allocated, to the
extent practicable, on a pro rata basis in proportion to the amounts desired to
be purchased or sold for each. It is recognized that in some cases the
practices described in this paragraph could have a detrimental effect on the
price or amount of a security which that Series purchases or sells. In other
cases, however, it is believed that these practices may benefit the Series. It
is the opinion of the trustees of the Fund that the desirability of retaining
Loomis Sayles as subadviser for these Series outweighs the disadvantages, if
any, which might result from these practices.
Certain officers of Westpeak have responsibility for portfolio management for
other clients (including affiliates of Westpeak), some of which may invest in
securities in which the Westpeak Growth and Income Series or the Westpeak Stock
Index Series also may invest. When these Series and other clients desire to
purchase or sell the same security at or about the same time, the purchase and
sale orders are ordinarily placed and confirmed separately but may be combined
to the extent practicable and allocated as nearly as practicable on a pro rata
basis in proportion to the amounts desired to be purchased or sold for each. It
is believed that the ability of those clients to participate in larger volume
transactions will in some cases produce better executions for the Westpeak
Growth and Income Series and the Westpeak Stock Index Series. However, in some
cases this procedure could have a detrimental effect on the price and amount of
a security available to a Series or the price at which a security may be sold.
It is the opinion of the trustees of the Fund that the desirability of retaining
Westpeak as subadviser for the Westpeak Growth and Income Series and the
Westpeak Stock Index Series outweighs the disadvantages, if any, which might
result from these practices.
Various officers and trustees of the Fund also serve as officers or trustees
of other investment companies advised by CGM. The other investment companies
and clients served by CGM (including accounts of affiliates of CGM) sometimes
invest in securities in which the Capital Growth Series also invests. If the
Capital Growth Series and such other investment companies or clients advised by
CGM desire to buy or sell the same portfolio securities at the same time,
purchases and sales will be allocated to the extent practicable on a pro rata
basis in proportion to the amounts desired to be purchased or sold for each. It
is recognized that in some cases the practices described in this paragraph could
have a detrimental effect on the price or amount of the securities which the
Capital Growth Series purchases or sells. In other cases, however, it is
believed that these practices may benefit the Capital Growth Series. It is the
opinion of the trustees that the desirability of retaining CGM as adviser for
the Capital Growth Series outweighs the disadvantages, if any, which might
result from these practices.
Certain officers and employees of SBAM, Davis Selected, MSAM, GSAM and Alger
Management have responsibility for portfolio management for other clients
(including other registered investment companies and affiliates of SBAM, Davis
Selected, MSAM, GSAM or Alger Management) some of which may invest in securities
38
<PAGE>
in which the respective Series that these subadvisers manage also invest. In
such circumstances, SBAM, Davis Selected, MSAM, GSAM or Alger Management may
determine that orders for the purchase or sale of the same security for the
Series it manages and one or more other registered investment companies or other
accounts it manages should be combined, in which event the transactions will be
priced and allocated in a manner deemed by SBAM, Davis Selected, MSAM, GSAM or
Alger Management, respectively, to be equitable and in the best interests of the
respective Series that it manages and its other accounts. It is recognized that
in some cases the practices described in this paragraph could have a detrimental
effect on the price or amount of a security that a Series purchases or sells.
In other cases, however, it is believed that these practices may benefit a
Series. It is the opinion of the trustees that the desirability of retaining
SBAM, Davis Selected, MSAM, GSAM and Alger Management as subadvisers for the
respective Series outweighs the disadvantages, if any, which might result from
these practices.
DISTRIBUTION AGREEMENT
Under an agreement with the Fund, New England Securities, a Massachusetts
corporation, serves as the general distributor of shares of each Series, which
are sold at net asset value without any sales charge. The offering of each
Series' shares is continuous. Shares are offered for sale only to certain
insurance company separate accounts. New England Securities receives no
compensation from the Fund or purchasers of Fund shares for acting as
distributor. The agreement does not obligate New England Securities to sell a
specific number of shares. New England Securities is an indirect wholly-owned
subsidiary of NELICO.
New England Securities controls the words "New England" in the Fund's name and
if it should cease to be the Fund's distributor, the Fund may be required to
change its name and delete these words. New England Securities also acts as
general distributor for New England Retirement Investment Account, NEVA, The New
England Variable Account, New England Variable Annuity Separate Account and New
England Variable Life Separate Account.
OTHER SERVICES
Custodial Arrangements. State Street Bank and Trust Company ("State Street
----------------------
Bank"), 225 Franklin Street, Boston, Massachusetts 02110, is the Fund's
custodian. As such, State Street Bank holds in safekeeping certificated
securities and cash belonging to each Series and, in such capacity, is the
registered owner of securities held in book-entry form belonging to the Series.
Upon instruction, State Street Bank receives and delivers cash and securities of
the Series in connection with Series transactions and collects all dividends and
other distributions made with respect to Series portfolio securities. State
Street Bank also maintains certain accounts and records of the Fund and
calculates the total net asset value, total net income and net asset value per
share of each Series on a daily basis.
Independent Accountants. The Fund's independent accountants are ______________
-----------------------
conducts an annual audit of each Series, assists in the preparation of federal
and state income tax returns and consults with the Fund as to matters of
accounting and federal and state income taxation. A table of selected per share
data and ratios for each of the Series appears in the Prospectus. Prior to
January 1, 1997 the Fund's independent accountants were and the financial
statements included in this Statement of Additional Information are included in
reliance on the report of for the years 1988 through 1996.
Other Arrangements. Office space, facilities, equipment and/or certain
------------------
administrative services for the Fund (and, where applicable, other mutual funds)
under the investment management of CGM or TNE Advisers. are currently furnished
by New England Funds, L.P., under separate service agreements with those
investment advisers. Under a service agreement between Back Bay Advisors and New
England Securities for fiscal years ended December 31, 1995, 1996, and 1997,
Back Bay Advisors paid New England Securities or New England Funds, L.P., an
affiliate of New England Securities, $71,233, $44,919, and $--,----
respectively, relating to the Back Bay Advisors Money Market Series; $126,352,
$68,830, and $--,--- respectively, relating to the Back Bay Advisors Bond Income
Series; and $120,279, $63,191, and $--,---respectively, relating to the Back Bay
Advisors Managed Series under a service agreement. Under a service agreement
between New England Securities and CGM, CGM paid New England Securities or New
England Funds, L.P., for fiscal years ended December 31, 1995, 1996 and
39
<PAGE>
1997, $734,743, $1,574,016, and $--,---respectively, relating to the Capital
Growth Series. Under a service agreement between Loomis Sayles and New England
Funds, L.P., Loomis Sayles paid New England Funds, L.P. for the fiscal years
ended December 31, 1995, 1996 and 1997 $34,683, $30,928, and $--,---
respectively, for the Goldman Sachs Midcap Value Series. Under a service
agreement between New England Securities and Westpeak, Westpeak paid New England
Securities $31,668, $30,331, and $--,--- for the fiscal years ended December 31,
1995, 1996 and 1997, respectively, for the Westpeak Growth and Income Series,
and $49,914, $32,318, and $--,--- for the fiscal years ended December 31, 1995,
1996 and 1997, respectively, for the Westpeak Stock Index Series. Under a
service agreement between Loomis Sayles and New England Funds, L.P., Loomis
Sayles paid New England Funds, L.P. $10,604, $24,599, and $--,--- for the fiscal
years ended December 31, 1995, 1996 and 1997 for the Loomis Sayles Small Cap
Series. For the fiscal year ended December 31, 1995, under a service agreement
TNE Advisers, Inc. paid New England Funds, L.P. $10,044 for the Loomis Sayles
Balanced Series, $10,044 for the Morgan Stanley International Magnum Equity
Series, $10,044 for the Salomon Brothers U.S. Government Series, $10,044 for the
Salomon Brothers Strategic Bond Opportunities Series, $11,503 for the Davis
Venture Value Series and $13,133 for the Alger Equity Growth Series. For the
fiscal year ended December 31, 1996, under a service agreement between New
England Funds, L.P. and TNE Advisers, Inc., TNE Advisers, Inc. paid $18,011 for
the Loomis Sayles Balanced Series, $14,419 for the Morgan Stanley International
Magnum Equity Series, $10,000 for the Salomon Brothers U.S. Government Series,
$11,629 for the Salomon Brothers Strategic Bond Opportunities Series, $31,230
for the Davis Venture Value Series and $38,435 for the Alger Equity Growth
Series. For the fiscal year ended 1997 under an Administrative Services
Agreement, TNE advisers paid New England Funds, L.P. $---- for the Loomis Sayles
Balanced Series, $------ for the Morgan Stanley International Magnum Equity
Series, $---- for the Salmon Brothers U.S. Government Series, $---- for the
Salmon Brothers Strategic Bond Opportunities Series, $---- for the Davis Venture
Value Series, $---- for the Alger Equity Growth Services, $---- for the Back Bay
Advisors Bond Income Series, $--- for the Back Bay Advisors Managed Series,
$---- for the Back Bay Advisors Money Market Series, and $---- for the Goldman
Sachs Midcap Values Series.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Some of the Fund's portfolio transactions are placed with brokers and dealers
who provide the investment advisers or subadvisers with supplementary investment
and statistical information or furnish market quotations to the Fund or other
investment companies advised by the investment advisers or subadvisers.
Although it is not possible to assign an exact dollar value to these services,
they may, to the extent used, tend to reduce the expenses of the investment
advisers or subadvisers. The services may also be used by the investment
advisers or subadvisers in connection with their other advisory accounts and in
some cases may not be used with respect to the Fund.
Certain Portfolio Transactions of Loomis Sayles Balanced, Back Bay Advisors
- ---------------------------------------------------------------------------
Managed, Back Bay Advisors Bond Income and Back Bay Advisors Money Market Series
- --------------------------------------------------------------------------------
It is expected that the portfolio transactions of the Loomis Sayles Balanced,
Back Bay Advisors Managed Series, Back Bay Advisors Bond Income and Back Bay
Advisors Money Market Series in bonds, notes and money market instruments, will
generally be with issuers or dealers on a net basis without a stated commission.
Portfolio turnover for the years 1995, 1996, and 1997 was 73%, 98%, and --%
respectively, for the Back Bay Advisors Bond Income Series and 76%, 51% and 72%,
respectively, for the Back Bay Advisors Managed Series. The Loomis Sayles
Balanced Series' portfolio turnover rates for the periods May 1, 1994 through
December 31, 1994 and the fiscal year ended December 31, 1995 and 1996 were 0%,
72% and 59%, respectively.
Loomis Sayles Small Cap Series, Morgan Stanley International Magnum Equity
- --------------------------------------------------------------------------
Series, Alger Equity Growth Series, Capital Growth Series, Goldman Sachs Midcap
- -------------------------------------------------------------------------------
Value Series, Davis Venture Value Series, Loomis Sayles Balanced Series and Back
- ----- --------------------------------------------------------------------------
Bay Advisors Managed Series (Common Stock Transactions)
- -------------------------------------------------------
In placing orders for the purchase and sale of portfolio securities, CGM, in
the case of the Capital Growth Series, GSAM, in the case of the Goldman Sachs
Midcap Value Series, Loomis Sayles, in the case of the Loomis Sayles Small Cap
and the Loomis Sayles Balanced Series, Back Bay Advisors, in the case of
investments in common stocks by the Back Bay Advisors Managed Series, MSAM, in
the case of the Morgan Stanley International Magnum Equity Series, Davis
Selected, in the case of the Davis Venture Value Series, and Alger Management,
in the case of the Alger Equity Growth Series, each selects only brokers which
it believes are
40
<PAGE>
financially responsible, will provide efficient and effective services in
executing, clearing and settling an order and will charge commission rates
which, when combined with the quality of the foregoing services, will produce
best price and execution for the transaction. This does not necessarily mean
that the lowest available brokerage commission will be paid. However, the
commissions are believed to be competitive with generally prevailing rates. The
Series' advisers or subadvisers will use their best efforts to obtain
information as to the general level of commission rates being charged by the
brokerage community from time to time and will evaluate the overall
reasonableness of brokerage commissions paid on transactions by reference to
such data. In making such evaluation, all factors affecting liquidity and
execution of the order, as well as the amount of the capital commitment by the
broker in connection with the order, are taken into account.
For the fiscal years ending in 1995, 1996 and 1997, brokerage transactions for
the Capital Growth Series aggregating $3,292,999,742, $3,548,037,504, and $-,---
,---,--- respectively, were allocated to brokers providing research services and
commissions of $4,129,082, $4,124,163, and $-,---,--- respectively, were paid
on those transactions. For the fiscal years ending in 1995, 1996 and 1997 the
Westpeak Stock Index Series paid brokerage commissions aggregating $10,566,
$9,955, and $-,--- respectively. For the same periods, the Back Bay Advisors
Managed Series paid brokerage commissions aggregating $1,615 , $11,697, and $--
,--- respectively. For the fiscal years ending December 31, 1995, 1996 and 1997,
the Goldman Sachs Midcap Value Series paid brokerage commissions of $67,095,
$72,377 and $74,700 and $2,775, $2,080 and $1,300 were paid to brokers providing
research services. The Westpeak Growth and Income Series paid brokerage
commissions of $61,252, $106,927, and $--,--- for the fiscal years ended 1995,
1996 and 1997, respectively. For the period May 1, 1995 to December 31, 1994
and fiscal years ended December 31, 1996 and 1997, the Loomis Sayles Small Cap
Series paid brokerage commissions of $97,195, $462,358, and $---,----
respectively. For the period October 31, 1995 to December 31, 1996, and the
fiscal year end 1996 and 1997, the Morgan Stanley International Magnum Equity
Series paid brokerage commissions of $85,037, $127,196, and $---,---. The Davis
Venture Value Series paid brokerage commissions of $40,523, $81,002, and $--,---
for the fiscal years ended 1995, 1996 and 1997. The Alger Equity Growth Series
paid brokerage commissions of $69,052, $174,495, and $---,--- for the fiscal
years ended 1995, 1996 and 1997.
Westpeak Growth and Income Series, Westpeak Stock Index Series, Salomon Brothers
- --------------------------------------------------------------------------------
Strategic Bond Opportunities Series and Salomon Brothers U.S. Government Series
- -------------------------------------------------------------------------------
In placing orders for the purchase and sale of securities, Westpeak, in the
case of the Westpeak Growth and Income and Westpeak Stock Index Series, and
SBAM, in the case of Salomon Brothers Strategic Bond Opportunities and Salomon
Brothers U.S. Government Series, always seeks best execution. Westpeak and SBAM
each selects only brokers or dealers which it believes are financially
responsible, will provide efficient and effective services in executing,
clearing and settling an order and will charge commission rates which, when
combined with the quality of the foregoing services, will produce best price and
execution. This does not necessarily mean that the lowest available brokerage
commission will be paid. Westpeak or SBAM will each use its best efforts to
obtain information as to the general level of commission rates being charged by
the brokerage community from time to time and will evaluate the overall
reasonableness of brokerage commissions paid on transactions by reference to
such data. In making such evaluation, all factors affecting liquidity and
execution of the order, as well as the amount of the capital commitment by the
broker in connection with the order, are taken into account. Westpeak or SBAM
may cause the Series they manage to pay a broker-dealer that provides brokerage
and research services to Westpeak or SBAM an amount of commission for effecting
a securities transaction for a Series in excess of the amount another broker-
dealer would have charged effecting that transaction. Westpeak or SBAM, as the
case may be, must determine in good faith that such greater commission is
reasonable in relation to the value of the brokerage and research services
provided by the executing broker-dealer viewed in terms of that particular
transaction or Westpeak's or SBAM's overall responsibilities to the Fund and its
other clients. Westpeak's or SBAM's authority to cause the Series it manages to
pay such greater commissions is also subject to such policies as the trustees of
the Fund may adopt from time to time.
Affiliated Brokerage
- --------------------
A Series may pay brokerage commissions to an affiliated broker for acting as
the respective Series' agent on purchases and sales of securities for the
portfolio of the Series. SEC rules require that commissions paid to an
affiliated broker of a mutual fund for portfolio transactions not exceed "usual
and customary" brokerage commissions. The rules define "usual and customary"
commissions to include amounts which are "reasonable and fair" compared to the
commission, fee or other remuneration received or to be received by other
brokers in
41
<PAGE>
connection with comparable transactions involving similar securities being
purchased or sold on a securities exchange during a comparable period of time."
The Trustees, including those who are not "interested persons" of the Fund, have
adopted procedures for evaluating the reasonableness of commissions paid to
affiliated brokers and will review these procedures periodically. The Alger
Equity Growth Series paid $69,052, $174,495, and $---,--- in brokerage
commissions to Fred Alger and Company, Inc., an affiliated broker, for the
period October 31, 1995 to December 31, 1995 and the fiscal years ended December
31, 1996, and 1997, respectively. The amount paid by the Alger Equity Growth
Series represents approximately 100%, 100% and 100% of that Series' aggregate
brokerage commissions for the period October 31, 1995 to December 31, 1995 and
for the years ended December 31, 1996, and 1997. For the fiscal year ended
December 31, 1996 and 1997 the Davis Venture Value Series paid a total of $5,316
in brokerage commissions to Shelby Cullum Davis, Inc., an affiliated broker.
This amount represents 6.6% and --% of the Series aggregate brokerage
commissions for the fiscal year ended December 31, 1996 and 1997. For the fiscal
year ended December 31, 1997 the Morgan Stanley International Magnum Equity
Series paid a total of $_____ in brokerage commissions to Morgan Stanley Group,
Inc., an affiliate broker.
DESCRIPTION OF THE FUND
The Fund is organized as a Massachusetts business trust under the laws of
Massachusetts pursuant to an Agreement and Declaration of Trust (the
"Declaration of Trust") dated December 16, 1986. On February 27, 1987, the Fund
succeeded to the operations of The New England Zenith Fund, Inc., a
Massachusetts corporation incorporated on January 7, 1983 as NEL Series Fund,
Inc. On November 1, 1985, the name of that corporation was changed to Zenith
Fund, Inc. and on July 17, 1986 it was changed again to The New England Zenith
Fund, Inc. The Capital Growth, Back Bay Advisors Bond Income and Back Bay
Advisors Money Market Series all commenced investment operations in 1983. The
Westpeak Stock Index Series commenced operations on March 30, 1987. The Back
Bay Advisors Managed Series commenced investment operations on May 1, 1987. The
Goldman Sachs Midcap Value and the Westpeak Growth and Income Series commenced
investment operations in April 1993. The Loomis Sayles Small Cap Series
commenced investment operations on May 1, 1994. The Alger Equity Growth, Morgan
Stanley International Magnum Equity, Davis Venture Value, Loomis Sayles
Balanced, Salomon Brothers Strategic Bond Opportunities and Salomon Brothers
U.S. Government Series commenced investment operations on October 31, 1994.
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of each of the Loomis Sayles Small Cap, Morgan
Stanley International Magnum Equity, Alger Equity Growth, Capital Growth,
Goldman Sachs Midcap Value, Davis Venture Value, Westpeak Growth and Income,
Westpeak Stock Index, Loomis Sayles Balanced, Back Bay Advisors Managed, Salomon
Brothers Strategic Bond Opportunities, Back Bay Advisors Bond Income, Salomon
Brothers U.S. Government and Back Bay Advisors Money Market Series. Interests
in the Fund portfolios described in the Prospectus and in this Statement of
Additional Information are represented by shares of such Series. Each share of
a Series represents an equal proportionate interest in such Series with each
other share and is entitled to a proportionate interest in the dividends and
distributions from such Series. The shares of the Series do not have any
preemptive rights. Upon liquidation of any Series, whether pursuant to
liquidation of the Fund or otherwise, shareholders of such Series are entitled
to share pro rata in the net assets of such Series available for distribution to
shareholders. The Declaration of Trust also permits the trustees to charge
shareholders directly for custodial, transfer agency and servicing expenses.
The Declaration of Trust also permits the Trustees, without shareholder
approval, to subdivide any series of shares into various sub-series of shares
with such dividend preferences and other rights as the trustees may designate.
While the trustees have no current intention to exercise this power, it is
intended to allow them to provide for an equitable allocation of the impact of
any future regulatory requirements which might affect various classes of
shareholders differently. The trustees may also, without shareholder approval,
establish one or more additional separate portfolios for investments in the Fund
or merge two or more existing portfolios. Shareholders' investments in such a
portfolio would be evidenced by a separateseries of shares. The Fund is a
"series" company as that term is used in Section 18(f) of the 1940 Act.
The Declaration of Trust provides for the perpetual existence of the Fund.
The Fund or any Series, however, may be terminated at any time by vote of at
least two-thirds of the outstanding shares of each Series affected. The
Declaration of Trust further provides that the trustees may terminate the Fund
or any Series upon written notice
42
<PAGE>
to the shareholders thereof.
The assets received by the Fund for the issue or sale of shares of each Series
and all income, earnings, profits, losses and proceeds therefrom, subject only
to the rights of creditors, are allocated to that Series, and constitute the
underlying assets of the Series. The underlying assets of each Series are
segregated and are charged with the expenses in respect of that Series and with
a share of the general expenses of the Fund. Any general expenses of the Fund
not readily identifiable as belonging to a particular Series are allocated by or
under the direction of the trustees in such manner as the trustees determine to
be fair and equitable. While the expenses of the Funds are allocated to the
separate books of account of each Series, certain expenses may be legally
chargeable against the assets of all Series.
As of February, 1998, all of the outstanding voting securities of the Fund
were owned by separate accounts of MetLife and/or NELICO, and may, from time to
time, be owned by those separate accounts and the general account of NELICO and
its affiliates. Therefore, MetLife and NELICO are presumed to be in control (as
that term is defined in the 1940 Act) of the Fund. However, the staff of the
SEC is presently of the view that MetLife and NELICO are each required to vote
their Fund shares that are held in a registered separate account (and, to the
extent voting privileges are granted by the issuing insurance company, in
unregistered separate accounts) in the same proportion as the voting
instructions received from owners of the variable life insurance or variable
annuity contracts issued by the separate account, and that MetLife and NELICO
each is required to vote any shares held in general account (or in any
unregistered separate account for which voting privileges were not extended) in
the same proportion as all other Fund shares are voted. MetLife and NELICO
currently intend to vote their shares in a manner consistent with this view.
Voting Rights
- -------------
Fund shareholders are entitled to one vote for each full share held (with
fractional votes for fractional shares held). NELICO and MetLife are the legal
owners of shares attributable to variable life insurance and variable annuity
contracts issued by their separate accounts, and have the right to vote those
shares. Pursuant to the current view of the SEC staff, NELICO and MetLife will
vote their shares in accordance with instructions received from owners of
variable life insurance and variable annuity contracts issued by separate
accounts that are registered under the 1940 Act. All Fund shares held by
separate accounts of NELICO and MetLife that are registered with the SEC (and,
to the extent voting privileges are granted by the issuing insurance company, by
unregistered separate accounts) for which no timely instructions are received
will be voted for, voted against, or withheld from voting on any proposition in
the same proportion as the shares held in that separate account for all
contracts for which voting instructions are received. All Fund shares held by
the general investment account (or any unregistered separate account for which
voting privileges are not extended) of NELICO and its affiliates will be voted
in the same proportion as the aggregate of (i) the shares for which voting
instructions are received and (ii) the shares that are voted in proportion to
such voting instructions are received.
There will normally be no meetings of shareholders for the purpose of electing
trustees except that in accordance with the 1940 Act (i) the Fund will hold a
shareholders' meeting for the election of trustees at such time as less than a
majority of the trustees holding office have been elected by shareholders and
(ii) in the case of a vacancy on the Board of Trustees unless, after filing
such vacancy, at least two-thirds of the trustees holding office shall have been
elected by the shareholders, such vacancy may only be filled by a vote of the
shareholders. In addition, trustees may be removed from office by a written
consent signed by the holders of two-thirds of the outstanding shares at a
meeting duly called for the purpose, which meeting shall be held upon the
written request of the holders of not less than 10% of the outstanding shares.
Upon written request by the holders of shares having a net asset value
constituting 1% of the outstanding shares stating that such shareholders wish to
communicate with the other shareholders for the purpose of obtaining the
signatures necessary to demand a meeting to consider removal of a trustee, the
Fund has undertaken to provide a list of shareholders or to disseminate
appropriate materials (at the expense of the requesting shareholders). Except as
set forth above, the trustees shall continue to hold office and may appoint
successor trustees.
No amendment may be made to the Declaration of Trust without the affirmative
vote of a majority of the outstanding shares of the Fund except (i) to change
the Fund's name or to cure technical problems in the Declaration of Trust and
(ii) to establish, designate or modify new and existing series or sub-series of
Fund shares or other provisions relating to Fund shares in response to
applicable laws or regulations.
43
<PAGE>
Shareholder and Trustee Liability
- ---------------------------------
Under Massachusetts law shareholders could, under certain circumstances, be
held personally liable for the obligations of the Fund. However, the
Declaration of Trust disclaims shareholder liability for acts or obligations of
the Fund and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Fund or the trustees.
The Declaration of Trust provides for indemnification out of the relevant
Series' property for all loss and expense of any shareholder held personally
liable for the obligations of the Series in which the shareholder owns shares.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is considered remote since it is limited to circumstances
in which the disclaimer is inoperative and a Series itself would be unable to
meet its obligations. For purposes of such liability, the Fund's shareholders
are the separate accounts investing directly in the Fund and not the owners of
variable life insurance or variable annuity contracts or purchasers of other
insurance products.
The Declaration of Trust further provides that the trustees will not be liable
for errors of judgment or mistakes of fact or law. However, nothing in the
Declaration of Trust protects a trustee against any liability to which the
trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his or her office. The By-Laws of the Fund provide for indemnification by the
Fund of the trustees and officers of the Fund except with respect to any matter
as to which any such person did not act in good faith in the reasonable belief
that his or her action was in or not opposed to the best interests of the Fund.
Such person may not be indemnified against any liability to the Fund or the
Fund's shareholders to which he or she would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office.
FINANCIAL STATEMENTS
44
<PAGE>
APPENDIX A-1
DESCRIPTION OF BOND RATINGS
Moody's Investors Service, Inc.
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge".
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuations of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities. See Note 1.
A
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future. See Note 1.
Baa
Bonds which are rated Baa are considered as medium grade obligations, i.e., they
----
are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. See Note 1.
Ba
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often, the protection of interest and
principal payments may be very moderate, and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.
Ca
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C
Bonds which are rated C are the lowest rated class of bonds, and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Should no rating be assigned by Moody's, the reason may be one of the following:
(1) An application for rating was not received or accepted.
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<PAGE>
(2) The issue or issuer belongs to a group of securities that are not rated as
a matter of policy.
(3) There is a lack of essential data pertaining to the issue or issuer.
(4) The issue was privately placed, in which case the rating is not published
in Moody's publications.
- -----------------
Note 1: This rating may include the numerical modifier 1, 2 or 3 to provide a
more precise indication of relative debt quality within the category, with 1
indicating the high end of the category, 2 the mid-range and 3 nearer the low
end.
Standard & Poor's Ratings Group
AAA
This is the highest rating assigned by Standard & Poor's Corporation ("S&P") to
a debt obligation and indicates an extremely strong capacity to pay principal
and interest.
AA
Bonds rated AA also qualify as high quality debt obligations. Capacity to pay
principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A
Bonds rated A have strong capacity to pay principal and interest although they
are somewhat more susceptible to the adverse effects of changes in circumstances
and economic conditions.
BBB
Bonds rated BBB are regarded as having an adequate capacity to pay principal and
interest. Whereas they normally exhibit protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay principal and interest for bonds in this category than for bonds
in the A category.
BB, B, CCC, CC
Bonds rated BB, B, CCC and CC are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While such bonds will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
C
The rating C is reserved for income bonds on which no interest is being paid.
D
Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
46
<PAGE>
APPENDIX A-2
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Standard & Poor's Corporation
A-1
Commercial paper rated A-1 by S&P has the following characteristics: Liquidity
ratios are adequate to meet cash requirements. Long-term senior debt is rated
"A" or better. The issuer has access to at least two additional channels of
borrowing. Basic earnings and cash flow have an upward trend with allowance
made for unusual circumstances. Typically, the issuer's industry is well
established and the issuer has a strong position within the industry. The
reliability and quality of management are unquestioned. Commercial paper within
the A-1 category which has overwhelming safety characteristics is denoted "A-
1+."
A-2
Capacity for timely payment on issues with this designation is strong. However,
the relative degree of safety is not as overwhelming as for issues designated A-
1.
Moody's Investors Service, Inc.
P-1
The rating P-1 is the highest commercial paper rating assigned by Moody's
Investors Service, Inc. ("Moody's"). Among the factors considered by Moody's in
assigning ratings are the following:
(1) evaluation of the management of the issuer;
(2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas;
(3) evaluation of the issuer's products in relation to competition and
customer acceptance;
(4) liquidity;
(5) amount and quality of long-term debt;
(6) trend of earnings over a period of ten years;
(7) financial strength of a parent company and the relationships which exist
with the issuer; and
(8) recognition by the management of obligations which may be present or may
arise as a result of public interest questions and preparations to meet such
obligations.
P-2
Issuers rated P-2 have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics
cited above but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternative liquidity is maintained.
47
<PAGE>
APPENDIX B
ABC and affiliates
Atlanta Constitution
Atlanta Journal
Austin American Statesman
Baltimore Sun
Barron's
Bond Buyer
Boston Business Journal
Boston Globe
Boston Herald
Broker World
Business Radio Network
Business Week
CBS and affiliates
CFO
Changing Times
Chicago Sun Times
Chicago Tribune
Christian Science Monitor
Christian Science Monitor News Service
Cincinnati Enquirer
Cincinnati Post
CNBC
CNN
Columbus Dispatch
Dallas Morning News
Dallas Times-Herald
Denver Post
Des Moines Register
Detroit Free Press
Donoghue's Money Fund Report
Dorfman, Dan (syndicated column)
Dow Jones News Service
Economist
FACS of the Week
Financial News Network
Financial Planning
Financial Services Week
Financial World
Forbes
Fort Worth Star-Telegram
Fortune
Fox Network and affiliates
Fund Action
Hartford Courant
Houston Chronicle
INC
Indianapolis Star
Institutional Investor
Investment Dealers Digest
Investment Vision
Investor's Daily
Journal of Commerce
Kansas City Star
LA Times
48
<PAGE>
Leckey, Andrew (syndicated column)
Life Association News
Miami Herald
Milwaukee Sentinel
Money
Money Maker
Money Management Letter
Morningstar
National Public Radio
National Underwriter
NBC and affiliates
New England Business
New England Cable News
New Orleans Times-Picayune
New York Daily News
New York Times
Newark Star Ledger
Newsday
Newsweek
Nightly Business Report
Orange County Register
Orlando Sentinel
Pension World
Pensions and Investments
Personal Investor
Philadelphia Inquirer
Porter, Sylvia (syndicated column)
Portland Oregonian
Public Broadcasting Service
Quinn, Jane Bryant (syndicated column)
Registered Representative
Research Magazine
Resource
Reuters
Rukeyser's Business (syndicated column)
Sacramento Bee
San Francisco Chronicle
San Francisco Examiner
San Jose Mercury
Seattle Post-Intelligencer
Seattle Times
Smart Money
St. Louis Post Dispatch
St. Petersburg Times
Standard & Poor's Outlook
Standard & Poor's Stock Guide
Stanger's Investment Advisor
Stockbroker's Register
Strategic Insight
Tampa Tribune
Time
Tobias, Andrew (syndicated column)
UPI
US News and World Report
USA Today
Value Line
Wall St. Journal
49
<PAGE>
Wall Street Letter
Wall Street Week
Washington Post
WBZ
WBZ-TV
WCVB-TV
WEEI
WHDH
Worcester Telegram
Worth Magazine
WRKO
50
<PAGE>
APPENDIX C
ADVERTISING AND PROMOTIONAL LITERATURE
Advertising and promotional literature prepared by NELICO for products it
issues or administers may include references to TNE Advisers or NEIC and its
affiliates that perform advisory and subadvisory functions for TNE Advisers also
including, but not limited to: Back Bay Advisors, Loomis Sayles, CGM and
Westpeak. Reference also may be made to the Funds of their respective fund
groups, namely, the Loomis Sayles Funds and the CGM Funds
NELICO's advertising and promotional literature may include references to
other NELICO or NEIC affiliates including, but not limited to, New England
Investment Associates, L. P., AEW Capital Management, L.P., Marlborough Capital
Advisors, L.P., Reich & Tang Capital Management, Reich and Tang Mutual Funds,
the Oakmark Family of Funds and Jurika & Voyles and their fund groups.
References to subadvisers unaffiliated with TNE Advisers or NELICO that
perform subadvisory functions on behalf of New England Zenith Fund and their
respective fund groups may be contained in NELICO's advertising and promotional
literature including, but not limited to, Alger, Davis Selected, Salomon
Brothers and MSAM.
NELICO's advertising and promotional material may include, but is not limited
to, discussions of the following information about both affiliated and
unaffiliated entities:
. Specific and general assessments and forecasts regarding the U.S. economy,
world economies, the economics of specific nations and their impact on the
Series
. Specific and general investment emphasis, specialties, fields of expertise,
competencies, operations and functions
. Specific and general investment philosophies, strategies, processes,
techniques and types of analysis
. Specific and general sources of information, economic models, forecasts and
data services utilized, consulted or considered in the course of providing
advisory or other services
. The corporate histories, founding dates and names of founders of the entities
. Awards, honors and recognition given to the firms
. The names of those with ownership interest and the percentage of ownership
. The industries and sectors from which clients are drawn and specific client
names and background information on current individual, corporate and
institutional clients, including pension and profit sharing plans
. Current capitalization, levels of profitability and other financial and
statistical information
. Identification of portfolio managers, researchers, economists, principals and
other staff members and employees
. The specific credentials of the above individuals, including, but not limited
to, previous employment, current and past positions, titles and duties
performed, industry experience, educational background and degrees, awards
and honors
51
<PAGE>
. Current and historical statistics about:
-total dollar amount of assets managed
-TNE Advisers assets managed in total and/or by Series
-Asset managed by CGM in total and/or by Series
-the growth of assets
-asset types managed
-numbers of principal parties and employees, and the length of their tenure,
including officers, portfolio managers, researchers, economists,
technicians and support staff
-the above individuals' total and average number of years of industry
experience and the total and average length of their service to the adviser
or the subadviser
. The general and specific strategies applied by the advisers in the management
of the New England Zenith Fund's portfolios including, but not limited to:
-the pursuit of growth, value, income oriented, risk management or other
strategies
-the manner and degree to which the strategy is pursued
-whether the strategy is conservative, moderate or extreme and an
explanation of other features, attributes
-the types and characteristics of investments sought and specific portfolio
holdings
-the actual or potential impact and result from strategy implementation
-through its own areas of expertise and operations, the value added by
subadvisers to the management process
-the disciplines it employs, e.g., in the case of Loomis Sayles, the strict
buy/sell guidelines and focus on sound value it employs, and goals and
benchmarks that it establishes in management, e.g., CGM pursues growth 50%
above the S&P 500
-the systems utilized in management, the features and characteristics of
those systems and the intended results from such computer analysis, e.g.,
Westpeak's efforts to identify overvalued and undervalued issues.
. Specific and general references to portfolio managers and funds that they
serve as portfolio manager of, other than Series of the Fund, and those
families of funds, other than New England Zenith Fund. Any such references
will indicate that New England Zenith Funds and the other funds of the
managers differ as to performance, objectives, investment restrictions and
limitations, portfolio composition, asset size and other characteristics,
including fees and expenses. References may also be made to industry rankings
and ratings of Series and other funds managed by the Series' adviser and
subadvisers, including, but not limited to, those provided by Morningstar,
Lipper Analytical Services, Forbes and Worth.
In addition, communications and materials developed by NELICO or its
affiliates may make reference to the following information about NEIC and its
affiliates:
NEIC is one of the largest publicly traded managers in the U.S. listed on the
New York Stock Exchange. NEIC maintains over $100 billion in assets under
management. In addition, promotional materials may include:
New England Securities Corporation ("NES") an indirect subsidiary of NELICO,
may be referenced in Fund advertising and promotional literature concerning the
marketing services it provides to NEIC-affiliated fund groups including: New
England Funds, Loomis Sayles Funds, Oakmark Funds and Reich & Tang Funds.
Additional information contained in advertising and promotional literature may
include: rankings and ratings of the Series including, but not limited to,
those of Morningstar and Lipper Analytical Services; statistics about the
advisers', fund groups' or a specific fund's assets under management; the
histories of the advisers and biographical references to portfolio managers and
other staff including, but not limited to, background, credentials, honors,
awards and recognition received by the advisers and their personnel; and
commentary about the advisers, their funds and their personnel from third-party
sources including newspapers, magazines, periodicals, radio, television or other
electronic media.
52
<PAGE>
References to the Series may be included in NELICO's advertising and
promotional literature about its 401(k) and retirement plans. The information
may include, but is not limited to:
. Specific and general references to industry statistics regarding 401(k) and
retirement plans including historical information and industry trends and
forecasts regarding the growth of assets, numbers of plans, funding vehicles,
participants, sponsors and other demographic data relating to plans,
participants and sponsors, third party and other administrators, benefits
consultants and firms including, but not limited to, DC Xchange, William
Mercer and other organizations involved in 401(k) and retirement programs with
whom NELICO may or may not have a relationship.
. Specific and general reference to comparative ratings, rankings and other
forms of evaluation as well as statistics regarding the NELICO as a 401(k) or
retirement plan funding vehicle produced by, including, but not limited to,
Access Research, Dalbar, Investment Company Institute and other industry
authorities, research organizations and publications.
. Specific and general discussion of economic, legislative, and other
environmental factors affecting 401(k) and retirement plans, including, but
not limited to, statistics, detailed explanations or broad summaries of:
-past, present and prospective tax regulation, Internal Revenue Service
requirements and rules, including, but not limited to, reporting standards,
minimum distribution notices, Form 5500, Form 1099R and other relevant forms
and documents, Department of Labor rules and standards and other regulation.
This includes past, current and future initiatives, interpretive releases
and positions of regulatory authorities about the past, current or future
eligibility, availability, operations, administration, structure, features,
provisions or benefits of 401(k) and retirement plans
-information about the history, status and future trends of Social Security
and similar government benefit programs including, but not limited to,
eligibility and participation, availability, operations and administration,
structure and design, features, provisions, benefits and costs
-current and prospective ERISA regulation and requirements.
. Specific and general discussion of the benefits of 401(k) investment and
retirement plans, and, in particular, the NELICO 401(k) and retirement plans,
to the participant and plan sponsor, including explanations, statistics and
other data, about:
-increased employee retention
-reinforcement or creation of morale
-deductibility of contributions for participants
-deductibility of expenses for employers
-tax deferred growth, including illustrations and charts
-loan features and exchanges among accounts
-educational services materials and efforts, including, but not limited to,
videos, slides, presentation materials, brochures, an investment calculator,
payroll stuffers, quarterly publications, releases and information on a
periodic basis and the availability of wholesalers and other personnel.
. Specific and general reference to the benefits of investing in mutual funds
for 401(k) and retirement plans, and, in particular, New England Zenith Fund
and investing in NELICO's 401(k) and retirement plans, including, but not
limited to:
-the significant economies of scale experienced by mutual fund companies in
the 401(k) and retirement benefits arena
-broad choice of investment options and competitive fees
-plan sponsor and participant statements and notices
-the plan prototype, summary descriptions and board resolutions
-plan design and customized proposals
-trusteeship, record keeping and administration
-the services of State Street Bank, including, but not limited to, trustee
services and tax reporting
-the services of DST and BFDS, including, but not limited to, mutual fund
processing support, participant 800 numbers and participant 401(k)
statements
53
<PAGE>
-the services of Trust Consultants Inc. (TCI), including, but not limited to,
sales support, plan record keeping, document service support, plan sponsor
support, compliance testing and Form 5500 preparation.
. Specific and general reference to the role of the investment dealer and the
benefits and features of working with a financial professional including:
-access to expertise on investments
-assistance in interpreting past, present and future market trends and
economic events
-providing information to clients including participants during enrollment
and on an ongoing basis after participation
-promoting and understanding the benefits of investing, including mutual fund
diversification and professional management.
54
<PAGE>
Registration Nos. 2-83538
811-3728
NEW ENGLAND ZENITH FUND
-----------------------
PART C. OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements: To be filed by amendment
(b) Exhibits:
(1) (a) Agreement and Declaration of Trust is incorporated herein by
reference to Post-Effective Amendment No. 22 (File No. 2-83538)
filed on February 28, 1997.
(b) Amendment No. 1 to Agreement and Declaration of Trust is
incorporated herein by reference to Post-Effective Amendment
No. 22 (File No. 2-83538) filed on February 28, 1997.
(c) Amendment No. 2 to Agreement and Declaration of Trust is
incorporated herein by reference to Post-Effective Amendment
No. 22 (File No. 2-83538) filed on February 28, 1997.
(d) Amendment No. 3 to Agreement and Declaration of Trust is
incorporated herein by reference to Post-Effective Amendment
No. 22 (File No. 2-83538) filed on February 28, 1997.
(e) Form of Amendment No. 4 to Agreement and Declaration of Trust
is incorporated herein by reference to Post-Effective Amendment
No. 22 (File No. 2-83538) filed on February 28, 1997.
(f) Amendment No. 5 to the Agreement and Declaration of Trust is
incorporated herein by reference to Post-Effective Amendment
No. 22 (File No. 2-83538) filed on February 28, 1997.
(g) Amendment No. 6 to the Agreement and Declaration of Trust is
incorporated herein by reference to Post-Effective Amendment
No. 22 (File No. 2-83538) filed on February 28, 1997.
(h) Amendment No. 7 to Agreement and Declaration of Trust is
incorporated herein by reference to Post-Effective Amendment
No. 22 (File No. 2-83538) filed on February 28, 1997.
(i) Amendment No 8 to the Agreement and Declaration of Trust to be
filed by Amendment
(2) (a) By-Laws, as amended, are filed herewith
(b) Amendment to By-Laws relating to Electronic Proxy Voting is
filed herewith.
(3) None.
(4) None.
1
<PAGE>
Registration Nos. 2-83538
811-3728
(5) (a) Advisory Agreements by and between the Fund, on behalf of each
of its Loomis Sayles Small Cap, Alger Equity Growth, Loomis
Sayles Avanti Growth, Davis Venture Value, Westpeak Growth and
Income, Westpeak Stock Index, Loomis Sayles Balanced Series,
Back Bay Advisors Managed, Salomon Brothers Strategic Bond
Opportunities, Back Bay Advisors Bond Income Series, Salomon
Brothers U.S. Government and Back Bay Advisors Money Market
Series are filed herewith as Exhibits 5(a) as follows:
(i) Loomis Sayles Small Cap Series
(ii) Alger Equity Growth Series
(iii) Davis Venture Value Series
(iv) Westpeak Growth and Income Series
(v) Westpeak Stock Index Series
(vi) Loomis Sayles Balanced Series
(vii) Back Bay Advisors Managed Series
(viii) Salomon Brothers Strategic Bond Opportunities Series
(ix) Back Bay Advisors Bond Income Series
(x) Salomon Brothers U.S. Government Series
(xi) Back Bay Advisors Money Market Series
(xii) Morgan Stanley International Magnum Equity Series
(b) Form of Advisory Agreement between the Fund on behalf of its
Goldman Sachs Midcap Value Series and TNE Advisers, Inc. will
be filed by amendment.
(c) Advisory Agreement between the Fund, on behalf of its Capital
Growth Series and Capital Growth Management Limited Partnership
is filed herewith.
(d) Form of Subadvisory Agreements relating to the following Series
of the Registrant, by and between TNE Advisers, Inc. and the
subadvisers indicated in parentheses, are filed herewith as
Exhibits 5(b) as follows:
(i) Loomis Sayles Small Cap Series (Loomis, Sayles &
Company, L.P. ["Loomis Sayles"])
(ii) Alger Equity Growth Series (Fred Alger Management
Inc.)
(iii) Westpeak Growth and Income Series (Westpeak
Investment Advisors, L.P. ["Westpeak"])
(iv) Westpeak Stock Index Series (Westpeak)
(v) Loomis Sayles Balanced Series (Loomis Sayles)
(vi) Back Bay Advisors Managed Series (Back Bay Advisors,
L.P.["Back Bay Advisors"])
(vii) Salomon Brothers Strategic Bond Opportunities Series
(Salomon Brothers Asset Management Inc. [SBAM] and
Salomon Brothers Asset Managment Limited [SBAM Ltd].)
(viii) Back Bay Advisors Bond Income Series (Back Bay
Advisors)
(ix) Salomon Brothers U.S. Government Series (SBAM)
(x) Back Bay Advisors Money Market Series (Back Bay
Advisors)
(e) Sub-Advisory Agreement on behalf of the Davis Venture Value
Series by and among TNE Advisers, Inc., Davis Selected
Advisers, L.P. and Davis Selected Advisers - NY, Inc. is
incorporated herein by reference to Post-Effective Amendment
No. 22 on Form N-1A (File No. 2-83538) filed on February 28,
1997.
(f) Form of Sub-Advisory Agreement for the Morgan Stanley
International Magnum Equity Series by and between TNE Advisers
and Morgan Stanley Asset Management
2
<PAGE>
Registration Nos. 2-83538
811-3728
Inc ("MSAM") is incorporated herein by reference to Post-Effective
Amendment No. 22 on Form N-1A (File No. 2-83538) filed on February
28, 1997.
(g) Form of Sub-Advisory Agreement for the Goldman Sachs Midcap Value
Series between TNE Advisers, Inc. and Goldman Sachs Midcap Value
Series will be filed by Amendment.
(6)(a) Distribution Agreement between New England Securities Corporation
and the Fund is incorporated herein by reference to Post-Effective
Amendment No. 18 on Form N-1A (File No. 2-83538) filed on August
19, 1994.
(7) None.
(8)(a) Amended and Restated Custodian Contract among the Fund, on behalf
of its Back Bay Advisors Money Market, Back Bay Advisors Bond
Income, Capital Growth, Westpeak Stock Index and Back Bay Advisors
Managed Series, New England Mutual Life Insurance Company ("The
New England") and State Street Bank and Trust Company ("State
Street")*
(b) Form of Agreement among the Fund, The New England and State Street
relating to the applicability of the Custodian Contract to the
Westpeak Growth and Income and Loomis Sayles Avanti Growth Series,
is incorprated herein by reference to Post-Effective Amendment
No.14 on Form N-1A (File No. 2-83538) filed February 17, 1993.
(c) Agreement among the Fund, The New England and State Street
relating to the applicability of the Custodian Contract to the
Loomis Sayles Small Cap Series is incorporated herein by
reference to Post-Effective Amendment No. 17 on Form N-1A (File
No. 2-83538) filed on April 29, 1994.
(d) Form of Agreement among the Fund, The New England and State Street
relating to the applicability of the Custodian Contract to each of
the Loomis Sayles Balanced Series, Draycott International Equity
Series, Salomon Brothers U.S. Government Series, Salomon Brothers
Strategic Bond Opportunities Series, Davis Venture Value Series,
Alger Equity Growth Series and CS First Boston Strategic Equity
Opportunities Series incorporated herein by Reference to Post
Effective Amendment No. 19 on Form N-1A (File No. 2-83538) filed
on March 2, 1995.
(9)(a) Transfer Agency Agreement by and between the Fund and The New
England**
(b) Amendment to Transfer Agency Agreement relating to the
applicability of the Agreement to the Westpeak Growth and Income
and the Loomis Sayles Avanti Growth Series is incorporated herein
by reference to Post-Effective Amendment No. 14 on Form N-1A
(File No. 2-83538) filed on February 17, 1993.
(c) Amendment to Transfer Agency Agreement relating to the
applicability of the Agreement to the Loomis Sayles Small Cap
Series is incorporated herein by reference to Post-Effective
Amendment No.17 (File No. 2-83538) on Form N-1A filed on
April 29, 1994.
(d) Amendment to Transfer Agency Agreement relating to the
applicability of the Agreement to each of the Loomis Sayles
Balanced Series, Draycott International Equity Series, Salomon
Brothers U.S. Government, Salomon Brothers Strategic Bond
3
<PAGE>
Registration Nos. 2-83538
811-3728
Opportunities, Davis Venture Value Series, Alger Equity Growth
Series and CS First Boston Strategic Equity Opportunities Series
is incorporated herein by reference to Post-Effective Amendment
No. 18 on Form N-1A (File No. 2-83538) filed on August 19, 1994.
(e) Form of Expense Agreement between the Fund and The New England.*
(f) Powers of Attorney for Messrs. Arena, Flynn and Ludes are
incorporated by reference to Post-Effective Amendment No. 22 on
Form N-1A (File No. 2-83538) filed on February 28, 1997.
(g) Powers of Attorney for Ms. Hawthorne, Messrs. Hinchey, Kittredge,
Machure, Turley and Ms. Marshall are incorporated by reference to
Post-Effective Amendment No. 21 on Form N-1A (File No. 2-83538)
filed on February 29, 1996.
(h) Form of Service Agreement relating to the Loomis Sayles Small Cap
Series between Loomis Sayles and New England Funds, L.P., is
incorporated herein by reference to Post-Effective Amendment No.
17 on Form N-1A (File No. 2-83538) filed on April 29, 1994.
(i) Service Agreement relating to the Westpeak Growth and Income
Series and the Westpeak Stock Index Series between Westpeak
Investment Advisors, L. P. and New England Funds, L.P. is
incorporated herein by reference to Post-Effective Amendment No 17
on Form N-1A (File No. 2-83538) filed on April 29, 1994.
(j) Service Agreement relating to each of the Back Bay Advisors Money
Market Series, Back Bay Advisors Bond Income Series, Westpeak
Growth and Income Series, Loomis Sayles Avanti Growth Series,
Westpeak Stock Index Series, Back Bay Advisors Managed Series and
Loomis Sayles Small Cap Series, Loomis Sayles Balanced Series,
Draycott International Equity Series, Salomon Brothers U.S.
Government Series, Salomon Brothers Strategic Bond Opportunities
Series, Davis Venture Value Series, Alger Equity Growth Series and
Short-Term Series between TNE Advisers, Inc. and New England
Funds, L.P. is incorporated herein by reference to Post-Effective
Amendment No. 20 on Form N-1A (File No. 2-83538) filed on May 4,
1995.
(10)(a) Opinion and Consent of counsel relating to the Back Bay Advisors
Money Market Series, Back Bay Advisors Bond Income Series and
Capital Growth Series incorporated herein by reference to Post-
Effective Amendment No. 6 on Form N-1A (File No. 2-83538) filed on
February 27, 1987.
(b) Opinion and Consent of counsel relating to the Westpeak Stock
Index Series and Back Bay Advisors Managed Series incorporated
herein by reference to Post-Effective Amendment No. 8 on Form N-1A
(File No. 2-83538) filed on April 29, 1987.
(c) Opinion and Consent of counsel relating to the Westpeak Value
Growth and Loomis Sayles Avanti Growth Series is incorporated
herein by reference to Post-Effective Amendment No. 15 on Form N-
1A (File No. 2-83538) filed on April 30, 1993.
(d) Opinion and Consent of counsel relating to the Loomis Sayles Small
Cap Series is incorporated herein by reference to Post-Effective
Amendment No. 17 on Form N-1A (File No. 2-83538) filed on April
29, 1994.
(e) Opinion and Consent of counsel relating to each of the Loomis
Sayles Balanced, Draycott International Equity, Salomon Brothers
U.S. Government, Salomon Brothers Strategic Bond Opportunities,
Davis Venture Value, Alger Equity Growth and CS First Boston
Strategic Equity Opportunities Series is incorporated herein by
reference to Post-Effective Amendment No. 19 on Form N-1A (File
No. 2-83538) filed on March 2, 1995.
(11) Consent of Independent Accountants to be filed by amendment.
4
<PAGE>
Registration Nos. 2-83538
811-3728
(12) None.
(13) (a) Investment Letter of New England Securities Corporation is
incorporated herein by reference to Pre-Effective Amendment No. 1
on Form N-1A (File No. 2-83538) filed on August 2, 1983.
(b) Investment Letter of The New England relating to the Loomis
Sayles Avanti Growth Series is incorporated herein by reference
to Post-Effective Amendment No. 15 on Form N-1A (File No. 2-
83538) filed on April 30, 1993.
(c) Investment Letter of The New England relating to the Westpeak
Value Growth Series is incorporated herein by reference to Post-
Effective Amendment No. 15 on Form N-1A (File No. 2-83538) filed
on April 30, 1993.
(d) Investment Letter of The New England relating to the Loomis
Sayles Small Cap Series is incorporated herein by reference to
Post-Effective Amendment No. 17 on Form N-1A (File No. 2-83538)
filed on April 29, 1994.
(14) None.
(15) None.
(16) Schedule for Computation of Performance Quotations is herein
incorporated by reference to Post-Effective Amendment No. 10 to
Registration Statement on Form N-1A (File No. 2-83538) filed on May
1, 1989.
* Incorporated herein by reference to Post-Effective Amendment No. 5 on
Form N-1A (File No. 2-83538) filed on December 29, 1986.
** Incorporated herein by reference to Post-Effective Amendment No. 7 on
Form N-1A (File No. 2-83538) filed on March 2, 1987.
*** Incorporated herein by reference to Post-Effective Amendment No. 11
on Form N-1A (File No. 2-83538) filed on May 1, 1990.
Item 25. Persons Controlled by or Under Common Control with Registrant
-------------------------------------------------------------
None.
Item 26. Number of Holders of Securities
-------------------------------
The following table sets forth the number of record holders of each
class of securities of the Fund as of February 1, 1998:
Title of Class Number of Record Holders
-------------- ------------------------
Shares of Beneficial Interest
Back Bay Advisors 3
Money Market Series
3
Shares of Beneficial Interest
Back Bay Advisors
Bond Income Series
5
<PAGE>
Registration Nos. 2-83538
811-3728
Shares of Beneficial Interest 2
Capital Growth Series
Shares of Beneficial Interest
Westpeak Stock Index Series 2
Shares of Beneficial Interest
Back Bay Advisors
Managed Series 2
Shares of Beneficial Interest
Loomis Sayles Avanti
Growth Series 5
Shares of Beneficial Interest
Westpeak Growth and Income Series 5
Shares of Beneficial Interest
Loomis Sayles Small Cap Series 5
Shares of Beneficial Interest
Loomis Sayles Balanced Series 5
Shares of Beneficial Interest
Morgan Stanley International 5
Equity Series
Shares of Beneficial Interest
Salomon Brothers U.S. Government Series 5
Shares of Beneficial Interest
Salomon Brothers Strategic Bond Opportunities Series 5
Shares of Beneficial Interest
Davis Venture Value Series 5
Shares of Beneficial Interest
Alger Equity Growth Series 5
Item 27. Indemnification
---------------
See Article 4 of the Fund's By-Laws filed as Exhibit 2 to Post-
Effective Amendment No. 8 on Form N-1A (File No. 2-83538) which
Exhibit is incorporated herein by reference. In addition, the Fund
maintains a trustees and officers liability insurance policy with a
maximum coverage of $15 million under which the Fund and its trustees
and officers are named insureds.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the Fund's By-Laws, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a trustee, officer or controlling person
of the Registrant in the successful defense of any action, suit of
proceeding) is asserted by such trustee, officer or controlling
person in connection with the securities being registered, the
Registrant will,
6
<PAGE>
Registration Nos. 2-83538
811-3728
unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933
and will be governed by the final adjudication of such issue.
Item 28. Business and other Connections of Investment Adviser
----------------------------------------------------
(a) TNE Advisers, Inc., is the adviser of the Back Bay Advisers Money
Market, Back Bay Advisers Bond Income, Westpeak Growth Growth and
Income, Loomis Sayles Avanti Growth, Westpeak Stock Index, Back
Bay Advisors Managed, Loomis Sayles Small Cap, Loomis Sayles
Balanced Series, Morgan Stanley International, Salomon Brothers
U.S. Government, Salomon Brothers Strategic Bond Opportunities
Series, Davis Venture Value and the Alger Equity Growth Series and
has entered into subadvisory agreements for these Series with Back
Bay Advisors, Westpeak, Loomis Sayles, Morgan Stanley Asset
Management Inc, Salomon Brothers Asset Management Inc and Salomon
Brothers Management Limited, Davis Selected Advisers, L.P. and
Fred Alger Management, Inc., respectively. TNE Advisers, a wholly-
owned subsidiary of The New England, was organized in 1994 and
oversees, evaluates and monitors the subadvisers' provision of
investment advisory services to the Series and provides general
management and administration to the Series.
Such advisers' directors and officers have been engaged during the
past two years in the following other businesses, vocations or
employments of a substantial nature.
<TABLE>
<CAPTION>
Name and Office with Name and Address of
TNE Advisers, Inc. Other Affiliations Nature of Connection
------------------ ------------------ --------------------
<S> <C> <C>
Frederick K. Zimmermann New England Mutual Life Chief Investment
Chairman of the Board Boston, MA 02117 Officer and Executive
and President Vice President
New England Portfolio Chairman
Advisors, Inc.
501 Boylston Street
Boston, MA 02117
New England Life Insurance Director and Vice
Company President of
501 Boylston Street Investments
Boston, MA 02117
New England Pension and Annuity Chairman, President and
Company Vice President of
501 Boylston Street Investments
Boston, MA 02117
NEL Partnership I, Inc. Director and President
501 Boylston Street
Boston, MA 02117
New England Life Mortgage Chairman and
Funding Corp. President
501 Boylston Street
Boston, MA 02117
</TABLE>
7
<PAGE>
Registration Nos. 2-83538
811-3728
<TABLE>
<CAPTION>
<S> <C> <C>
NELRECO Troy, Inc. Director
501 Boylston Street
Boston MA 02117
TNE Funding Corp. Chairman and President
501 Boylston Street
Boston, MA 02117
John F. Guthrie, Jr. New England Life Insurance Vice President
Senior Vice President & Director Company
501 Boylston Street
Boston, MA 02117
New England Portfolio Advisors, President of Portfolio
Inc. Strategy
501 Boylston Street
Boston, MA 02117
New England Pension & Vice President of
Annuity Co. Portfolio Strategy
501 Boylston Street
Boston, MA 02117
New England Variable Life Vice President of
Insurance Co. Portfolio Strategy
501 Boylston Street
Boston, MA 02117
Thomas C. McDevitt New England Life Insurance Asset Allocation
Vice President Company Consultant
501 Boylston Street
Boston, MA 02117
New England Portfolio Advisors, Vice President
Inc.
501 Boylston Street
Boston, MA 02117
Maura A. Murphy New England Life Insurance Co. Attorney and Assistant
Chief Legal Officer, 501 Boylston Street Secretary
Secretary and Clerk Boston, MA 02117
New England Securities Corp. Assistant Secretary
399 Boylston Street
Boston, MA 02116
Alan C. Leland New England Life Insurance Senior Vice President
Chief Financial Officer Co.
and Treasurer 501 Boylston Street
Boston, MA 02117
</TABLE>
8
<PAGE>
Registration Nos. 2-83538
811-3728
(b) Capital Growth Management Limited Partnership, the adviser of the
Capital Growth Series, provides investment advice to a number of
other registered investment companies and to other organizations
and individuals.
Name and Office Name and Address of
with CGM Other Affiliations Nature of Connection
-------- ------------------ --------------------
Kenbob, Inc. None None
General Partner
(c) Back Bay Advisors, L.P. the subadviser of the Back Bay Advisors
Money Market, Back Bay Advisors Bond Income Series and Back Bay
Advisors Managed Series, is a wholly-owned subsidiary of NEIC
Operating Partnership, L.P. ("NEICOP") and is indirectly
controlled by NEIC Holdings, Inc.. Its sole general partner is
Back Bay Advisors, Inc.
Back Bay Advisors serves as investment adviser to a number of
other registered investment companies. Back Bay Advisors'
directors and officers have been engaged during the past two
years in the following businesses, vocations or employments of a
substantial nature (former affiliations are marked with an
asterisk).
<TABLE>
<CAPTION>
Name and Office with
Back Bay Advisors or Name and Address of
Back Bay Advisors, Inc. Other Affiliations Nature of Connection
----------------------- ------------------ --------------------
<S> <C> <C>
Back Bay Advisors, Inc. None None
General Partner
Peter S. Voss, New England Investment Chairman of the Board,
Chairman of the Board, Companies, L.P. Chief Executive Officer
Director 501 Boylston Street
Boston, MA 02117
New England Funds, L.P. Chairman of the Board
399 Boylston Street and Director
Boston, MA 02116
NEF Corporation Director
399 Boylston Street
Boston, MA 02116
New England Life Insurance Director
Company
501 Boylston Street
Boston, MA 02117
New England Investment President, CEO and
Companies, Inc. Director
399 Boylston Street
Boston, MA 02116
Westpeak Investment Advisors, Chairman and Director
Inc.
1011 Walnut Street, Suite 300
Boulder, CO 80302
NEF Corporation Director
399 Boylston Street
</TABLE>
9
<PAGE>
Registration Nos. 2-83538
811-3728
<TABLE>
<S> <C> <C>
Boston, MA 02116
Charles T. Wallis, New England Securities Officer
Director, President and Corporation
Chief Executive Officer 399 Boylston Street
Boston, MA 02116
New England Funds, L.P. Director
399 Boylston Street
Boston, MA 02116
Scott A. Millimet None one
Executive Vice President
J. Scott Nicholson, None None
Senior Vice President
Edgar M. Reed None None
Executive Vice President
Nathan R. Wentworth, None None
Vice President
Paul Zamagni, None None
Vice President and
Treasurer
Catherine L. Bunting, None None
Senior Vice President
Peter Palfrey, None None
Vice President
</TABLE>
(d) Westpeak Investment Advisors, L.P., the subadviser of the Westpeak Growth
and Income and Westpeak Stock Index Series, is a wholly-owned subsidiary of
NEICOP. Its sole general partner is Westpeak Investment Advisors, Inc.
Organized in 1991, Westpeak provides investment management services to other
institutional clients, including accounts of The New England and its
affiliates.
Westpeak's directors and officers have been engaged during the past two
years in the following businesses, vocations or employments of a substantial
nature.
Name and Office with
Westpeak Investment Name and Address of
Advisors, L.P. Other Affiliations Nature of Connection
-------------- ------------------ --------------------
Westpeak Investment Advisors, None None
Inc.
General Partner
Weatpeak Investment Advisors None None
Gerald H. Scriver,
President, Chief Executive
10
<PAGE>
Registrant Nos. 2-83538
811.3728
<TABLE>
<S> <C> <C>
Officer, Chief Investment
Officer, Director
Peter S. Voss, NEIC Chairman of the Board,
Chairman of the Board, Director 399 Boylston Street Chief Executive Officer
Boston, MA 02116
New England Funds, L.P. Chairman of the Board
399 Boylston Street and Director
Boston, MA 02116
Back Bay Advisors Chairman of the Board
399 Boylston Street and Director
Boston, MA 02116
New England Investment Chairman of the Board,
Companies, L.P. Chief Executive Officer
501 Boylston Street
Boston, MA 02117
NEF Corporation Director
399 Boylston Street
Boston, MA 02116
New England Life Insurance Director
Company
501 Boylston Street
Boston, MA 02117
New England Investment President, CEO and
Companies, Inc. Director
399 Boylston Street
Boston, MA 02116
Sherry A. Umberfield, NEIC Executive Vice President
Director 399 Boylston Street
Boston, MA 02116
New England Investment Director
Associates, Inc
399 Boylston Street
Boston, MA 02116
NEF Corporation Director
399 Boylston Street
Boston, MA 02116
Edward N. Wadsworth, NEIC Executive Vice
Clerk and Secretary, Chief Legal 399 Boylston Street President, Clerk,
Officer Boston, MA 02116 Secretary and General
Counsel
Marlborough Capital Assistant Clerk
Advisors, Inc.
399 Boylston Street
</TABLE>
11
<PAGE>
<TABLE>
<S> <C> <C>
Boston, MA 02116
New England Investment Secretary
Associates, Inc.
399 Boylston Street
Boston, MA 02116
Robert A. Franz, None None
Senior Vice President
Philip J. Cooper, None None
Executive Vice President
Compliance Officer
</TABLE>
(e) Loomis, Sayles & Company, L.P. ("Loomis Sayles"), the subadviser of the
Loomis Sayles Avanti Growth Series, the Loomis Sayles Small Cap Series and
the Loomis Sayles Balanced Series, provides investment advice to a number
of other registered investment companies and to other organizations and
individuals. Loomis Sayles is a wholly-owned subsidiary of NEICOP. Its sole
general partner is Loomis Sayles & Co., Inc.
Such subadviser's directors and officers have been engaged during the past
two years in the following other businesses, vocations or employments of a
substantial nature:
<TABLE>
<CAPTION>
Name and Office with Loomis Sayles or Name and Address of
Loomis, Sayles & Company, L.P. Other Affiliations Nature of Connection
------------------------------ ------------------- --------------------
<S> <C> <C>
Robert J. Blanding, None None
President and Chief Operating Officer
Sandy P. Tichenor, None None
Vice President, General Counsel,
Secretary and Clerk
Jeffrey L. Meade, None None
Executive Vice President and Chief
Operating Officer
Mary Champagne, None None
Vice President
Jeffrey C. Petherick, None None
Vice President
Tricia H. Mills, None None
Vice President
</TABLE>
12
<PAGE>
<TABLE>
<S> <C> <C>
Meri Anne Beck, None None
Vice President
</TABLE>
(f) Fred Alger Management, Inc., the subadviser of Alger Equity Growth Series,
provides investment advice to a number of other registered investment
companies and to other organizations and individuals.
Such subadviser's directors and officers have been engaged during the past
two years in the following other businesses, vocations or employments of a
substantial nature.
<TABLE>
<CAPTION>
Name and Office with Fred Alger Name and Address of
Management, Inc. Other Affiliations Nature of Connection
---------------- ------------------ --------------------
<S> <C> <C>
Fred M. Alger III, Alger Properties, Inc. Chairman
Chairman 75 Maiden Lane
New York, NY 10038
The Alger Fund Chairman
75 Maiden Lane
New York, NY 10038
Alger Associates, Inc. Chairman
75 Maiden Lane
New York, NY 10038
Castle Convertible Fund, Inc. Chairman
75 Maiden Lane
New York, NY 10038
Spectra Fund Chairman
75 Maiden Lane
New York, NY 10038
Fred Alger & Company, Chairman
Incorporated
30 Montgomery Street
Jersey City, NJ 07302
Alger Shareholder Services, Inc Chairman
30 Montgomery Street
Jersey City, NJ 07302
The Alger American Fund Chairman
75 Maiden Lane
New York, NY 10038
Alger Life Insurance Agency, Chairman
Inc.
75 Maiden Lane
New York, NY 10038
Analysts Resources, Inc. Chairman
75 Maiden Lane
</TABLE>
13
<PAGE>
Registration Nos. 2-83538
811-3728
<TABLE>
<S> <C> <C>
New York, NY 10038
The Alger Retirement Fund Chairman
75 Maiden Lane
New York, NY 10038
Fred Alger International Chairman
Advisory, S.A.
11, rue Aldringen
L-1118 Luxembourg
Grand Duchy of Luxembourg
The Alger American Asset Growth Chairman
Fund
11, rue Aldringen
L-1118 Luxembourg
Grand Duchy of Luxembourg
David D. Alger, The Alger Fund Trustee and President
Director and President 75 Maiden Lane
New York, NY 10038
Alger Properties, Inc. Director and President
75 Maiden Lane
New York, NY 10038
Alger Associates, Inc. Director and President
75 Maiden Lane
New York, NY 10038
Castle Convertible Fund, Inc. Director and President
75 Maiden Lane
New York, NY 10038
Fred Alger & Company, Director and President
Incorporated
30 Montgomery Street
Alger Shareholder Services, Inc. Director and President
30 Montgomery Street
Jersey City, NJ 07302
The Alger American Fund Trustee and President
75 Maiden Lane
New York, NY 10038
Spectra Fund Director and President
75 Maiden Lane
New York, NY 10038
Alger Life Insurance Agency, Inc. Director and President
75 Maiden Lane
</TABLE>
14
<PAGE>
Registration Nos. 2-83538
311-3728
<TABLE>
<S> <C> <C>
New York, NY 10038
Analysts Resources, Inc. Director and President
75 Maiden Lane
New York, NY 10038
The Alger Retirement Fund Trustee and President
75 Maiden Lane
New York, NY 10038
Fred Alger International Director and President
Advisory, S.A.
11, rue Aldringen
L-1118 Luxembourg
Grand Duchy of Luxembourg
Gregory S. Duch, Alger Associates Executive Vice
Treasurer, Executive Vice President 75 Maiden Lane President and Treasurer
and Director New York, NY 10038
Alger Properties, Inc. Executive Vice
75 Maiden Lane President, Director and
New York, NY 10038 Treasurer
Fred Alger & Company, Executive Vice
Incorporated President and Treasurer
30 Montgomery Street
Jersey City, NJ 07302
Alger Shareholder Services, Inc. Executive Vice
30 Montgomery Street President and Treasurer
Jersey City, NJ 07302
The Alger Fund Treasurer
75 Maiden Lane
New York, NY 10038
The Alger American Fund Treasurer
75 Maiden Lane
New York, NY 10038
Castle Convertible Fund, Inc.
75 Maiden Lane
New York, NY 10038
Spectra Fund Treasurer
75 Maiden Lane
New York, NY 10038
Alger Life Insurance Agency, Inc. Executive Vice
75 Maiden Lane President and Treasurer
New York, NY 10038
Analysts Resources, Inc. Executive Vice
</TABLE>
15
<PAGE>
Registration Nos. 2-83538
811-3728
<TABLE>
<S> <C> <C>
75 Maiden Lane President and Treasurer
New York, NY 10038
The Alger Retirement Fund Treasurer
75 Maiden Lane
New York, NY 10038
Fred Alger International Director and Treasurer
Advisory, S.A.
11, rue Aldringen
L-1118 Luxembourg
Grand Duchy of Luxembourg
Mary E. Marsden Cochran Fred Alger & Company, Secretary and General
Secretary and General Counsel Incorporated Counsel
30 Montgomery Street
Jersey City, NJ 07302
Alger Associates, Inc. Secretary and General
75 Maiden Lane Counsel
Alger Shareholder Services, Inc. Secretary and General
30 Montgomery Street Counsel
Jersey City, N.J. 07302
Alger Properties, Inc. Secretary
75 Maiden Lane
New York, NY 10038
Alger Life Insurance Agency, Secretary
Inc.
75 Maiden Lane
New York, NY 10038
Analysts Resources, Inc. Secretary
75 Maiden Lane
New York, NY 10038
The Alger Fund Secretary
75 Maiden Lane
New York, NY 10038
Castle Convertible Fund, Inc. Secretary
75 Maiden Lane
New York, NY 10038
Spectra Fund Secretary
75 Maiden Lane
New York, NY 10038
The Alger American Fund Secretary
</TABLE>
16
<PAGE>
Registration Nos. 2-83538
811-3728
<TABLE>
<S> <S> <C>
75 Maiden Lane
New York, NY 10038
The Alger Retirement Fund Secretary
75 Maiden Lane
New York, NY 10038
Fred Alger International Secretary
Advisory, S.A.
11, rue Aldringen
L-1118 Luxemborg
Grand Duchy of Luxembourg
</TABLE>
(g) Davis Selected Advisers, L.P., the subadviser of the Venture Value Series,
provides investment advice to a number of other registered investment
companies and to other organizations and individuals.
Such subadviser's directors and officers have been engaged during the past
two years in the following other businesses, vocations or employments of a
substantial nature (former affiliations are marked with an asterisk).
<TABLE>
<CAPTION>
Name and Office with Davis Selected Name and Address of
Advisers, L.P. Other Affiliations Nature of Connection
-------------- ------------------ --------------------
<S> <C> <C>
Shelby M.C. Davis Selected American Shares, Inc. Director and President
Chairman and Majority Shareholder of 124 East Marcy Street
the General Partner Santa Fe, NM 87501
Selected Special Shares, Inc. Director and President
124 East Marcy Street
Santa Fe, NM 87501
Selected Capital Preservation Trustee and President
Trust
124 East Marcy Street
Santa Fe, NM 87501
Davis Series, Inc. Director and President
124 East Marcy Street
Santa Fe, NM 87501
Davis Tax-Free High Income Fund Director and President
124 East Marcy Street
Santa Fe, NM 87501
Davis High Income Fund Director and President
124 East Marcy Street
Santa Fe, NM 87501
Davis New York Venture Fund, Director and President
Inc.
124 East Marcy Street
Santa Fe, NM 87501
</TABLE>
17
<PAGE>
Registration Nos. 2-83538
811-3728
<TABLE>
<S> <C> <C>
Davis International Series, Director and President
Inc.
124 East Marcy Street
Santa Fe, NM 87501
Davis Venture Advisers, Inc. Director and Chairman
124 East Marcy Street
Santa Fe, NM 87501
Shelby Cullom Davis Financial Director and Shareholder
Consultants
70 Pine Street
New York, NY 10270
Fiduciary Trust Co., Consultant
International
2 World Trade Center
New York, NY 10048
</TABLE>
18
<PAGE>
Registration Nos. 2-83538
811-3728
<TABLE>
<S> <C> <C>
Carolyn H. Spolidoro, Davis New York Venture Fund, Vice President
Vice President of the Inc.
General Partner 124 East Marcy Street
Santa Fe. NM 87501
Davis Series, Inc. Vice President
124 East Marcy Street
Santa Fe, NM 87501
Davis High Income Fund Vice President
124 East Marcy Street
Santa Fe, NM 87501
Davis Tax-Free High Income Fund Vice President
124 East Marcy Street
Santa Fe, NM 87501
Davis Venture Advisers, Inc. Vice President
124 East Marcy Street
Santa Fe, NM 87501
Davis International Series, Inc. Vice President
124 East Marcy Street
Santa Fe, NM 87501
Eileen Street, Davis New York Venture Fund, Assistant Treasurer and
Senior Vice President and Inc. Assistant Secretary
Secretary of the General 124 East Marcy Street
Partner Santa Fe, NM 87501
Davis Tax-Free High Income Fund Assistant Treasurer and
124 East Marcy Street Assistant Secretary
Santa Fe, NM 87501
Davis Series, Inc. Assistant Treasurer and
124 East Marcy Street Assistant Secretary
Santa Fe, NM 87501
Davis High Income Fund Assistant Treasurer and
124 East Marcy Street Assistant Secretary
Santa Fe, NM 87501
Selected American Shares, Inc. Assistant Treasurer and
124 East Marcy Street Assistant Secretary
Santa Fe, NM 87501
Selected Special Shares Assistant Treasurer and
124 East Marcy Street Assistant Secretary
Santa Fe, NM 87501
Davis International Services, Assistant Treasurer and
Inc. Assistant Secretary
124 East Marcy Street
Santa Fe, NM 87501
</TABLE>
19
<PAGE>
Registration Nos. 2-83538
811-3728
<TABLE>
<S> <C> <C>
Selected Capital Preservation Assistant Treasurer and
Trust Assistant Secretary
124 East Marcy Street
Santa Fe, NM 87501
Andrew A. Davis, Shelby Cullom Davis & Co. Consultant
President of the General Partner 70 Pine Street
New York, NY 10270
Capital Ideas, Inc. Consultant
140 North Beach Road
Hobe Sound, FL 33475
Davis Series, Inc. Vice President
124 East Marcy Street
Santa Fe, NM 87501
Davis International Series, Inc. Vice President
124 East Marcy Street
Santa Fe, NM 87501
Davis Tax-Free High Income Fund Vice President
124 East Marcy Street
Santa Fe, NM 87501
Davis High Income Fund Vice President
124 East Marcy Street
Santa Fe, NM 87501
Davis New York Venture Fund, Vice President
Inc.
124 East Marcy Street
Santa Fe, NM 87501
</TABLE>
(h) Salomon Brothers Asset Management Inc, the subadviser of Salomon Brothers
U.S. Government Series and Salomon Brothers Strategic Bond Opportunities
Series, provides investment advice to a number of other registered
investment companies and to other organizations and individuals.
Such subadviser's directors and officers have been engaged during the past
two years in the following other businesses, vocations or employments of a
substantial nature (former affiliations are marked with an asterisk).
<TABLE>
<CAPTION>
Name and Office with
Salomon Brothers Name and Address of
Asset Management Inc Other Affiliations Nature of Connection
- --------------------- ------------------- --------------------
<S> <C> <C>
Thomas W. Brock, Salomon Brothers Inc Managing Director
Chairman and Chief 7 World Trade Center
Executive Officer New York, NY 10048
Vilas Gadkari, Salomon Brothers Inc Managing Director
Director Victoria Plaza
111 Buckingham Palace Road
</TABLE>
20
<PAGE>
Registration Nos. 2-83538
811-3728
<TABLE>
<S> <C> <C>
London SWIW05B England
Salomon Brothers International Managing Director
Limited
Victoria Plaza
111 Buckingham Palace Road
London SW1W05B England
Rodney B. Berens Salomon Brothers Inc Managing Director
7 World Trade Center
New York, NY 10048
Salomon Brothers International Managing Director
Limited
Victoria Plaza
111 Buckingham Palace Road
London SW1W05B England
Richard J. Carbone, Salomon Brothers Inc Controller
Treasurer 7 World Trade Center
New York, NY 10048
Michael S. Hyland, Salomon Brothers Inc Managing Director
President 7 World Trade Center
New York, NY 10048
Salomon Brothers Asset Management Chairman
Limited*
7 World Trade Center
New York, NY 10048
James J. Lee, Salomon Brothers Inc Director
Director 7 World Trade Center
New York, NY 10048
Zachary Snow, Salomon Brothers Inc Managing Director
Secretary 7 World Trade Center
New York, NY 10048
</TABLE>
(i) Morgan Stanley Asset Management Inc. ("MSAM"), the subadviser of
Morgan Stanley International Magnum Equity Series, is a wholly-owned
subsidiary of Morgan Stanley
21
<PAGE>
Registration Nos. 2-83538
811-3728
Group Inc. Which provides investment advice to a number of other
registered investment companies and to other organizations and
individuals.
Listed below are the officers and Directors of Morgan Stanley Asset
Management Inc. ("MSAM"). The information as to any other business,
profession, vocation, or employment of a substantial nature engaged in
by the Chairman, President and Directors during the past two fiscal
years, is incorporated by reference to Schedules A and D of Form ADV
filed by MSAM pursuant to the Advisers Act (SEC File No. 801-15757).
<TABLE>
<CAPTION>
Name and Office with Name and Address
Morgan Stanley Asset of
Management Inc. Other Affiliations
--------------- ------------------
<S> <C>
James M. Allwin, None
Director
Barton M. Biggs, None
Director
Gordon S. Gray, None
Director
Peter A. Nadosy, None
Director
Dennis G. Sherva, None
Director
Barton M. Biggs, None
Chairman, Managing Director
Peter A. Nadosy, None
Vice Chairman,
Managing Director
James M. Allwin, None
President, Managing
Director
Eah Wan Chin, None
Managing Director
(MSAM)-Singapore
Robert A. Sargent, None
Managing Director
(MSAM)-U.K.
Francine J. Bovich, None
Managing Director
</TABLE>
(j) Goldman Sachs Asset Management ("GSAM") the subadviser to the Goldman Sachs
Midcap Value Series, is a wholly owned subsidiary of Goldman Sachs & Co.
which provides investment advise to a number of other registered investment
companies and to other individuals. Listed below are the officers and
Directors of GSAM. The information as to any other business, profession,
vocation, or employment of a substantial nature engaged in by the Chairman,
President and Directors during the last two years is incorporated by
reference to Schedule A and D of Form ADV filed by GSAM pursuant to the
Advisers Act (SEC File No. 801-______)
<TABLE>
<CAPTION>
Name and Office Name and Address
with GSAM of Other Affiliations
--------------- ---------------------
<S> <C>
Jon S. Corzine
Chief Executive Officer
Robert J. Hurst
Managing Director
Henry M. Paulson, Jr.
Chief Operating Officer
John A. Thain
Chief Financial Officer
John L. Thornton
Managing Director
Roy J. Zuckerburg
Managing Director
</TABLE>
Item 29. Principal Underwriters
----------------------
22
<PAGE>
Registration Nos. 2-83538
811-3728
(a) New England Securities Corporation also serves as principal underwriter for:
New England Variable Life Separate Account
New England Variable Annuity Fund I
New England Life Retirement Investment Account
The New England Variable Account
New England Variable Annuity Separate Account
(b) The directors and officers of the Registrant's principal underwriter, New
England Securities Corporation, and their addresses are as follows:
<TABLE>
<CAPTION>
Positions and Officer's
Name Principal Underwriter Offices with Registrant
---- --------------------- -----------------------
<S> <C> <C>
Thomas W. McConnell** President, Director and Chief None
Executive Officer
Frederick K. Zimmermann * Chairman of the Board, Director Chairman of the Board,
President and Trustee
Michael E. Toland** Vice President, Chief None
Financial Officer, Treasurer,
Assistant Secretary, Assistant
Clerk and Chief Financial
Officer
John Peruzzi** Assistant Vice President and None
Controller
Anne M. Goggin* Vice President, General Trustee
Counsel, Secretary and Clerk
Mark F. Greco** Vice President and Chief None
Operating Officer
Bradley Anderson** Vice President and Chief None
Operating Officer
Laura A. Hutner** Vice President None
Mitchell A. Karman* Vice President None
Robert F. Regan*** Vice President None
Jonathan M. Rozek** Vice President None
Larry Thiel Vice President None
Robert E. Schneider* Director None
</TABLE>
* Business Address: 501 Boylston Street, Boston, MA 02117
23
<PAGE>
Registration Nos. 2-83538
811-3728
** Business Address: 399 Boylston Street, Boston, MA 02116
***Business Address: 500 Boylston Street, Boston, MA 02117
Item 30. Location of Accounts and Records
--------------------------------
The following companies maintain possession of the documents required
by the specified rules:
(a) Registrant
Rule 31a-1(a)(4)
Rule 31a-2(a)
(b) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Rule 31a-1(a)
Rule 31a-1(b)(1), (2), (3), (5), (6),
(7), (8)
Rule 31a-2(a)
(c) For the Back Bay Advisors Money Market Series, the Back Bay
Advisors Bond Income Series and the Back Bay Advisors Managed
Series:
Back Bay Advisors, L.P.
399 Boylston Street
Boston, Massachusetts 02116
Rule 31a-1(a); 31a-1(b)(9), (10),
(11); 31a-1(f)
Rule 31a-2(a); 31a-2(e)
For the Westpeak Growth and Income and Westpeak Stock Index
Series:
Westpeak Investment Advisors, L.P.
1011 Walnut St. Suite 400
Boulder, Colorado 80302
Rule 31a-1(a); 31a-1(b)(9), (10), (11);
31a-1(f)
Rule 31a-2(a); 31a-2(e)
For the Loomis Sayles Small Cap and Loomis Sayles Balanced
Series:
Loomis Sayles & Company, L.P.
One Financial Center
Boston, Massachusetts 02110
Rule 31a-1(a); 31a-1(b)(9), (10), (11);
31a-1(f)
Rule 31a-2(a); 31a-2(e)
For the Morgan Stanley International Magnum Equity Series:
24
<PAGE>
Registration Nos. 2-83538
811-3728
Morgan Stanley Asset Management
1221 Avenue of the Americas
New York, New York 10021
Rule 31a-1(a); 31a-1(b)(9), (10), (11);
31a-1(f)
Rule 31a-2(a); 31a-2(e)
For the Salomon Brothers U. S. Government Series and the Salomon
Brothers Strategic Bond Opportunities Series:
Salomon Brothers Asset Management Inc.
7 World Trade Center
New York, New York 10048
Rule 31a-1(a); 31a-1(b)(9), (10), (11);
31a-1(f)
Rule 31a-2(a); 31a-2(e)
For the Davis Venture Value Series:
Davis Selected Advisers, L.P.
124 East Marcy Street
Santa Fe, NM 87501
Rule 31a-1(a); 31a-1(b)(9), (10), (11);
31a-1(f)
Rule 31a-2(a); 31a-2(e)
For the Alger Equity Growth Series:
Fred Alger Management, Inc.
75 Maiden Lane
New York, New York 10038
Rule 31a-1(a); 31a-1(b)(9), (10), (11);
31a-1(f)
Rule 31a-2(a); 31a-2(e)
For the Capital Growth Series:
Capital Growth Management Limited Partnership
One Financial Center
Boston, Massachusetts 02111
Rule 31a-1(a); 31a-1(b)(9), (10), (11);
31a-1(f)
Rule 31a-2(a); 31a-2(e)
For the Goldman Sachs Midcap Value Series:
Goldman Sachs Asset Management, Inc.
One New York Plaza
New York, New York 10004
Rule 31a-1(a); 31a-1(b)(9), (10), (11);
31a-1(f)
Rule 31a-2(a); 31a-2(e)
(d) New England Securities Corporation
399 Boylston Street
Boston, Massachusetts 02116
Rule 31a-1(d)
Rule 31a-2(c)
25
<PAGE>
Registration Nos. 2-83538
811-3728
Item 31. Management Services
-------------------
Not applicable.
Item 32. Undertakings
------------
(a) The Registrant undertakes to provide the Fund's annual report to
any person who receives a Fund prospectus and who requests the
annual report.
********
A copy of the Agreement and Declaration of Trust establishing New England
Zenith Fund is on file with the Secretary of State of the Commonwealth of
Massachusetts, and notice is hereby given that this Registration Statement is
executed on behalf of the Fund by officers of the Fund as officers and not
individually and that the obligations of or arising out of this Registration
Statement are not binding upon any of the Trustees, officers or shareholders
individually but are binding only upon the assets and property of the Fund.
26
<PAGE>
Registration Nos. 2-83538
811-3728
NEW ENGLAND ZENITH FUND
-----------------------
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly caused
this Post-Effective Amendment No. 23 to its Registration Statement to be signed
on its behalf by the undersigned, thereto duly authorized, in the City of
Boston, and Commonwealth of Massachusetts, on the 2nd day of March, 1998.
New England Zenith Fund
By: FREDERICK K. ZIMMERMANN*
------------------------
Frederick K. Zimmermann
Chief Executive Officer
*By: /s/ FRANK NESVET
----------------
Frank Nesvet
Attorney-In-Fact
27
<PAGE>
Registration Nos. 2-83538
811-3728
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
FREDERICK K. ZIMMERMANN* Chairman of the Board; March 2, 1998
- ------------------------------------------ Chief Executive Officer;
Frederick K. Zimmermann President and Trustee
/s/ FRANK NESVET Treasure March 2, 1998
- ------------------------------------------ Principal Financial and
Frank Nesvet Accounting Officer
ANNE GOGGIN* Trustee March 2, 1998
- ------------------------------------------
Anne Goggin
JOSEPH M. HINCHEY* Trustee March 2, 1998
- ------------------------------------------
Joseph M. Hinchey
RICHARD S. HUMPHREY, Jr.* Trustee March 2, 1998
- ------------------------------------------
Richard S. Humphrey, Jr.
ROBERT B. KITTREDGE* Trustee March 2, 1998
- ------------------------------------------
Robert B. Kittredge
LAURENS MACLURE* Trustee March 2, 1998
- ------------------------------------------
Laurens MacLure
NANCY HAWTHORNE* Trustee March 2, 1998
- ------------------------------------------
Nancy Hawthorne
DALE ROGERS MARSHALL* Trustee March 2, 1998
- ------------------------------------------
Dale Rogers Marshall
JOSEPH F. TURLEY* Trustee March 2, 1998
- ------------------------------------------
Joseph F. Turley
JOHN J. ARENA* Trustee March 2, 1998
- ------------------------------------------
John J. Arena
JOHN W. FLYNN* Trustee March 2, 1998
- ------------------------------------------
John W. Flynn
JOHN T. LUDES* Trustee March 2, 1998
- ------------------------------------------
John T. Ludes
</TABLE>
*By: /s/ FRANK NESVET
----------------
Frank Nesvet
Attorney-In-Fact
March 2, 1998
28
<PAGE>
Registration Nos. 2-83538
811-3728
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT
- ------ -------
2(a) Bylaws
2(b) Amendment to Bylaws
5(a) Advisory Agreements For:
(i) Loomis Sayles Small Cap Series
(ii) Alger Equity Growth Series
(iii) Davis Venture Value Series
(iv) Westpeak Growth and Income Series
(v) Westpeak Stock Index Series
(vi) Back Bay Advisors Managed Series
(vii) Salomon Brothers Strategic Bond Opportunities Series
(viii) Back Bay Advisors Bond Income Series
(ix) Salomon Brothers U.S. Government Series
(x) Back Bay Advisors Money Market Series
5(c) Advisory Agreement between Capital Growth Management and the
Registrant
5(d) Subadvisory Agreements
(i) Lommis Sayles Small Cap Series
(ii) Alger Equity Growth Series
(iii) Westpeak Growth and Income Series
(iv) Westpeak Stock Index Series
(v) Loomis Salyes Balanced Series
(vi) Back Bay Advisors Managed Series
(vii) Salomon Brothers Strategic Bond Opportunities Series
(viii) Back Bay Advisors Bond Income Series
(ix) Salomon Brothers U.S. Government Series
(x) Back Bay Advisors Money Market Series
<PAGE>
Registration Nos. 2-83538
811-3728
EXHIBIT 2(A)
BYLAWS
<PAGE>
By-Laws
Of
New England Zenith Fund
ARTICLE 1
Agreement and Declaration
of Trust and Principal Office
1.1 Agreement and Declaration of Trust. These By-Laws shall be subject to the
----------------------------------
Agreement and Declaration of Trust, as from time to time in effect (the
"Declaration of Trust"), of New England Zenith Fund (the "Trust"), the
Massachusetts business trust established by the Declaration of Trust.
1.2 Principal Office of the Trust. The principal office of the Trust shall
-----------------------------
be located in Boston, Massachusetts.
ARTICLE 2
2.1 Regular Meetings. Regular meetings of the Trustees may be held without
----------------
call or notice at such places and at such times as the Trustees may from time to
time determine, provided that notice of the first regular meeting following any
such determination shall be given to absent Trustees.
2.2 Special Meetings. Special meetings of the Trustees may be held, at any
----------------
time and at any place designated in the call of the meeting, when called by the
Chairman of the Board, if any, the President or the Treasurer or by two or more
Trustees, sufficient notice thereof being given to each Trustee by the Clerk or
an Assistant Clerk or by the officer or the Trustees calling the meeting.
2.3 Notice. It shall be sufficient notice to a Trustee of a special meeting to
------
send notice by mail at least forty-eight hours or by telephone at least twenty-
four hours before the meeting addressed to the Trustee at his usual or last
known business or residence address or to give notice to him in person or by
telephone at least twenty-four hours before the meeting. Notice of a meeting
need not be given to any Trustee if a written waiver of notice, executed by him
before or after the meeting, is filed with the records of the meeting, or to any
Trustee who attends the meeting without protesting prior thereto or at its
commencement the lack of notice to him. Neither notice of a meeting nor a
waiver of a notice need specify the purposes of the meeting.
<PAGE>
2.4 Quorum. At any meeting of the Trustees a majority of the Trustees then
------
in office shall constitute a quorum. Any meeting may be adjourned from time to
time by a majority of the votes cast upon the question, whether or not a quorum
is present, and the meeting may be held as adjourned without further notice.
2.5 Action by Vote. When a quorum is present at any meeting, a majority of
--------------
Trustees present may take any action, except when a larger vote is expressly
required by law, by the Declaration of Trust or by these By-Laws.
2.6 Action by Writing. Except as required by law, any action required or
-----------------
permitted to be taken at any meeting of the Trustees may be taken without a
meeting if a majority of the Trustees (or such larger proportion thereof as
shall be required by any express provision of the Declaration of Trust or these
By-Laws) consent to the action in writing and such written consents are filed
with the records of the meetings of the Trustees. Such consents shall be
treated for all purposes as a vote taken at a meeting of Trustees.
2.7 Presence through Communications Equipment. Except as required by law, the
-----------------------------------------
Trustees may participate in a meeting of Trustees by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time, and
participation by such means shall constitute presence in person at a meeting.
ARTICLE 3
Officers
3.1 Enumeration; Qualification. The officers of the Trust shall be a
--------------------------
President, a Treasurer, a clerk, and such other officers, if any, as the
Trustees from time to time may in their discretion elect. The Trust may also
have such agents as the Trustees from time to time may in their discretion
appoint. If a Chairman of the Board is elected, he shall be a Trustee and may
but need not be a Shareholder; and any other officer may be but none need be a
Trustee or Shareholder. Any two or more offices may be held by the same person.
3.2 Election and Tenure. The President, the Treasurer, the Clerk and such
-------------------
other officers as the Trustees may in their discretion from time to time elect
shall each be elected by the Trustees to serve until his successor is elected or
qualified, or until he sooner dies, resigns, is removed or becomes disqualified.
Each officer shall hold office and each agent shall retain authority at the
pleasure of the Trustees.
-2-
<PAGE>
3.3 Powers. Subject to the other provisions of these By-Laws, each officer
------
shall have, in addition to the duties and powers herein and in the Declaration
of Trust set forth, such duties and powers as are commonly incident to the
office occupied by him or her as if the Trust were organized as a Massachusetts
business corporation and such other duties and powers as the Trustees may from
time to time designate.
3.4 President and Vice Presidents. The President shall have the duties and
-----------------------------
powers specified in these By-Laws and shall have such other duties and powers as
may be determined by the Trustees.
Any Vice Presidents shall have such duties and powers as shall be designated
from time to time by the Trustees.
3.5 Chief Executive Officer. The Chief Executive Officer of the Trust shall be
-----------------------
the Chairman of the Board, the President or such other officer as is designated
by the Trustees and shall, subject to the control of the Trustees, have general
charge and supervision of the business of the Trust, and except as the Trustees
shall otherwise determine, preside at all meetings of the stockholders and of
the Trustees. If no such designated is made, the President shall be the Chief
Executive Officer.
3.6 Chairman of the Board. If a Chairman of the Board of Trustees is elected,
---------------------
he shall have the duties and powers specified in these By-Laws and shall have
such other duties and powers as may be determined by the Trustees.
3.7 Treasurer. The Treasurer shall be the chief financial and accounting
---------
officer of the Trust, and shall, subject to the provisions of the Declaration of
Trust and to any arrangement made by the Trustees with a custodian, investment
adviser or manager or transfer, shareholder servicing or similar agent, be in
charge of the valuable papers, books of account and accounting records of the
Trust, and shall have such other duties and powers as may be designated from
time to time by the trustees or by the President.
3.8 Clerk. The Clerk shall record all proceedings of the Shareholders and the
-----
Trustees in books to be kept therefor, which books or a copy thereof shall be
kept at the principal office of the Trust. In the absence of the Clerk from any
meeting of the Shareholders or Trustees, an assistant Clerk, or if there be none
or if he is absent, a temporary clerk chosen at such meeting shall record the
proceedings thereof in the aforesaid books.
3.9 Resignations and Removals. Any officer may resign at any time by written
-------------------------
instrument signed by him and delivered to the President or the Clerk or to a
meeting of the Trustees. Such resignation shall be effective upon receipt
unless specified to be effective at some other time. The Trustees may remove
any officer or without cause. Except to the extent expressly provided in a
written agreement with the Trust, no officer resigning and no officer removed
shall have any right to any compensation for any period following his
registration or removal,
-3-
<PAGE>
or any right to damages on account of such removal.
ARTICLE 4
Indemnification
4.1 Trustees, Officers etc. The Trust shall indemnify each of its Trustees
----------------------
and officers (including persons who serve at the Trust's request as directors,
officers or trustees of another organization in which the Trust has any interest
as a shareholder, creditor or otherwise) (hereinafter referred to as a "Covered
Person") against all liabilities and expenses, including but not limited to
amounts paid in satisfaction of judgments, in compromise or as fines and
penalties, and counsel fees reasonably incurred by any Covered Person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may have been involved
as a party or otherwise or with which such person may be or may have been
threatened, while in office or thereafter, by reason of any alleged act or
omission as a Trustee or officer or by reason of his being or having been such a
Trustee or officer, except with respect to any matter as to which such Covered
Person shall have been finally adjudicated in any such action, suit or other
proceeding not to have acted in good faith in the reasonable belief that such
Covered Person's action was in the best interest of the Trust and except that no
Covered Person shall be indemnified against any liability to the Trust or its
Shareholders to which such Covered Person would otherwise be subject by reason
or willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct or such Covered Person's office. Expenses,
including counsel fees so incurred by any such Covered Person, may be paid from
time to time by the Trust in advance of the final disposition of any such
action, suit or proceeding on the condition that the amounts so paid shall be
repaid to the Trust if it is ultimately determined that indemnification of such
expenses is not authorized under this Article.
4.2 Compromise Payment. As to any matter disposed of by a compromise payment
------------------
by any such Covered Person referred to in Section 4.1 above, pursuant to a
consent decree or otherwise, no such indemnification either for said payment or
for any other expenses shall be provided unless such compromise shall be
approved as in the best interests of the Trust, after notice that it involved
such indemnification, (s) by a disinterested majority disinterested Trustees
then in office; or by any disinterested person or persons to whom the question
may
-4-
<PAGE>
be referred by the Trustees, provided that in the case of approval pursuant to
clause (b) or (c) there has been obtained an opinion in writing of independent
legal counsel to the effect that such Covered person appears to have acted in
good faith in the reasonable belief that his or her action was in the best
interests of the Trust and that such indemnification would not protect such
person against any liability to the Trust or its Shareholders to which such
person would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
office; or (d) by vote of Shareholders holding a majority of the Shares entitled
to vote thereon, exclusive of any Shares beneficially owned by nay interested
Covered Person. Approval by the Trustees pursuant to clause (a) or (b) or by
any disinterested person or persons pursuant to clause (c) of this Section shall
not prevent the recovery from any Covered Person of any amount paid to such
Covered Person in accordance with any of such clauses as indemnification if such
Covered person is subsequently adjudicated by a court of competent jurisdiction
not to have acted in good faith in the reasonable belief that such Covered
Person's action was in the best interests of the Trust or to have been liable to
the Trust or its Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
Covered Person's office.
4.3 Indemnification Not Exclusive. The right of indemnification hereby
-----------------------------
provided shall not be exclusive of or affect any other rights to which any such
Covered Person may be entitled. As used in this Article 4, the term "Covered
Person" shall include such person's heirs, executors and administrators; an
"interested Covered Person" is one against whom the action, suit or other
proceeding in question or another action, suite or other proceeding on the same
or similar grounds is then or has been pending; and a "disinterest Trustee" or
"disinterested person" is a Trustee or a person against whom none of such
actions, suits or other proceedings or another action, suit or other proceeding
on the same or similar grounds is then or has been pending. Nothing contained
in this Article shall affect any rights to indemnification to which personnel of
the Trust, other than Trustees and officers, and other person may be entitled by
contract or other wise under law, nor the power of the Trust to purchase and
maintain liability insurance on behalf of any such person.
ARTICLE 5
Reports
5.1 General. The Trustees and officers shall render reports at the time and
-------
in the manner required by the Declaration of Trust or any applicable Law.
Officers shall render such
-5-
<PAGE>
additional reports as they may deem desirable or as may from time to time be
required by the Trustees.
ARTICLE 6
Fiscal Year
6.1 General. Except as from time to time otherwise provided by the Trustees,
-------
the fiscal year of the Trust shall end on December 31 in each year.
ARTICLE 7
Seal
7.1 General. The seal of the Trust shall consist of a flat-faced die with
-------
the word "Massachusetts," together with the name of the Trust and the year of
its organization, cut or engraved thereon, but, unless otherwise required by the
Trustees, the seal shall not be necessary to be placed on, and its absence shall
not impair the validity of, any document, instrument or other paper executed and
delivered by or on behalf of the Trust.
ARTICLE 8
Execution of Papers
8.1 General. Except as the Trustees may generally or in particular cases
-------
authorize the execution thereof in some other manner, all checks, notes, drafts
and other obligations and all registration statements and amendments thereto and
all applications and amendments thereto to the Securities and Exchange
Commission shall be signed by the Chairman, if any, the President, any Vice
President or the Treasurer or any of such other officers or agents as shall be
designated for that purpose by a vote of the Trustees.
ARTICLE 9
Provisions Relating to the Conduct of the Trust's Business
9.1 Certain Definitions. When used herein the following words shall have the
-------------------
following meanings: "Distributor" shall mean any one or more corporations,
firms or associations which have distributor's contracts in effect with this
Trust providing that redeemable shares issued by this Trust shall be offered and
sold by such Distributor. "Adviser" shall mean any one or more corporations,
firms or associations which may at the time have an advisory or management
contract with this Trust as contemplated by the Declaration of Trust of this
Trust.
-6-
<PAGE>
9.2 Limitation on Dealings with Officers or Trustees. The Trust will not
------------------------------------------------
lend any of its assets to the Distributor or Adviser or to any officer or
director of the Distributor or Adviser or to any officer or Trustee of this
Trust and shall not permit any officer or Trustee, or any officer or director of
the Distributor or Adviser, to deal for or on behalf of the Trust with himself
as principal or agent, or with any partnership, association or corporation in
which he has a financial interest; provided that the foregoing provisions shall
not prevent (s) officers and Trustees of the Trust from buying, holding or
selling shares in the Trust, or from being partners, officers or directors of or
otherwise financially interested in the Distributor or the Adviser; (b)
purchases or sales of securities or other property if such transaction is
permitted by or is exempt or exempted from the provisions of the Investment
Company Act of 1940, as amended, and if such transaction does not involve any
commission or profit to any security dealer who is, or one or more of whose
partners, shareholders, officers, trustees or directors is, an officer, Trustee
or director of the Trust or of the Distributor or Adviser; (c) employment of
legal counsel or any registrar, transfer agent, dividend disbursing agent or
custodian who is, or has a partner, shareholder, officer or director who is, and
officer of Trustee of the Trust; (d) sharing statistical, research, legal and
management expenses and office hire and expenses with any other investment
company in which an officer or otherwise financially interested.
9.3 Limitation on Dealing in Securities of the Trust by Officers, Trustees,
-----------------------------------------------------------------------
Distributor or Adviser. Neither the Distributor nor Adviser, nor any officer,
- ----------------------
Trustee or director of this Trust or of the Distributor or Adviser shall take
long or short positions in securities issued by this Trust, provided, however,
that:
(a) The Distributor may purchase from this Trust shares issued by this
Trust if the orders to purchase from this Trust are entered with this Trust by
the Distributor upon receipt by the Distributor of purchase orders for shares of
this Trust and such purchases are not in excess of purchase orders received by
the Distributor.
(b) The Distributor may as agent for this Trust buy securities issues by
this Trust offered for sale by other persons.
(c) Any officer, Trustee or director of this Trust or of the Distributor or
Adviser may at any time, or from time to time, purchase from this trust or from
the Distributor shares issued by this Trust at the price available to the public
or to such officer, Trustee or director in accordance with and to the extent
permitted by the effective prospectus and statement of additional information at
the moment of such purchase or, to the extent that such person is a shareholder,
at the price available to shareholders of the Trust generally at the moment of
such purchase, no such purchase to be in contravention of any applicable state
or federal requirement.
-7-
<PAGE>
9.4 Securities and Cash of this Trust to be Held by Custodian Subject to
--------------------------------------------------------------------
Certain Terms and Conditions.
- ----------------------------
(a) All securities and cash owned by this Trust shall, as hereinafter
provided, be held by or deposited with a bank or trust company having (according
to its last published report) not less than $5,000,000 aggregate capital,
surplus and undivided profits (which bank or trust company is hereinafter
referred to as "Custodian"), provided such a Custodian can be found ready and
willing to act.
(b) This Trust shall enter into a written contract with the Custodian
regarding the powers, duties and compensation of the Custodian with respect to
the cash and securities of this Trust held by the Custodian. Said contract and
all amendments thereto shall be approved by the board of trustees of this Trust.
(c) This Trust shall upon the resignation or inability to serve of its
Custodian or upon change of the Custodian:
(i) in case of such resignation or inability to serve, use its best
efforts to obtain a successor Custodian;
(ii) require that the cash and securities owned by this Trust be
delivered directly to the successor Custodian; and
(iii) in the event that no successor Custodian can be found, submit
to the shareholders, before permitting delivery of the cash
securities owned by this Trust otherwise than to a successor
Custodian, the question whether this Trust shall be liquidated
or shall function without a Custodian.
9.5 Determination of Net Asset Value. The Trustees or any officer or officers
--------------------------------
or agent or agents of the Trust designated from time to time for this purpose by
the Trustees shall determine at least once daily the net income and the value of
all the assets attributable to any class or series of shares of the Trust on
each day on which the New York Stock Exchange is open for unrestricted trading
and at such other times as the Trustees shall designate. In determining asset
values, all securities for which representative market quotation are readily
-8-
<PAGE>
available shall be valued at market value and other securities and assets shall
be valued at fair value, all as determined in good faith by the Trustees or an
officer or officers or agent or agents, as aforesaid, in accordance with account
principles generally accepted at the time. Notwithstanding the foregoing, the
assets belonging to any class or series of shares of the Trust may, if so
authorized by the Trustees, be valued in accordance with the amortized cost
method, subject to the power of the Trustees to alter the method for determining
asset values. The value of such assets so determined, less total liabilities
belonging to that class or series of shares (exclusive or capital stock and
surplus) shall be the net asset value until a new asset value is determined by
the Trustees or such officers or agents may include in liabilities such reserves
for taxes, estimated accrued expenses and continue and contingencies in
accordance with accounting principles generally accepted at the time as the
Trustees or such officers or agents may in their best judgment deem fair and
reasonable under the circumstances. The manner of determining net asset value
may from time to time be altered as necessary or desirable in the judgment of
the Trustees to conform it to any other method prescribed or permitted by
applicable law or regulation. Determinations of net asset value made by the
Trustees or such officers or agents in good faith shall be binding on all
parties concerned. The foregoing sentence shall not be construed to protect any
Trustee, officer or agent of the Trust against any liability to the Trust or its
security holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
ARTICLE 10
Amendments to the By-Laws
10.1 General. These By-Laws may be amended or repealed, in whole or in
-------
part, by a majority of the Trustees then in office at any meeting of the
Trustees.
-9-
<PAGE>
Registration Nos. 2-83538
811-3728
EXHIBIT 2(B)
AMENDMENT TO THE BYLAWS RELATING TO ELECTRONIC PROXY VOTING
<PAGE>
Exhibit 99.2(b)
NEW ENGLAND ZENITH FUND
Amendment to the By-Laws (adopted January 27, 1995)
The following Article 11 is hereby added to the By-Laws:
ARTICLE 11
11.1 Proxy Instructions transmitted by telephone or Electronic Means. The
placing of a shareholder's name on a proxy pursuant to telephonic or
electronically transmitted instructions obtained pursuant to procedures
reasonably designed to verify that such instructions have been authorized by
such shareholder shall constitute execution of such proxy by or on behalf of
such shareholder.
<PAGE>
Exhibit 99.5(a)(i-xi)
Advisory Agreements Relating to TNE Advisers, Inc. and the Registrant on behalf
of the following Series respectively
(i) Loomis Sayles Small Cap Series
(ii) Alger Growth Series
(iii) Davis Venture Value Series
(iv) Westpeak Growth and Income
(v) Westpeak Stock Index
(vi) Loomis Sayles Balanced Series
(vii) Back Bay Advisers Managed Series
(viii) Salomon Brothers Strategic Bond Opportunities Series
(ix) Back Bay Advisors Bond Income Series
(x) Salomon Brothers U.S. Government Series
(xi) Back Bay Advisors Money Market Series
<PAGE>
ADVISORY AGREEMENT
(Loomis Sayles Small Cap Series)
AGREEMENT made this 30th day of August, 1996 by and between NEW ENGLAND
ZENITH FUND, a Massachusetts business trust (the "Fund") with respect to its
Loomis Sayles Small Cap Series (the "Series"), and TNE ADVISERS, INC., a
Massachusetts corporation (the "Manager").
WITNESSETH:
WHEREAS, the Fund and the Manager wish to enter into an agreement setting
forth the terms upon which the Manager (or certain other parties acting pursuant
to delegation from the Manager) will perform certain services for the Series;
NOW THEREFORE, in consideration of the premises and covenants hereinafter
contained, the parties agree as follows:
The Fund hereby employs the Manager to furnish the Fund with Portfolio
Management Services (as defined in Section 2 hereof) and Administrative Services
(as defined in Section 3 hereof), subject to the authority of the Manager to
delegate any or all of its responsibilities hereunder to other parties as
provided in Sections 1(b) and (c) hereof. The Manager hereby accepts such
employment and agrees, at its own expense, to furnish such services (either
directly or pursuant to delegation to other parties as permitted by Sections
1(b) and (c) hereof) and to assume the obligations herein set forth, for the
compensation herein provided. The Manager shall, unless otherwise expressly
provided or authorized, have no authority to act for or represent the Fund in
any way or otherwise be deemed an agent of the Fund.
The Manager may delegate any or all of its responsibilities hereunder
with respect to the provision of Portfolio Management Services (and assumption
of related expenses) to one or more other parties (each such party, a "Sub-
Adviser"), pursuant in each case to a written agreement with such Sub-Adviser
that meets the requirements of Section 15 of the Investment Company Act of 1940
and the rules thereunder (the "1940 Act") applicable to contracts for service as
investment adviser of a registered investment company (including without
limitation the requirements for approval by the trustees of the Fund and the
shareholders of the Series), subject, however, to such exemptions as may be
granted by the Securities and Exchange Commission. Any Sub-Adviser may (but
need not) be affiliated with the Manager. If different Sub-Advisers are engaged
to provide Portfolio Management Services with respect to different segments of
the portfolio of the Series, the Manager shall determine, in the manner
described in the prospectus of the Series from time to time in effect, what
portion of the assets belonging to the Series shall be managed by each Sub-
Adviser.
The Manager may delegate any or all of its responsibilities hereunder
with respect to the provision of Administrative Services to one or more other
parties (each such
<PAGE>
party, an "Administrator") selected by the Manager. Any Administrator may (but
need not) be affiliated with the Manager.
I. As used in this Agreement, "Portfolio Management Services" means
management of the investment and reinvestment of the assets belonging to the
Series, consisting specifically of the following:
obtaining and evaluating such economic, statistical and
financial data and information and undertaking such additional investment
research as shall be necessary or advisable for the management of the
investment and reinvestment of the assets belonging to the Series in
accordance with the Series' investment objectives and policies;
taking such steps as are necessary to implement the investment
policies of the Series by purchasing and selling of securities, including
the placing of orders for such purchase and sale; and
regularly reporting to the Board of Trustees of the Fund with
respect to the implementation of the investment policies of the
Series.
I. As used in this Agreement, "Administrative Services" means the provision
to the Fund, by or at the expense of the Manager, of the following:
office space in such place or places as may be agreed upon from
time to time by the Fund and the Manager, and all necessary office
supplies, facilities and equipment;
necessary executive and other personnel for managing the
affairs of the Series, including personnel to perform clerical,
bookkeeping, accounting, stenographic and other office functions (exclusive
of those related to and to be performed under contract for custodial,
transfer, dividend and plan agency services by the entity or entities
selected to perform such services;
compensation, if any, of trustees of the Fund who are
directors, officers or employees of the Adviser, any Sub-Adviser or any
Administrator or of any affiliated person (other than a registered
investment company) of the Manager, any Sub-Adviser or any
Administrator;
all services, other than services of counsel, required in
connection with the preparation of registration statements and
prospectuses, including amendments and revisions thereto, all annual,
semiannual and periodic reports, and notices and proxy solicitation
material furnished to shareholders of the Fund or regulatory authorities,
to the extent that any such materials relate to the business of the Series,
to the shareholders thereof or otherwise to the Series, the Series to be
treated for these purposes as a separate legal entity and fund; and
<PAGE>
A. supervision and oversight of the Portfolio Management Services
provided by each Sub-Adviser, and oversight of all matters relating to
compliance by the Fund with applicable laws and with the Fund's investment
policies, restrictions and guidelines, if the Manager has delegated to one
or more Sub-Advisers any or all of its responsibilities hereunder with
respect to the provision of Portfolio Management Services.
I. Nothing in section 3 hereof shall require the Manager to bear, or to
reimburse the Fund for:
any of the costs of printing and mailing the items referred to
in sub-section (d) of this section 3;
any of the costs of preparing, printing and distributing sales
literature;
compensation of trustees of the Fund who are not directors,
officers or employees of the Manager, any Sub-Adviser or any Administrator
or of any affiliated person (other than a registered investment company) of
the Manager, any Sub-Adviser or any Administrator;
registration, filing and other fees in connection with
requirements or regulatory authorities;
the charges and expenses of any entity appointed by the Fund
for custodial, paying agent, shareholder servicing and plan agent
services;
charges and expenses of independent accountants retained by the
Fund;
charges and expenses of any transfer agents and registrars
appointed by the Fund;
brokers' commissions and issue and transfer taxes chargeable to
the Fund in connection with securities transactions to which the Fund is a
party;
taxes and fees payable by Fund to federal, state or other
governmental agencies;
any cost of certificates representing shares of the Fund;
legal fees and expenses in connection with the affairs of the
Fund including registering and qualifying its shares with Federal and State
regulatory authorities;
<PAGE>
expenses of meetings of shareholders and trustees of the Fund;
and
interest, including interest on borrowings by the Fund.
All activities undertaken by the Manager or any Sub-Adviser or
Administrator pursuant to this Agreement shall at all times be subject to the
supervision and control of the Board of Trustees of the Fund, any duly
constituted committee thereof or any officer of the Fund acting pursuant to like
authority.
The services to be provided by the Manager and any Sub-Adviser or
Administrator hereunder are not to be deemed exclusive and the Manager and any
Sub-Adviser or Administrator shall be free to render similar services to others,
so long as its services hereunder are not impaired thereby.
As full compensation for all services rendered, facilities furnished
and expenses borne by the Manager hereunder, the Fund shall pay the Manager
compensation at the annual rate of 1.00% of the average net assets. Such
compensation shall be payable monthly in arrears or at such other intervals, not
less frequently than quarterly, as the Board of Trustees of the Fund may from
time to time determine and specify in writing to the Manager. The Manager hereby
acknowledges that the Fund's obligation to pay such compensation is binding only
on the assets and property belonging to the Series.
If the total of all ordinary business expenses of the Fund as a whole
(including investment advisory fees but excluding taxes and portfolio brokerage
commissions) for any fiscal year exceeds the lowest applicable percentage of
average net assets or income limitations prescribed by any state in which shares
of the Series are qualified for sale, the Manager shall pay such excess. Solely
for purposes of applying such limitations in accordance with the foregoing
sentence, the Series and the Fund shall each be deemed to be a separate fund
subject to such limitations. Should the applicable state limitation provisions
fail to specify how the average net assets of the Fund or belonging to the
Series are to be calculated, that figure shall be calculated by reference to the
average daily net assets of the Fund or the Series, as the case may be.
It is understood that any of the shareholders, trustees, officers,
employees and agents of the Fund may be a shareholder, director, officer,
employee or agent of, or be otherwise interested in, the Manager, any affiliated
person of the Manager, any organization in which the Manager may have an
interest or any organization which may have an interest in the Manager; that the
Manager, any such affiliated person or any such organization may have an
interest in the Fund; and that the existence of any such dual interest shall not
affect the validity hereof or of any transactions hereunder except as otherwise
provided in the agreement and declaration of trust of the Fund, the articles of
organization of the Manager or specific provisions of applicable law.
<PAGE>
This Agreement shall become effective as of the date of its
execution, and
unless otherwise terminated, this Agreement shall continue in
effect for two years from the date of execution, and from year to year
thereafter so long as such continuance is specifically approved at least
annually (i) by the Board of Trustees of the Fund or by vote of a majority
of the outstanding voting securities of the Series, and (ii) by vote of a
majority of the trustees of the Fund who are not interested persons of the
Fund or the Manager, cast in person at a meeting called for the purpose of
voting on, such approval;
this Agreement may at any time be terminated on sixty days'
written notice to the Manager either by vote of the Board of Trustees of
the Fund or by vote of a majority of the outstanding voting securities of
the Series;
this Agreement shall automatically terminate in the event of
its assignment;
this Agreement may be terminated by the Manager on ninety days'
written notice to the Fund;
if New England Securities Corporation, the Fund's principal
underwriter, requires the Fund or the Series to change its name so as to
eliminate all references to the words "New England" or the letters "TNE"
pursuant to the provisions of the Fund's Distribution Agreement relating to
the Series with said principal underwriter, this Agreement shall
automatically terminate at the time of such change unless the continuance
of this Agreement after such change shall have been specifically approved
by vote of a majority of the outstanding voting securities of the Series
and by vote of a majority of the trustees of the Fund who are not
interested persons of the Fund or the Manager, cast in person at a meeting
called for the purpose of voting on such approval.
Termination of this Agreement pursuant to this section 10 shall be without
the payment of any penalty.
This Agreement may be amended at any time by mutual consent of
the parties, provided that such consent on the part of the Fund shall have been
approved by vote of a majority of the outstanding voting securities of the
Series and by vote of a majority of the trustees of the Fund who are not
interested persons of the Fund or the Manager, cast in person at a meeting
called for the purpose of voting on such approval.
For the purpose of this Agreement, the terms "vote of a majority of the
outstanding voting securities," "interested person," "affiliated person"
and
<PAGE>
"assignment" shall have their respective meanings defined in the 1940 Act,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under the 1940 Act. References in this Agreement to any
assets, property or liabilities "belonging to" the Series shall have the meaning
defined in the Fund's agreement and declaration of trust as amended from time to
time.
I. In the absence of willful misfeasance, bad faith or gross
negligence on the part of the Manager, or reckless disregard of its obligations
and duties hereunder, the Manager shall not be subject to any liability to the
Fund, to any shareholder of the Fund or to any other person, firm or
organization, for any act or omission in the course of, or connected with,
rendering services hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
NEW ENGLAND ZENITH FUND, on TNE ADVISERS, INC.
behalf of its Loomis Small Cap
Series
By /s/ John F. Guthrie By /s/ John F. Guthrie
-------------------------- ---------------------------
John F. Guthrie, Jr. John F. Guthrie, Jr.
Senior Vice President Senior Vice President
NOTICE
A copy of the Agreement and Declaration of Trust establishing New England
Zenith Fund (the "Fund") is on file with the Secretary of The Commonwealth of
Massachusetts, and notice is hereby given that this Agreement is executed with
respect to the Fund's Loomis Sayles Small Cap Series (the "Series") on behalf of
the Fund by officers of the Fund as officers and not individually and that the
obligations of or arising out of this Agreement are not binding upon any of the
trustees, officers or shareholders individually but are binding only upon the
assets and property belonging to the Series.
<PAGE>
ADVISORY AGREEMENT
(Alger Equity Growth Series)
AGREEMENT made this 30th day of August, 1996 by and between NEW ENGLAND
ZENITH FUND, a Massachusetts business trust (the "Fund") with respect to its
Alger Equity Growth Series (the "Series"), and TNE ADVISERS, INC., a
Massachusetts corporation (the "Manager").
WITNESSETH:
WHEREAS, the Fund and the Manager wish to enter into an agreement setting
forth the terms upon which the Manager (or certain other parties acting pursuant
to delegation from the Manager) will perform certain services for the Series;
NOW THEREFORE, in consideration of the premises and covenants hereinafter
contained, the parties agree as follows:
The Fund hereby employs the Manager to furnish the Fund with
Portfolio Management Services (as defined in Section 2 hereof) and
Administrative Services (as defined in Section 3 hereof), subject to the
authority of the Manager to delegate any or all of its responsibilities
hereunder to other parties as provided in Sections 1(b) and (c) hereof. The
Manager hereby accepts such employment and agrees, at its own expense, to
furnish such services (either directly or pursuant to delegation to other
parties as permitted by Sections 1(b) and (c) hereof) and to assume the
obligations herein set forth, for the compensation herein provided. The
Manager shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent the Fund in any way or otherwise be
deemed an agent of the Fund.
The Manager may delegate any or all of its responsibilities
hereunder with respect to the provision of Portfolio Management Services
(and assumption of related expenses) to one or more other parties (each
such party, a "Sub-Adviser"), pursuant in each case to a written agreement
with such Sub-Adviser that meets the requirements of Section 15 of the
Investment Company Act of 1940 and the rules thereunder (the "1940 Act")
applicable to contracts for service as investment adviser of a registered
investment company (including without limitation the requirements for
approval by the trustees of the Fund and the shareholders of the Series),
subject, however, to such exemptions as may be granted by the Securities
and Exchange Commission. Any Sub-Adviser may (but need not) be affiliated
with the Manager. If different Sub-Advisers are engaged to provide
Portfolio Management Services with respect to different segments of the
portfolio of the Series, the Manager shall determine, in the manner
described in the prospectus of the Series from time to time in effect, what
portion of the assets belonging to the Series shall be managed by each Sub-
Adviser.
-1-
<PAGE>
The Manager may delegate any or all of its responsibilities
hereunder with respect to the provision of Administrative Services to one
or more other parties (each such party, an "Administrator") selected by the
Manager. Any Administrator may (but need not) be affiliated with the
Manager.
I. As used in this Agreement, "Portfolio Management Services" means
management of the investment and reinvestment of the assets belonging to the
Series, consisting specifically of the following:
obtaining and evaluating such economic, statistical and financial
data and information and undertaking such additional investment research as
shall be necessary or advisable for the management of the investment and
reinvestment of the assets belonging to the Series in accordance with the
Series' investment objectives and policies;
taking such steps as are necessary to implement the investment
policies of the Series by purchasing and selling of securities, including
the placing of orders for such purchase and sale; and
regularly reporting to the Board of Trustees of the Fund with
respect to the implementation of the investment policies of the Series.
I. As used in this Agreement, "Administrative Services" means the
provision to the Fund, by or at the expense of the Manager, of the following:
office space in such place or places as may be agreed upon from time
to time by the Fund and the Manager, and all necessary office supplies,
facilities and equipment;
necessary executive and other personnel for managing the affairs of
the Series, including personnel to perform clerical, bookkeeping,
accounting, stenographic and other office functions (exclusive of those
related to and to be performed under contract for custodial, transfer,
dividend and plan agency services by the entity or entities selected to
perform such services;
compensation, if any, of trustees of the Fund who are directors,
officers or employees of the Manager, any Sub-Adviser or any Administrator
or of any affiliated person (other than a registered investment company) of
the Manager, any Sub-Adviser or any Administrator;
all services, other than services of counsel, required in connection
with the preparation of registration statements and prospectuses, including
amendments and revisions thereto, all annual, semiannual and periodic
reports, and notices and proxy solicitation material furnished to
shareholders of the Fund or regulatory authorities, to the extent that any
such materials relate to the business of
<PAGE>
the Series, to the shareholders thereof or otherwise to the Series, the
Series to be treated for these purposes as a separate legal entity and
fund; and
supervision and oversight of the Portfolio Management Services
provided by each Sub-Adviser, and oversight of all matters relating to
compliance by the Fund with applicable laws and with the Series' investment
policies, restrictions and guidelines, if the Manager has delegated to one
or more Sub-Advisers any or all of its responsibilities hereunder with
respect to the provision of Portfolio Management Services.
Nothing in section 3 hereof shall require the Manager to bear, or to
reimburse the Fund for:
any of the costs of printing and mailing the items referred to in
sub-section (d) of section 3;
any of the costs of preparing, printing and distributing sales
literature;
compensation of trustees of the Fund who are not directors, officers
or employees of the Manager, any Sub-Adviser or any Administrator or of any
affiliated person (other than a registered investment company) of the
Manager, any Sub-Adviser or any Administrator;
registration, filing and other fees in connection with requirements
of regulatory authorities;
the charges and expenses of any entity appointed by the Fund for
custodial, paying agent, shareholder servicing and plan agent services;
charges and expenses of independent accountants retained by the
Fund;
charges and expenses of any transfer agents and registrars appointed
by the Fund;
brokers' commissions and issue and transfer taxes chargeable to the
Fund in connection with securities transactions to which the Fund is a
party;
taxes and fees payable by the Fund to federal, state or other
governmental agencies;
any cost of certificates representing shares of the Fund;
legal fees and expenses in connection with the affairs of the Fund
including registering and qualifying its shares with Federal and State
regulatory authorities;
<PAGE>
expenses of meetings of shareholders and trustees of the Fund; and
interest, including interest on borrowings by the Fund.
All activities undertaken by the Manager or any Sub-Adviser or
Administrator pursuant to this Agreement shall at all times be subject to the
supervision and control of the Board of Trustees of the Fund, any duly
constituted committee thereof or any officer of the Fund acting pursuant to like
authority.
The services to be provided by the Manager and any Sub-Adviser or
Administrator hereunder are not to be deemed exclusive and the Manager and any
Sub-Adviser or Administrator shall be free to render similar services to others,
so long as its services hereunder are not impaired thereby.
As full compensation for all services rendered, facilities furnished
and expenses borne by the Manager hereunder, the Fund shall pay the Manager
compensation at the annual rate of 0.75% of the Series' average daily net
assets. Such compensation shall be payable monthly in arrears or at such other
intervals, not less frequently than quarterly, as the Board of Trustees of the
Fund may from time to time determine and specify in writing to the Manager.
The Manager hereby acknowledges that the Fund's obligation to pay such
compensation is binding only on the assets and property belonging to the Series.
If the total of all ordinary business expenses of the Fund as a
whole (including investment advisory fees but excluding taxes and portfolio
brokerage commissions) for any fiscal year exceeds the lowest applicable
percentage of average net assets or income limitations prescribed by any state
in which shares of the Series are qualified for sale, the Manager shall pay such
excess. Solely for purposes of applying such limitations in accordance with the
foregoing sentence, the Series and the Fund shall each be deemed to be a
separate fund subject to such limitations. Should the applicable state
limitation provisions fail to specify how the average net assets of the Fund or
belonging to the Series are to be calculated, that figure shall be calculated by
reference to the average daily net assets of the Fund or the Series, as the case
may be.
It is understood that any of the shareholders, trustees, officers,
employees and agents of the Fund may be a shareholder, director, officer,
employee or agent of, or be otherwise interested in, the Manager, any affiliated
person of the Manager, any organization in which the Manager may have an
interest or any organization which may have an interest in the Manager; that the
Manager, any such affiliated person or any such organization may have an
interest in the Fund; and that the existence of any such dual interest shall not
affect the validity hereof or of any transactions hereunder except as otherwise
provided in the agreement and declaration of trust of the Fund, the articles of
organization of the Manager or specific provisions of applicable law.
<PAGE>
This Agreement shall become effective as of the date of its execution,
and
unless otherwise terminated, this Agreement shall continue in effect
for two years from the date of execution, and from year to year thereafter
so long as such continuance is specifically approved at least annually (i)
by the Board of Trustees of the Fund or by vote of a majority of the
outstanding voting securities of the Series, and (ii) by vote of a majority
of the trustees of the Fund who are not interested persons of the Fund or
the Manager, cast in person at a meeting called for the purpose of voting
on, such approval;
this Agreement may at any time be terminated on sixty days' written
notice to the Manager either by vote of the Board of Trustees of the Fund
or by vote of a majority of the outstanding voting securities of the
Series;
this Agreement shall automatically terminate in the event of its
assignment;
this Agreement may be terminated by the Manager on ninety days'
written notice to the Fund;
if New England Securities Corporation, the Fund's principal
underwriter, requires the Fund or the Series to change its name so as to
eliminate all references to the words "New England" or the letters "TNE"
pursuant to the provisions of the Fund's Distribution Agreement relating to
the Series with said principal underwriter, this Agreement shall
automatically terminate at the time of such change unless the continuance
of this Agreement after such change shall have been specifically approved
by vote of a majority of the outstanding voting securities of the Series
and by vote of a majority of the trustees of the Fund who are not
interested persons of the Fund or the Manager, cast in person at a meeting
called for the purpose of voting on such approval.
Termination of this Agreement pursuant to this section 10 shall be without
the payment of any penalty.
This Agreement may be amended at any time by mutual consent of the
parties, provided that such consent on the part of the Fund shall have been
approved by vote of a majority of the outstanding voting securities of the
Series and by vote of a majority of the trustees of the Fund who are not
interested persons of the Fund or the Manager, cast in person at a meeting
called for the purpose of voting on such approval.
For the purpose of this Agreement, the terms "vote of a majority of
the outstanding voting securities," "interested person," "affiliated person" and
"assignment" shall have their respective meanings defined in the 1940 Act,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under the 1940
<PAGE>
Act. References in this Agreement to any assets, property or liabilities
"belonging to" the Series shall have the meaning defined in the Fund's agreement
and declaration of trust as amended from time to time.
In the absence of willful misfeasance, bad faith or gross negligence
on the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be subject to any liability to the Fund, to any
shareholder of the Fund or to any other person, firm or organization, for any
act or omission in the course of, or connected with, rendering services
hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
NEW ENGLAND ZENITH FUND, TNE ADVISERS, INC.
on behalf of its Alger Equity Growth
Series
By /s/ John F. Guthrie By /s/ John F. Guthrie
---------------------------------- ---------------------------------
John F. Guthrie, Jr. John F. Guthrie, Jr.
Senior Vice President Senior Vice President
NOTICE
A copy of the Agreement and Declaration of Trust establishing New England
Zenith Fund (the "Fund") is on file with the Secretary of The Commonwealth of
Massachusetts, and notice is hereby given that this Agreement is executed with
respect to the Fund's Alger Equity Growth Series (the "Series") on behalf of the
Fund by officers of the Fund as officers and not individually and that the
obligations of or arising out of this Agreement are not binding upon any of the
trustees, officers or shareholders individually but are binding only upon the
assets and property belonging to the Series.
<PAGE>
NEW ENGLAND ZENITH FUND
ADVISORY AGREEMENT
(Davis Venture Value Series)
AGREEMENT made this 30th day of August, 1996 by and between NEW ENGLAND
ZENITH FUND, a Massachusetts business trust (the "Fund"), with respect to its
Davis Venture Value Series (the "Series"), and TNE ADVISERS, INC., a
Massachusetts corporation (the "Manager").
WITNESSETH:
WHEREAS, the Fund and the Manager wish to enter into an agreement setting
forth the terms upon which the Manager (or certain other parties acting pursuant
to delegation from the Manager) will perform certain services for the Series;
NOW THEREFORE, in consideration of the premises and covenants hereinafter
contained, the parties agree as follows:
The Fund hereby employs the Manager to furnish the Fund with
Portfolio Management Services (as defined in Section 2 hereof) and
Administrative Services (as defined in Section 3 hereof), subject to the
authority of the Manager to delegate any or all of its responsibilities
hereunder to other parties as provided in Sections 1(b) and (c) hereof. The
Manager hereby accepts such employment and agrees, at its own expense, to
furnish such services (either directly or pursuant to delegation to other
parties as permitted by Sections 1(b) and (c) hereof) and to assume the
obligations herein set forth, for the compensation herein provided. The Manager
shall, unless otherwise expressly provided or authorized, have no authority to
act for or represent the Fund in any way or otherwise be deemed an agent of the
Fund.
The Manager may delegate any or all of its responsibilities
hereunder with respect to the provision of Portfolio Management Services (and
assumption of related expenses) to one or more other parties (each such party, a
"Sub-Adviser"), pursuant in each case to a written agreement with such Sub-
Adviser that meets the requirements of Section 15 of the Investment Company Act
of 1940 and the rules thereunder (the "1940 Act") applicable to contracts for
service as investment adviser of a registered investment company (including
without limitation the requirements for approval by the trustees of the Fund and
the shareholders of the Series), subject, however, to such exemptions as may be
granted by the Securities and Exchange Commission. Any Sub-Adviser may (but need
not) be affiliated with the Manager. If different Sub-Advisers are engaged to
provide Portfolio Management Services with respect to different segments of the
portfolio of the Series, the Manager shall determine, in the manner described in
the prospectus of the Series from time to time in
-1-
<PAGE>
effect, what portion of the assets belonging to the Series shall be managed by
each Sub-Adviser.
B. The Manager may delegate any or all of its responsibilities
hereunder with respect to the provision of Administrative Services to one or
more other parties (each such party, an "Administrator") selected by the
Manager. Any Administrator may (but need not) be affiliated with the Manager.
As used in this Agreement, "Portfolio Management Services" means
management of the investment and reinvestment of the assets belonging to the
Series, consisting specifically of the following:
obtaining and evaluating such economic, statistical and
financial data and information and undertaking such additional investment
research as shall be necessary or advisable for the management of the
investment and reinvestment of the assets belonging to the Series in
accordance with the Series' investment objectives and policies;
taking such steps as are necessary to implement the investment
policies of the Series by purchasing and selling of securities, including
the placing of orders for such purchase and sale; and
regularly reporting to the Board of Trustees of the Fund with
respect to the implementation of the investment policies of the
Series.
As used in this Agreement, "Administrative Services" means the
provision to the Fund, by or at the expense of the Manager, of the
following:
office space in such place or places as may be agreed upon from
time to time by the Fund and the Manager, and all necessary office
supplies, facilities and equipment;
necessary executive and other personnel for managing the
affairs of the Series, including personnel to perform clerical,
bookkeeping, accounting, stenographic and other office functions (exclusive
of those related to and to be performed under contract for custodial,
transfer, dividend and plan agency services by the entity or entities
selected to perform such services);
compensation, if any, of trustees of the Fund who are
directors, officers or employees of the Adviser, any Sub-Adviser or any
Administrator or of any affiliated person (other than a registered
investment company) of the Manager, any Sub-Adviser or any
Administrator;
all services, other than services of counsel, required in
connection with the preparation of registration statements and
prospectuses, including amendments and revisions thereto, all annual,
semiannual and periodic
<PAGE>
reports, and notices and proxy solicitation material furnished to
shareholders of the Fund or regulatory authorities, to the extent that any
such materials relate to the business of the Series, to the shareholders
thereof or otherwise to the Series, the Series to be treated for these
purposes as a separate legal entity and fund; and
supervision and oversight of the Portfolio Management Services
provided by each Sub-Adviser, and oversight of all matters relating to
compliance by the Fund with applicable laws and with the Fund's investment
policies, restrictions and guidelines, if the Manager has delegated to one
or more Sub-Advisers any or all of its responsibilities hereunder with
respect to the provision of Portfolio Management Services.
Nothing in section 3 hereof shall require the Manager to bear, or to
reimburse the Fund for:
any of the costs of printing and mailing the items referred to
in sub-section (d) of this section 3;
any of the costs of preparing, printing and distributing sales
literature;
compensation of trustees of the Fund who are not directors,
officers or employees of the Manager, any Sub-Adviser or any Administrator
or of any affiliated person (other than a registered investment company)
of the Manager, any Sub-Adviser or any Administrator;
registration, filing and other fees in connection with
requirements of regulatory authorities;
the charges and expenses of any entity appointed by the Fund
for custodial, paying agent, shareholder servicing and plan agent
services;
charges and expenses of independent accountants retained by the
Fund;
charges and expenses of any transfer agents and registrars
appointed by the Fund;
brokers' commissions and issue and transfer taxes chargeable to
the Fund in connection with securities transactions to which the Fund is a
party;
taxes and fees payable by the Fund to federal, state or other
governmental agencies;
<PAGE>
any cost of certificates representing shares of the Fund;
legal fees and expenses in connection with the affairs of the
Fund including registering and qualifying its shares with Federal and State
regulatory authorities;
expenses of meetings of shareholders and trustees of the Fund;
and
interest, including interest on borrowings by the Fund.
All activities undertaken by the Manager or any Sub-Adviser or
Administrator pursuant to this Agreement shall at all times be subject to the
supervision and control of the Board of Trustees of the Fund, any duly
constituted committee thereof or any officer of the Fund acting pursuant to like
authority.
The services to be provided by the Manager and any Sub-Adviser or
Administrator hereunder are not to be deemed exclusive and the Manager and any
Sub-Adviser or Administrator shall be free to render similar services to others,
so long as its services hereunder are not impaired thereby.
As full compensation for all services rendered, facilities furnished
and expenses borne by the Manager hereunder, the Fund shall pay the Manager
compensation at the annual rate of 0.75% of the Series' average daily net
assets. Such compensation shall be payable monthly in arrears or at such other
intervals, not less frequently than quarterly, as the Board of Trustees of the
Fund may from time to time determine and specify in writing to the Manager. The
Manager hereby acknowledges that the Fund's obligation to pay such compensation
is binding only on the assets and property belonging to the Series.
If the total of all ordinary business expenses of the Fund as a whole
(including investment advisory fees but excluding taxes and portfolio brokerage
commissions) for any fiscal year exceeds the lowest applicable percentage of
average net assets or income limitations prescribed by any state in which shares
of the Series are qualified for sale, the Manager shall pay such excess. Solely
for purposes of applying such limitations in accordance with the foregoing
sentence, the Series and the Fund shall each be deemed to be a separate fund
subject to such limitations. Should the applicable state limitation provisions
fail to specify how the average net assets of the Fund or belonging to the
Series are to be calculated, that figure shall be calculated by reference to the
average daily net assets of the Fund or the Series, as the case may be.
It is understood that any of the shareholders, trustees, officers,
employees and agents of the Fund may be a shareholder, director, officer,
employee or agent of, or be otherwise interested in, the Manager, any affiliated
person of the Manager, any organization in which the Manager may have an
interest or any
<PAGE>
organization which may have an interest in the Manager; that the Manager, any
such affiliated person or any such organization may have an interest in the
Fund; and that the existence of any such dual interest shall not affect the
validity hereof or of any transactions hereunder except as otherwise provided in
the agreement and declaration of trust of the Fund, the articles of organization
of the Manager or specific provisions of applicable law.
This Agreement shall become effective as of the date of its
execution, and
unless otherwise terminated, this Agreement shall continue in
effect for two years from the date of execution, and from year to year
thereafter so long as such continuance is specifically approved at least
annually (i) by the Board of Trustees of the Fund or by vote of a majority
of the outstanding voting securities of the Series, and (ii) by vote of a
majority of the trustees of the Fund who are not interested persons of the
Fund or the Manager, cast in person at a meeting called for the purpose of
voting on, such approval;
this Agreement may at any time be terminated on sixty days'
written notice to the Manager either by vote of the Board of Trustees of
the Fund or by vote of a majority of the outstanding voting securities of
the Series;
this Agreement shall automatically terminate in the event of
its assignment;
this Agreement may be terminated by the Manager on ninety days'
written notice to the Fund;
if New England Securities Corporation, the Fund's principal
underwriter, requires the Fund or the Series to change its name so as to
eliminate all references to the words "New England" pursuant to the
provisions of the Fund's Distribution Agreement relating to the Series with
said principal underwriter, this Agreement shall automatically terminate at
the time of such change unless the continuance of this Agreement after such
change shall have been specifically approved by vote of a majority of the
outstanding voting securities of the Series and by vote of a majority of
the trustees of the Fund who are not interested persons of the Fund or the
Manager, cast in person at a meeting called for the purpose of voting on
such approval.
Termination of this Agreement pursuant to this section 10 shall be without
the payment of any penalty.
This Agreement may be amended at any time by mutual
<PAGE>
consent of the parties, provided that such consent on the part of the Fund shall
have been approved by vote of a majority of the outstanding voting securities of
the Series and by vote of a majority of the trustees of the Fund who are not
interested persons of the Fund or the Manager, cast in person at a meeting
called for the purpose of voting on such approval.
For the purpose of this Agreement, the terms "vote of a majority of
the outstanding voting securities," "interested person," "affiliated person" and
"assignment" shall have their respective meanings defined in the 1940 Act,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under the 1940 Act. References in this Agreement to any
assets, property or liabilities "belonging to" the Series shall have the meaning
defined in the Fund's agreement and declaration of trust as amended from time to
time.
In the absence of willful misfeasance, bad faith or gross negligence
on the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be subject to any liability to the Fund, to any
shareholder of the Fund or to any other person, firm or organization, for any
act or omission in the course of, or connected with, rendering services
hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
NEW ENGLAND ZENITH FUND, TNE ADVISERS, INC.
on behalf of its Davis Venture Value
Series
By: /s/ John F. Guthrie By: /s/ John F. Guthrie
-------------------------------- ------------------------------
John F. Guthrie, Jr. John F. Guthrie, Jr.
Senior Vice President Senior Vice President
<PAGE>
NOTICE
A copy of the Agreement and Declaration of Trust establishing New England
Zenith Fund (the "Fund") is on file with the Secretary of The Commonwealth of
Massachusetts, and notice is hereby given that this Agreement is executed with
respect to the Fund's Davis Venture Value Series (the "Series") on behalf of the
Fund by officers of the Fund as officers and not individually and that the
obligations of or arising out of this Agreement are not binding upon any of the
trustees, officers or shareholders individually but are binding only upon the
assets and property belonging to the Series.
<PAGE>
NEW ENGLAND ZENITH FUND
ADVISORY AGREEMENT
(Westpeak Growth and Income Series)
AGREEMENT made this 30th day of August, 1996 by and between NEW ENGLAND
ZENITH FUND, a Massachusetts business trust (the "Fund"), with respect to its
Westpeak Growth and Income Series (the "Series"), and TNE ADVISERS, INC., a
Massachusetts corporation (the "Manager").
WITNESSETH:
WHEREAS, the Fund and the Manager wish to enter into an agreement setting
forth the terms upon which the Manager (or certain other parties acting pursuant
to delegation from the Manager) will perform certain services for the Series;
NOW THEREFORE, in consideration of the premises and covenants hereinafter
contained, the parties agree as follows:
The Fund hereby employs the Manager to furnish the Fund with
Portfolio Management Services (as defined in Section 2 hereof) and
Administrative Services (as defined in Section 3 hereof), subject to the
authority of the Manager to delegate any or all of its responsibilities
hereunder to other parties as provided in Sections 1(b) and (c) hereof. The
Manager hereby accepts such employment and agrees, at its own expense, to
furnish such services (either directly or pursuant to delegation to other
parties as permitted by Sections 1(b) and (c) hereof) and to assume the
obligations herein set forth, for the compensation herein provided. The Manager
shall, unless otherwise expressly provided or authorized, have no authority to
act for or represent the Fund in any way or otherwise be deemed an agent of the
Fund.
The Manager may delegate any or all of its responsibilities hereunder
with respect to the provision of Portfolio Management Services (and assumption
of related expenses) to one or more other parties (each such party, a "Sub-
Adviser"), pursuant in each case to a written agreement with such Sub-Adviser
that meets the requirements of Section 15 of the Investment Company Act of 1940
and the rules thereunder (the "1940 Act") applicable to contracts for service as
investment adviser of a registered investment company (including without
limitation the requirements for approval by the trustees of the Fund and the
shareholders of the Series), subject, however, to such exemptions as may be
granted by the Securities and Exchange Commission. Any Sub-Adviser may (but
need not) be affiliated with the Manager. If different Sub-Advisers are engaged
to provide Portfolio Management Services with respect to different segments of
the portfolio of the Series, the Manager shall determine, in the manner
described in the prospectus of the Series from time to time in
-1-
<PAGE>
effect, what portion of the assets belonging to the Series shall be managed by
each Sub-Adviser.
The Manager may delegate any or all of its responsibilities hereunder
with respect to the provision of Administrative Services to one or more other
parties (each such party, an "Administrator") selected by the Manager. Any
Administrator may (but need not) be affiliated with the Manager.
As used in this Agreement, "Portfolio Management Services" means
management of the investment and reinvestment of the assets belonging to the
Series, consisting specifically of the following:
obtaining and evaluating such economic, statistical and
financial data and information and undertaking such additional investment
research as shall be necessary or advisable for the management of the
investment and reinvestment of the assets belonging to the Series in
accordance with the Series' investment objectives and policies;
taking such steps as are necessary to implement the investment
policies of the Series by purchasing and selling of securities, including
the placing of orders for such purchase and sale; and
regularly reporting to the Board of Trustees of the Fund with
respect to the implementation of the investment policies of the
Series.
As used in this Agreement, "Administrative Services" means the
provision to the Fund, by or at the expense of the Manager, of the following:
office space in such place or places as may be agreed upon from
time to time by the Fund and the Manager, and all necessary office
supplies, facilities and equipment;
necessary executive and other personnel for managing the
affairs of the Series, including personnel to perform clerical,
bookkeeping, accounting, stenographic and other office functions (exclusive
of those related to and to be performed under contract for custodial,
transfer, dividend and plan agency services by the entity or entities
selected to perform such services);
compensation, if any, of trustees of the Fund who are
directors, officers or employees of the Adviser, any Sub-Adviser or any
Administrator or of any affiliated person (other than a registered
investment company) of the Manager, any Sub-Adviser or any Administrator;
all services, other than services of counsel, required in
connection with the preparation of registration statements and
prospectuses, including amendments and revisions thereto, all annual,
semiannual and periodic
<PAGE>
reports, and notices and proxy solicitation material furnished to
shareholders of the Fund or regulatory authorities, to the extent that any
such materials relate to the business of the Series, to the shareholders
thereof or otherwise to the Series, the Series to be treated for these
purposes as a separate legal entity and fund; and
supervision and oversight of the Portfolio Management Services
provided by each Sub-Adviser, and oversight of all matters relating to
compliance by the Fund with applicable laws and with the Fund's investment
policies, restrictions and guidelines, if the Manager has delegated to one
or more Sub-Advisers any or all of its responsibilities hereunder with
respect to the provision of Portfolio Management Services.
Nothing in section 3 hereof shall require the Manager to bear, or to
reimburse the Fund for:
any of the costs of printing and mailing the items referred to
in sub-section (d) of this section 3;
any of the costs of preparing, printing and distributing sales
literature;
compensation of trustees of the Fund who are not directors,
officers or employees of the Manager, any Sub-Adviser or any Administrator
or of any affiliated person (other than a registered investment company) of
the Manager, any Sub-Adviser or any Administrator;
registration, filing and other fees in connection with
requirements of regulatory authorities;
the charges and expenses of any entity appointed by the Fund
for custodial, paying agent, shareholder servicing and plan agent services;
charges and expenses of independent accountants retained by the
Fund;
charges and expenses of any transfer agents and registrars
appointed by the Fund;
brokers' commissions and issue and transfer taxes chargeable to
the Fund in connection with securities transactions to which the Fund is a
party;
taxes and fees payable by the Fund to federal, state or other
governmental agencies;
<PAGE>
any cost of certificates representing shares of the Fund;
legal fees and expenses in connection with the affairs of the
Fund including registering and qualifying its shares with Federal and State
regulatory authorities;
expenses of meetings of shareholders and trustees of the Fund;
and
interest, including interest on borrowings by the Fund.
All activities undertaken by the Manager or any Sub-Adviser or
Administrator pursuant to this Agreement shall at all times be subject to the
supervision and control of the Board of Trustees of the Fund, any duly
constituted committee thereof or any officer of the Fund acting pursuant to like
authority.
The services to be provided by the Manager and any Sub-Adviser or
Administrator hereunder are not to be deemed exclusive and the Manager and any
Sub-Adviser or Administrator shall be free to render similar services to others,
so long as its services hereunder are not impaired thereby.
As full compensation for all services rendered, facilities furnished
and expenses borne by the Manager hereunder, the Fund shall pay the Manager
compensation at the annual rate of .70% of the first $200 million in average net
assets, .65% of the next $300 million in average net assets and .60% of the
excess over $500 million in average net assets. Such compensation shall be
payable monthly in arrears or at such other intervals, not less frequently than
quarterly, as the Board of Trustees of the Fund may from time to time determine
and specify in writing to the Manager. The Manager hereby acknowledges that the
Fund's obligation to pay such compensation is binding only on the assets and
property belonging to the Series.
If the total of all ordinary business expenses of the Fund as a whole
(including investment advisory fees but excluding taxes and portfolio brokerage
commissions) for any fiscal year exceeds the lowest applicable percentage of
average net assets or income limitations prescribed by any state in which shares
of the Series are qualified for sale, the Manager shall pay such excess. Solely
for purposes of applying such limitations in accordance with the foregoing
sentence, the Series and the Fund shall each be deemed to be a separate fund
subject to such limitations. Should the applicable state limitation provisions
fail to specify how the average net assets of the Fund or belonging to the
Series are to be calculated, that figure shall be calculated by reference to the
average daily net assets of the Fund or the Series, as the case may be.
It is understood that any of the shareholders, trustees, officers,
employees and agents of the Fund may be a shareholder, director, officer,
employee or agent of, or be otherwise interested in, the Manager, any affiliated
person of the
<PAGE>
Manager, any organization in which the Manager may have an interest or any
organization which may have an interest in the Manager; that the Manager, any
such affiliated person or any such organization may have an interest in the
Fund; and that the existence of any such dual interest shall not affect the
validity hereof or of any transactions hereunder except as otherwise provided in
the agreement and declaration of trust of the Fund, the articles of organization
of the Manager or specific provisions of applicable law.
This Agreement shall become effective as of the date of its
execution, and
unless otherwise terminated, this Agreement shall continue in
effect for two years from the date of execution, and from year to year
thereafter so long as such continuance is specifically approved at least
annually (i) by the Board of Trustees of the Fund or by vote of a majority
of the outstanding voting securities of the Series, and (ii) by vote of a
majority of the trustees of the Fund who are not interested persons of the
Fund or the Manager, cast in person at a meeting called for the purpose of
voting on, such approval;
this Agreement may at any time be terminated on sixty days'
written notice to the Manager either by vote of the Board of Trustees of
the Fund or by vote of a majority of the outstanding voting securities of
the Series;
this Agreement shall automatically terminate in the event of
its assignment;
this Agreement may be terminated by the Manager on ninety days'
written notice to the Fund;
if New England Securities Corporation, the Fund's principal
underwriter, requires the Fund or the Series to change its name so as to
eliminate all references to the words "New England" pursuant to the
provisions of the Fund's Distribution Agreement relating to the Series with
said principal underwriter, this Agreement shall automatically terminate at
the time of such change unless the continuance of this Agreement after such
change shall have been specifically approved by vote of a majority of the
outstanding voting securities of the Series and by vote of a majority of
the trustees of the Fund who are not interested persons of the Fund or the
Manager, cast in person at a meeting called for the purpose of voting on
such approval.
Termination of this Agreement pursuant to this section 10 shall be without
the payment of any penalty.
This Agreement may be amended at any time by mutual
<PAGE>
consent of the parties, provided that such consent on the part of the Fund shall
have been approved by vote of a majority of the outstanding voting securities of
the Series and by vote of a majority of the trustees of the Fund who are not
interested persons of the Fund or the Manager, cast in person at a meeting
called for the purpose of voting on such approval.
I. For the purpose of this Agreement, the terms "vote of a majority of
the outstanding voting securities," "interested person," "affiliated person" and
"assignment" shall have their respective meanings defined in the 1940 Act,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under the 1940 Act. References in this Agreement to any
assets, property or liabilities "belonging to" the Series shall have the meaning
defined in the Fund's agreement and declaration of trust as amended from time to
time.
I. In the absence of willful misfeasance, bad faith or gross negligence
on the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be subject to any liability to the Fund, to any
shareholder of the Fund or to any other person, firm or organization, for any
act or omission in the course of, or connected with, rendering services
hereunder.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
NEW ENGLAND ZENITH FUND, TNE ADVISERS, INC.
on behalf of its Westpeak Growth and
Income Series
By: By:
- ------------------------------------ ----------------------------------
John F. Guthrie, Jr. John F. Guthrie, Jr.
Senior Vice President Senior Vice President
<PAGE>
NOTICE
A copy of the Agreement and Declaration of Trust establishing New England
Zenith Fund (the "Fund") is on file with the Secretary of The Commonwealth of
Massachusetts, and notice is hereby given that this Agreement is executed with
respect to the Fund's Westpeak Growth and Income Series (the "Series") on behalf
of the Fund by officers of the Fund as officers and not individually and that
the obligations of or arising out of this Agreement are not binding upon any of
the trustees, officers or shareholders individually but are binding only upon
the assets and property belonging to the Series.
<PAGE>
NEW ENGLAND ZENITH FUND
ADVISORY AGREEMENT
(Westpeak Stock Index Series)
AGREEMENT made this 30th day of August, 1996 by and between NEW ENGLAND
ZENITH FUND, a Massachusetts business trust (the "Fund"), with respect to its
Westpeak Stock Index Series (the "Series"), and TNE ADVISERS, INC., a
Massachusetts corporation (the "Manager").
WITNESSETH:
WHEREAS, the Fund and the Manager wish to enter into an agreement setting
forth the terms upon which the Manager (or certain other parties acting pursuant
to delegation from the Manager) will perform certain services for the Series;
NOW THEREFORE, in consideration of the premises and covenants hereinafter
contained, the parties agree as follows:
A. The Fund hereby employs the Manager to furnish the Fund with
Portfolio Management Services (as defined in Section 2 hereof) and
Administrative Services (as defined in Section 3 hereof), subject to the
authority of the Manager to delegate any or all of its responsibilities
hereunder to other parties as provided in Sections 1(b) and (c) hereof. The
Manager hereby accepts such employment and agrees, at its own expense, to
furnish such services (either directly or pursuant to delegation to other
parties as permitted by Sections 1(b) and (c) hereof) and to assume the
obligations herein set forth, for the compensation herein provided. The
Manager shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent the Fund in any way or otherwise be
deemed an agent of the Fund.
A. The Manager may delegate any or all of its responsibilities
hereunder with respect to the provision of Portfolio Management Services
(and assumption of related expenses) to one or more other parties (each
such party, a "Sub-Adviser"), pursuant in each case to a written agreement
with such Sub-Adviser that meets the requirements of Section 15 of the
Investment Company Act of 1940 and the rules thereunder (the "1940 Act")
applicable to contracts for service as investment adviser of a registered
investment company (including without limitation the requirements for
approval by the trustees of the Fund and the shareholders of the Series),
subject, however, to such exemptions as may be granted by the Securities
and Exchange Commission. Any Sub-Adviser may (but need not) be affiliated
with the Manager. If different Sub-Advisers are engaged to provide
Portfolio Management Services with respect to different segments of the
portfolio of the Series, the Manager shall determine, in the manner
described in the prospectus of the Series from time to time in
- 1 -
<PAGE>
effect, what portion of the assets belonging to the Series shall be managed
by each Sub-Adviser.
B. The Manager may delegate any or all of its responsibilities
hereunder with respect to the provision of Administrative Services to one
or more other parties (each such party, an "Administrator") selected by the
Manager. Any Administrator may (but need not) be affiliated with the
Manager.
I. As used in this Agreement, "Portfolio Management Services" means
management of the investment and reinvestment of the assets belonging to
the Series, consisting specifically of the following:
A. obtaining and evaluating such economic, statistical and
financial data and information and undertaking such additional
investment research as shall be necessary or advisable for the
management of the investment and reinvestment of the assets
belonging to the Series in accordance with the Series' investment
objectives and policies;
A. taking such steps as are necessary to implement the
investment policies of the Series by purchasing and selling of
securities, including the placing of orders for such purchase and
sale; and
A. regularly reporting to the Board of Trustees of the Fund
with respect to the implementation of the investment policies of
the Series.
I. As used in this Agreement, "Administrative Services" means the
provision to the Fund, by or at the expense of the Manager, of the
following:
A. office space in such place or places as may be agreed upon
from time to time by the Fund and the Manager, and all necessary
office supplies, facilities and equipment;
A. necessary executive and other personnel for managing the
affairs of the Series, including personnel to perform clerical,
bookkeeping, accounting, stenographic and other office functions
(exclusive of those related to and to be performed under contract
for custodial, transfer, dividend and plan agency services by the
entity or entities selected to perform such services);
A. compensation, if any, of trustees of the Fund who are
directors, officers or employees of the Adviser, any Sub-Adviser or
any Administrator or of any affiliated person (other than a
registered investment company) of the Manager, any Sub-Adviser or
any Administrator;
A. all services, other than services of counsel, required in
connection with the preparation of registration statements and
prospectuses, including amendments and revisions thereto, all
annual, semiannual and periodic
<PAGE>
reports, and notices and proxy solicitation material furnished to
shareholders of the Fund or regulatory authorities, to the extent
that any such materials relate to the business of the Series, to
the shareholders thereof or otherwise to the Series, the Series to
be treated for these purposes as a separate legal entity and fund;
and
A. supervision and oversight of the Portfolio Management
Services provided by each Sub-Adviser, and oversight of all matters
relating to compliance by the Fund with applicable laws and with
the Fund's investment policies, restrictions and guidelines, if the
Manager has delegated to one or more Sub-Advisers any or all of its
responsibilities hereunder with respect to the provision of
Portfolio Management Services.
I. Nothing in section 3 hereof shall require the Manager to bear,
or to reimburse the Fund for:
A. any of the costs of printing and mailing the items referred
to in sub-section (d) of this section 3;
A. any of the costs of preparing, printing and distributing
sales literature;
A. compensation of trustees of the Fund who are not directors,
officers or employees of the Manager, any Sub-Adviser or any
Administrator or of any affiliated person (other than a registered
investment company) of the Manager, any Sub-Adviser or any
Administrator;
A. registration, filing and other fees in connection with
requirements of regulatory authorities;
A. the charges and expenses of any entity appointed by the
Fund for custodial, paying agent, shareholder servicing and plan
agent services;
A. charges and expenses of independent accountants retained by
the Fund;
A. charges and expenses of any transfer agents and registrars
appointed by the Fund;
A. brokers' commissions and issue and transfer taxes
chargeable to the Fund in connection with securities transactions
to which the Fund is a party;
A. taxes and fees payable by the Fund to federal, state or
other governmental agencies;
<PAGE>
A. any cost of certificates representing shares of the Fund;
B. legal fees and expenses in connection with the affairs of
the Fund including registering and qualifying its shares with
Federal and State regulatory authorities;
A. expenses of meetings of shareholders and trustees of the
Fund; and
A. interest, including interest on borrowings by the Fund.
I. All activities undertaken by the Manager or any Sub-Adviser or
Administrator pursuant to this Agreement shall at all times be subject to
the supervision and control of the Board of Trustees of the Fund, any duly
constituted committee thereof or any officer of the Fund acting pursuant to
like authority.
I. The services to be provided by the Manager and any Sub-Adviser or
Administrator hereunder are not to be deemed exclusive and the Manager and
any Sub-Adviser or Administrator shall be free to render similar services
to others, so long as its services hereunder are not impaired thereby.
I. As full compensation for all services rendered, facilities
furnished and expenses borne by the Manager hereunder, the Fund shall pay
the Manager compensation at the annual rate of .25% of average net assets.
Such compensation shall be payable monthly in arrears or at such other
intervals, not less frequently than quarterly, as the Board of Trustees of
the Fund may from time to time determine and specify in writing to the
Manager. The Manager hereby acknowledges that the Fund's obligation to pay
such compensation is binding only on the assets and property belonging to
the Series.
I. If the total of all ordinary business expenses of the Fund as a
whole (including investment advisory fees but excluding taxes and portfolio
brokerage commissions) for any fiscal year exceeds the lowest applicable
percentage of average net assets or income limitations prescribed by any
state in which shares of the Series are qualified for sale, the Manager
shall pay such excess. Solely for purposes of applying such limitations in
accordance with the foregoing sentence, the Series and the Fund shall each
be deemed to be a separate fund subject to such limitations. Should the
applicable state limitation provisions fail to specify how the average net
assets of the Fund or belonging to the Series are to be calculated, that
figure shall be calculated by reference to the average daily net assets of
the Fund or the Series, as the case may be.
I. It is understood that any of the shareholders, trustees, officers,
employees and agents of the Fund may be a shareholder, director, officer,
employee or agent of, or be otherwise interested in, the Manager, any
affiliated person of the Manager, any organization in which the Manager may
have an interest or any
<PAGE>
organization which may have an interest in the Manager; that the Manager,
any such affiliated person or any such organization may have an interest in
the Fund; and that the existence of any such dual interest shall not affect
the validity hereof or of any transactions hereunder except as otherwise
provided in the agreement and declaration of trust of the Fund, the
articles of organization of the Manager or specific provisions of
applicable law.
I. This Agreement shall become effective as of the date of its
execution, and
A. unless otherwise terminated, this Agreement shall continue
in effect for two years from the date of execution, and from year
to year thereafter so long as such continuance is specifically
approved at least annually (i) by the Board of Trustees of the Fund
or by vote of a majority of the outstanding voting securities of
the Series, and (ii) by vote of a majority of the trustees of the
Fund who are not interested persons of the Fund or the Manager,
cast in person at a meeting called for the purpose of voting on,
such approval;
A. this Agreement may at any time be terminated on sixty days'
written notice to the Manager either by vote of the Board of
Trustees of the Fund or by vote of a majority of the outstanding
voting securities of the Series;
A. this Agreement shall automatically terminate in the event
of its assignment;
A. this Agreement may be terminated by the Manager on ninety
days' written notice to the Fund;
A. if New England Securities Corporation, the Fund's principal
underwriter, requires the Fund or the Series to change its name so
as to eliminate all references to the words "New England" pursuant
to the provisions of the Fund's Distribution Agreement relating to
the Series with said principal underwriter, this Agreement shall
automatically terminate at the time of such change unless the
continuance of this Agreement after such change shall have been
specifically approved by vote of a majority of the outstanding
voting securities of the Series and by vote of a majority of the
trustees of the Fund who are not interested persons of the Fund or
the Manager, cast in person at a meeting called for the purpose of
voting on such approval.
Termination of this Agreement pursuant to this section 10 shall be
without the payment of any penalty.
I. This Agreement may be amended at any time by mutual
<PAGE>
consent of the parties, provided that such consent on the part of the Fund
shall have been approved by vote of a majority of the outstanding voting
securities of the Series and by vote of a majority of the trustees of the
Fund who are not interested persons of the Fund or the Manager, cast in
person at a meeting called for the purpose of voting on such approval.
I. For the purpose of this Agreement, the terms "vote of a majority of
the outstanding voting securities," "interested person," "affiliated
person" and "assignment" shall have their respective meanings defined in
the 1940 Act, subject, however, to such exemptions as may be granted by the
Securities and Exchange Commission under the 1940 Act. References in this
Agreement to any assets, property or liabilities "belonging to" the Series
shall have the meaning defined in the Fund's agreement and declaration of
trust as amended from time to time.
I. In the absence of willful misfeasance, bad faith or gross
negligence on the part of the Manager, or reckless disregard of its
obligations and duties hereunder, the Manager shall not be subject to any
liability to the Fund, to any shareholder of the Fund or to any other
person, firm or organization, for any act or omission in the course of, or
connected with, rendering services hereunder.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
NEW ENGLAND ZENITH FUND, TNE ADVISERS, INC.
on behalf of its Westpeak Stock Index
Series
By: /s/ John F. Guthrie By: /s/ John F. Guthrie
------------------------------ ------------------------
John F. Guthrie, Jr. John F. Guthrie, Jr.
Senior Vice President Senior Vice President
<PAGE>
NOTICE
A copy of the Agreement and Declaration of Trust establishing New England
Zenith Fund (the "Fund") is on file with the Secretary of The Commonwealth of
Massachusetts, and notice is hereby given that this Agreement is executed with
respect to the Fund's Westpeak Stock Index Series (the "Series") on behalf of
the Fund by officers of the Fund as officers and not individually and that the
obligations of or arising out of this Agreement are not binding upon any of the
trustees, officers or shareholders individually but are binding only upon the
assets and property belonging to the Series.
<PAGE>
ADVISORY AGREEMENT
(Loomis Sayles Balanced Series)
AGREEMENT made this 30th day of August, 1996 by and between NEW ENGLAND
ZENITH FUND, a Massachusetts business trust (the "Fund") with respect to its
Loomis Sayles Balanced Series (the "Series"), and TNE ADVISERS, INC., a
Massachusetts corporation (the "Manager").
WITNESSETH:
WHEREAS, the Fund and the Manager wish to enter into an agreement setting
forth the terms upon which the Manager (or certain other parties acting pursuant
to delegation from the Manager) will perform certain services for the Series;
NOW THEREFORE, in consideration of the premises and covenants hereinafter
contained, the parties agree as follows:
A. The Fund hereby employs the Manager to furnish the Fund with Portfolio
Management Services (as defined in Section 2 hereof) and Administrative Services
(as defined in Section 3 hereof), subject to the authority of the Manager to
delegate any or all of its responsibilities hereunder to other parties as
provided in Sections 1(b) and (c) hereof. The Manager hereby accepts such
employment and agrees, at its own expense, to furnish such services (either
directly or pursuant to delegation to other parties as permitted by Sections
1(b) and (c) hereof) and to assume the obligations herein set forth, for the
compensation herein provided. The Manager shall, unless otherwise expressly
provided or authorized, have no authority to act for or represent the Fund in
any way or otherwise be deemed an agent of the Fund.
A. The Manager may delegate any or all of its responsibilities hereunder
with respect to the provision of Portfolio Management Services (and assumption
of related expenses) to one or more other parties (each such party, a "Sub-
Adviser"), pursuant in each case to a written agreement with such Sub-Adviser
that meets the requirements of Section 15 of the Investment Company Act of 1940
and the rules thereunder (the "1940 Act") applicable to contracts for service as
investment adviser of a registered investment company (including without
limitation the requirements for approval by the trustees of the Fund and the
shareholders of the Series), subject, however, to such exemptions as may be
granted by the Securities and Exchange Commission. Any Sub-Adviser may (but
need not) be affiliated with the Manager. If different Sub-Advisers are engaged
to provide Portfolio Management Services with respect to different segments of
the portfolio of the Series, the Manager shall determine, in the manner
described in the prospectus of the Series from time to time in effect, what
portion of the assets belonging to the Series shall be managed by each Sub-
Adviser.
A. The Manager may delegate any or all of its responsibilities hereunder
with respect to the provision of Administrative Services to one or more other
parties (each such
-1-
<PAGE>
party, an "Administrator") selected by the Manager. Any
Administrator may (but need not) be affiliated with the Manager.
I. As used in this Agreement, "Portfolio Management Services" means
management of the investment and reinvestment of the assets belonging to the
Series, consisting specifically of the following:
A. obtaining and evaluating such economic, statistical and financial
data and information and undertaking such additional investment research as
shall be necessary or advisable for the management of the investment and
reinvestment of the assets belonging to the Series in accordance with the
Series' investment objectives and policies;
A. taking such steps as are necessary to implement the investment
policies of the Series by purchasing and selling of securities, including
the placing of orders for such purchase and sale; and
A. regularly reporting to the Board of Trustees of the Fund with
respect to the implementation of the investment policies of the Series.
I. As used in this Agreement, "Administrative Services" means the provision
to the Fund, by or at the expense of the Manager, of the following:
A. office space in such place or places as may be agreed upon from time
to time by the Fund and the Manager, and all necessary office supplies,
facilities and equipment;
A. necessary executive and other personnel for managing the affairs of
the Series, including personnel to perform clerical, bookkeeping,
accounting, stenographic and other office functions (exclusive of those
related to and to be performed under contract for custodial, transfer,
dividend and plan agency services by the entity or entities selected to
perform such services;
A. compensation, if any, of trustees of the Fund who are directors,
officers or employees of the Adviser, any Sub-Adviser or any Administrator
or of any affiliated person (other than a registered investment company) of
the Manager, any Sub-Adviser or any Administrator;
A. all services, other than services of counsel, required in connection
with the preparation of registration statements and prospectuses, including
amendments and revisions thereto, all annual, semiannual and periodic
reports, and notices and proxy solicitation material furnished to
shareholders of the Fund or regulatory authorities, to the extent that any
such materials relate to the business of the Series, to the shareholders
thereof or otherwise to the Series, the Series to be treated for these
purposes as a separate legal entity and fund; and
<PAGE>
A. supervision and oversight of the Portfolio Management Services
provided by each Sub-Adviser, and oversight of all matters relating to
compliance by the Fund with applicable laws and with the Fund's investment
policies, restrictions and guidelines, if the Manager has delegated to one
or more Sub-Advisers any or all of its responsibilities hereunder with
respect to the provision of Portfolio Management Services.
I. Nothing in section 3 hereof shall require the Manager to bear, or to
reimburse the Fund for:
A. any of the costs of printing and mailing the items referred to in
sub-section (d) of this section 3;
A. any of the costs of preparing, printing and distributing sales
literature;
A. compensation of trustees of the Fund who are not directors, officers
or employees of the Manager, any Sub-Adviser or any Administrator or of any
affiliated person (other than a registered investment company) of the
Manager, any Sub-Adviser or any Administrator;
A. registration, filing and other fees in connection with requirements
or regulatory authorities;
A. the charges and expenses of any entity appointed by the Fund for
custodial, paying agent, shareholder servicing and plan agent services;
A. charges and expenses of independent accountants retained by the
Fund;
A. charges and expenses of any transfer agents and registrars appointed
by the Fund ;
A. brokers' commissions and issue and transfer taxes chargeable to the
Fund in connection with securities transactions to which the Fund is a
party;
A. taxes and fees payable by Fund to federal, state or other
governmental agencies ;
A. any cost of certificates representing shares of the Fund;
B. legal fees and expenses in connection with the affairs of the Fund
including registering and qualifying its shares with Federal and State
regulatory authorities;
<PAGE>
A. expenses of meetings of shareholders and trustees of the Fund;
and
A. interest, including interest on borrowings by the Fund.
I. All activities undertaken by the Manager or any Sub-Adviser or
Administrator pursuant to this Agreement shall at all times be subject to the
supervision and control of the Board of Trustees of the Fund, any duly
constituted committee thereof or any officer of the Fund acting pursuant to like
authority.
I. The services to be provided by the Manager and any Sub-Adviser or
Administrator hereunder are not to be deemed exclusive and the Manager and any
Sub-Adviser or Administrator shall be free to render similar services to others,
so long as its services hereunder are not impaired thereby.
I. As full compensation for all services rendered, facilities furnished
and expenses borne by the Manager hereunder, the Fund shall pay the Manager
compensation at the annual rate of 0.70% of the Series' average daily net
assets. Such compensation shall be payable monthly in arrears or at such other
intervals, not less frequently than quarterly, as the Board of Trustees of the
Fund may from time to time determine and specify in writing to the Manager. The
Manager hereby acknowledges that the Fund's obligation to pay such compensation
is binding only on the assets and property belonging to the Series.
I. If the total of all ordinary business expenses of the Fund as a whole
(including investment advisory fees but excluding taxes and portfolio brokerage
commissions) for any fiscal year exceeds the lowest applicable percentage of
average net assets or income limitations prescribed by any state in which shares
of the Series are qualified for sale, the Manager shall pay such excess. Solely
for purposes of applying such limitations in accordance with the foregoing
sentence, the Series and the Fund shall each be deemed to be a separate fund
subject to such limitations. Should the applicable state limitation provisions
fail to specify how the average net assets of the Fund or belonging to the
Series are to be calculated, that figure shall be calculated by reference to the
average daily net assets of the Fund or the Series, as the case may be.
I. It is understood that any of the shareholders, trustees, officers,
employees and agents of the Fund may be a shareholder, director, officer,
employee or agent of, or be otherwise interested in, the Manager, any affiliated
person of the Manager, any organization in which the Manager may have an
interest or any organization which may have an interest in the Manager; that the
Manager, any such affiliated person or any such organization may have an
interest in the Fund; and that the existence of any such dual interest shall not
affect the validity hereof or of any transactions hereunder except as otherwise
provided in the agreement and declaration of trust of the Fund, the articles of
organization of the Manager or specific provisions of applicable law.
<PAGE>
I. This Agreement shall become effective as of the
date of its execution, and
A. unless otherwise terminated, this Agreement shall continue in
effect for two years from the date of execution, and from year to year
thereafter so long as such continuance is specifically approved at least
annually (i) by the Board of Trustees of the Fund or by vote of a majority
of the outstanding voting securities of the Series, and (ii) by vote of a
majority of the trustees of the Fund who are not interested persons of the
Fund or the Manager, cast in person at a meeting called for the purpose of
voting on, such approval;
A. this Agreement may at any time be terminated on sixty days'
written notice to the Manager either by vote of the Board of Trustees of
the Fund or by vote of a majority of the outstanding voting securities of
the Series;
A. this Agreement shall automatically terminate in the event of
its assignment;
A. this Agreement may be terminated by the Manager on ninety days'
written notice to the Fund;
A. if New England Securities Corporation, the Fund's principal
underwriter, requires the Fund or the Series to change its name so as to
eliminate all references to the words "New England" or the letters "TNE"
pursuant to the provisions of the Fund's Distribution Agreement relating to
the Series with said principal underwriter, this Agreement shall
automatically terminate at the time of such change unless the continuance
of this Agreement after such change shall have been specifically approved
by vote of a majority of the outstanding voting securities of the Series
and by vote of a majority of the trustees of the Fund who are not
interested persons of the Fund or the Manager, cast in person at a meeting
called for the purpose of voting on such approval.
Termination of this Agreement pursuant to this section 10 shall be without
the payment of any penalty.
I. This Agreement may be amended at any time by mutual consent of the
parties, provided that such consent on the part of the Fund shall have been
approved by vote of a majority of the outstanding voting securities of the
Series and by vote of a majority of the trustees of the Fund who are not
interested persons of the Fund or the Manager, cast in person at a meeting
called for the purpose of voting on such approval.
I. For the purpose of this Agreement, the terms "vote of a majority of
the outstanding voting securities," "interested person," "affiliated person" and
<PAGE>
"assignment" shall have their respective meanings defined in the 1940 Act,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under the 1940 Act. References in this Agreement to any
assets, property or liabilities "belonging to" the Series shall have the meaning
defined in the Fund's agreement and declaration of trust as amended from time to
time.
I. In the absence of willful misfeasance, bad faith or gross negligence on
the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be subject to any liability to the Fund, to any
shareholder of the Fund or to any other person, firm or organization, for any
act or omission in the course of, or connected with, rendering services
hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
NEW ENGLAND ZENITH FUND, on TNE ADVISERS, INC.
behalf of its Loomis Sayles
Balanced Series
By By
------------------------- ----------------------------
John F. Guthrie, Jr. John F. Guthrie, Jr.
Senior Vice President Senior Vice President
NOTICE
A copy of the Agreement and Declaration of Trust establishing New England
Zenith Fund (the "Fund") is on file with the Secretary of The Commonwealth of
Massachusetts, and notice is hereby given that this Agreement is executed with
respect to the Fund's Loomis Sayles Balanced Series (the "Series") on behalf of
the Fund by officers of the Fund as officers and not individually and that the
obligations of or arising out of this Agreement are not binding upon any of the
trustees, officers or shareholders individually but are binding only upon the
assets and property belonging to the Series.
<PAGE>
NEW ENGLAND ZENITH FUND
ADVISORY AGREEMENT
(Back Bay Advisors Managed Series)
AGREEMENT made this 30th day of August, 1996 by and between NEW ENGLAND
ZENITH FUND, a Massachusetts business trust (the "Fund"), with respect to its
Back Bay Advisors Managed Series (the "Series"), and TNE ADVISERS, INC., a
Massachusetts corporation (the "Manager").
WITNESSETH:
WHEREAS, the Fund and the Manager wish to enter into an agreement setting
forth the terms upon which the Manager (or certain other parties acting pursuant
to delegation from the Manager) will perform certain services for the Series;
NOW THEREFORE, in consideration of the premises and covenants hereinafter
contained, the parties agree as follows:
A. The Fund hereby employs the Manager to furnish the Fund with Portfolio
Management Services (as defined in Section 2 hereof) and Administrative Services
(as defined in Section 3 hereof), subject to the authority of the Manager to
delegate any or all of its responsibilities hereunder to other parties as
provided in Sections 1(b) and (c) hereof. The Manager hereby accepts such
employment and agrees, at its own expense, to furnish such services (either
directly or pursuant to delegation to other parties as permitted by Sections
1(b) and (c) hereof) and to assume the obligations herein set forth, for the
compensation herein provided. The Manager shall, unless otherwise expressly
provided or authorized, have no authority to act for or represent the Fund in
any way or otherwise be deemed an agent of the Fund.
A. The Manager may delegate any or all of its responsibilities hereunder
with respect to the provision of Portfolio Management Services (and assumption
of related expenses) to one or more other parties (each such party, a "Sub-
Adviser"), pursuant in each case to a written agreement with such Sub-Adviser
that meets the requirements of Section 15 of the Investment Company Act of 1940
and the rules thereunder (the "1940 Act") applicable to contracts for service as
investment adviser of a registered investment company (including without
limitation the requirements for approval by the trustees of the Fund and the
shareholders of the Series), subject, however, to such exemptions as may be
granted by the Securities and Exchange Commission. Any Sub-Adviser may (but
need not) be affiliated with the Manager. If different Sub-Advisers are engaged
to provide Portfolio Management Services with respect to different segments of
the portfolio of the Series, the Manager shall determine, in the manner
described in the prospectus of the Series from time to time in
<PAGE>
effect, what portion of the assets belonging to the Series shall be managed by
each Sub-Adviser.
B. The Manager may delegate any or all of its responsibilities hereunder
with respect to the provision of Administrative Services to one or more other
parties (each such party, an "Administrator") selected by the Manager. Any
Administrator may (but need not) be affiliated with the Manager.
I. As used in this Agreement, "Portfolio Management Services" means
management of the investment and reinvestment of the assets belonging to the
Series, consisting specifically of the following:
A. obtaining and evaluating such economic, statistical and
financial data and information and undertaking such additional investment
research as shall be necessary or advisable for the management of the
investment and reinvestment of the assets belonging to the Series in
accordance with the Series' investment objectives and policies;
A. taking such steps as are necessary to implement the investment
policies of the Series by purchasing and selling of securities, including
the placing of orders for such purchase and sale; and
A. regularly reporting to the Board of Trustees of the Fund with
respect to the implementation of the investment policies of the Series.
I. As used in this Agreement, "Administrative Services" means the
provision to the Fund, by or at the expense of the Manager, of the following:
A. office space in such place or places as may be agreed upon from
time to time by the Fund and the Manager, and all necessary office
supplies, facilities and equipment;
A. necessary executive and other personnel for managing the
affairs of the Series, including personnel to perform clerical,
bookkeeping, accounting, stenographic and other office functions (exclusive
of those related to and to be performed under contract for custodial,
transfer, dividend and plan agency services by the entity or entities
selected to perform such services);
A. compensation, if any, of trustees of the Fund who are
directors, officers or employees of the Adviser, any Sub-Adviser or any
Administrator or of any affiliated person (other than a registered
investment company) of the Manager, any Sub-Adviser or any Administrator;
A. all services, other than services of counsel, required in connection
with the preparation of registration statements and prospectuses, including
amendments and revisions thereto, all annual, semiannual and periodic
<PAGE>
reports, and notices and proxy solicitation material furnished to
shareholders of the Fund or regulatory authorities, to the extent that any
such materials relate to the business of the Series, to the shareholders
thereof or otherwise to the Series, the Series to be treated for these
purposes as a separate legal entity and fund; and
A. supervision and oversight of the Portfolio Management Services
provided by each Sub-Adviser, and oversight of all matters relating to
compliance by the Fund with applicable laws and with the Fund's investment
policies, restrictions and guidelines, if the Manager has delegated to one
or more Sub-Advisers any or all of its responsibilities hereunder with
respect to the provision of Portfolio Management Services.
I. Nothing in section 3 hereof shall require the Manager to bear, or to
reimburse the Fund for:
A. any of the costs of printing and mailing the items referred to
in sub-section (d) of this section 3;
A. any of the costs of preparing, printing and distributing sales
literature;
A. compensation of trustees of the Fund who are not directors,
officers or employees of the Manager, any Sub-Adviser or any Administrator
or of any affiliated person (other than a registered investment company) of
the Manager, any Sub-Adviser or any Administrator;
A. registration, filing and other fees in connection with
requirements of regulatory authorities;
A. the charges and expenses of any entity appointed by the Fund
for custodial, paying agent, shareholder servicing and plan agent services;
A. charges and expenses of independent accountants retained by the
Fund;
A. charges and expenses of any transfer agents and registrars
appointed by the Fund;
A. brokers' commissions and issue and transfer taxes chargeable to
the Fund in connection with securities transactions to which the Fund is a
party;
A. taxes and fees payable by the Fund to federal, state or other
governmental agencies;
<PAGE>
A. any cost of certificates representing shares of the Fund;
B. legal fees and expenses in connection with the affairs of the
Fund including registering and qualifying its shares with Federal and State
regulatory authorities;
A. expenses of meetings of shareholders and trustees of the Fund;
and
A. interest, including interest on borrowings by the Fund.
I. All activities undertaken by the Manager or any Sub-Adviser or
Administrator pursuant to this Agreement shall at all times be subject to the
supervision and control of the Board of Trustees of the Fund, any duly
constituted committee thereof or any officer of the Fund acting pursuant to like
authority.
I. The services to be provided by the Manager and any Sub-Adviser or
Administrator hereunder are not to be deemed exclusive and the Manager and any
Sub-Adviser or Administrator shall be free to render similar services to others,
so long as its services hereunder are not impaired thereby.
I. As full compensation for all services rendered, facilities furnished
and expenses borne by the Manager hereunder, the Fund shall pay the Manager
compensation at the annual rate of .50% of average net assets. Such compensation
shall be payable monthly in arrears or at such other intervals, not less
frequently than quarterly, as the Board of Trustees of the Fund may from time to
time determine and specify in writing to the Manager. The Manager hereby
acknowledges that the Fund's obligation to pay such compensation is binding only
on the assets and property belonging to the Series.
I. If the total of all ordinary business expenses of the Fund as a whole
(including investment advisory fees but excluding taxes and portfolio brokerage
commissions) for any fiscal year exceeds the lowest applicable percentage of
average net assets or income limitations prescribed by any state in which shares
of the Series are qualified for sale, the Manager shall pay such excess. Solely
for purposes of applying such limitations in accordance with the foregoing
sentence, the Series and the Fund shall each be deemed to be a separate fund
subject to such limitations. Should the applicable state limitation provisions
fail to specify how the average net assets of the Fund or belonging to the
Series are to be calculated, that figure shall be calculated by reference to the
average daily net assets of the Fund or the Series, as the case may be.
I. It is understood that any of the shareholders, trustees, officers,
employees and agents of the Fund may be a shareholder, director, officer,
employee or agent of, or be otherwise interested in, the Manager, any affiliated
person of the Manager, any organization in which the Manager may have an
interest or any
<PAGE>
organization which may have an interest in the Manager; that the
Manager, any such affiliated person or any such organization may have an
interest in the Fund; and that the existence of any such dual interest shall not
affect the validity hereof or of any transactions hereunder except as otherwise
provided in the agreement and declaration of trust of the Fund, the articles of
organization of the Manager or specific provisions of applicable law.
I. This Agreement shall become effective as of the date of its
execution, and
A. unless otherwise terminated, this Agreement shall continue in
effect for two years from the date of execution, and from year to year
thereafter so long as such continuance is specifically approved at least
annually (i) by the Board of Trustees of the Fund or by vote of a majority
of the outstanding voting securities of the Series, and (ii) by vote of a
majority of the trustees of the Fund who are not interested persons of the
Fund or the Manager, cast in person at a meeting called for the purpose of
voting on, such approval;
A. this Agreement may at any time be terminated on sixty days'
written notice to the Manager either by vote of the Board of Trustees of
the Fund or by vote of a majority of the outstanding voting securities of
the Series;
A. this Agreement shall automatically terminate in the event of
its assignment;
A. this Agreement may be terminated by the Manager on ninety days'
written notice to the Fund;
A. if New England Securities Corporation, the Fund's principal
underwriter, requires the Fund or the Series to change its name so as to
eliminate all references to the words "New England" pursuant to the
provisions of the Fund's Distribution Agreement relating to the Series with
said principal underwriter, this Agreement shall automatically terminate at
the time of such change unless the continuance of this Agreement after such
change shall have been specifically approved by vote of a majority of the
outstanding voting securities of the Series and by vote of a majority of
the trustees of the Fund who are not interested persons of the Fund or the
Manager, cast in person at a meeting called for the purpose of voting on
such approval.
Termination of this Agreement pursuant to this section 10 shall be without
the payment of any penalty.
I. This Agreement may be amended at any time by mutual
<PAGE>
consent of the parties, provided that such consent on the part of the Fund shall
have been approved by vote of a majority of the outstanding voting securities of
the Series and by vote of a majority of the trustees of the Fund who are not
interested persons of the Fund or the Manager, cast in person at a meeting
called for the purpose of voting on such approval.
I. For the purpose of this Agreement, the terms "vote of a majority of
the outstanding voting securities," "interested person," "affiliated person" and
"assignment" shall have their respective meanings defined in the 1940 Act,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under the 1940 Act. References in this Agreement to any
assets, property or liabilities "belonging to" the Series shall have the meaning
defined in the Fund's agreement and declaration of trust as amended from time to
time.
I. In the absence of willful misfeasance, bad faith or gross negligence
on the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be subject to any liability to the Fund, to any
shareholder of the Fund or to any other person, firm or organization, for any
act or omission in the course of, or connected with, rendering services
hereunder.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
NEW ENGLAND ZENITH FUND, TNE ADVISERS, INC.
on behalf of its Back Bay Advisors
Managed Series
By: By:
--------------------------- ---------------------------
John F. Guthrie, Jr. John F. Guthrie, Jr.
Senior Vice President Senior Vice President
<PAGE>
NOTICE
A copy of the Agreement and Declaration of Trust establishing New England
Zenith Fund (the "Fund") is on file with the Secretary of The Commonwealth of
Massachusetts, and notice is hereby given that this Agreement is executed with
respect to the Fund's Back Bay Advisors Managed Series (the "Series") on behalf
of the Fund by officers of the Fund as officers and not individually and that
the obligations of or arising out of this Agreement are not binding upon any of
the trustees, officers or shareholders individually but are binding only upon
the assets and property belonging to the Series.
<PAGE>
ADVISORY AGREEMENT
(Salomon Brothers Strategic Bond Opportunities Series)
AGREEMENT made this 30th day of August, 1996 by and between NEW ENGLAND
ZENITH FUND, a Massachusetts business trust (the "Fund") with respect to its
Salomon Brothers Strategic Bond Opportunities Series (the "Series"), and TNE
ADVISERS, INC., a Massachusetts corporation (the "Manager").
WITNESSETH:
WHEREAS, the Fund and the Manager wish to enter into an agreement setting
forth the terms upon which the Manager (or certain other parties acting pursuant
to delegation from the Manager) will perform certain services for the Series;
NOW THEREFORE, in consideration of the premises and covenants hereinafter
contained, the parties agree as follows:
A. The Fund hereby employs the Manager to furnish the Fund with
Portfolio Management Services (as defined in Section 2 hereof) and
Administrative Services (as defined in Section 3 hereof), subject to the
authority of the Manager to delegate any or all of its responsibilities
hereunder to other parties as provided in Sections 1(b) and (c) hereof. The
Manager hereby accepts such employment and agrees, at its own expense, to
furnish such services (either directly or pursuant to delegation to other
parties as permitted by Sections 1(b) and (c) hereof) and to assume the
obligations herein set forth, for the compensation herein provided. The Manager
shall, unless otherwise expressly provided or authorized, have no authority to
act for or represent the Fund in any way or otherwise be deemed an agent of the
Fund.
A. The Manager may delegate any or all of its responsibilities hereunder
with respect to the provision of Portfolio Management Services (and assumption
of related expenses) to one or more other parties (each such party, a "Sub-
Adviser"), pursuant in each case to a written agreement with such Sub-Adviser
that meets the requirements of Section 15 of the Investment Company Act of 1940
and the rules thereunder (the "1940 Act") applicable to contracts for service as
investment adviser of a registered investment company (including without
limitation the requirements for approval by the trustees of the Fund and the
shareholders of the Series), subject, however, to such exemptions as may be
granted by the Securities and Exchange Commission. Any Sub-Adviser may (but
need not) be affiliated with the Manager. If different Sub-Advisers are engaged
to provide Portfolio Management Services with respect to different segments of
the portfolio of the Series, the Manager shall determine, in the manner
described in the prospectus of the Series from time to time in effect, what
portion of the assets belonging to the Series shall be managed by each Sub-
Adviser.
A. The Manager may delegate any or all of its responsibilities hereunder
with respect to the provision of Administrative Services to one or more other
parties (each such
-1-
<PAGE>
party, an "Administrator") selected by the Manager. Any Administrator may (but
need not) be affiliated with the Manager.
I. As used in this Agreement, "Portfolio Management Services" means
management of the investment and reinvestment of the assets belonging to the
Series, consisting specifically of the following:
A. obtaining and evaluating such economic, statistical and
financial data and information and undertaking such additional investment
research as shall be necessary or advisable for the management of the
investment and reinvestment of the assets belonging to the Series in
accordance with the Series' investment objectives and policies;
A. taking such steps as are necessary to implement the investment
policies of the Series by purchasing and selling of securities, including
the placing of orders for such purchase and sale; and
A. regularly reporting to the Board of Trustees of the Fund with
respect to the implementation of the investment policies of the Series.
I. As used in this Agreement, "Administrative Services" means the
provision to the Fund, by or at the expense of the Manager, of the following:
A. office space in such place or places as may be agreed upon from
time to time by the Fund and the Manager, and all necessary office
supplies, facilities and equipment;
A. necessary executive and other personnel for managing the
affairs of the Series, including personnel to perform clerical,
bookkeeping, accounting, stenographic and other office functions (exclusive
of those related to and to be performed under contract for custodial,
transfer, dividend and plan agency services by the entity or entities
selected to perform such services;
A. compensation, if any, of trustees of the Fund who are
directors, officers or employees of the Adviser, any Sub-Adviser or any
Administrator or of any affiliated person (other than a registered
investment company) of the Manager, any Sub-Adviser or any Administrator;
A. all services, other than services of counsel, required in
connection with the preparation of registration statements and
prospectuses, including amendments and revisions thereto, all annual,
semiannual and periodic reports, and notices and proxy solicitation
material furnished to shareholders of the Fund or regulatory authorities,
to the extent that any such materials relate to the business of the Series,
to the shareholders thereof or otherwise to the Series, the Series to be
treated for these purposes as a separate legal entity and fund; and
<PAGE>
A. supervision and oversight of the Portfolio Management Services
provided by each Sub-Adviser, and oversight of all matters relating to
compliance by the Fund with applicable laws and with the Fund's investment
policies, restrictions and guidelines, if the Manager has delegated to one
or more Sub-Advisers any or all of its responsibilities hereunder with
respect to the provision of Portfolio Management Services.
I. Nothing in section 3 hereof shall require the Manager to bear, or to
reimburse the Fund for:
A. any of the costs of printing and mailing the items referred to
in sub-section (d) of this section 3;
A. any of the costs of preparing, printing and distributing sales
literature;
A. compensation of trustees of the Fund who are not directors,
officers or employees of the Manager, any Sub-Adviser or any Administrator
or of any affiliated person (other than a registered investment company) of
the Manager, any Sub-Adviser or any Administrator;
A. registration, filing and other fees in connection with
requirements or regulatory authorities;
A. the charges and expenses of any entity appointed by the Fund
for custodial, paying agent, shareholder servicing and plan agent services;
A. charges and expenses of independent accountants retained by
the Fund;
A. charges and expenses of any transfer agents and registrars
appointed by the Fund;
A. brokers' commissions and issue and transfer taxes chargeable to
the Fund in connection with securities transactions to which the Fund is a
party;
A. taxes and fees payable by Fund to federal, state or other
governmental agencies;
A. any cost of certificates representing shares of the Fund;
B. legal fees and expenses in connection with the affairs of the
Fund including registering and qualifying its shares with Federal and State
regulatory authorities;
<PAGE>
A. expenses of meetings of shareholders and trustees of the Fund;
and
A. interest, including interest on borrowings by the Fund.
I. All activities undertaken by the Manager or any Sub-Adviser or
Administrator pursuant to this Agreement shall at all times be subject to the
supervision and control of the Board of Trustees of the Fund, any duly
constituted committee thereof or any officer of the Fund acting pursuant to like
authority.
I. The services to be provided by the Manager and any Sub-Adviser or
Administrator hereunder are not to be deemed exclusive and the Manager and any
Sub-Adviser or Administrator shall be free to render similar services to others,
so long as its services hereunder are not impaired thereby.
I. As full compensation for all services rendered, facilities furnished
and expenses borne by the Manager hereunder, the Fund shall pay the Manager
compensation at the annual rate of 0.65% of the Series' average daily net
assets. Such compensation shall be payable monthly in arrears or at such other
intervals, not less frequently than quarterly, as the Board of Trustees of the
Fund may from time to time determine and specify in writing to the Manager. The
Manager hereby acknowledges that the Fund's obligation to pay such compensation
is binding only on the assets and property belonging to the Series.
I. If the total of all ordinary business expenses of the Fund as a whole
(including investment advisory fees but excluding taxes and portfolio brokerage
commissions) for any fiscal year exceeds the lowest applicable percentage of
average net assets or income limitations prescribed by any state in which shares
of the Series are qualified for sale, the Manager shall pay such excess. Solely
for purposes of applying such limitations in accordance with the foregoing
sentence, the Series and the Fund shall each be deemed to be a separate fund
subject to such limitations. Should the applicable state limitation provisions
fail to specify how the average net assets of the Fund or belonging to the
Series are to be calculated, that figure shall be calculated by reference to the
average daily net assets of the Fund or the Series, as the case may be.
I. It is understood that any of the shareholders, trustees, officers,
employees and agents of the Fund may be a shareholder, director, officer,
employee or agent of, or be otherwise interested in, the Manager, any affiliated
person of the Manager, any organization in which the Manager may have an
interest or any organization which may have an interest in the Manager; that the
Manager, any such affiliated person or any such organization may have an
interest in the Fund; and that the existence of any such dual interest shall not
affect the validity hereof or of any transactions hereunder except as otherwise
provided in the agreement and declaration of trust of the Fund, the articles of
organization of the Manager or specific provisions of applicable law.
<PAGE>
I. This Agreement shall become effective as of the
date of its execution, and
A. unless otherwise terminated, this Agreement shall continue in
effect for two years from the date of execution, and from year to year
thereafter so long as such continuance is specifically approved at least
annually (i) by the Board of Trustees of the Fund or by vote of a majority
of the outstanding voting securities of the Series, and (ii) by vote of a
majority of the trustees of the Fund who are not interested persons of the
Fund or the Manager, cast in person at a meeting called for the purpose of
voting on, such approval;
A. this Agreement may at any time be terminated on sixty days'
written notice to the Manager either by vote of the Board of Trustees of
the Fund or by vote of a majority of the outstanding voting securities of
the Series;
A. this Agreement shall automatically terminate in the event of
its assignment;
A. this Agreement may be terminated by the Manager on ninety days'
written notice to the Fund;
A. if New England Securities Corporation, the Fund's principal
underwriter, requires the Fund or the Series to change its name so as to
eliminate all references to the words "New England" or the letters "TNE"
pursuant to the provisions of the Fund's Distribution Agreement relating to
the Series with said principal underwriter, this Agreement shall
automatically terminate at the time of such change unless the continuance
of this Agreement after such change shall have been specifically approved
by vote of a majority of the outstanding voting securities of the Series
and by vote of a majority of the trustees of the Fund who are not
interested persons of the Fund or the Manager, cast in person at a meeting
called for the purpose of voting on such approval.
Termination of this Agreement pursuant to this section 10 shall be without
the payment of any penalty.
I. This Agreement may be amended at any time by mutual consent of the
parties, provided that such consent on the part of the Fund shall have been
approved by vote of a majority of the outstanding voting securities of the
Series and by vote of a majority of the trustees of the Fund who are not
interested persons of the Fund or the Manager, cast in person at a meeting
called for the purpose of voting on such approval.
I. For the purpose of this Agreement, the terms "vote of a majority of
the outstanding voting securities," "interested person," "affiliated person" and
<PAGE>
"assignment" shall have their respective meanings defined in the 1940 Act,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under the 1940 Act. References in this Agreement to any
assets, property or liabilities "belonging to" the Series shall have the meaning
defined in the Fund's agreement and declaration of trust as amended from time to
time.
I. In the absence of willful misfeasance, bad faith or gross negligence
on the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be subject to any liability to the Fund, to any
shareholder of the Fund or to any other person, firm or organization, for any
act or omission in the course of, or connected with, rendering services
hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
NEW ENGLAND ZENITH FUND, on TNE ADVISERS, INC.
behalf of its Salomon Brothers
Strategic Bond Opportunities
Series
By By
------------------------- ----------------------------
John F. Guthrie, Jr. John F. Guthrie, Jr.
Senior Vice President Senior Vice President
NOTICE
A copy of the Agreement and Declaration of Trust establishing New England
Zenith Fund (the "Fund") is on file with the Secretary of The Commonwealth of
Massachusetts, and notice is hereby given that this Agreement is executed with
respect to the Fund's Salomon Brothers Strategic Bond Opportunities Series (the
"Series") on behalf of the Fund by officers of the Fund as officers and not
individually and that the obligations of or arising out of this Agreement are
not binding upon any of the trustees, officers or shareholders individually but
are binding only upon the assets and property belonging to the Series.
<PAGE>
NEW ENGLAND ZENITH FUND
ADVISORY AGREEMENT
(Back Bay Advisors Bond Income Series)
AGREEMENT made this 30th day of August, 1996 by and between NEW ENGLAND
ZENITH FUND, a Massachusetts business trust (the "Fund"), with respect to its
Back Bay Advisors Bond Income Series (the "Series"), and TNE ADVISERS, INC., a
Massachusetts corporation (the "Manager").
WITNESSETH:
WHEREAS, the Fund and the Manager wish to enter into an agreement setting
forth the terms upon which the Manager (or certain other parties acting pursuant
to delegation from the Manager) will perform certain services for the Series;
NOW THEREFORE, in consideration of the premises and covenants hereinafter
contained, the parties agree as follows:
A. The Fund hereby employs the Manager to furnish the Fund with
Portfolio Management Services (as defined in Section 2 hereof) and
Administrative Services (as defined in Section 3 hereof), subject to the
authority of the Manager to delegate any or all of its responsibilities
hereunder to other parties as provided in Sections 1(b) and (c) hereof. The
Manager hereby accepts such employment and agrees, at its own expense, to
furnish such services (either directly or pursuant to delegation to other
parties as permitted by Sections 1(b) and (c) hereof) and to assume the
obligations herein set forth, for the compensation herein provided. The Manager
shall, unless otherwise expressly provided or authorized, have no authority to
act for or represent the Fund in any way or otherwise be deemed an agent of the
Fund.
A. The Manager may delegate any or all of its responsibilities hereunder
with respect to the provision of Portfolio Management Services (and assumption
of related expenses) to one or more other parties (each such party, a "Sub-
Adviser"), pursuant in each case to a written agreement with such Sub-Adviser
that meets the requirements of Section 15 of the Investment Company Act of 1940
and the rules thereunder (the "1940 Act") applicable to contracts for service as
investment adviser of a registered investment company (including without
limitation the requirements for approval by the trustees of the Fund and the
shareholders of the Series), subject, however, to such exemptions as may be
granted by the Securities and Exchange Commission. Any Sub-Adviser may (but need
not) be affiliated with the Manager. If different Sub-Advisers are engaged to
provide Portfolio Management Services with respect to different segments of the
portfolio of the Series, the Manager shall determine, in the manner described in
the prospectus of the Series from time to time in
-1-
<PAGE>
effect, what portion of the assets belonging to the Series shall be managed by
each Sub-Adviser.
B. The Manager may delegate any or all of its responsibilities hereunder
with respect to the provision of Administrative Services to one or more other
parties (each such party, an "Administrator") selected by the Manager. Any
Administrator may (but need not) be affiliated with the Manager.
I. As used in this Agreement, "Portfolio Management Services" means
management of the investment and reinvestment of the assets belonging to the
Series, consisting specifically of the following:
A. obtaining and evaluating such economic, statistical and
financial data and information and undertaking such additional investment
research as shall be necessary or advisable for the management of the
investment and reinvestment of the assets belonging to the Series in
accordance with the Series' investment objectives and policies;
A. taking such steps as are necessary to implement the investment
policies of the Series by purchasing and selling of securities, including
the placing of orders for such purchase and sale; and
A. regularly reporting to the Board of Trustees of the Fund with
respect to the implementation of the investment policies of the Series.
I. As used in this Agreement, "Administrative Services" means the
provision to the Fund, by or at the expense of the Manager, of the following:
A. office space in such place or places as may be agreed upon from
time to time by the Fund and the Manager, and all necessary office
supplies, facilities and equipment;
A. necessary executive and other personnel for managing the
affairs of the Series, including personnel to perform clerical,
bookkeeping, accounting, stenographic and other office functions (exclusive
of those related to and to be performed under contract for custodial,
transfer, dividend and plan agency services by the entity or entities
selected to perform such services);
A. compensation, if any, of trustees of the Fund who are
directors, officers or employees of the Adviser, any Sub-Adviser or any
Administrator or of any affiliated person (other than a registered
investment company) of the Manager, any Sub-Adviser or any Administrator;
A. all services, other than services of counsel, required in
connection with the preparation of registration statements and
prospectuses, including amendments and revisions thereto, all annual,
semiannual and periodic
<PAGE>
reports, and notices and proxy solicitation material furnished to
shareholders of the Fund or regulatory authorities, to the extent that any
such materials relate to the business of the Series, to the shareholders
thereof or otherwise to the Series, the Series to be treated for these
purposes as a separate legal entity and fund; and
A. supervision and oversight of the Portfolio Management Services
provided by each Sub-Adviser, and oversight of all matters relating to
compliance by the Fund with applicable laws and with the Fund's investment
policies, restrictions and guidelines, if the Manager has delegated to one
or more Sub-Advisers any or all of its responsibilities hereunder with
respect to the provision of Portfolio Management Services.
I. Nothing in section 3 hereof shall require the Manager to bear, or to
reimburse the Fund for:
A. any of the costs of printing and mailing the items referred to
in sub-section (d) of this section 3;
A. any of the costs of preparing, printing and distributing sales
literature;
A. compensation of trustees of the Fund who are not directors,
officers or employees of the Manager, any Sub-Adviser or any Administrator
or of any affiliated person (other than a registered investment company) of
the Manager, any Sub-Adviser or any Administrator;
A. registration, filing and other fees in connection with
requirements of regulatory authorities;
A. the charges and expenses of any entity appointed by the Fund
for custodial, paying agent, shareholder servicing and plan agent services;
A. charges and expenses of independent accountants retained by the
Fund;
A. charges and expenses of any transfer agents and registrars
appointed by the Fund;
A. brokers' commissions and issue and transfer taxes chargeable to
the Fund in connection with securities transactions to which the Fund is a
party;
A. taxes and fees payable by the Fund to federal, state or other
governmental agencies;
<PAGE>
A. any cost of certificates representing shares of the Fund;
B. legal fees and expenses in connection with the affairs of the
Fund including registering and qualifying its shares with Federal and State
regulatory authorities;
A. expenses of meetings of shareholders and trustees of the Fund;
and
A. interest, including interest on borrowings by the Fund.
I. All activities undertaken by the Manager or any Sub-Adviser or
Administrator pursuant to this Agreement shall at all times be subject to the
supervision and control of the Board of Trustees of the Fund, any duly
constituted committee thereof or any officer of the Fund acting pursuant to like
authority.
I. The services to be provided by the Manager and any Sub-Adviser or
Administrator hereunder are not to be deemed exclusive and the Manager and any
Sub-Adviser or Administrator shall be free to render similar services to others,
so long as its services hereunder are not impaired thereby.
I. As full compensation for all services rendered, facilities furnished
and expenses borne by the Manager hereunder, the Fund shall pay the Manager
compensation at the annual rate of .40% of the first $400 million in average net
assets, .35% of the next $300 million in average net assets, .30% of the next
$300 million in average net assets and .25% of the excess over $1 billion in
average net assets. Such compensation shall be payable monthly in arrears or at
such other intervals, not less frequently than quarterly, as the Board of
Trustees of the Fund may from time to time determine and specify in writing to
the Manager. The Manager hereby acknowledges that the Fund's obligation to pay
such compensation is binding only on the assets and property belonging to the
Series.
I. If the total of all ordinary business expenses of the Fund as a whole
(including investment advisory fees but excluding taxes and portfolio brokerage
commissions) for any fiscal year exceeds the lowest applicable percentage of
average net assets or income limitations prescribed by any state in which shares
of the Series are qualified for sale, the Manager shall pay such excess. Solely
for purposes of applying such limitations in accordance with the foregoing
sentence, the Series and the Fund shall each be deemed to be a separate fund
subject to such limitations. Should the applicable state limitation provisions
fail to specify how the average net assets of the Fund or belonging to the
Series are to be calculated, that figure shall be calculated by reference to the
average daily net assets of the Fund or the Series, as the case may be.
I. It is understood that any of the shareholders, trustees, officers,
employees and agents of the Fund may be a shareholder, director, officer,
employee or
<PAGE>
agent of, or be otherwise interested in, the Manager, any affiliated person of
the Manager, any organization in which the Manager may have an interest or any
organization which may have an interest in the Manager; that the Manager, any
such affiliated person or any such organization may have an interest in the
Fund; and that the existence of any such dual interest shall not affect the
validity hereof or of any transactions hereunder except as otherwise provided in
the agreement and declaration of trust of the Fund, the articles of organization
of the Manager or specific provisions of applicable law.
I. This Agreement shall become effective as of the date of its
execution, and
A. unless otherwise terminated, this Agreement shall continue in
effect for two years from the date of execution, and from year to year
thereafter so long as such continuance is specifically approved at least
annually (i) by the Board of Trustees of the Fund or by vote of a majority
of the outstanding voting securities of the Series, and (ii) by vote of a
majority of the trustees of the Fund who are not interested persons of the
Fund or the Manager, cast in person at a meeting called for the purpose of
voting on, such approval;
A. this Agreement may at any time be terminated on sixty days'
written notice to the Manager either by vote of the Board of Trustees of
the Fund or by vote of a majority of the outstanding voting securities of
the Series;
A. this Agreement shall automatically terminate in the event of
its assignment;
A. this Agreement may be terminated by the Manager on ninety days'
written notice to the Fund;
A. if New England Securities Corporation, the Fund's principal
underwriter, requires the Fund or the Series to change its name so as to
eliminate all references to the words "New England" pursuant to the
provisions of the Fund's Distribution Agreement relating to the Series with
said principal underwriter, this Agreement shall automatically terminate at
the time of such change unless the continuance of this Agreement after such
change shall have been specifically approved by vote of a majority of the
outstanding voting securities of the Series and by vote of a majority of
the trustees of the Fund who are not interested persons of the Fund or the
Manager, cast in person at a meeting called for the purpose of voting on
such approval.
Termination of this Agreement pursuant to this section 10 shall be without
the payment of any penalty.
<PAGE>
I. This Agreement may be amended at any time by mutual consent of
the parties, provided that such consent on the part of the Fund shall have been
approved by vote of a majority of the outstanding voting securities of the
Series and by vote of a majority of the trustees of the Fund who are not
interested persons of the Fund or the Manager, cast in person at a meeting
called for the purpose of voting on such approval.
I. For the purpose of this Agreement, the terms "vote of a
majority of the outstanding voting securities," "interested person," "affiliated
person" and "assignment" shall have their respective meanings defined in the
1940 Act, subject, however, to such exemptions as may be granted by the
Securities and Exchange Commission under the 1940 Act. References in this
Agreement to any assets, property or liabilities "belonging to" the Series shall
have the meaning defined in the Fund's agreement and declaration of trust as
amended from time to time.
I. In the absence of willful misfeasance, bad faith or gross
negligence on the part of the Manager, or reckless disregard of its obligations
and duties hereunder, the Manager shall not be subject to any liability to the
Fund, to any shareholder of the Fund or to any other person, firm or
organization, for any act or omission in the course of, or connected with,
rendering services hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
NEW ENGLAND ZENITH FUND, TNE ADVISERS, INC.
on behalf of its Back Bay Advisors
Bond Income Series
By: By:
- ------------------------------------ ------------------------------------
John F. Guthrie, Jr. John F. Guthrie, Jr.
Senior Vice President Senior Vice President
<PAGE>
NOTICE
A copy of the Agreement and Declaration of Trust establishing New England
Zenith Fund (the "Fund") is on file with the Secretary of The Commonwealth of
Massachusetts, and notice is hereby given that this Agreement is executed with
respect to the Fund's Back Bay Advisors Bond Income Series (the "Series") on
behalf of the Fund by officers of the Fund as officers and not individually and
that the obligations of or arising out of this Agreement are not binding upon
any of the trustees, officers or shareholders individually but are binding only
upon the assets and property belonging to the Series.
<PAGE>
ADVISORY AGREEMENT
(Salomon Brothers U.S. Government Series)
AGREEMENT made this 30th day of August, 1996 by and between NEW ENGLAND
ZENITH FUND, a Massachusetts business trust (the "Fund") with respect to its
Salomon Brothers U.S. Government Series (the "Series"), and TNE ADVISERS, INC.,
a Massachusetts corporation (the "Manager").
WITNESSETH:
WHEREAS, the Fund and the Manager wish to enter into an agreement setting
forth the terms upon which the Manager (or certain other parties acting pursuant
to delegation from the Manager) will perform certain services for the Series;
NOW THEREFORE, in consideration of the premises and covenants hereinafter
contained, the parties agree as follows:
A. The Fund hereby employs the Manager to furnish the Fund with Portfolio
Management Services (as defined in Section 2 hereof) and Administrative Services
(as defined in Section 3 hereof), subject to the authority of the Manager to
delegate any or all of its responsibilities hereunder to other parties as
provided in Sections 1(b) and (c) hereof. The Manager hereby accepts such
employment and agrees, at its own expense, to furnish such services (either
directly or pursuant to delegation to other parties as permitted by Sections
1(b) and (c) hereof) and to assume the obligations herein set forth, for the
compensation herein provided. The Manager shall, unless otherwise expressly
provided or authorized, have no authority to act for or represent the Fund in
any way or otherwise be deemed an agent of the Fund.
A. The Manager may delegate any or all of its responsibilities hereunder
with respect to the provision of Portfolio Management Services (and assumption
of related expenses) to one or more other parties (each such party, a "Sub-
Adviser"), pursuant in each case to a written agreement with such Sub-Adviser
that meets the requirements of Section 15 of the Investment Company Act of 1940
and the rules thereunder (the "1940 Act") applicable to contracts for service as
investment adviser of a registered investment company (including without
limitation the requirements for approval by the trustees of the Fund and the
shareholders of the Series), subject, however, to such exemptions as may be
granted by the Securities and Exchange Commission. Any Sub-Adviser may (but
need not) be affiliated with the Manager. If different Sub-Advisers are engaged
to provide Portfolio Management Services with respect to different segments of
the portfolio of the Series, the Manager shall determine, in the manner
described in the prospectus of the Series from time to time in effect, what
portion of the assets belonging to the Series shall be managed by each Sub-
Adviser.
A. The Manager may delegate any or all of its responsibilities hereunder
with respect to the provision of Administrative Services to one or more other
parties (each such
-1-
<PAGE>
party, an "Administrator") selected by the Manager. Any Administrator may (but
need not) be affiliated with the Manager.
I. As used in this Agreement, "Portfolio Management Services" means
management of the investment and reinvestment of the assets belonging to the
Series, consisting specifically of the following:
A. obtaining and evaluating such economic, statistical and
financial data and information and undertaking such additional
investment research as shall be necessary or advisable for the
management of the investment and reinvestment of the assets belonging to
the Series in accordance with the Series' investment objectives and
policies;
A. taking such steps as are necessary to implement the investment
policies of the Series by purchasing and selling of securities,
including the placing of orders for such purchase and sale; and
A. regularly reporting to the Board of Trustees of the Fund with
respect to the implementation of the investment policies of the Series.
I. As used in this Agreement, "Administrative Services" means the provision
to the Fund, by or at the expense of the Manager, of the following:
A. office space in such place or places as may be agreed upon from
time to time by the Fund and the Manager, and all necessary office
supplies, facilities and equipment;
A. necessary executive and other personnel for managing the affairs
of the Series, including personnel to perform clerical, bookkeeping,
accounting, stenographic and other office functions (exclusive of those
related to and to be performed under contract for custodial, transfer,
dividend and plan agency services by the entity or entities selected to
perform such services;
A. compensation, if any, of trustees of the Fund who are directors,
officers or employees of the Adviser, any Sub-Adviser or any
Administrator or of any affiliated person (other than a registered
investment company) of the Manager, any Sub-Adviser or any
Administrator;
A. all services, other than services of counsel, required in
connection with the preparation of registration statements and
prospectuses, including amendments and revisions thereto, all annual,
semiannual and periodic reports, and notices and proxy solicitation
material furnished to shareholders of the Fund or regulatory
authorities, to the extent that any such materials relate to the
business of the Series, to the shareholders thereof or otherwise to the
Series, the Series to be treated for these purposes as a separate legal
entity and fund; and
<PAGE>
A. supervision and oversight of the Portfolio Management Services
provided by each Sub-Adviser, and oversight of all matters relating to
compliance by the Fund with applicable laws and with the Fund's
investment policies, restrictions and guidelines, if the Manager has
delegated to one or more Sub-Advisers any or all of its responsibilities
hereunder with respect to the provision of Portfolio Management
Services.
I. Nothing in section 3 hereof shall require the Manager to bear, or to
reimburse the Fund for:
A. any of the costs of printing and mailing the items referred to
in sub-section (d) of this section 3;
A. any of the costs of preparing, printing and distributing sales
literature;
A. compensation of trustees of the Fund who are not directors,
officers or employees of the Manager, any Sub-Adviser or any
Administrator or of any affiliated person (other than a registered
investment company) of the Manager, any Sub-Adviser or any
Administrator;
A. registration, filing and other fees in connection with
requirements or regulatory authorities;
A. the charges and expenses of any entity appointed by the Fund for
custodial, paying agent, shareholder servicing and plan agent services;
A. charges and expenses of independent accountants retained by the
Fund;
A. charges and expenses of any transfer agents and registrars
appointed by the Fund;
A. brokers' commissions and issue and transfer taxes chargeable to
the Fund in connection with securities transactions to which the Fund is
a party;
A. taxes and fees payable by Fund to federal, state or other
governmental agencies;
A. any cost of certificates representing shares of the Fund;
B. legal fees and expenses in connection with the affairs of the
Fund including registering and qualifying its shares with Federal and
State regulatory authorities;
<PAGE>
A. expenses of meetings of shareholders and trustees of the Fund;
and
A. interest, including interest on borrowings by the Fund.
I. All activities undertaken by the Manager or any Sub-Adviser or
Administrator pursuant to this Agreement shall at all times be subject to the
supervision and control of the Board of Trustees of the Fund, any duly
constituted committee thereof or any officer of the Fund acting pursuant to like
authority.
I. The services to be provided by the Manager and any Sub-Adviser or
Administrator hereunder are not to be deemed exclusive and the Manager and any
Sub-Adviser or Administrator shall be free to render similar services to others,
so long as its services hereunder are not impaired thereby.
I. As full compensation for all services rendered, facilities furnished and
expenses borne by the Manager hereunder, the Fund shall pay the Manager
compensation at the annual rate of 0.55% of the Series' average daily net
assets. Such compensation shall be payable monthly in arrears or at such other
intervals, not less frequently than quarterly, as the Board of Trustees of the
Fund may from time to time determine and specify in writing to the Manager.
The Manager hereby acknowledges that the Fund's obligation to pay such
compensation is binding only on the assets and property belonging to the Series.
I. If the total of all ordinary business expenses of the Fund as a whole
(including investment advisory fees but excluding taxes and portfolio brokerage
commissions) for any fiscal year exceeds the lowest applicable percentage of
average net assets or income limitations prescribed by any state in which shares
of the Series are qualified for sale, the Manager shall pay such excess. Solely
for purposes of applying such limitations in accordance with the foregoing
sentence, the Series and the Fund shall each be deemed to be a separate fund
subject to such limitations. Should the applicable state limitation provisions
fail to specify how the average net assets of the Fund or belonging to the
Series are to be calculated, that figure shall be calculated by reference to the
average daily net assets of the Fund or the Series, as the case may be.
I. It is understood that any of the shareholders, trustees, officers,
employees and agents of the Fund may be a shareholder, director, officer,
employee or agent of, or be otherwise interested in, the Manager, any affiliated
person of the Manager, any organization in which the Manager may have an
interest or any organization which may have an interest in the Manager; that the
Manager, any such affiliated person or any such organization may have an
interest in the Fund; and that the existence of any such dual interest shall not
affect the validity hereof or of any transactions hereunder except as otherwise
provided in the agreement and declaration of trust of the Fund, the articles of
organization of the Manager or specific provisions of applicable law.
<PAGE>
I. This Agreement shall become effective as of the date of its execution,
and
A. unless otherwise terminated, this Agreement shall continue in
effect for two years from the date of execution, and from year to year
thereafter so long as such continuance is specifically approved at least
annually (i) by the Board of Trustees of the Fund or by vote of a
majority of the outstanding voting securities of the Series, and (ii) by
vote of a majority of the trustees of the Fund who are not interested
persons of the Fund or the Manager, cast in person at a meeting called
for the purpose of voting on, such approval;
A. this Agreement may at any time be terminated on sixty days'
written notice to the Manager either by vote of the Board of Trustees of
the Fund or by vote of a majority of the outstanding voting securities
of the Series;
A. this Agreement shall automatically terminate in the event of its
assignment;
A. this Agreement may be terminated by the Manager on ninety days'
written notice to the Fund;
A. if New England Securities Corporation, the Fund's principal
underwriter, requires the Fund or the Series to change its name so as to
eliminate all references to the words "New England" or the letters "TNE"
pursuant to the provisions of the Fund's Distribution Agreement relating
to the Series with said principal underwriter, this Agreement shall
automatically terminate at the time of such change unless the
continuance of this Agreement after such change shall have been
specifically approved by vote of a majority of the outstanding voting
securities of the Series and by vote of a majority of the trustees of
the Fund who are not interested persons of the Fund or the Manager, cast
in person at a meeting called for the purpose of voting on such
approval.
Termination of this Agreement pursuant to this section 10 shall be
without the payment of any penalty.
I. This Agreement may be amended at any time by mutual consent of the
parties, provided that such consent on the part of the Fund shall have been
approved by vote of a majority of the outstanding voting securities of the
Series and by vote of a majority of the trustees of the Fund who are not
interested persons of the Fund or the Manager, cast in person at a meeting
called for the purpose of voting on such approval.
I. For the purpose of this Agreement, the terms "vote of a majority of the
outstanding voting securities," "interested person," "affiliated person" and
<PAGE>
"assignment" shall have their respective meanings defined in the 1940 Act,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under the 1940 Act. References in this Agreement to any
assets, property or liabilities "belonging to" the Series shall have the meaning
defined in the Fund's agreement and declaration of trust as amended from time to
time.
I. In the absence of willful misfeasance, bad faith or gross negligence on
the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be subject to any liability to the Fund, to any
shareholder of the Fund or to any other person, firm or organization, for any
act or omission in the course of, or connected with, rendering services
hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
NEW ENGLAND ZENITH FUND, on TNE ADVISERS, INC.
behalf of its Salomon Brothers
U.S. Government Series
By By
------------------------- ----------------------------
John F. Guthrie, Jr. John F. Guthrie, Jr.
Senior Vice President Senior Vice President
NOTICE
A copy of the Agreement and Declaration of Trust establishing New
England Zenith Fund (the "Fund") is on file with the Secretary of The
Commonwealth of Massachusetts, and notice is hereby given that this Agreement is
executed with respect to the Fund's Salomon Brothers U.S. Government Series (the
"Series") on behalf of the Fund by officers of the Fund as officers and not
individually and that the obligations of or arising out of this Agreement are
not binding upon any of the trustees, officers or shareholders individually but
are binding only upon the assets and property belonging to the Series.
<PAGE>
NEW ENGLAND ZENITH FUND
ADVISORY AGREEMENT
(Back Bay Advisors Money Market Series)
AGREEMENT made this 30th day of August, 1996 by and between NEW ENGLAND
ZENITH FUND, a Massachusetts business trust (the "Fund"), with respect to its
Back Bay Advisors Money Market Series (the "Series"), and TNE ADVISERS, INC., a
Massachusetts corporation (the "Manager").
WITNESSETH:
WHEREAS, the Fund and the Manager wish to enter into an agreement setting
forth the terms upon which the Manager (or certain other parties acting pursuant
to delegation from the Manager) will perform certain services for the Series;
NOW THEREFORE, in consideration of the premises and covenants hereinafter
contained, the parties agree as follows:
A. The Fund hereby employs the Manager to furnish the Fund with
Portfolio Management Services (as defined in Section 2 hereof) and
Administrative Services (as defined in Section 3 hereof), subject to the
authority of the Manager to delegate any or all of its responsibilities
hereunder to other parties as provided in Sections 1(b) and (c) hereof. The
Manager hereby accepts such employment and agrees, at its own expense, to
furnish such services (either directly or pursuant to delegation to other
parties as permitted by Sections 1(b) and (c) hereof) and to assume the
obligations herein set forth, for the compensation herein provided. The Manager
shall, unless otherwise expressly provided or authorized, have no authority to
act for or represent the Fund in any way or otherwise be deemed an agent of the
Fund.
A. The Manager may delegate any or all of its responsibilities hereunder
with respect to the provision of Portfolio Management Services (and assumption
of related expenses) to one or more other parties (each such party, a "Sub-
Adviser"), pursuant in each case to a written agreement with such Sub-Adviser
that meets the requirements of Section 15 of the Investment Company Act of 1940
and the rules thereunder (the "1940 Act") applicable to contracts for service as
investment adviser of a registered investment company (including without
limitation the requirements for approval by the trustees of the Fund and the
shareholders of the Series), subject, however, to such exemptions as may be
granted by the Securities and Exchange Commission. Any Sub-Adviser may (but
need not) be affiliated with the Manager. If different Sub-Advisers are engaged
to provide Portfolio Management Services with respect to different segments of
the portfolio of the Series, the Manager shall determine, in the manner
described in the prospectus of the Series from time to time in
-1-
<PAGE>
effect, what portion of the assets belonging to the Series shall be managed by
each Sub-Adviser.
B. The Manager may delegate any or all of its responsibilities hereunder
with respect to the provision of Administrative Services to one or more other
parties (each such party, an "Administrator") selected by the Manager. Any
Administrator may (but need not) be affiliated with the Manager.
I. As used in this Agreement, "Portfolio Management Services" means
management of the investment and reinvestment of the assets belonging to the
Series, consisting specifically of the following:
A. obtaining and evaluating such economic, statistical and
financial data and information and undertaking such additional investment
research as shall be necessary or advisable for the management of the
investment and reinvestment of the assets belonging to the Series in
accordance with the Series' investment objectives and policies;
A. taking such steps as are necessary to implement the investment
policies of the Series by purchasing and selling of securities, including
the placing of orders for such purchase and sale; and
A. regularly reporting to the Board of Trustees of the Fund with
respect to the implementation of the investment policies of the Series.
I. As used in this Agreement, "Administrative Services" means the
provision to the Fund, by or at the expense of the Manager, of the following:
A. office space in such place or places as may be agreed upon from
time to time by the Fund and the Manager, and all necessary office
supplies, facilities and equipment;
A. necessary executive and other personnel for managing the
affairs of the Series, including personnel to perform clerical,
bookkeeping, accounting, stenographic and other office functions (exclusive
of those related to and to be performed under contract for custodial,
transfer, dividend and plan agency services by the entity or entities
selected to perform such services);
A. compensation, if any, of trustees of the Fund who are
directors, officers or employees of the Adviser, any Sub-Adviser or any
Administrator or of any affiliated person (other than a registered
investment company) of the Manager, any Sub-Adviser or any Administrator;
A. all services, other than services of counsel, required in
connection with the preparation of registration statements and
prospectuses, including amendments and revisions thereto, all annual,
semiannual and periodic
<PAGE>
reports, and notices and proxy solicitation material furnished to
shareholders of the Fund or regulatory authorities, to the extent that any
such materials relate to the business of the Series, to the shareholders
thereof or otherwise to the Series, the Series to be treated for these
purposes as a separate legal entity and fund; and
A. supervision and oversight of the Portfolio Management Services
provided by each Sub-Adviser, and oversight of all matters relating to
compliance by the Fund with applicable laws and with the Fund's investment
policies, restrictions and guidelines, if the Manager has delegated to one
or more Sub-Advisers any or all of its responsibilities hereunder with
respect to the provision of Portfolio Management Services.
I. Nothing in section 3 hereof shall require the Manager to bear,
or to reimburse the Fund for:
A. any of the costs of printing and mailing the items referred to
in sub-section (d) of this section 3;
A. any of the costs of preparing, printing and distributing sales
literature;
A. compensation of trustees of the Fund who are not directors,
officers or employees of the Manager, any Sub-Adviser or any Administrator
or of any affiliated person (other than a registered investment company) of
the Manager, any Sub-Adviser or any Administrator;
A. registration, filing and other fees in connection with
requirements of regulatory authorities;
A. the charges and expenses of any entity appointed by the Fund
for custodial, paying agent, shareholder servicing and plan agent services;
A. charges and expenses of independent accountants retained by
the Fund;
A. charges and expenses of any transfer agents and registrars
appointed by the Fund;
A. brokers' commissions and issue and transfer taxes chargeable to
the Fund in connection with securities transactions to which the Fund is a
party;
A. taxes and fees payable by the Fund to federal, state or other
governmental agencies;
<PAGE>
A. any cost of certificates representing shares of the Fund;
B. legal fees and expenses in connection with the affairs of the Fund
including registering and qualifying its shares with Federal and State
regulatory authorities;
A. expenses of meetings of shareholders and trustees of the Fund; and
A. interest, including interest on borrowings by the Fund.
I. All activities undertaken by the Manager or any Sub-Adviser or
Administrator pursuant to this Agreement shall at all times be subject to the
supervision and control of the Board of Trustees of the Fund, any duly
constituted committee thereof or any officer of the Fund acting pursuant to like
authority.
I. The services to be provided by the Manager and any Sub-Adviser or
Administrator hereunder are not to be deemed exclusive and the Manager and any
Sub-Adviser or Administrator shall be free to render similar services to others,
so long as its services hereunder are not impaired thereby.
I. As full compensation for all services rendered, facilities furnished
and expenses borne by the Manager hereunder, the Fund shall pay the Manager
compensation at the annual rate of .35% of the first $500 million in average net
assets, .30% of the next $500 million in average net assets and .25% of the
excess over $1 billion in average net assets. Such compensation shall be payable
monthly in arrears or at such other intervals, not less frequently than
quarterly, as the Board of Trustees of the Fund may from time to time determine
and specify in writing to the Manager. The Manager hereby acknowledges that the
Fund's obligation to pay such compensation is binding only on the assets and
property belonging to the Series.
I. If the total of all ordinary business expenses of the Fund as a whole
(including investment advisory fees but excluding taxes and portfolio brokerage
commissions) for any fiscal year exceeds the lowest applicable percentage of
average net assets or income limitations prescribed by any state in which shares
of the Series are qualified for sale, the Manager shall pay such excess. Solely
for purposes of applying such limitations in accordance with the foregoing
sentence, the Series and the Fund shall each be deemed to be a separate fund
subject to such limitations. Should the applicable state limitation provisions
fail to specify how the average net assets of the Fund or belonging to the
Series are to be calculated, that figure shall be calculated by reference to the
average daily net assets of the Fund or the Series, as the case may be.
I. It is understood that any of the shareholders, trustees, officers,
employees and agents of the Fund may be a shareholder, director, officer,
employee or agent of, or be otherwise interested in, the Manager, any affiliated
person of the
<PAGE>
Manager, any organization in which the Manager may have an interest or any
organization which may have an interest in the Manager; that the Manager, any
such affiliated person or any such organization may have an interest in the
Fund; and that the existence of any such dual interest shall not affect the
validity hereof or of any transactions hereunder except as otherwise provided in
the agreement and declaration of trust of the Fund, the articles of organization
of the Manager or specific provisions of applicable law.
I. This Agreement shall become effective as of the date of its
execution, and
A. unless otherwise terminated, this Agreement shall continue in
effect for two years from the date of execution, and from year to year
thereafter so long as such continuance is specifically approved at least
annually (i) by the Board of Trustees of the Fund or by vote of a majority
of the outstanding voting securities of the Series, and (ii) by vote of a
majority of the trustees of the Fund who are not interested persons of the
Fund or the Manager, cast in person at a meeting called for the purpose of
voting on, such approval;
A. this Agreement may at any time be terminated on sixty days'
written notice to the Manager either by vote of the Board of Trustees of
the Fund or by vote of a majority of the outstanding voting securities of
the Series;
A. this Agreement shall automatically terminate in the event of
its assignment;
A. this Agreement may be terminated by the Manager on ninety days'
written notice to the Fund;
A. if New England Securities Corporation, the Fund's principal
underwriter, requires the Fund or the Series to change its name so as to
eliminate all references to the words "New England" pursuant to the
provisions of the Fund's Distribution Agreement relating to the Series with
said principal underwriter, this Agreement shall automatically terminate at
the time of such change unless the continuance of this Agreement after such
change shall have been specifically approved by vote of a majority of the
outstanding voting securities of the Series and by vote of a majority of
the trustees of the Fund who are not interested persons of the Fund or the
Manager, cast in person at a meeting called for the purpose of voting on
such approval.
Termination of this Agreement pursuant to this section 10 shall be without
the payment of any penalty.
I. This Agreement may be amended at any time by mutual
<PAGE>
consent of the parties, provided that such consent on the part of the Fund shall
have been approved by vote of a majority of the outstanding voting securities of
the Series and by vote of a majority of the trustees of the Fund who are not
interested persons of the Fund or the Manager, cast in person at a meeting
called for the purpose of voting on such approval.
I. For the purpose of this Agreement, the terms "vote of a majority of the
outstanding voting securities," "interested person," "affiliated person" and
"assignment" shall have their respective meanings defined in the 1940 Act,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under the 1940 Act. References in this Agreement to any
assets, property or liabilities "belonging to" the Series shall have the meaning
defined in the Fund's agreement and declaration of trust as amended from time to
time.
I. In the absence of willful misfeasance, bad faith or gross negligence on
the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be subject to any liability to the Fund, to any
shareholder of the Fund or to any other person, firm or organization, for any
act or omission in the course of, or connected with, rendering services
hereunder.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
NEW ENGLAND ZENITH FUND,
on behalf of its Back Bay Advisors TNE ADVISERS, INC.
Money Market Series
By: By:
________________________________ ________________________________
John F. Guthrie, Jr. John F. Guthrie, Jr.
Senior Vice President Senior Vice President
<PAGE>
NOTICE
A copy of the Agreement and Declaration of Trust establishing New England
Zenith Fund (the "Fund") is on file with the Secretary of The Commonwealth of
Massachusetts, and notice is hereby given that this Agreement is executed with
respect to the Fund's Back Bay Advisors Money Market Series (the "Series") on
behalf of the Fund by officers of the Fund as officers and not individually and
that the obligations of or arising out of this Agreement are not binding upon
any of the trustees, officers or shareholders individually but are binding only
upon the assets and property belonging to the Series.
<PAGE>
99.5(c)
Advisory Agreement between Capital Growth Management and the Registrant.
<PAGE>
ADVISORY AGREEMENT
------------------
AGREEMENT made this 1st day of September, 1993 by and between NEW ENGLAND
ZENITH FUND, a Massachusetts business trust (the "Fund") with respect to its
CAPITAL GROWTH SERIES (the "Series"), and CAPITAL GROWTH MANAGEMENT LIMITED
PARTNERSHIP, a Massachusetts partnership (the "Adviser").
WITNESSETH:
WHEREAS, the Fund and the Adviser wish to enter into an agreement setting
forth the terms upon which the Adviser will perform certain services for the
Fund;
NOW THEREFORE, in consideration of the premises and covenants hereinafter
contained, the parties agree as follows:
I. The Fund hereby employs the Adviser to manage the investment and
reinvestment of the assets belonging to the Series and to perform the other
services herein set forth, subject to the supervision and control of the Board
of Trustees of the Fund. The Adviser hereby accepts such employment and agrees,
at its own expense, to render the services and to assume the obligations herein
set forth, for the compensation herein provided. The Adviser shall, unless
otherwise expressly provided or authorized, have no authority to act for or
represent the Fund in any way or otherwise be deemed an agent of the Fund.
I. In carrying out its obligations to manage the investment and
reinvestment of the assets belonging to the Series, the Adviser shall:
A. obtain and evaluate such economic, statistical and financial
data and information and undertake such additional investment research as
it shall believe necessary or advisable for the management of the
investment and reinvestment of the assets belonging to the Series in
accordance with the Series' investment objective and policies;
A. take such steps as are necessary to implement the investment
policies of the Series (and to ensure compliance by the Series with
applicable state insurance laws governing permissible investments) by
purchase and sale of securities, including the placing of orders for such
purchase and sale; and
A. regularly report to the Board of Trustees with respect to the
implementation of the investment policies of the Series.
<PAGE>
I. All activities in connection with the management of the affairs of
the Series undertaken by the Adviser pursuant to this Agreement shall at all
times be subject to the supervision and control of the Board of Trustees, any
duly constituted committee thereof or any officer of the Fund acting pursuant to
like authority.
I. In addition to performing at its expense the obligations set forth in
section 2 hereof, the Adviser shall furnish to the Fund at the Adviser's own
expense or pay the expenses of the Fund for the following:
A. office space in such place or places as may be agreed upon from
time to time, and all necessary office supplies, facilities and equipment;
A. necessary executive and other personnel for managing the
affairs of the Series, including personnel to perform clerical,
bookkeeping, accounting, stenographic and other office functions (exclusive
of those related to and to be performed under contract for custodial,
transfer, dividend and plan agency services by the bank selected to perform
such services);
A. compensation, if any, of Trustees of the Fund who are
directors, officers, partners or employees of the Adviser or any affiliated
person (other than a registered investment company) of the Adviser; and
A. all services, other than services of counsel, required in
connection with the preparation of registration statements and
prospectuses, including amendments and revisions thereto, all annual,
semiannual and periodic reports, and notices and proxy solicitation
material furnished to shareholders of the Fund or regulatory authorities,
to the extent that any such materials relate to the business of the Series,
to the shareholders thereof or otherwise to the Series, the Series to be
treated for these purposes as a separate legal entity and fund.
I. Nothing in section 4 hereof shall require the Adviser to bear, or to
reimburse the Fund for:
A. any of the costs of printing and mailing the items referred to
in sub-section (d) of section 4;
A. any of the costs of preparing, printing and distributing sales
literature;
A. compensation of Trustees of the Fund who are not officers,
directors, partners or employees of the Adviser or of any affiliated person
(other than a registered investment company) of the Adviser;
<PAGE>
A. registration, filing and other fees in connection with
requirements of regulatory authorities;
A. the charges and expenses of any Custodian appointed by the Fund
for custodial, paying agent, transfer agent and plan agent services;
A. charges and expenses of independent accountants retained by the
Fund;
A. charges and expenses of any transfer agents and registrars
appointed by the Fund;
A. brokers' commissions and issue and transfer taxes chargeable to
the Fund in connection with securities transactions to which the Fund is a
party;
A. taxes and fees payable by the Fund to federal, state or other
governmental agencies;
A. any cost of certificates representing shares of the Fund;
A. legal fees and expenses in connection with the affairs of the
Fund including registering and qualifying its shares with federal and state
regulatory authorities;
A. expenses of meetings of shareholders and Trustees of the Fund;
and
A. interest, including interest on borrowings by the Fund.
A. The services of the Adviser to the Fund hereunder are not to be
deemed exclusive and the Adviser shall be free to render similar services to
others, so long as its services hereunder are not impaired thereby.
A. To better enable it to fulfill its obligations hereunder, the
Adviser has entered into a service agreement with New England Securities
Corporation under which the latter has agreed to furnish such office space for
the Fund and such clerical, bookkeeping, accounting, stenographic and
administrative personnel and services as the Adviser may reasonably request.
I. As full compensation for all services rendered, facilities furnished and
expenses borne by the Adviser hereunder, the Fund shall pay the Adviser
compensation at the annual rate of (a) .70% of the value of the net assets
belonging to the Series, as calculated below, up to $200 million, (b) .65% of
such value in excess of $200 million but less than or equal to $500 million and
(c) .60% of such value in excess of $500
<PAGE>
million. Such compensation shall be payable monthly in arrears or at such other
intervals, not less frequently than quarterly, as the Board of Trustees of the
Fund may from time to time determine and specify in writing to the Adviser. Such
compensation shall be calculated on the basis of the average of all the
valuations of the net assets of the Series made as of the close of business on
each business day during the period for which such compensation is paid. The
Adviser hereby acknowledges that the Fund's obligation to pay such compensation
is binding only on the assets and property belonging to the Series.
I. If the total of all ordinary business expenses of the Series or the
Fund as a whole (including investment advisory fees but excluding taxes,
portfolio brokerage commissions and interest) for any fiscal year exceeds the
lowest applicable percentage of average net assets or income limitation
prescribed by any state in which shares of the Series are qualified for sale,
the total fee otherwise due the Adviser for such fiscal year pursuant to Section
7 hereof shall be reduced by the amount of such excess belonging to the Series,
and, if, after giving effect to such reduction, the total of all such ordinary
expenses continues to exceed any such applicable limitation, the Adviser shall
pay any such continuing excess belonging to the Series; provided, however, that
the Adviser will not reduce its fees nor pay any such expenses to an extent or
under circumstances which would result in the inability of the Fund or the
Series (if it were treated as a separate entity under the Internal Revenue Code
of 1986, as amended) to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended. Solely for purposes of applying such
limitations in accordance with the foregoing sentence, the Series and the Fund
shall each be deemed to be a separate fund subject to such limitations. Should
the applicable state limitation provisions fail to specify how the average net
assets of the Fund or belonging to the Series are to be calculated, that figure
shall be computed in the manner described in section 7 above.
I. It is understood that any of the shareholders, trustees, officers,
employees and agents of the Fund may be a partner, shareholder, director,
officer, employee or agent of, or be otherwise interested in the Adviser, any
affiliated person of the Adviser, any organization in which the Adviser may have
an interest or any organization which may have an interest in the Adviser; that
the Adviser, any such affiliated person or any such organization may have an
interest in the Fund; and that the existence of any such dual interest shall not
affect the validity hereof or of any transactions hereunder except as otherwise
provided in the Agreement and Declaration of Trust of the Fund and the
Partnership Agreement of the Adviser, respectively, or by specific provisions of
applicable law.
I. This Agreement shall become effective as of the date of its
execution, and
A. unless otherwise terminated, this Agreement shall continue in
effect for two years from the date of execution, and from year to year
thereafter so long as such continuance is specifically approved at least
annually (i) by the Board of Trustees of the Fund or by vote of a majority
of the outstanding voting
<PAGE>
securities of the Series, and (ii) by vote of a majority of the Trustees of
the Fund who are not interested persons of the Fund or the Adviser, cast in
person at a meeting called for the purpose of voting on such approval;
A. this Agreement may at any time be terminated on sixty days'
written notice to the Adviser either by vote of the Board of Trustees of
the Fund or by vote of a majority of the outstanding voting securities of
the Series;
A. this Agreement shall automatically terminate in the event of
its assignment;
A. this Agreement may be terminated by the Adviser on ninety days'
written notice to the Fund;
A. if New England Securities Corporation, the Fund's principal
underwriter, requires the Fund to change its name so as to eliminate all
references to the words "New England" pursuant to the provisions of the
Fund's Distribution Agreement or Distribution Agreements with said
corporation, then this Agreement shall automatically terminate at the time
of such change unless the continuance of this Agreement after such change
shall have been specifically approved by vote of a majority of the
outstanding voting securities of the Series and by vote of a majority of
the Trustees of the Fund who are not interested persons of the Fund or the
Adviser, cast in person at a meeting called for the purpose of voting on
such approval.
I. This Agreement may be amended at any time by mutual consent of the
parties, provided that such consent on the part of the Fund shall have been
approved by vote of a majority of the outstanding voting securities of the
Series and by vote of a majority of the Trustees of the Fund who are not
interested persons of the Fund or the Adviser, cast in person at a meeting
called for the purpose of voting on such approval.
I. For the purpose of this Agreement, the terms "vote of a majority of
the outstanding voting securities", "interested person", "affiliated person" and
"assignment" shall have their respective meanings defined in the Investment
Company Act of 1940, subject, however, to such exemptions as may be granted by
the Securities and Exchange Commission under said Act. References in this
Agreement to any assets, property or liabilities "belonging to" the Series shall
have the meaning defined in the Fund's Agreement and Declaration of Trust.
I. In the absence of willful misfeasance, bad faith or gross negligence
on the part of the Adviser, or reckless disregard of its obligations and duties
hereunder, the Adviser shall not be subject to any liability to the Fund, to any
shareholder of the Fund or to any other person, firm or organization, for any
act or omission in the course of, or connected with, rendering services
hereunder.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
NEW ENGLAND ZENITH CAPITAL GROWTH MANAGEMENT
FUND LIMITED PARTNERSHIP
By By
---------------------------- ----------------------------
A copy of the Agreement and Declaration of Trust establishing New England
Zenith Fund (the "Fund") is on file with the Secretary of State of The
Commonwealth of Massachusetts, and notice is hereby given that this Agreement is
executed with respect to the Fund's Capital Growth Series (the "Series") on
behalf of the Fund by officers of the Fund as officers and not individually and
that the obligations of or arising out of this Agreement are not binding upon
any of the Trustees, officers or shareholders individually but are binding only
upon the assets and property belonging to the Series.
<PAGE>
99.5(d)(i-x)
Form of Subadvisory Agreements between TNE Advisers and each of the following
Series:
(i) Lommis Salyes Small Cap Series
(ii) Alger Equity Growth Series
(iii) Westpeak Growth and Income Series
(iv) Westpeak Stock Index Series
(v) Loomis Sayles Balanced Series
(vi) Back Bay Advisors Managed Series
(vii) Salomon Brothers Strategic Bond Opportunities Series
(viii) Back Bay Advisors Bond Income Series
(ix) Salomon Brothers U.S. Government Series
(x) Back Bay Advisers Money Market Series
<PAGE>
NEW ENGLAND ZENITH FUND
SUB-ADVISORY AGREEMENT
(Loomis Sayles Small Cap Series)
This Sub-Advisory Agreement (this "Agreement") is entered into as of August
30, 1996 by and between TNE Advisers, Inc., a Massachusetts corporation (the
"Manager") and Loomis Sayles & Company, L.P. (the "Sub-Adviser").
WHEREAS, the Manager has entered into an Advisory Agreement dated August
30, 1996 (the "Advisory Agreement") with New England Zenith Fund (the "Trust"),
pursuant to which the Manager provides portfolio management and administrative
services to the Loomis Sayles Small Cap Series of the Trust (the "Series");
WHEREAS, the Advisory Agreement provides that the Manager may delegate any
or all of its portfolio management responsibilities under the Advisory Agreement
to one or more sub-advisers;
WHEREAS, the Manager desires to retain the Sub-Adviser to render portfolio
management services in the manner and on the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, the Manager and the Sub-Adviser agree as follows:
-1-
<PAGE>
I. Sub-Advisory Services.
---------------------
A. The Sub-Adviser shall, subject to the supervision of the Manager and
in cooperation with any administrator appointed by the Manager (the
"Administrator"), manage the investment and reinvestment of the assets of the
Series. The Sub-Adviser shall manage the Series in conformity with (1) the
investment objective, policies and restrictions of the Series set forth in the
Trust's prospectus and statement of additional information relating to the
Series, (2) any additional policies or guidelines established by the Manager or
by the Trust's trustees that have been furnished in writing to the Sub-Adviser
and (3) the provisions of the Internal Revenue Code (the "Code") applicable to
"regulated investment companies" (as defined in Section 851 of the Code) and
Section 817 of the Code, all as from time to time in effect (collectively, the
"Policies"), and with all applicable provisions of law, including without
limitation all applicable provisions of the Investment Company Act of 1940 (the
"1940 Act") and the rules and regulations thereunder. Subject to the foregoing,
the Sub-Adviser is authorized, in its discretion and without prior consultation
with the Manager, to buy, sell, lend and otherwise trade in any stocks, bonds
and other securities and investment instruments on behalf of the Series, without
regard to the length of time the securities have been held and the resulting
rate of portfolio turnover or any tax considerations; and the majority or the
whole of the Series may be invested in such proportions of stocks, bonds, other
securities or investment instruments, or cash, as the Sub-Adviser shall
determine. Notwithstanding the foregoing provisions of this Section 1.a,
however, the Sub-Adviser shall, upon written instructions from the Manager,
effect such portfolio transactions for the Series as the Manager shall determine
are necessary in order for the Series to comply with the Policies.
A. The Sub-Adviser shall furnish the Manager and the Administrator
monthly, quarterly and annual reports concerning portfolio transactions and
performance of the Series in such form as may be mutually agreed upon, and
agrees to review the Series and discuss the management of the Series with
representatives or agents of the Manager, the Administrator or the Trust at
their reasonable request. The Sub-Adviser shall permit all books and records
with respect to the Series to be inspected and audited by the Manager and the
Administrator at all reasonable times during normal business hours, upon
reasonable notice. The Sub-Adviser shall also provide the Manager, the
Administrator or the Trust with such other information and reports as may
reasonably be requested by the Manager, the Administrator or the Trust from time
to time, including without limitation all material as reasonably may be
requested by the Trustees of the Trust pursuant to Section 15(c) of the 1940
Act.
A. The Sub-Adviser shall provide to the Manager a copy of the Sub-
Adviser's Form ADV as filed with the Securities and Exchange Commission and as
amended from time to time and a list of the persons whom the Sub-Adviser wishes
to have authorized to give written and/or oral instructions to custodians of
assets of the Series.
<PAGE>
I. Obligations of the Manager.
--------------------------
A. The Manager shall provide (or cause the Trust's custodian to provide)
timely information to the Sub-Adviser regarding such matters as the composition
of assets in the Series, cash requirements and cash available for investment in
the Series, and all other information as may be reasonably necessary for the
Sub-Adviser to perform its responsibilities hereunder.
A. The Manager has furnished the Sub-Adviser a copy of the prospectus and
statement of additional information of the Series and agrees during the
continuance of this Agreement to furnish the Sub-Adviser copies of any revisions
or supplements thereto at, or, if practicable, before the time the revisions or
supplements become effective. The Manager agrees to furnish the Sub-Adviser
with minutes of meetings of the Trustees of the Trust applicable to the Series
to the extent they may affect the duties of the Sub-Adviser, and with copies of
any financial statements or reports made by the Series to its shareholders, and
any further materials or information which the Sub-Adviser may reasonably
request to enable it to perform its functions under this Agreement.
I. Custodian. The Manager shall provide the Sub-Adviser with a copy of the
---------
Series's agreement with the custodian designated to hold the assets of the
Series (the "Custodian") and any modifications thereto (the "Custody
Agreement"), copies of such modifications to be provided to the Sub-Adviser a
reasonable time in advance of the effectiveness of such modifications. The
assets of the Series shall be maintained in the custody of the Custodian
identified in, and in accordance with the terms and conditions of, the Custody
Agreement (or any sub-custodian properly appointed as provided in the Custody
Agreement). The Sub-Adviser shall have no liability for the acts or omissions
of the Custodian, unless such act or omission is required by and taken in
reliance upon instruction given to the Custodian by a representative of the Sub-
Adviser properly authorized to give such instruction under the Custody
Agreement. Any assets added to the Series shall be delivered directly to the
Custodian.
I. Expenses. Except for expenses specifically assumed or agreed to be paid
--------
by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be liable for any
expenses of the Manager or the Trust including, without limitation, (a) interest
and taxes, (b) brokerage commissions and other costs in connection with the
purchase or sale of securities or other investment instruments with respect to
the Series, and (c) custodian fees and expenses. The Sub-Adviser will pay its
own expenses incurred in furnishing the services to be provided by it pursuant
to this Agreement.
I. Purchase and Sale of Assets. Absent instructions from the Manager to
---------------------------
the contrary, the Sub-Adviser shall place all orders for the purchase and sale
of securities for the Series with brokers or dealers selected by the Sub-
Adviser,
<PAGE>
which may include brokers or dealers affiliated with the Sub-Adviser, provided
such orders comply with Rule 17e-1 under the 1940 Act in all respects. To the
extent consistent with applicable law, purchase or sell orders for the Series
may be aggregated with contemporaneous purchase or sell orders of other clients
of the Sub-Adviser. The Sub-Adviser shall use its best efforts to obtain
execution of transactions for the Series at prices which are advantageous to the
Series and at commission rates that are reasonable in relation to the benefits
received. However, the Sub-Adviser may select brokers or dealers on the basis
that they provide brokerage, research or other services or products to the
Series and/or other accounts serviced by the Sub-Adviser. Not all such services
or products need to be used by the Sub-Adviser in managing the Series.
I. Compensation of the Sub-Adviser. As full compensation for all services
-------------------------------
rendered, facilities furnished and expenses borne by the Sub-Adviser hereunder,
the Manager shall pay the Sub-Adviser compensation at the annual rate of .55%
of the first $25 million in average net assets, .50% of the next $75 million in
average net assets, .45% of the next $100 million in average net assets and .40%
of the excess over $200 million in average net assets. Such compensation shall
be payable monthly in arrears or at such other intervals, not less frequently
than quarterly, as the Manager is paid by the Series pursuant to the Advisory
Agreement. The Manager may from time to time waive the compensation it is
entitled to receive from the Trust; however, any such waiver will have no effect
on the Manager's obligation to pay the Sub-Adviser the compensation provided for
herein.
I. Non-Exclusivity. The Manager and the Series agree that the services of
---------------
the Sub-Adviser are not to be deemed exclusive and that the Sub-Adviser and its
affiliates are free to act as investment manager and provide other services to
various investment companies and other managed accounts, except as the Sub-
Adviser and the Manager or the Administrator may otherwise agree from time to
time in writing before or after the date hereof. This Agreement shall not in
any way limit or restrict the Sub-Adviser or any of its directors, officers,
employees or agents from buying, selling or trading any securities or other
investment instruments for its or their own account or for the account of others
for whom it or they may be acting, provided that such activities do not
adversely affect or otherwise impair the performance by the Sub-Adviser of its
duties and obligations under this Agreement. The Manager and the Series
recognize and agree that the Sub-Adviser may provide advice to or take action
with respect to other clients, which advice or action, including the timing and
nature of such action, may differ from or be identical to advice given or action
taken with respect to the Series. The Sub-Adviser shall for all purposes hereof
be deemed to be an independent contractor and shall, unless otherwise provided
or authorized, have no authority to act for or represent the Trust or the
Manager in any way or otherwise be deemed an agent of the Trust or the Manager.
I. Liability. Except as may otherwise be provided by the 1940 Act or other
---------
federal securities laws, neither the Sub-Adviser nor any of its officers,
directors, employees or agents (the "Indemnified Parties") shall be subject to
any
-4-
<PAGE>
liability to the Manager, the Trust, the Series or any shareholder of the Series
for any error of judgment, any mistake of law or any loss arising out of any
investment or other act or omission in the course of, connected with, or arising
out of any service to be rendered under this Agreement, except by reason of
willful misfeasance, bad faith or gross negligence in the performance of the
Sub-Adviser's duties or by reason of reckless disregard by the Sub-Adviser of
its obligations and duties. The Manager shall hold harmless and indemnify the
Sub-Adviser for any loss, liability, cost, damage or expense (including
reasonable attorneys fees and costs) arising from any claim or demand by any
past or present shareholder of the Series that is not based upon the
obligations of the Sub-Adviser with respect to the Series under this Agreement.
The Manager acknowledges and agrees that the Sub-Adviser makes no
representation or warranty, express or implied, that any level of performance
or investment results will be achieved by the Series or that the Series will
perform comparably with any standard or index, including other clients of the
Sub-Adviser, whether public or private.
I. Effective Date and Termination. This Agreement shall become effective
------------------------------
as of the date of its execution, and
A. unless otherwise terminated, this Agreement shall continue in effect
for two years from the date of execution, and from year to year thereafter so
long as such continuance is specifically approved at least annually (i) by the
Board of Trustees of the Trust or by vote of a majority of the outstanding
voting securities of the Series, and (ii) by vote of a majority of the trustees
of the Trust who are not interested persons of the Trust, the Manager or the
Sub-Adviser, cast in person at a meeting called for the purpose of voting on
such approval;
A. this Agreement may at any time be terminated on sixty days' written
notice to the Sub-Adviser either by vote of the Board of Trustees of the Trust
or by vote of a majority of the outstanding voting securities of the Series;
A. this Agreement shall automatically terminate in the event of its
assignment or upon the termination of the Advisory Agreement;
A. this Agreement may be terminated by the Sub-Adviser on sixty days'
written notice to the Manager and the Trust, or, if approved by the Board of
Trustees of the Trust, by the Manager on sixty days' written notice to the Sub-
Adviser; and
e. if the Sub-Adviser requires the Series to change its name so as to
eliminate all references to the words "Loomis Sayles," then this Agreement shall
automatically terminate at the time of such change unless the continuance of
this Agreement after such change shall have been specifically approved by vote
of a majority of the outstanding voting securities of the Series and by vote of
a majority of the Trustees of the Trust who are not interested persons of the
Trust or the Sub-Adviser, cast in person at a meeting called for the purpose of
voting on such approval.
-5-
<PAGE>
Termination of this Agreement pursuant to this Section 10 shall be without
the payment of any penalty.
I. Amendment. This Agreement may be amended at any time by mutual consent
---------
of the Manager and the Sub-Adviser, provided that, if required by law, such
amendment shall also have been approved by vote of a majority of the outstanding
voting securities of the Series and by vote of a majority of the trustees of the
Trust who are not interested persons of the Trust, the Manager or the Sub-
Adviser, cast in person at a meeting called for the purpose of voting on such
approval.
I. Certain Definitions. For the purpose of this Agreement, the terms "vote
-------------------
of a majority of the outstanding voting securities," "interested person,"
"affiliated person" and "assignment" shall have their respective meanings
defined in the 1940 Act, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under the 1940 Act.
I. General.
-------
A. The Sub-Adviser may perform its services through any employee, officer
or agent of the Sub-Adviser, and the Manager shall not be entitled to the
advice, recommendation or judgment of any specific person; provided, however,
that the persons identified in the prospectus of the Series shall perform the
portfolio management duties described therein until the Sub-Adviser notifies the
Manager that one or more other employees, officers or agents of the Sub-Adviser,
identified in such notice, shall assume such duties as of a specific date.
A. If any term or provision of this Agreement or the application thereof
to any person or circumstances is held to be invalid or unenforceable to any
extent, the remainder of this Agreement or the application of such provision to
other persons or circumstances shall not be affected thereby and shall be
enforced to the fullest extent permitted by law.
-6-
<PAGE>
A. This Agreement shall be governed by and interpreted in accordance with
the laws of the Commonwealth of Massachusetts.
TNE ADVISERS, INC.
By:
John F. Guthrie, Jr.
Senior Vice President
LOOMIS SAYLES & COMPANY, L.P.
By:
Name:
Title:
-7-
<PAGE>
SUB-ADVISORY AGREEMENT
Alger Equity Growth Series
This Sub-Advisory Agreement (this "Agreement") is entered into as of the
30th day of August, 1996 by and between TNE Advisers, Inc., a Massachusetts
corporation (the "Manager") and Fred Alger Management, Inc. (the "Sub-Adviser").
WHEREAS, the Manager has entered into an Advisory Agreement dated August
30, 1996 (the "Advisory Agreement") with New England Zenith Fund (the "Trust"),
pursuant to which the Manager provides portfolio management and administrative
services to the Alger Equity Growth Series of the Trust (the "Series");
WHEREAS, the Advisory Agreement provides that the Manager may delegate any
or all of its portfolio management responsibilities under the Advisory Agreement
to one or more sub-advisers;
WHEREAS, the Manager and the Trustees of the Trust desire to retain the
Sub-Adviser to render portfolio management services in the manner and on the
terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, the Manager and the Sub-Adviser agree as follows:
- 1 -
<PAGE>
I. Sub-Advisory Services.
---------------------
A. The Sub-Adviser shall, subject to the supervision of the Manager and
in cooperation with any administrator appointed by the Manager (the
"Administrator"), manage the investment and reinvestment of the assets of the
Series. The Sub-Adviser shall manage the Series in conformity with (1) the
investment objective, policies and restrictions of the Series set forth in the
Trust's prospectus and statement of additional information relating to the
Series, (2) any additional policies or guidelines established by the Manager or
by the Trust's trustees that have been furnished in writing to the Sub-Adviser
and (3) the provisions of the Internal Revenue Code (the "Code") applicable to
"regulated investment companies" (as defined in Section 851 of the Code) and
Section 817 of the Code, all as from time to time in effect (collectively, the
"Policies"), and with all applicable provisions of law, including without
limitation all applicable provisions of the Investment Company Act of 1940 (the
"1940 Act") and the rules and regulations thereunder. Subject to the foregoing,
the Sub-Adviser is authorized, in its discretion and without prior consultation
with the Manager, to buy, sell, lend and otherwise trade in any stocks, bonds
and other securities and investment instruments on behalf of the Series, without
regard to the length of time the securities have been held and the resulting
rate of portfolio turnover or any tax considerations; and the majority or the
whole of the Series may be invested in such proportions of stocks, bonds, other
securities or investment instruments, or cash, as the Sub-Adviser shall
determine. Notwithstanding the foregoing provisions of this Section 1.a,
however, the Sub-Adviser shall, upon written instructions from the Manager,
effect such portfolio transactions for the Series as the Manager shall determine
are necessary in order for the Series to comply with the Policies.
A. The Sub-Adviser shall furnish the Manager and the Administrator
monthly, quarterly and annual reports concerning transactions and performance of
the Series in such form as may be mutually agreed upon, and agrees to review the
Series and discuss the management of the Series with representatives or agents
of the Manager, the Administrator or the Trust at their reasonable request. The
Sub-Adviser shall permit all books and records with respect to the Series to be
inspected and audited by the Manager and the Administrator at all reasonable
times during normal business hours, upon reasonable notice. The Sub-Adviser
shall also provide the Manager, the Administrator or the Trust with such other
information and reports as may reasonably be requested by the Manager, the
Administrator or the Trust from time to time, including without limitation all
material as reasonably may be requested to the Trustees of the Trust pursuant to
Section 15(c) of the 1940 Act.
A. The Sub-Adviser shall provide to the Manager a copy of the Sub-
Adviser's Form ADV as filed with the Securities and Exchange Commission and as
amended from time to time and a list of the persons whom the Sub-Adviser wishes
to have authorized to give written and/or oral instructions to custodians of
assets of the Series.
<PAGE>
I. Obligations of the Manager.
--------------------------
A. The Manager shall provide (or cause the Trust's custodian to provide)
timely information to the Sub-Adviser regarding such matters as the composition
of assets of the Series, cash requirements and cash available for investment in
the Series, and all other information as may be reasonably necessary for the
Sub-Adviser to perform its responsibilities hereunder.
A. The Manager has furnished the Sub-Adviser a copy of the prospectus
and statement of additional information of the Series and agrees during the
continuance of this Agreement to furnish the Sub-Adviser copies of any revisions
or supplements thereto at, or, if practicable, before the time the revisions or
supplements become effective. The Manager agrees to furnish the Sub-Adviser
with minutes of meetings of the Trustees of the Trust applicable to the Series
to the extent they may affect the duties of the Sub-Adviser, and with copies of
any financial statements or reports made by the Series to its shareholders, and
any further materials or information which the Sub-Adviser may reasonably
request to enable it to perform its functions under this Agreement.
I. Custodian. The Manager shall provide the Sub-Adviser with a copy of
---------
the Series's agreement with the custodian designated to hold the assets of the
Series (the "Custodian") and any modifications thereto (the "Custody
Agreement"), copies of such modifications to be provided to the Sub-Adviser a
reasonable time in advance of the effectiveness of such modifications. The
assets of the Series shall be maintained in the custody of the Custodian
identified in, and in accordance with the terms and conditions of, the Custody
Agreement (or any sub-custodian properly appointed as provided in the Custody
Agreement). The Sub-Adviser shall have no liability for the acts or omissions
of the Custodian, unless such act or omission is required by and taken in
reliance upon instruction given to the Custodian by a representative of the Sub-
Adviser properly authorized to give such instruction under the Custody
Agreement. Any assets added to the Series shall be delivered directly to the
Custodian.
I. Proprietary Rights. The Manager agrees and acknowledges that the
------------------
Sub-Adviser is the sole owner of the name and mark "Alger" and that all use of
any designation consisting in whole or part of "Alger" (an "Alger Mark") under
this Agreement shall inure to the benefit of the Sub-Adviser. The Manager on
its own behalf and on behalf of the Series agrees not to use any Alger Mark in
any advertisement or sales literature or other materials promoting the Series,
except with the prior written consent of the Sub-Adviser. Without the prior
written consent of the Sub-Adviser, the Manager shall not, and the Manager shall
use its best efforts to cause the Trust not to, make representations regarding
the Sub-Adviser in any disclosure document, advertisement or sales literature or
other materials relating to the Series. Upon termination of this Agreement for
any reason, the Manager shall cease, and the Manager shall use its best efforts
to cause the Series to cease, all use of any Alger Mark(s) as soon as reasonably
practicable.
<PAGE>
I. Expenses. Except for expenses specifically assumed or agreed to be
--------
paid by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be liable for
any expenses of the Manager or the Trust including, without limitation, (a)
interest and taxes, (b) brokerage commissions and other costs in connection with
the purchase or sale of securities or other investment instruments with respect
to the Series, and (c) custodian fees and expenses. The Sub-Adviser will pay
its own expenses incurred in furnishing the services to be provided by it
pursuant to this Agreement.
I. Purchase and Sale of Assets. Absent instructions from the Manager to
---------------------------
the contrary, the Sub-Adviser shall place all orders for the purchase and sale
of securities for the Series with brokers or dealers selected by the Sub-
Adviser, which may include brokers or dealers affiliated with the Sub-Adviser,
provided such orders comply with Rule 17e-1 under the 1940 Act in all respects.
To the extent consistent with applicable law, purchase or sell orders for the
Series may be aggregated with contemporaneous purchase or sell orders of other
clients of the Sub-Adviser. In that event, allocation of the securities
purchased or sold, as well as the expenses incurred in the transaction, will be
made by the Sub-Adviser in the manner it considers to be most equitable and
consistent with its fiduciary obligations to the Series and to its other
clients. The Manager recognizes that in some cases this procedure may adversely
affect the price paid or received by the Series or the size of the position
obtainable or disposable for the Series.
I. Compensation of the Sub-Adviser. As full compensation for all
-------------------------------
services rendered, facilities furnished and expenses borne by the Sub-Adviser
hereunder, the Manager shall pay the Sub-Adviser compensation at the annual rate
of 0.45% of the first $100 million of the average daily net assets of the
Series, 0.40% of the next $400 million of such assets and 0.35% of such assets
in excess of $500 million. Such compensation shall be payable monthly in
arrears or at such other intervals, not less frequently than quarterly, as the
Manager is paid by the Series pursuant to the Advisory Agreement. The Manager
may from time to time waive the compensation it is entitled to receive from the
Trust, however, and any such waiver will have no effect on the Manager's
obligation to pay the Sub-Adviser the compensation provided for herein.
I. Non-Exclusivity. The Manager and the Series agree that the services
---------------
of the Sub-Adviser are not to be deemed exclusive and that the Sub-Adviser and
its affiliates are free to act as investment manager and provide other services
to various investment companies and other managed accounts, except as the Sub-
Adviser and the Manager or the Administrator may otherwise agree from time to
time in writing before or after the date hereof. This Agreement shall not in
any way limit or restrict the Sub-Adviser or any of its directors, officers,
employees or agents from buying, selling or trading any securities or other
investment instruments for its or their own account or for the account of others
for whom it or they may be acting, provided that such activities do not
adversely affect or otherwise impair the performance by the Sub-Adviser of its
duties and obligations under this Agreement. The Manager and the Series
recognize and agree that the Sub-Adviser may provide advice to or take action
with respect to other clients, which advice or action, including the timing and
nature of such action, may differ from or be identical to advice
<PAGE>
given or action taken with respect to the Series. The Sub-Adviser shall for all
purposes hereof be deemed to be an independent contractor and shall, unless
otherwise provided or authorized, have no authority to act for or represent the
Trust or the Manager in any way or otherwise be deemed an agent of the Trust or
the Manager.
I. Liability. Except as may otherwise be provided by the 1940 Act or
---------
other federal securities laws, neither the Sub-Adviser nor any of its officers,
directors, employees or agents (the "Indemnified Parties") shall be subject to
any liability to the Manager, the Trust, the Series or any shareholder of the
Series for, and the Manager shall indemnify and hold harmless the Indemnified
Parties against any loss, liability, cost, damage or expense (including
reasonable attorney fees) arising from any claim or demand based upon, any error
of judgment, any mistake of law or any loss arising out of any investment or
other act or omission in the course of, connected with, or arising out of any
service to be rendered under this Agreement, except by reason of willful
misfeasance, bad faith or gross negligence in the performance of the Sub-
Adviser's duties or by reason of reckless disregard by the Sub-Adviser of its
obligations and duties. The Manager acknowledges and agrees that the Sub-
Adviser makes no representation or warranty, express or implied, that any level
of performance or investment results will be achieved by the Series or that the
Series will perform comparably with any standard or index, including other
clients of the Sub-Adviser, whether public or private.
I. Effective Date and Termination. This Agreement shall become
------------------------------
effective as of the date of its execution, and
A. unless otherwise terminated, this Agreement shall continue in effect
for two years from the date of execution, and from year to year thereafter so
long as such continuance is specifically approved at least annually (i) by the
Board of Trustees of the Trust or by vote of a majority of the outstanding
voting securities of the Series, and (ii) by vote of a majority of the trustees
of the Trust who are not interested persons of the Trust, the Manager or the
Sub-Adviser, cast in person at a meeting called for the purpose of voting on
such approval;
A. this Agreement may at any time be terminated on sixty days' written
notice to the Sub-Adviser either by vote of the Board of Trustees of the Trust
or by vote of a majority of the outstanding voting securities of the Series;
A. this Agreement shall automatically terminate in the event of its
assignment or upon the termination of the Advisory Agreement;
A. this Agreement may be terminated by the Sub-Adviser on sixty days'
written notice to the Manager and the Trust, or, if approved by the Board of
Trustees of the Trust, by the Manager on sixty days' written notice to the Sub-
Adviser; and
e. if the Sub-Adviser requires the Series to change its name so as to
eliminate all references to the word "Alger," then this Agreement shall
automatically terminate at the
<PAGE>
time of such change unless the continuance of this Agreement after such change
shall have been specifically approved by vote of a majority of the outstanding
voting securities of the Series and by vote of a majority of the Trustees of the
Trust who are not interested persons of the Trust or the Sub-Adviser, cast in
person at a meeting called for the purpose of voting on such approval.
Termination of this Agreement pursuant to this Section 10 shall be without
the payment of any penalty.
I. Amendment. This Agreement may be amended at any time by mutual
---------
consent of the Manager and the Sub-Adviser, provided that, if required by law,
such amendment shall also have been approved by vote of a majority of the
outstanding voting securities of the Series and by vote of a majority of the
trustees of the Trust who are not interested persons of the Trust, the Manager
or the Sub-Adviser, cast in person at a meeting called for the purpose of voting
on such approval.
I. Certain Definitions. For the purpose of this Agreement, the terms
-------------------
"vote of a majority of the outstanding voting securities," "interested person,"
"affiliated person" and "assignment" shall have their respective meanings
defined in the 1940 Act, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under the 1940 Act.
I. General.
-------
A. The Sub-Adviser may perform its services through any employee,
officer or agent of the Sub-Adviser, and the Manager shall not be entitled to
the advice, recommendation or judgment of any specific person; provided,
however, that the persons identified in the prospectus of the Series shall
perform the portfolio management duties described therein until the Sub-Adviser
notifies the Manager that one or more other employees, officers or agents of the
Sub-Adviser, identified in such notice, shall assume such duties as of a
specific date.
A. If any term or provision of this Agreement or the application thereof
to any person or circumstances is held to be invalid or unenforceable to any
extent, the remainder of this Agreement or the application of such provision to
other persons or circumstances shall not be affected thereby and shall be
enforced to the fullest extent permitted by law.
<PAGE>
A. This Agreement shall be governed by and interpreted in accordance
with the laws of the Commonwealth of Massachusetts.
TNE ADVISERS, INC. FRED ALGER MANAGEMENT, INC.
By: ________________________________ By:_____________________________
John F. Guthrie, Jr. Name:___________________________
Senior Vice President Title:__________________________
<PAGE>
NEW ENGLAND ZENITH FUND
SUB-ADVISORY AGREEMENT
(Westpeak Growth and Income Series)
This Sub-Advisory Agreement (this "Agreement") is entered into as of August
30, 1996 by and between TNE Advisers, Inc., a Massachusetts corporation (the
"Manager") and Westpeak Investment Advisors, L.P. (the "Sub-Adviser").
WHEREAS, the Manager has entered into an Advisory Agreement dated August
30, 1996 (the "Advisory Agreement") with New England Zenith Fund (the "Trust"),
pursuant to which the Manager provides portfolio management and administrative
services to the Westpeak Growth and Income Series of the Trust (the "Series");
WHEREAS, the Advisory Agreement provides that the Manager may delegate any
or all of its portfolio management responsibilities under the Advisory Agreement
to one or more sub-advisers;
WHEREAS, the Manager desires to retain the Sub-Adviser to render portfolio
management services in the manner and on the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, the Manager and the Sub-Adviser agree as follows:
<PAGE>
I. Sub-Advisory Services.
---------------------
A. The Sub-Adviser shall, subject to the supervision of the
Manager and in cooperation with any administrator appointed by the Manager (the
"Administrator"), manage the investment and reinvestment of the assets of the
Series. The Sub-Adviser shall manage the Series in conformity with (1) the
investment objective, policies and restrictions of the Series set forth in the
Trust's prospectus and statement of additional information relating to the
Series, (2) any additional policies or guidelines established by the Manager or
by the Trust's trustees that have been furnished in writing to the Sub-Adviser
and (3) the provisions of the Internal Revenue Code (the "Code") applicable to
"regulated investment companies" (as defined in Section 851 of the Code) and
Section 817 of the Code, all as from time to time in effect (collectively, the
"Policies"), and with all applicable provisions of law, including without
limitation all applicable provisions of the Investment Company Act of 1940 (the
"1940 Act") and the rules and regulations thereunder. Subject to the foregoing,
the Sub-Adviser is authorized, in its discretion and without prior consultation
with the Manager, to buy, sell, lend and otherwise trade in any stocks, bonds
and other securities and investment instruments on behalf of the Series, without
regard to the length of time the securities have been held and the resulting
rate of portfolio turnover or any tax considerations; and the majority or the
whole of the Series may be invested in such proportions of stocks, bonds, other
securities or investment instruments, or cash, as the Sub-Adviser shall
determine. Notwithstanding the foregoing provisions of this Section 1.a,
however, the Sub-Adviser shall, upon written instructions from the Manager,
effect such portfolio transactions for the Series as the Manager shall determine
are necessary in order for the Series to comply with the Policies.
A. The Sub-Adviser shall furnish the Manager and the Administrator
monthly, quarterly and annual reports concerning portfolio transactions and
performance of the Series in such form as may be mutually agreed upon, and
agrees to review the Series and discuss the management of the Series with
representatives or agents of the Manager, the Administrator or the Trust at
their reasonable request. The Sub-Adviser shall permit all books and records
with respect to the Series to be inspected and audited by the Manager and the
Administrator at all reasonable times during normal business hours, upon
reasonable notice. The Sub-Adviser shall also provide the Manager, the
Administrator or the Trust with such other information and reports as may
reasonably be requested by the Manager, the Administrator or the Trust from time
to time, including without limitation all material as reasonably may be
requested by the Trustees of the Trust pursuant to Section 15(c) of the 1940
Act.
A. The Sub-Adviser shall provide to the Manager a copy of the Sub-
Adviser's Form ADV as filed with the Securities and Exchange Commission and as
amended from time to time and a list of the persons whom the Sub-Adviser wishes
to have authorized to give written and/or oral instructions to custodians of
assets of the Series.
<PAGE>
I. Obligations of the Manager.
--------------------------
A. The Manager shall provide (or cause the Trust's custodian to
provide) timely information to the Sub-Adviser regarding such matters as the
composition of assets in the Series, cash requirements and cash available for
investment in the Series, and all other information as may be reasonably
necessary for the Sub-Adviser to perform its responsibilities hereunder.
A. The Manager has furnished the Sub-Adviser a copy of the
prospectus and statement of additional information of the Series and agrees
during the continuance of this Agreement to furnish the Sub-Adviser copies of
any revisions or supplements thereto at, or, if practicable, before the time the
revisions or supplements become effective. The Manager agrees to furnish the
Sub-Adviser with minutes of meetings of the Trustees of the Trust applicable to
the Series to the extent they may affect the duties of the Sub-Adviser, and with
copies of any financial statements or reports made by the Series to its
shareholders, and any further materials or information which the Sub-Adviser may
reasonably request to enable it to perform its functions under this Agreement.
I. Custodian. The Manager shall provide the Sub-Adviser with a copy of
---------
the Series's agreement with the custodian designated to hold the assets of the
Series (the "Custodian") and any modifications thereto (the "Custody
Agreement"), copies of such modifications to be provided to the Sub-Adviser a
reasonable time in advance of the effectiveness of such modifications. The
assets of the Series shall be maintained in the custody of the Custodian
identified in, and in accordance with the terms and conditions of, the Custody
Agreement (or any sub-custodian properly appointed as provided in the Custody
Agreement). The Sub-Adviser shall have no liability for the acts or omissions of
the Custodian, unless such act or omission is required by and taken in reliance
upon instruction given to the Custodian by a representative of the Sub-Adviser
properly authorized to give such instruction under the Custody Agreement. Any
assets added to the Series shall be delivered directly to the Custodian.
I. Expenses. Except for expenses specifically assumed or agreed to be
--------
paid by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be liable for
any expenses of the Manager or the Trust including, without limitation, (a)
interest and taxes, (b) brokerage commissions and other costs in connection with
the purchase or sale of securities or other investment instruments with respect
to the Series, and (c) custodian fees and expenses. The Sub-Adviser will pay its
own expenses incurred in furnishing the services to be provided by it pursuant
to this Agreement.
I. Purchase and Sale of Assets. Absent instructions from the Manager to
---------------------------
the contrary, the Sub-Adviser shall place all orders for the purchase and sale
of securities for the Series with brokers or dealers selected by the Sub-
Adviser,
<PAGE>
which may include brokers or dealers affiliated with the Sub-Adviser,
provided such orders comply with Rule 17e-1 under the 1940 Act in all respects.
To the extent consistent with applicable law, purchase or sell orders for the
Series may be aggregated with contemporaneous purchase or sell orders of other
clients of the Sub-Adviser. The Sub-Adviser shall use its best efforts to
obtain execution of transactions for the Series at prices which are advantageous
to the Series and at commission rates that are reasonable in relation to the
benefits received. However, the Sub-Adviser may select brokers or dealers on
the basis that they provide brokerage, research or other services or products to
the Series and/or other accounts serviced by the Sub-Adviser. To the extent
consistent with applicable law, the Sub-Adviser may pay a broker or dealer an
amount of commission for effecting a securities transaction in excess of the
amount of commission or dealer spread another broker or dealer would have
charged for effecting that transaction if the Sub-Adviser determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research products and/or services provided by such broker or
dealer. This determination, with respect to brokerage and research services or
products, may be viewed in terms of either that particular transaction or the
overall responsibilities which the Sub-Adviser and its affiliates have with
respect to the Series or to accounts over which they exercise investment
discretion. Not all such services or products need to be used by the Sub-
Adviser in managing the Series.
I. Compensation of the Sub-Adviser. As full compensation for all
-------------------------------
services rendered, facilities furnished and expenses borne by the Sub-Adviser
hereunder, the Manager shall pay the Sub-Adviser compensation at the annual rate
of .50% of the first $25 million in average net assets, .40% of the next $75
million in average net assets, .35% of the next $100 million in average net
assets and .30% of the excess over $200 million in average net assets. Such
compensation shall be payable monthly in arrears or at such other intervals, not
less frequently than quarterly, as the Manager is paid by the Series pursuant to
the Advisory Agreement. The Manager may from time to time waive the compensation
it is entitled to receive from the Trust; however, any such waiver will have no
effect on the Manager's obligation to pay the Sub-Adviser the compensation
provided for herein.
I. Non-Exclusivity. The Manager and the Series agree that the
---------------
services of the Sub-Adviser are not to be deemed exclusive and that the Sub-
Adviser and its affiliates are free to act as investment manager and provide
other services to various investment companies and other managed accounts,
except as the Sub-Adviser and the Manager or the Administrator may otherwise
agree from time to time in writing before or after the date hereof. This
Agreement shall not in any way limit or restrict the Sub-Adviser or any of its
directors, officers, employees or agents from buying, selling or trading any
securities or other investment instruments for its or their own account or for
the account of others for whom it or they may be acting, provided that such
activities do not adversely affect or otherwise impair the performance by the
Sub-Adviser of its duties and obligations under this Agreement. The Manager and
the Series recognize and agree that the Sub-Adviser may provide advice to or
take action
<PAGE>
with respect to other clients, which advice or action, including the timing and
nature of such action, may differ from or be identical to advice given or action
taken with respect to the Series. The Sub-Adviser shall for all purposes hereof
be deemed to be an independent contractor and shall, unless otherwise provided
or authorized, have no authority to act for or represent the Trust or the
Manager in any way or otherwise be deemed an agent of the Trust or the Manager.
I. Liability. Except as may otherwise be provided by the 1940 Act or
---------
other federal securities laws, neither the Sub-Adviser nor any of its officers,
directors, employees or agents (the "Indemnified Parties") shall be subject to
any liability to the Manager, the Trust, the Series or any shareholder of the
Series for any error of judgment, any mistake of law or any loss arising out of
any investment or other act or omission in the course of, connected with, or
arising out of any service to be rendered under this Agreement, except by reason
of willful misfeasance, bad faith or gross negligence in the performance of the
Sub-Adviser's duties or by reason of reckless disregard by the Sub-Adviser of
its obligations and duties. The Manager shall hold harmless and indemnify the
Sub-Adviser for any loss, liability, cost, damage or expense (including
reasonable attorneys fees and costs) arising from any claim or demand by any
past or present shareholder of the Series that is not based upon the obligations
of the Sub-Adviser with respect to the Series under this Agreement. The Manager
acknowledges and agrees that the Sub-Adviser makes no representation or
warranty, express or implied, that any level of performance or investment
results will be achieved by the Series or that the Series will perform
comparably with any standard or index, including other clients of the Sub-
Adviser, whether public or private.
I. Effective Date and Termination. This Agreement shall become
------------------------------
effective as of the date of its execution, and
A. unless otherwise terminated, this Agreement shall continue in
effect for two years from the date of execution, and from year to year
thereafter so long as such continuance is specifically approved at least
annually (i) by the Board of Trustees of the Trust or by vote of a majority of
the outstanding voting securities of the Series, and (ii) by vote of a majority
of the trustees of the Trust who are not interested persons of the Trust, the
Manager or the Sub-Adviser, cast in person at a meeting called for the purpose
of voting on such approval;
A. this Agreement may at any time be terminated on sixty days'
written notice to the Sub-Adviser either by vote of the Board of Trustees of the
Trust or by vote of a majority of the outstanding voting securities of the
Series;
A. this Agreement shall automatically terminate in the event of
its assignment or upon the termination of the Advisory Agreement;
A. this Agreement may be terminated by the Sub-Adviser on sixty
days' written notice to the Manager and the Trust, or, if approved by the Board
of
-5-
<PAGE>
Trustees of the Trust, by the Manager on sixty days' written notice to the
Sub-Adviser; and
e. if the Sub-Adviser requires the Series to change its name so as
to eliminate all references to Westpeak Investment Advisors, L.P., then this
Agreement shall automatically terminate at the time of such change unless the
continuance of this Agreement after such change shall have been specifically
approved by vote of a majority of the outstanding voting securities of the
Series and by vote of a majority of the Trustees of the Trust who are not
interested persons of the Trust or the Sub-Adviser, cast in person at a meeting
called for the purpose of voting on such approval.
Termination of this Agreement pursuant to this Section 10 shall be without
the payment of any penalty.
I. Amendment. This Agreement may be amended at any time by mutual
---------
consent of the Manager and the Sub-Adviser, provided that, if required by law,
such amendment shall also have been approved by vote of a majority of the
outstanding voting securities of the Series and by vote of a majority of the
trustees of the Trust who are not interested persons of the Trust, the Manager
or the Sub-Adviser, cast in person at a meeting called for the purpose of voting
on such approval.
I. Certain Definitions. For the purpose of this Agreement, the terms
-------------------
"vote of a majority of the outstanding voting securities," "interested person,"
"affiliated person" and "assignment" shall have their respective meanings
defined in the 1940 Act, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under the 1940 Act.
I. General.
-------
A. The Sub-Adviser may perform its services through any employee,
officer or agent of the Sub-Adviser, and the Manager shall not be entitled to
the advice, recommendation or judgment of any specific person; provided,
however, that the persons identified in the prospectus of the Series shall
perform the portfolio management duties described therein until the Sub-Adviser
notifies the Manager that one or more other employees, officers or agents of the
Sub-Adviser, identified in such notice, shall assume such duties as of a
specific date.
A. If any term or provision of this Agreement or the application
thereof to any person or circumstances is held to be invalid or unenforceable to
any extent, the remainder of this Agreement or the application of such provision
to other persons or circumstances shall not be affected thereby and shall be
enforced to the fullest extent permitted by law.
-6-
<PAGE>
A. This Agreement shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Massachusetts.
TNE ADVISERS, INC.
By:
John F. Guthrie, Jr.
Senior Vice President
WESTPEAK INVESTMENT ADVISORS, L.P.
By:
Name:
Title:
-7-
<PAGE>
NEW ENGLAND ZENITH FUND
SUB-ADVISORY AGREEMENT
(Westpeak Stock Index Series)
This Sub-Advisory Agreement (this "Agreement") is entered into as of August
30, 1996 by and between TNE Advisers, Inc., a Massachusetts corporation (the
"Manager") and Westpeak Investment Advisors, L.P. (the "Sub-Adviser").
WHEREAS, the Manager has entered into an Advisory Agreement dated August
30, 1996 (the "Advisory Agreement") with New England Zenith Fund (the "Trust"),
pursuant to which the Manager provides portfolio management and administrative
services to the Westpeak Stock Index Series of the Trust (the "Series");
WHEREAS, the Advisory Agreement provides that the Manager may delegate any
or all of its portfolio management responsibilities under the Advisory Agreement
to one or more sub-advisers;
WHEREAS, the Manager desires to retain the Sub-Adviser to render portfolio
management services in the manner and on the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, the Manager and the Sub-Adviser agree as follows:
<PAGE>
I. Sub-Advisory Services.
---------------------
A. The Sub-Adviser shall, subject to the supervision of the Manager
and in cooperation with any administrator appointed by the Manager (the
"Administrator"), manage the investment and reinvestment of the assets of the
Series. The Sub-Adviser shall manage the Series in conformity with (1) the
investment objective, policies and restrictions of the Series set forth in the
Trust's prospectus and statement of additional information relating to the
Series, (2) any additional policies or guidelines established by the Manager or
by the Trust's trustees that have been furnished in writing to the Sub-Adviser
and (3) the provisions of the Internal Revenue Code (the "Code") applicable to
"regulated investment companies" (as defined in Section 851 of the Code) and
Section 817 of the Code, all as from time to time in effect (collectively, the
"Policies"), and with all applicable provisions of law, including without
limitation all applicable provisions of the Investment Company Act of 1940 (the
"1940 Act") and the rules and regulations thereunder. Subject to the foregoing,
the Sub-Adviser is authorized, in its discretion and without prior consultation
with the Manager, to buy, sell, lend and otherwise trade in any stocks, bonds
and other securities and investment instruments on behalf of the Series, without
regard to the length of time the securities have been held and the resulting
rate of portfolio turnover or any tax considerations; and the majority or the
whole of the Series may be invested in such proportions of stocks, bonds, other
securities or investment instruments, or cash, as the Sub-Adviser shall
determine. Notwithstanding the foregoing provisions of this Section 1.a,
however, the Sub-Adviser shall, upon written instructions from the Manager,
effect such portfolio transactions for the Series as the Manager shall determine
are necessary in order for the Series to comply with the Policies.
A. The Sub-Adviser shall furnish the Manager and the Administrator
monthly, quarterly and annual reports concerning portfolio transactions and
performance of the Series in such form as may be mutually agreed upon, and
agrees to review the Series and discuss the management of the Series with
representatives or agents of the Manager, the Administrator or the Trust at
their reasonable request. The Sub-Adviser shall permit all books and records
with respect to the Series to be inspected and audited by the Manager and the
Administrator at all reasonable times during normal business hours, upon
reasonable notice. The Sub-Adviser shall also provide the Manager, the
Administrator or the Trust with such other information and reports as may
reasonably be requested by the Manager, the Administrator or the Trust from time
to time, including without limitation all material as reasonably may be
requested by the Trustees of the Trust pursuant to Section 15(c) of the 1940
Act.
A. The Sub-Adviser shall provide to the Manager a copy of the Sub-
Adviser's Form ADV as filed with the Securities and Exchange Commission and as
amended from time to time and a list of the persons whom the Sub-Adviser wishes
to have authorized to give written and/or oral instructions to custodians of
assets of the Series.
<PAGE>
I. Obligations of the Manager.
--------------------------
A. The Manager shall provide (or cause the Trust's custodian to
provide) timely information to the Sub-Adviser regarding such matters as the
composition of assets in the Series, cash requirements and cash available for
investment in the Series, and all other information as may be reasonably
necessary for the Sub-Adviser to perform its responsibilities hereunder.
A. The Manager has furnished the Sub-Adviser a copy of the prospectus
and statement of additional information of the Series and agrees during the
continuance of this Agreement to furnish the Sub-Adviser copies of any revisions
or supplements thereto at, or, if practicable, before the time the revisions or
supplements become effective. The Manager agrees to furnish the Sub-Adviser with
minutes of meetings of the Trustees of the Trust applicable to the Series to the
extent they may affect the duties of the Sub-Adviser, and with copies of any
financial statements or reports made by the Series to its shareholders, and any
further materials or information which the Sub-Adviser may reasonably request to
enable it to perform its functions under this Agreement.
I. Custodian. The Manager shall provide the Sub-Adviser with a copy of
---------
the Series's agreement with the custodian designated to hold the assets of the
Series (the "Custodian") and any modifications thereto (the "Custody
Agreement"), copies of such modifications to be provided to the Sub-Adviser a
reasonable time in advance of the effectiveness of such modifications. The
assets of the Series shall be maintained in the custody of the Custodian
identified in, and in accordance with the terms and conditions of, the Custody
Agreement (or any sub-custodian properly appointed as provided in the Custody
Agreement). The Sub-Adviser shall have no liability for the acts or omissions of
the Custodian, unless such act or omission is required by and taken in reliance
upon instruction given to the Custodian by a representative of the Sub-Adviser
properly authorized to give such instruction under the Custody Agreement. Any
assets added to the Series shall be delivered directly to the Custodian.
I. Expenses. Except for expenses specifically assumed or agreed to be
--------
paid by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be liable for
any expenses of the Manager or the Trust including, without limitation, (a)
interest and taxes, (b) brokerage commissions and other costs in connection with
the purchase or sale of securities or other investment instruments with respect
to the Series, and (c) custodian fees and expenses. The Sub-Adviser will pay its
own expenses incurred in furnishing the services to be provided by it pursuant
to this Agreement.
I. Purchase and Sale of Assets. Absent instructions from the Manager to
---------------------------
the contrary, the Sub-Adviser shall place all orders for the purchase and sale
of securities for the Series with brokers or dealers selected by the Sub-
Adviser,
<PAGE>
which may include brokers or dealers affiliated with the Sub-Adviser, provided
such orders comply with Rule 17e-1 under the 1940 Act in all respects. To the
extent consistent with applicable law, purchase or sell orders for the Series
may be aggregated with contemporaneous purchase or sell orders of other clients
of the Sub-Adviser. The Sub-Adviser shall use its best efforts to obtain
execution of transactions for the Series at prices which are advantageous to the
Series and at commission rates that are reasonable in relation to the benefits
received. However, the Sub-Adviser may select brokers or dealers on the basis
that they provide brokerage, research or other services or products to the
Series and/or other accounts serviced by the Sub-Adviser. To the extent
consistent with applicable law, the Sub-Adviser may pay a broker or dealer an
amount of commission for effecting a securities transaction in excess of the
amount of commission or dealer spread another broker or dealer would have
charged for effecting that transaction if the Sub-Adviser determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research products and/or services provided by such broker or
dealer. This determination, with respect to brokerage and research services or
products, may be viewed in terms of either that particular transaction or the
overall responsibilities which the Sub-Adviser and its affiliates have with
respect to the Series or to accounts over which they exercise investment
discretion. Not all such services or products need to be used by the Sub-Adviser
in managing the Series.
I. Compensation of the Sub-Adviser. As full compensation for all
-------------------------------
services rendered, facilities furnished and expenses borne by the Sub-Adviser
hereunder, the Manager shall pay the Sub-Adviser compensation at the annual rate
of .10% of average net assets. Such compensation shall be payable monthly in
arrears or at such other intervals, not less frequently than quarterly, as the
Manager is paid by the Series pursuant to the Advisory Agreement. The Manager
may from time to time waive the compensation it is entitled to receive from the
Trust; however, any such waiver will have no effect on the Manager's obligation
to pay the Sub-Adviser the compensation provided for herein.
I. Non-Exclusivity. The Manager and the Series agree that the services
---------------
of the Sub-Adviser are not to be deemed exclusive and that the Sub-Adviser and
its affiliates are free to act as investment manager and provide other services
to various investment companies and other managed accounts, except as the Sub-
Adviser and the Manager or the Administrator may otherwise agree from time to
time in writing before or after the date hereof. This Agreement shall not in any
way limit or restrict the Sub-Adviser or any of its directors, officers,
employees or agents from buying, selling or trading any securities or other
investment instruments for its or their own account or for the account of others
for whom it or they may be acting, provided that such activities do not
adversely affect or otherwise impair the performance by the Sub-Adviser of its
duties and obligations under this Agreement. The Manager and the Series
recognize and agree that the Sub-Adviser may provide advice to or take action
with respect to other clients, which advice or action, including the timing and
nature of such action, may differ from or be identical to advice given or action
taken with respect
<PAGE>
to the Series. The Sub-Adviser shall for all purposes hereof be deemed to be an
independent contractor and shall, unless otherwise provided or authorized, have
no authority to act for or represent the Trust or the Manager in any way or
otherwise be deemed an agent of the Trust or the Manager.
I. Liability. Except as may otherwise be provided by the 1940 Act or
---------
other federal securities laws, neither the Sub-Adviser nor any of its officers,
directors, employees or agents (the "Indemnified Parties") shall be subject to
any liability to the Manager, the Trust, the Series or any shareholder of the
Series for any error of judgment, any mistake of law or any loss arising out of
any investment or other act or omission in the course of, connected with, or
arising out of any service to be rendered under this Agreement, except by reason
of willful misfeasance, bad faith or gross negligence in the performance of the
Sub-Adviser's duties or by reason of reckless disregard by the Sub-Adviser of
its obligations and duties. The Manager shall hold harmless and indemnify the
Sub-Adviser for any loss, liability, cost, damage or expense (including
reasonable attorneys fees and costs) arising from any claim or demand by any
past or present shareholder of the Series that is not based upon the obligations
of the Sub-Adviser with respect to the Series under this Agreement. The Manager
acknowledges and agrees that the Sub-Adviser makes no representation or
warranty, express or implied, that any level of performance or investment
results will be achieved by the Series or that the Series will perform
comparably with any standard or index, including other clients of the Sub-
Adviser, whether public or private.
II. Effective Date and Termination. This Agreement shall become effective
------------------------------
as of the date of its execution, and
A. unless otherwise terminated, this Agreement shall continue in
effect for two years from the date of execution, and from year to year
thereafter so long as such continuance is specifically approved at least
annually (i) by the Board of Trustees of the Trust or by vote of a majority of
the outstanding voting securities of the Series, and (ii) by vote of a majority
of the trustees of the Trust who are not interested persons of the Trust, the
Manager or the Sub-Adviser, cast in person at a meeting called for the purpose
of voting on such approval;
A. this Agreement may at any time be terminated on sixty days'
written notice to the Sub-Adviser either by vote of the Board of Trustees of the
Trust or by vote of a majority of the outstanding voting securities of the
Series;
A. this Agreement shall automatically terminate in the event of its
assignment or upon the termination of the Advisory Agreement;
A. this Agreement may be terminated by the Sub-Adviser on sixty days'
written notice to the Manager and the Trust, or, if approved by the Board of
Trustees of the Trust, by the Manager on sixty days' written notice to the Sub-
Adviser; and
-5-
<PAGE>
e. if the Sub-Adviser requires the Series to change its name so as to
eliminate all references to Westpeak Investment Advisors, L.P., then this
Agreement shall automatically terminate at the time of such change unless the
continuance of this Agreement after such change shall have been specifically
approved by vote of a majority of the outstanding voting securities of the
Series and by vote of a majority of the Trustees of the Trust who are not
interested persons of the Trust or the Sub-Adviser, cast in person at a meeting
called for the purpose of voting on such approval.
Termination of this Agreement pursuant to this Section 10 shall be without
the payment of any penalty.
I. Amendment. This Agreement may be amended at any time by mutual
---------
consent of the Manager and the Sub-Adviser, provided that, if required by law,
such amendment shall also have been approved by vote of a majority of the
outstanding voting securities of the Series and by vote of a majority of the
trustees of the Trust who are not interested persons of the Trust, the Manager
or the Sub-Adviser, cast in person at a meeting called for the purpose of voting
on such approval.
I. Certain Definitions. For the purpose of this Agreement, the terms
-------------------
"vote of a majority of the outstanding voting securities," "interested person,"
"affiliated person" and "assignment" shall have their respective meanings
defined in the 1940 Act, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under the 1940 Act.
I. General.
-------
A. The Sub-Adviser may perform its services through any employee,
officer or agent of the Sub-Adviser, and the Manager shall not be entitled to
the advice, recommendation or judgment of any specific person; provided,
however, that the persons identified in the prospectus of the Series shall
perform the portfolio management duties described therein until the Sub-Adviser
notifies the Manager that one or more other employees, officers or agents of the
Sub-Adviser, identified in such notice, shall assume such duties as of a
specific date.
A. If any term or provision of this Agreement or the application
thereof to any person or circumstances is held to be invalid or unenforceable to
any extent, the remainder of this Agreement or the application of such provision
to other persons or circumstances shall not be affected thereby and shall be
enforced to the fullest extent permitted by law.
-6-
<PAGE>
A. This Agreement shall be governed by and interpreted in accordance
with the laws of the Commonwealth of Massachusetts.
TNE ADVISERS, INC.
By:
John F. Guthrie, Jr.
Senior Vice President
WESTPEAK INVESTMENT ADVISORS, L.P.
By:
Name:
Title:
-7-
<PAGE>
NEW ENGLAND ZENITH FUND
SUB-ADVISORY AGREEMENT
(Loomis Sayles Balanced Series)
This Sub-Advisory Agreement (this "Agreement") is entered into as of
August 30, 1996 by and between TNE Advisers, Inc., a Massachusetts corporation
(the "Manager") and Loomis, Sayles & Company, L.P. (the "Sub-Adviser").
WHEREAS, the Manager has entered into an Advisory Agreement dated August
30, 1996 (the "Advisory Agreement") with New England Zenith Fund (the "Trust"),
pursuant to which the Manager provides portfolio management and administrative
services to the Loomis Sayles Balanced Series of the Trust (the "Series");
WHEREAS, the Advisory Agreement provides that the Manager may delegate any
or all of its portfolio management responsibilities under the Advisory Agreement
to one or more sub-advisers;
WHEREAS, the Manager desires to retain the Sub-Adviser to render portfolio
management services in the manner and on the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, the Manager and the Sub-Adviser agree as follows:
<PAGE>
I. Sub-Advisory Services.
---------------------
A. The Sub-Adviser shall, subject to the supervision of the
Manager and in cooperation with any administrator appointed by the Manager (the
"Administrator"), manage the investment and reinvestment of the assets of the
Series. The Sub-Adviser shall manage the Series in conformity with (1) the
investment objective, policies and restrictions of the Series set forth in the
Trust's prospectus and statement of additional information relating to the
Series, (2) any additional policies or guidelines established by the Manager or
by the Trust's trustees that have been furnished in writing to the Sub-Adviser
and (3) the provisions of the Internal Revenue Code (the "Code") applicable to
"regulated investment companies" (as defined in Section 851 of the Code) and
Section 817 of the Code, all as from time to time in effect (collectively, the
"Policies"), and with all applicable provisions of law, including without
limitation all applicable provisions of the Investment Company Act of 1940 (the
"1940 Act") and the rules and regulations thereunder. Subject to the foregoing,
the Sub-Adviser is authorized, in its discretion and without prior consultation
with the Manager, to buy, sell, lend and otherwise trade in any stocks, bonds
and other securities and investment instruments on behalf of the Series, without
regard to the length of time the securities have been held and the resulting
rate of portfolio turnover or any tax considerations; and the majority or the
whole of the Series may be invested in such proportions of stocks, bonds, other
securities or investment instruments, or cash, as the Sub-Adviser shall
determine. Notwithstanding the foregoing provisions of this Section 1.a,
however, the Sub-Adviser shall, upon written instructions from the Manager,
effect such portfolio transactions for the Series as the Manager shall determine
are necessary in order for the Series to comply with the Policies.
A. The Sub-Adviser shall furnish the Manager and the Administrator
monthly, quarterly and annual reports concerning portfolio transactions and
performance of the Series in such form as may be mutually agreed upon, and
agrees to review the Series and discuss the management of the Series with
representatives or agents of the Manager, the Administrator or the Trust at
their reasonable request. The Sub-Adviser shall permit all books and records
with respect to the Series to be inspected and audited by the Manager and the
Administrator at all reasonable times during normal business hours, upon
reasonable notice. The Sub-Adviser shall also provide the Manager, the
Administrator or the Trust with such other information and reports as may
reasonably be requested by the Manager, the Administrator or the Trust from time
to time, including without limitation all material as reasonably may be
requested by the Trustees of the Trust pursuant to Section 15(c) of the 1940
Act.
A. The Sub-Adviser shall provide to the Manager a copy of the Sub-
Adviser's Form ADV as filed with the Securities and Exchange Commission and as
amended from time to time and a list of the persons whom the Sub-Adviser wishes
to have authorized to give written and/or oral instructions to custodians of
assets of the Series.
<PAGE>
I. Obligations of the Manager.
--------------------------
A. The Manager shall provide (or cause the Trust's custodian to
provide) timely information to the Sub-Adviser regarding such matters as the
composition of assets in the Series, cash requirements and cash available for
investment in the Series, and all other information as may be reasonably
necessary for the Sub-Adviser to perform its responsibilities hereunder.
A. The Manager has furnished the Sub-Adviser a copy of the
prospectus and statement of additional information of the Series and agrees
during the continuance of this Agreement to furnish the Sub-Adviser copies of
any revisions or supplements thereto at, or, if practicable, before the time the
revisions or supplements become effective. The Manager agrees to furnish the
Sub-Adviser with minutes of meetings of the Trustees of the Trust applicable to
the Series to the extent they may affect the duties of the Sub-Adviser, and with
copies of any financial statements or reports made by the Series to its
shareholders, and any further materials or information which the Sub-Adviser may
reasonably request to enable it to perform its functions under this Agreement.
I. Custodian. The Manager shall provide the Sub-Adviser with a copy
---------
of the Series's agreement with the custodian designated to hold the assets of
the Series (the "Custodian") and any modifications thereto (the "Custody
Agreement"), copies of such modifications to be provided to the Sub-Adviser a
reasonable time in advance of the effectiveness of such modifications. The
assets of the Series shall be maintained in the custody of the Custodian
identified in, and in accordance with the terms and conditions of, the Custody
Agreement (or any sub-custodian properly appointed as provided in the Custody
Agreement). The Sub-Adviser shall have no liability for the acts or omissions of
the Custodian, unless such act or omission is required by and taken in reliance
upon instruction given to the Custodian by a representative of the Sub-Adviser
properly authorized to give such instruction under the Custody Agreement. Any
assets added to the Series shall be delivered directly to the Custodian.
I. Expenses. Except for expenses specifically assumed or agreed to be
--------
paid by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be liable for
any expenses of the Manager or the Trust including, without limitation, (a)
interest and taxes, (b) brokerage commissions and other costs in connection with
the purchase or sale of securities or other investment instruments with respect
to the Series, and (c) custodian fees and expenses. The Sub-Adviser will pay its
own expenses incurred in furnishing the services to be provided by it pursuant
to this Agreement.
I. Purchase and Sale of Assets. Absent instructions from the Manager
---------------------------
to the contrary, the Sub-Adviser shall place all orders for the purchase and
sale of securities for the Series with brokers or dealers selected by the Sub-
Adviser,
<PAGE>
which may include brokers or dealers affiliated with the Sub-Adviser, provided
such orders comply with Rule 17e-1 under the 1940 Act in all respects. To the
extent consistent with applicable law, purchase or sell orders for the Series
may be aggregated with contemporaneous purchase or sell orders of other clients
of the Sub-Adviser. The Sub-Adviser shall use its best efforts to obtain
execution of transactions for the Series at prices which are advantageous to the
Series and at commission rates that are reasonable in relation to the benefits
received. However, the Sub-Adviser may select brokers or dealers on the basis
that they provide brokerage, research or other services or products to the
Series and/or other accounts serviced by the Sub-Adviser. Not all such services
or products need to be used by the Sub-Adviser in managing the Series.
I. Compensation of the Sub-Adviser. As full compensation for all
-------------------------------
services rendered, facilities furnished and expenses borne by the Sub-Adviser
hereunder, the Manager shall pay the Sub-Adviser compensation at the annual rate
of 0.50% of the first $25 million of the average daily net assets of the Series,
0.40% of the next 75 million of such assets and 0.30% of such assets in excess
of $100 million. Such compensation shall be payable monthly in arrears or at
such other intervals, not less frequently than quarterly, as the Manager is paid
by the Series pursuant to the Advisory Agreement. The Manager may from time to
time waive the compensation it is entitled to receive from the Trust; however,
any such waiver will have no effect on the Manager's obligation to pay the Sub-
Adviser the compensation provided for herein.
I. Non-Exclusivity. The Manager and the Series agree that the services
---------------
of the Sub-Adviser are not to be deemed exclusive and that the Sub-Adviser and
its affiliates are free to act as investment manager and provide other services
to various investment companies and other managed accounts, except as the Sub-
Adviser and the Manager or the Administrator may otherwise agree from time to
time in writing before or after the date hereof. This Agreement shall not in any
way limit or restrict the Sub-Adviser or any of its directors, officers,
employees or agents from buying, selling or trading any securities or other
investment instruments for its or their own account or for the account of others
for whom it or they may be acting, provided that such activities do not
adversely affect or otherwise impair the performance by the Sub-Adviser of its
duties and obligations under this Agreement. The Manager and the Series
recognize and agree that the Sub-Adviser may provide advice to or take action
with respect to other clients, which advice or action, including the timing and
nature of such action, may differ from or be identical to advice given or action
taken with respect to the Series. The Sub-Adviser shall for all purposes hereof
be deemed to be an independent contractor and shall, unless otherwise provided
or authorized, have no authority to act for or represent the Trust or the
Manager in any way or otherwise be deemed an agent of the Trust or the Manager.
I. Liability. Except as may otherwise be provided by the 1940 Act or
---------
other federal securities laws, neither the Sub-Adviser nor any of its officers,
directors, employees or agents (the "Indemnified Parties") shall be subject to
any liability to the Manager, the Trust, the Series or any shareholder of the
Series for any
-4-
<PAGE>
error of judgment, any mistake of law or any loss arising out of any investment
or other act or omission in the course of, connected with, or arising out of any
service to be rendered under this Agreement, except by reason of willful
misfeasance, bad faith or gross negligence in the performance of the Sub-
Adviser's duties or by reason of reckless disregard by the Sub-Adviser of its
obligations and duties. The Manager shall hold harmless and indemnify the Sub-
Adviser for any loss, liability, cost, damage or expense (including reasonable
attorneys fees and costs) arising from any claim or demand by any past or
present shareholder of the Series that is not based upon the obligations of the
Sub-Adviser with respect to the Series under this Agreement. The Manager
acknowledges and agrees that the Sub-Adviser makes no representation or
warranty, express or implied, that any level of performance or investment
results will be achieved by the Series or that the Series will perform
comparably with any standard or index, including other clients of the Sub-
Adviser, whether public or private.
I. Effective Date and Termination. This Agreement shall become
------------------------------
effective as of the date of its execution, and
A. unless otherwise terminated, this Agreement shall continue in
effect for two years from the date of execution, and from year to year
thereafter so long as such continuance is specifically approved at least
annually (i) by the Board of Trustees of the Trust or by vote of a majority of
the outstanding voting securities of the Series, and (ii) by vote of a majority
of the trustees of the Trust who are not interested persons of the Trust, the
Manager or the Sub-Adviser, cast in person at a meeting called for the purpose
of voting on such approval;
A. this Agreement may at any time be terminated on sixty days'
written notice to the Sub-Adviser either by vote of the Board of Trustees of the
Trust or by vote of a majority of the outstanding voting securities of the
Series;
A. this Agreement shall automatically terminate in the event of
its assignment or upon the termination of the Advisory Agreement;
A. this Agreement may be terminated by the Sub-Adviser on sixty
days' written notice to the Manager and the Trust, or, if approved by the Board
of Trustees of the Trust, by the Manager on sixty days' written notice to the
Sub-Adviser; and
e. if the Sub-Adviser requires the Series to change its name so as to
eliminate all references to the words "Loomis Sayles," then this Agreement shall
automatically terminate at the time of such change unless the continuance of
this Agreement after such change shall have been specifically approved by vote
of a majority of the outstanding voting securities of the Series and by vote of
a majority of the Trustees of the Trust who are not interested persons of the
Trust or the Sub-Adviser, cast in person at a meeting called for the purpose of
voting on such approval.
-5-
<PAGE>
Termination of this Agreement pursuant to this Section 10 shall be without
the payment of any penalty.
I. Amendment. This Agreement may be amended at any time by mutual
---------
consent of the Manager and the Sub-Adviser, provided that, if required by law,
such amendment shall also have been approved by vote of a majority of the
outstanding voting securities of the Series and by vote of a majority of the
trustees of the Trust who are not interested persons of the Trust, the Manager
or the Sub-Adviser, cast in person at a meeting called for the purpose of voting
on such approval.
I. Certain Definitions. For the purpose of this Agreement, the terms
-------------------
"vote of a majority of the outstanding voting securities," "interested person,"
"affiliated person" and "assignment" shall have their respective meanings
defined in the 1940 Act, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under the 1940 Act.
I. General.
-------
A. The Sub-Adviser may perform its services through any employee,
officer or agent of the Sub-Adviser, and the Manager shall not be entitled to
the advice, recommendation or judgment of any specific person; provided,
however, that the persons identified in the prospectus of the Series shall
perform the portfolio management duties described therein until the Sub-Adviser
notifies the Manager that one or more other employees, officers or agents of the
Sub-Adviser, identified in such notice, shall assume such duties as of a
specific date.
A. If any term or provision of this Agreement or the application
thereof to any person or circumstances is held to be invalid or unenforceable to
any extent, the remainder of this Agreement or the application of such provision
to other persons or circumstances shall not be affected thereby and shall be
enforced to the fullest extent permitted by law.
-6-
<PAGE>
A. This Agreement shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Massachusetts.
TNE ADVISERS, INC.
By:
John F. Guthrie, Jr.
Senior Vice President
LOOMIS, SAYLES & COMPANY, L.P.
By:
Name:
Title:
-7-
<PAGE>
NEW ENGLAND ZENITH FUND
SUB-ADVISORY AGREEMENT
(Back Bay Advisors Managed Series)
This Sub-Advisory Agreement (this "Agreement") is entered into as of August
30, 1996 by and between TNE Advisers, Inc., a Massachusetts corporation (the
"Manager") and Back Bay Advisors, L.P. (the "Sub-Adviser").
WHEREAS, the Manager has entered into an Advisory Agreement dated August
30, 1996 (the "Advisory Agreement") with New England Zenith Fund (the "Trust"),
pursuant to which the Manager provides portfolio management and administrative
services to the Back Bay Advisors Managed Series of the Trust (the "Series");
WHEREAS, the Advisory Agreement provides that the Manager may delegate any
or all of its portfolio management responsibilities under the Advisory Agreement
to one or more sub-advisers;
WHEREAS, the Manager desires to retain the Sub-Adviser to render portfolio
management services in the manner and on the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, the Manager and the Sub-Adviser agree as follows:
<PAGE>
I. Sub-Advisory Services.
---------------------
A. The Sub-Adviser shall, subject to the supervision of the
Manager and in cooperation with any administrator appointed by the Manager (the
"Administrator"), manage the investment and reinvestment of the assets of the
Series. The Sub-Adviser shall manage the Series in conformity with (1) the
investment objective, policies and restrictions of the Series set forth in the
Trust's prospectus and statement of additional information relating to the
Series, (2) any additional policies or guidelines established by the Manager or
by the Trust's trustees that have been furnished in writing to the Sub-Adviser
and (3) the provisions of the Internal Revenue Code (the "Code") applicable to
"regulated investment companies" (as defined in Section 851 of the Code) and
Section 817 of the Code, all as from time to time in effect (collectively, the
"Policies"), and with all applicable provisions of law, including without
limitation all applicable provisions of the Investment Company Act of 1940 (the
"1940 Act") and the rules and regulations thereunder. Subject to the foregoing,
the Sub-Adviser is authorized, in its discretion and without prior consultation
with the Manager, to buy, sell, lend and otherwise trade in any stocks, bonds
and other securities and investment instruments on behalf of the Series, without
regard to the length of time the securities have been held and the resulting
rate of portfolio turnover or any tax considerations; and the majority or the
whole of the Series may be invested in such proportions of stocks, bonds, other
securities or investment instruments, or cash, as the Sub-Adviser shall
determine. Notwithstanding the foregoing provisions of this Section 1.a,
however, the Sub-Adviser shall, upon written instructions from the Manager,
effect such portfolio transactions for the Series as the Manager shall determine
are necessary in order for the Series to comply with the Policies.
A. The Sub-Adviser shall furnish the Manager and the Administrator
monthly, quarterly and annual reports concerning portfolio transactions and
performance of the Series in such form as may be mutually agreed upon, and
agrees to review the Series and discuss the management of the Series with
representatives or agents of the Manager, the Administrator or the Trust at
their reasonable request. The Sub-Adviser shall permit all books and records
with respect to the Series to be inspected and audited by the Manager and the
Administrator at all reasonable times during normal business hours, upon
reasonable notice. The Sub-Adviser shall also provide the Manager, the
Administrator or the Trust with such other information and reports as may
reasonably be requested by the Manager, the Administrator or the Trust from time
to time, including without limitation all material as reasonably may be
requested by the Trustees of the Trust pursuant to Section 15(c) of the 1940
Act.
A. The Sub-Adviser shall provide to the Manager a copy of the Sub-
Adviser's Form ADV as filed with the Securities and Exchange Commission and as
amended from time to time and a list of the persons whom the Sub-Adviser wishes
to have authorized to give written and/or oral instructions to custodians of
assets of the Series.
<PAGE>
I. Obligations of the Manager.
--------------------------
A. The Manager shall provide (or cause the Trust's custodian to
provide) timely information to the Sub-Adviser regarding such matters as the
composition of assets in the Series, cash requirements and cash available for
investment in the Series, and all other information as may be reasonably
necessary for the Sub-Adviser to perform its responsibilities hereunder.
A. The Manager has furnished the Sub-Adviser a copy of the
prospectus and statement of additional information of the Series and agrees
during the continuance of this Agreement to furnish the Sub-Adviser copies of
any revisions or supplements thereto at, or, if practicable, before the time the
revisions or supplements become effective. The Manager agrees to furnish the
Sub-Adviser with minutes of meetings of the Trustees of the Trust applicable to
the Series to the extent they may affect the duties of the Sub-Adviser, and with
copies of any financial statements or reports made by the Series to its
shareholders, and any further materials or information which the Sub-Adviser may
reasonably request to enable it to perform its functions under this Agreement.
I. Custodian. The Manager shall provide the Sub-Adviser with a copy of
---------
the Series's agreement with the custodian designated to hold the assets of the
Series (the "Custodian") and any modifications thereto (the "Custody
Agreement"), copies of such modifications to be provided to the Sub-Adviser a
reasonable time in advance of the effectiveness of such modifications. The
assets of the Series shall be maintained in the custody of the Custodian
identified in, and in accordance with the terms and conditions of, the Custody
Agreement (or any sub-custodian properly appointed as provided in the Custody
Agreement). The Sub-Adviser shall have no liability for the acts or omissions of
the Custodian, unless such act or omission is required by and taken in reliance
upon instruction given to the Custodian by a representative of the Sub-Adviser
properly authorized to give such instruction under the Custody Agreement. Any
assets added to the Series shall be delivered directly to the Custodian.
I. Expenses. Except for expenses specifically assumed or agreed to be
--------
paid by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be liable for
any expenses of the Manager or the Trust including, without limitation, (a)
interest and taxes, (b) brokerage commissions and other costs in connection with
the purchase or sale of securities or other investment instruments with respect
to the Series, and (c) custodian fees and expenses. The Sub-Adviser will pay its
own expenses incurred in furnishing the services to be provided by it pursuant
to this Agreement.
I. Purchase and Sale of Assets. Absent instructions from the Manager to
---------------------------
the contrary, the Sub-Adviser shall place all orders for the purchase and sale
of securities for the Series with brokers or dealers selected by the Sub-
Adviser,
<PAGE>
which may include brokers or dealers affiliated with the Sub-Adviser,
provided such orders comply with Rule 17e-1 under the 1940 Act in all respects.
To the extent consistent with applicable law, purchase or sell orders for the
Series may be aggregated with contemporaneous purchase or sell orders of other
clients of the Sub-Adviser. The Sub-Adviser shall use its best efforts to
obtain execution of transactions for the Series at prices which are advantageous
to the Series and at commission rates that are reasonable in relation to the
benefits received. However, the Sub-Adviser may select brokers or dealers on
the basis that they provide brokerage, research or other services or products to
the Series and/or other accounts serviced by the Sub-Adviser. Not all such
services or products need to be used by the Sub-Adviser in managing the Series.
I. Compensation of the Sub-Adviser. As full compensation for all
-------------------------------
services rendered, facilities furnished and expenses borne by the Sub-Adviser
hereunder, the Manager shall pay the Sub-Adviser compensation at the annual rate
of .25% of the first $50 million in average net assets and .20% of the excess
over $50 million in average net assets. Such compensation shall be payable
monthly in arrears or at such other intervals, not less frequently than
quarterly, as the Manager is paid by the Series pursuant to the Advisory
Agreement. The Manager may from time to time waive the compensation it is
entitled to receive from the Trust; however, any such waiver will have no effect
on the Manager's obligation to pay the Sub-Adviser the compensation provided for
herein.
II. Non-Exclusivity. The Manager and the Series agree that the services
---------------
of the Sub-Adviser are not to be deemed exclusive and that the Sub-Adviser and
its affiliates are free to act as investment manager and provide other services
to various investment companies and other managed accounts, except as the Sub-
Adviser and the Manager or the Administrator may otherwise agree from time to
time in writing before or after the date hereof. This Agreement shall not in any
way limit or restrict the Sub-Adviser or any of its directors, officers,
employees or agents from buying, selling or trading any securities or other
investment instruments for its or their own account or for the account of others
for whom it or they may be acting, provided that such activities do not
adversely affect or otherwise impair the performance by the Sub-Adviser of its
duties and obligations under this Agreement. The Manager and the Series
recognize and agree that the Sub-Adviser may provide advice to or take action
with respect to other clients, which advice or action, including the timing and
nature of such action, may differ from or be identical to advice given or action
taken with respect to the Series. The Sub-Adviser shall for all purposes hereof
be deemed to be an independent contractor and shall, unless otherwise provided
or authorized, have no authority to act for or represent the Trust or the
Manager in any way or otherwise be deemed an agent of the Trust or the Manager.
I. Liability. Except as may otherwise be provided by the 1940 Act or
---------
other federal securities laws, neither the Sub-Adviser nor any of its officers,
directors, employees or agents (the "Indemnified Parties") shall be subject to
any liability to the Manager, the Trust, the Series or any shareholder of the
Series for any error of judgment, any mistake of law or any loss arising out of
any investment or
<PAGE>
other act or omission in the course of, connected with, or arising out of any
service to be rendered under this Agreement, except by reason of willful
misfeasance, bad faith or gross negligence in the performance of the Sub-
Adviser's duties or by reason of reckless disregard by the Sub-Adviser of its
obligations and duties. The Manager shall hold harmless and indemnify the Sub-
Adviser for any loss, liability, cost, damage or expense (including reasonable
attorneys fees and costs) arising from any claim or demand by any past or
present shareholder of the Series that is not based upon the obligations of the
Sub-Adviser with respect to the Series under this Agreement. The Manager
acknowledges and agrees that the Sub-Adviser makes no representation or
warranty, express or implied, that any level of performance or investment
results will be achieved by the Series or that the Series will perform
comparably with any standard or index, including other clients of the Sub-
Adviser, whether public or private.
I. Effective Date and Termination. This Agreement shall become effective
------------------------------
as of the date of its execution, and
A. unless otherwise terminated, this Agreement shall continue in
effect for two years from the date of execution, and from year to year
thereafter so long as such continuance is specifically approved at least
annually (i) by the Board of Trustees of the Trust or by vote of a majority of
the outstanding voting securities of the Series, and (ii) by vote of a majority
of the trustees of the Trust who are not interested persons of the Trust, the
Manager or the Sub-Adviser, cast in person at a meeting called for the purpose
of voting on such approval;
A. this Agreement may at any time be terminated on sixty days'
written notice to the Sub-Adviser either by vote of the Board of Trustees of the
Trust or by vote of a majority of the outstanding voting securities of the
Series;
A. this Agreement shall automatically terminate in the event of
its assignment or upon the termination of the Advisory Agreement;
A. this Agreement may be terminated by the Sub-Adviser on sixty
days' written notice to the Manager and the Trust, or, if approved by the Board
of Trustees of the Trust, by the Manager on sixty days' written notice to the
Sub-Adviser; and
e. if the Sub-Adviser requires the Series to change its name so as to
eliminate all references to Back Bay Advisors, L.P., then this Agreement shall
automatically terminate at the time of such change unless the continuance of
this Agreement after such change shall have been specifically approved by vote
of a majority of the outstanding voting securities of the Series and by vote of
a majority of the Trustees of the Trust who are not interested persons of the
Trust or the Sub-Adviser, cast in person at a meeting called for the purpose of
voting on such approval.
-5-
<PAGE>
Termination of this Agreement pursuant to this Section 10 shall be without
the payment of any penalty.
I. Amendment. This Agreement may be amended at any time by mutual
---------
consent of the Manager and the Sub-Adviser, provided that, if required by law,
such amendment shall also have been approved by vote of a majority of the
outstanding voting securities of the Series and by vote of a majority of the
trustees of the Trust who are not interested persons of the Trust, the Manager
or the Sub-Adviser, cast in person at a meeting called for the purpose of voting
on such approval.
I. Certain Definitions. For the purpose of this Agreement, the terms
-------------------
"vote of a majority of the outstanding voting securities," "interested person,"
"affiliated person" and "assignment" shall have their respective meanings
defined in the 1940 Act, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under the 1940 Act.
I. General.
-------
A. The Sub-Adviser may perform its services through any employee,
officer or agent of the Sub-Adviser, and the Manager shall not be entitled to
the advice, recommendation or judgment of any specific person; provided,
however, that the persons identified in the prospectus of the Series shall
perform the portfolio management duties described therein until the Sub-Adviser
notifies the Manager that one or more other employees, officers or agents of the
Sub-Adviser, identified in such notice, shall assume such duties as of a
specific date.
A. If any term or provision of this Agreement or the application
thereof to any person or circumstances is held to be invalid or unenforceable to
any extent, the remainder of this Agreement or the application of such provision
to other persons or circumstances shall not be affected thereby and shall be
enforced to the fullest extent permitted by law.
-6-
<PAGE>
A. This Agreement shall be governed by and interpreted in accordance
with the laws of the Commonwealth of Massachusetts.
TNE ADVISERS, INC.
By:
John F. Guthrie, Jr.
Senior Vice President
BACK BAY ADVISORS, L.P.
By:
Name:
Title:
-7-
<PAGE>
SUB-ADVISORY AGREEMENT
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES
This Sub-Advisory Agreement (this "Agreement") is entered into as of
November __, 1997 by and among TNE Advisers, Inc., a Massachusetts corporation
(the "Manager"), Salomon Brothers Asset Management Inc, a Delaware corporation
(the "Sub-Adviser"), and Salomon Brothers Asset Management Limited ("SBAM
Ltd.").
WHEREAS, the Manager has entered into an Advisory Agreement dated August
30, 1996 (the "Advisory Agreement") with New England Zenith Fund (the "Trust"),
pursuant to which the Manager provides portfolio management and administrative
services to the Salomon Brothers Strategic Bond Opportunities Series of the
Trust (the "Series");
WHEREAS, the Advisory Agreement provides that the Manager may delegate any
or all of its portfolio management responsibilities under the Advisory Agreement
to one or more sub-advisers;
WHEREAS, the Manager desires to retain the Sub-Adviser to render portfolio
management services in the manner and on the terms set forth in this Agreement;
WHEREAS, the Manager and the Sub-Adviser desire to retain SBAM Ltd. to
render certain services as described herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, the Manager and the Sub-Adviser agree as follows:
-1-
<PAGE>
I. Sub-Advisory Services.
---------------------
A. The Sub-Adviser shall, subject to the supervision of the Manager and
in cooperation with any administrator appointed by the Manager (the
"Administrator"), manage the investment and reinvestment of the assets of the
Series. The Sub-Adviser shall manage the Series in conformity with (1) the
investment objective, policies and restrictions of the Series set forth in the
Trust's prospectus and statement of additional information relating to the
Series, (2) any additional policies or guidelines established by the Manager or
by the Trust's trustees that have been furnished in writing to the Sub-Adviser
and (3) the provisions of the Internal Revenue Code (the "Code") applicable to
"regulated investment companies" (as defined in Section 851 of the Code) and
Section 817 of the Code, all as from time to time in effect (collectively, the
"Policies"), and with all applicable provisions of law, including without
limitation all applicable provisions of the Investment Company Act of 1940 (the
"1940 Act") and the rules and regulations thereunder. Subject to the foregoing,
the Sub-Adviser is authorized, in its discretion and without prior consultation
with the Manager, to buy, sell, lend and otherwise trade in any stocks, bonds
and other securities and investment instruments on behalf of the Series, without
regard to the length of time the securities have been held and the resulting
rate of portfolio turnover or any tax considerations; and the majority or the
whole of the Series may be invested in such proportions of stocks, bonds, other
securities or investment instruments, or cash, as the Sub-Adviser shall
determine. Notwithstanding the foregoing provisions of this Section 1.a,
however, the Sub-Adviser shall, upon written instructions from the Manager,
effect such portfolio transactions for the Series as the Manager shall determine
are necessary in order for the Series to comply with the Policies.
A. The Sub-Adviser shall furnish the Manager and the Administrator
monthly, quarterly and annual reports concerning transactions and performance of
the Series in such form as may be mutually agreed upon, and agrees to review the
Series and discuss the management of the Series with representatives or agents
of the Manager, the Administrator or the Trust at their reasonable request. The
Sub-Adviser shall permit all books and records with respect to the Series to be
inspected and audited by the Manager and the Administrator at all reasonable
times during normal business hours, upon reasonable notice. The Sub-Adviser
shall also provide the Manager, the Administrator or the Trust with such other
information and reports as may reasonably be requested by the Manager, the
Administrator or the Trust from time to time, including without limitation all
material as reasonably may be requested to the Trustees of the Trust pursuant to
Section 15(c) of the 1940 Act.
A. The Sub-Adviser shall provide to the Manager a copy of the Sub-
Adviser's and SBAM Ltd.'s respective Form ADV as filed with the Securities and
Exchange Commission and as amended from time to time and a list of the persons
whom the Sub-Adviser wishes to have authorized to give written and/or oral
instructions to custodians of assets of the Series.
<PAGE>
I. Obligations of the Manager.
--------------------------
A. The Manager shall provide (or cause the Trust's custodian to provide)
timely information to the Sub-Adviser regarding such matters as the composition
of assets in the Series, cash requirements and cash available for investment in
the Series, and all other information as may be reasonably necessary for the
Sub-Adviser to perform its responsibilities hereunder.
A. The Manager has furnished the Sub-Adviser a copy of the prospectus and
statement of additional information of the Series and agrees during the
continuance of this Agreement to furnish the Sub-Adviser copies of any revisions
or supplements thereto at, or, if practicable, before the time the revisions or
supplements become effective. The Manager agrees to furnish the Sub-Adviser
with minutes of meetings of the Trustees of the Trust applicable to the Series
to the extent they may affect the duties of the Sub-Adviser, and with copies of
any financial statements or reports made by the Series to its shareholders, and
any further materials or information which the Sub-Adviser may reasonably
request to enable it to perform its functions under this Agreement.
I. Custodian. The Manager shall provide the Sub-Adviser with a copy of
---------
the Series's agreement with the custodian designated to hold the assets of the
Series (the "Custodian") and any modifications thereto (the "Custody
Agreement"), copies of such modifications to be provided to the Sub-Adviser a
reasonable time in advance of the effectiveness of such modifications. The
assets of the Series shall be maintained in the custody of the Custodian
identified in, and in accordance with the terms and conditions of, the Custody
Agreement (or any sub-custodian properly appointed as provided in the Custody
Agreement). The Sub-Adviser shall have no liability for the acts or omissions of
the Custodian, unless such act or omission is required by and taken in reliance
upon instruction given to the Custodian by a representative of the Sub-Adviser
properly authorized to give such instruction under the Custody Agreement. Any
assets added to the Series shall be delivered directly to the Custodian.
I. Proprietary Rights. The Manager agrees and acknowledges that the Sub-
------------------
Adviser is the sole owner of the names and marks "Salomon" and "Salomon
Brothers" and that all use of any designation consisting in whole or part of
such names or marks (a "Salomon Mark") under this Agreement shall inure to the
benefit of the Sub-Adviser. The Manager on its own behalf and on behalf of the
Series agrees not to use any Salomon Mark in any advertisement or sales
literature or other materials promoting the Series, except with the prior
written consent of the Sub-Adviser. Without the prior written consent of the
Sub-Adviser, the Manager shall not, and the Manager shall use its best efforts
to cause the Trust not to, make representations regarding the Sub-Adviser in any
disclosure document, advertisement or sales literature or other materials
relating to the Series. Upon termination of this Agreement for any reason, the
Manager shall cease, and the Manager shall use its best efforts to cause the
Series to cease, all use of any Salomon Mark(s) as soon as reasonably
practicable.
<PAGE>
I. Expenses. Except for expenses specifically assumed or agreed to be
--------
paid by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be liable for
any expenses of the Manager or the Trust including, without limitation, (a)
interest and taxes, (b) brokerage commissions and other costs in connection with
the purchase or sale of securities or other investment instruments with respect
to the Series, and (c) custodian fees and expenses. The Sub-Adviser will pay its
own expenses incurred in furnishing the services to be provided by it pursuant
to this Agreement.
I. Purchase and Sale of Assets. Absent instructions from the Manager to
---------------------------
the contrary, the Sub-Adviser shall place all orders for the purchase and sale
of securities for the Series with brokers or dealers selected by the Sub-
Adviser, which may include brokers or dealers affiliated with the Sub-Adviser,
provided such orders comply with Rule 17e-1 under the 1940 Act in all respects.
To the extent consistent with applicable law, purchase or sell orders for the
Series may be aggregated with contemporaneous purchase or sell orders of other
clients of the Sub-Adviser. The Sub-Adviser shall use its best efforts to
obtain execution of transactions for the Series at prices which are advantageous
to the Series and at commission rates that are reasonable in relation to the
benefits received. However, the Sub-Adviser may select brokers or dealers on
the basis that they provide brokerage, research or other services or products to
the Series and/or other accounts serviced by the Sub-Adviser. To the extent
consistent with applicable law, the Sub-Adviser may pay a broker or dealer an
amount of commission for effecting a securities transaction in excess of the
amount of commission or dealer spread another broker or dealer would have
charged for effecting that transaction if the Sub-Adviser determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research products and/or services provided by such broker or
dealer. This determination, with respect to brokerage and research services or
products, may be viewed in terms of either that particular transaction or the
overall responsibilities which the Sub-Adviser and its affiliates have with
respect to the Series or to accounts over which they exercise investment
discretion. Not all such services or products need be used by the Sub-Adviser
in managing the Series.
I. Compensation of the Sub-Adviser. As full compensation for all services
-------------------------------
rendered, facilities furnished and expenses borne by the Sub-Adviser hereunder,
the Manager shall pay the Sub-Adviser compensation at the annual rate of 0.35%
of the first $50 million of the average daily net assets of the Series, 0.30% of
the next $150 million of such assets, 0.25% of the next $300 million of such
assets and 0.10% of such assets in excess of $500 million. Such compensation
shall be payable monthly in arrears or at such other intervals, not less
frequently than quarterly, as the Manager is paid by the Series pursuant to the
Advisory Agreement. The Manager may from time to time waive the compensation it
is entitled to receive from the Trust; however, any such waiver will have no
effect on the Manager's obligation to pay the Sub-Adviser the compensation
provided for herein.
I. Non-Exclusivity. The Manager and the Series agree that the services of
---------------
the Sub-Adviser are not to be deemed exclusive and that the Sub-Adviser and
<PAGE>
its affiliates are free to act as investment manager and provide other services
to various investment companies and other managed accounts, except as the Sub-
Adviser and the Manager or the Administrator may otherwise agree from time to
time in writing before or after the date hereof. This Agreement shall not in any
way limit or restrict the Sub-Adviser or any of its directors, officers,
employees or agents from buying, selling or trading any securities or other
investment instruments for its or their own account or for the account of others
for whom it or they may be acting, provided that such activities do not
adversely affect or otherwise impair the performance by the Sub-Adviser of its
duties and obligations under this Agreement. The Manager and the Series
recognize and agree that the Sub-Adviser may provide advice to or take action
with respect to other clients, which advice or action, including the timing and
nature of such action, may differ from or be identical to advice given or action
taken with respect to the Series. The Sub-Adviser shall for all purposes hereof
be deemed to be an independent contractor and shall, unless otherwise provided
or authorized, have no authority to act for or represent the Trust or the
Manager in any way or otherwise be deemed an agent of the Trust or the Manager.
I. Liability. Except as may otherwise be provided by the 1940 Act or
---------
other federal securities laws, neither the Sub-Adviser nor any of its officers,
directors, employees or agents (the "Indemnified Parties") shall be subject to
any liability to the Manager, the Trust, the Series or any shareholder of the
Series for any error of judgment, any mistake of law or any loss arising out of
any investment or other act or omission in the course of, connected with, or
arising out of any service to be rendered under this Agreement, except by reason
of willful misfeasance, bad faith or gross negligence in the performance of the
Sub-Adviser's duties or by reason of reckless disregard by the Sub-Adviser of
its obligations and duties. The Manager shall hold harmless and indemnify the
Sub-Adviser for any loss, liability, cost, damage or expense (including
reasonable attorneys fees and costs) arising from any claim or demand by any
past or present shareholder of the Series that is not based upon the obligations
of the Sub-Adviser with respect to the Series under this Agreement. The Manager
acknowledges and agrees that the Sub-Adviser makes no representation or
warranty, express or implied, that any level of performance or investment
results will be achieved by the Series or that the Series will perform
comparably with any standard or index, including other clients of the Sub-
Adviser, whether public or private.
I. Effective Date and Termination. This Agreement shall become effective
------------------------------
as of the date of its execution, and
A. unless otherwise terminated, this Agreement shall continue in
effect for two years from the date of execution, and from year to year
thereafter so long as such continuance is specifically approved at least
annually (i) by the Board of Trustees of the Trust or by vote of a majority of
the outstanding voting securities of the Series, and (ii) by vote of a majority
of the trustees of the Trust who are not interested persons of the Trust, the
Manager, the Sub-Adviser or SBAM Ltd., cast in person at a meeting called for
the purpose of voting on such approval;
<PAGE>
A. this Agreement may at any time be terminated on sixty days' written
notice to the Sub-Adviser either by vote of the Board of Trustees of the Trust
or by vote of a majority of the outstanding voting securities of the Series;
A. this Agreement shall automatically terminate in the event of its
assignment or upon the termination of the Advisory Agreement;
A. this Agreement may be terminated by the Sub-Adviser on sixty days'
written notice to the Manager and the Trust, or, if approved by the Board of
Trustees of the Trust, by the Manager on sixty days' written notice to the Sub-
Adviser; and
e. if the Sub-Adviser requires the Series to change its name so as to
eliminate all references to the words "Salomon" or "Salomon Brothers," then this
Agreement shall automatically terminate at the time of such change unless the
continuance of this Agreement after such change shall have been specifically
approved by vote of a majority of the outstanding voting securities of the
Series and by vote of a majority of the Trustees of the Trust who are not
interested persons of the Trust or the Sub-Adviser, cast in person at a meeting
called for the purpose of voting on such approval.
Termination of this Agreement pursuant to this Section 10 shall be without
the payment of any penalty.
I. Amendment. This Agreement may be amended at any time by mutual consent
---------
of the Manager, the Sub-Adviser and SBAM Ltd., provided that, if required by
law, such amendment shall also have been approved by vote of a majority of the
outstanding voting securities of the Series and by vote of a majority of the
trustees of the Trust who are not interested persons of the Trust, the Manager,
the Sub-Adviser or SBAM Ltd., cast in person at a meeting called for the purpose
of voting on such approval.
I. Certain Definitions. For the purpose of this Agreement, the terms
-------------------
"vote of a majority of the outstanding voting securities," "interested person,"
"affiliated person" and "assignment" shall have their respective meanings
defined in the 1940 Act, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under the 1940 Act.
I. Delegation to SBAM Ltd. etc.
----------------------------
A. The Sub-Adviser may from time to time delegate to SBAM Ltd. any
or all of the responsibilities of the Sub-Adviser hereunder with respect to
transactions of the Series in (1) foreign currencies and (2) debt
securities denominated in currencies other than the U.S. dollar (but shall
not delegate any of the rights of the Sub-Adviser hereunder); provided,
however, that the Sub-Adviser shall be liable under this Agreement for any
acts or omissions of SBAM Ltd. to the same extent as if such acts or
omissions were committed by the Sub-Adviser itself.
<PAGE>
A. The Sub-Adviser shall compensate SBAM Ltd. for its services hereunder
at the rate of one-third of the compensation payable hereunder to the Sub-
Adviser by the Manager. In no event shall SBAM Ltd. be entitled to any
compensation hereunder from any person other than the Sub-Adviser (including
without limitation the Manager, the Administrator or the Trust).
I. General.
-------
A. The Sub-Adviser and SBAM Ltd. may perform their services
through any of their employees, officers or agents, and the Manager shall not be
entitled to the advice, recommendation or judgment of any specific person;
provided, however, that the persons identified in the prospectus of the Series
shall perform the portfolio management duties described therein until the Sub-
Adviser notifies the Manager that one or more other employees, officers or
agents of the Sub-Adviser or SBAM Ltd., identified in such notice, shall assume
such duties as of a specific date.
A. If any term or provision of this Agreement or the application
thereof to any person or circumstances is held to be invalid or unenforceable to
any extent, the remainder of this Agreement or the application of such provision
to other persons or circumstances shall not be affected thereby and shall be
enforced to the fullest extent permitted by law.
<PAGE>
A. This Agreement shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Massachusetts.
TNE ADVISERS, INC.
By:
John F. Guthrie, Jr.
Senior Vice President
SALOMON BROTHERS ASSET MANAGEMENT INC
By:
Name:
Title:
SALOMON BROTHERS ASSET MANAGEMENT LIMITED
By:
Name:
Title:
<PAGE>
NEW ENGLAND ZENITH FUND
SUB-ADVISORY AGREEMENT
(Back Bay Advisors Bond Income Series)
This Sub-Advisory Agreement (this "Agreement") is entered into as of August
30, 1996 by and between TNE Advisers, Inc., a Massachusetts corporation (the
"Manager") and Back Bay Advisors, L.P. (the "Sub-Adviser").
WHEREAS, the Manager has entered into an Advisory Agreement dated August
30, 1996 (the "Advisory Agreement") with New England Zenith Fund (the "Trust"),
pursuant to which the Manager provides portfolio management and administrative
services to the Back Bay Advisors Bond Income Series of the Trust (the
"Series");
WHEREAS, the Advisory Agreement provides that the Manager may delegate any
or all of its portfolio management responsibilities under the Advisory Agreement
to one or more sub-advisers;
WHEREAS, the Manager desires to retain the Sub-Adviser to render portfolio
management services in the manner and on the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, the Manager and the Sub-Adviser agree as follows:
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<PAGE>
I. Sub-Advisory Services.
---------------------
A. The Sub-Adviser shall, subject to the supervision of the Manager
and in cooperation with any administrator appointed by the Manager (the
"Administrator"), manage the investment and reinvestment of the assets of the
Series. The Sub-Adviser shall manage the Series in conformity with (1) the
investment objective, policies and restrictions of the Series set forth in the
Trust's prospectus and statement of additional information relating to the
Series, (2) any additional policies or guidelines established by the Manager or
by the Trust's trustees that have been furnished in writing to the Sub-Adviser
and (3) the provisions of the Internal Revenue Code (the "Code") applicable to
"regulated investment companies" (as defined in Section 851 of the Code) and
Section 817 of the Code, all as from time to time in effect (collectively, the
"Policies"), and with all applicable provisions of law, including without
limitation all applicable provisions of the Investment Company Act of 1940 (the
"1940 Act") and the rules and regulations thereunder. Subject to the foregoing,
the Sub-Adviser is authorized, in its discretion and without prior consultation
with the Manager, to buy, sell, lend and otherwise trade in any stocks, bonds
and other securities and investment instruments on behalf of the Series, without
regard to the length of time the securities have been held and the resulting
rate of portfolio turnover or any tax considerations; and the majority or the
whole of the Series may be invested in such proportions of stocks, bonds, other
securities or investment instruments, or cash, as the Sub-Adviser shall
determine. Notwithstanding the foregoing provisions of this Section 1.a,
however, the Sub-Adviser shall, upon written instructions from the Manager,
effect such portfolio transactions for the Series as the Manager shall determine
are necessary in order for the Series to comply with the Policies.
A. The Sub-Adviser shall furnish the Manager and the Administrator
monthly, quarterly and annual reports concerning portfolio transactions and
performance of the Series in such form as may be mutually agreed upon, and
agrees to review the Series and discuss the management of the Series with
representatives or agents of the Manager, the Administrator or the Trust at
their reasonable request. The Sub-Adviser shall permit all books and records
with respect to the Series to be inspected and audited by the Manager and the
Administrator at all reasonable times during normal business hours, upon
reasonable notice. The Sub-Adviser shall also provide the Manager, the
Administrator or the Trust with such other information and reports as may
reasonably be requested by the Manager, the Administrator or the Trust from time
to time, including without limitation all material as reasonably may be
requested by the Trustees of the Trust pursuant to Section 15(c) of the 1940
Act.
A. The Sub-Adviser shall provide to the Manager a copy of the Sub-
Adviser's Form ADV as filed with the Securities and Exchange Commission and as
amended from time to time and a list of the persons whom the Sub-Adviser wishes
to have authorized to give written and/or oral instructions to custodians of
assets of the Series.
<PAGE>
I. Obligations of the Manager.
--------------------------
A. The Manager shall provide (or cause the Trust's custodian to provide)
timely information to the Sub-Adviser regarding such matters as the composition
of assets in the Series, cash requirements and cash available for investment in
the Series, and all other information as may be reasonably necessary for the
Sub-Adviser to perform its responsibilities hereunder.
A. The Manager has furnished the Sub-Adviser a copy of the prospectus and
statement of additional information of the Series and agrees during the
continuance of this Agreement to furnish the Sub-Adviser copies of any revisions
or supplements thereto at, or, if practicable, before the time the revisions or
supplements become effective. The Manager agrees to furnish the Sub-Adviser
with minutes of meetings of the Trustees of the Trust applicable to the Series
to the extent they may affect the duties of the Sub-Adviser, and with copies of
any financial statements or reports made by the Series to its shareholders, and
any further materials or information which the Sub-Adviser may reasonably
request to enable it to perform its functions under this Agreement.
I. Custodian. The Manager shall provide the Sub-Adviser with a copy of the
---------
Series's agreement with the custodian designated to hold the assets of the
Series (the "Custodian") and any modifications thereto (the "Custody
Agreement"), copies of such modifications to be provided to the Sub-Adviser a
reasonable time in advance of the effectiveness of such modifications. The
assets of the Series shall be maintained in the custody of the Custodian
identified in, and in accordance with the terms and conditions of, the Custody
Agreement (or any sub-custodian properly appointed as provided in the Custody
Agreement). The Sub-Adviser shall have no liability for the acts or omissions
of the Custodian, unless such act or omission is required by and taken in
reliance upon instruction given to the Custodian by a representative of the Sub-
Adviser properly authorized to give such instruction under the Custody
Agreement. Any assets added to the Series shall be delivered directly to the
Custodian.
I. Expenses. Except for expenses specifically assumed or agreed to be paid
--------
by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be liable for any
expenses of the Manager or the Trust including, without limitation, (a) interest
and taxes, (b) brokerage commissions and other costs in connection with the
purchase or sale of securities or other investment instruments with respect to
the Series, and (c) custodian fees and expenses. The Sub-Adviser will pay its
own expenses incurred in furnishing the services to be provided by it pursuant
to this Agreement.
I. Purchase and Sale of Assets. Absent instructions from the Manager to
---------------------------
the contrary, the Sub-Adviser shall place all orders for the purchase and sale
of securities for the Series with brokers or dealers selected by the Sub-
Adviser,
<PAGE>
which may include brokers or dealers affiliated with the Sub-Adviser, provided
such orders comply with Rule 17e-1 under the 1940 Act in all respects. To the
extent consistent with applicable law, purchase or sell orders for the Series
may be aggregated with contemporaneous purchase or sell orders of other clients
of the Sub-Adviser. The Sub-Adviser shall use its best efforts to obtain
execution of transactions for the Series at prices which are advantageous to the
Series and at commission rates that are reasonable in relation to the benefits
received. However, the Sub-Adviser may select brokers or dealers on the basis
that they provide brokerage, research or other services or products to the
Series and/or other accounts serviced by the Sub-Adviser. Not all such services
or products need to be used by the Sub-Adviser in managing the Series.
I. Compensation of the Sub-Adviser. As full compensation for all services
-------------------------------
rendered, facilities furnished and expenses borne by the Sub-Adviser hereunder,
the Manager shall pay the Sub-Adviser compensation at the annual rate of .25% of
the first $50 million in average net assets, .20% of the next $200 million in
average net assets and .15% of the excess over $250 million in average net
assets. Such compensation shall be payable monthly in arrears or at such other
intervals, not less frequently than quarterly, as the Manager is paid by the
Series pursuant to the Advisory Agreement. The Manager may from time to time
waive the compensation it is entitled to receive from the Trust; however, any
such waiver will have no effect on the Manager's obligation to pay the Sub-
Adviser the compensation provided for herein.
I. Non-Exclusivity. The Manager and the Series agree that the services of
---------------
the Sub-Adviser are not to be deemed exclusive and that the Sub-Adviser and its
affiliates are free to act as investment manager and provide other services to
various investment companies and other managed accounts, except as the Sub-
Adviser and the Manager or the Administrator may otherwise agree from time to
time in writing before or after the date hereof. This Agreement shall not in
any way limit or restrict the Sub-Adviser or any of its directors, officers,
employees or agents from buying, selling or trading any securities or other
investment instruments for its or their own account or for the account of others
for whom it or they may be acting, provided that such activities do not
adversely affect or otherwise impair the performance by the Sub-Adviser of its
duties and obligations under this Agreement. The Manager and the Series
recognize and agree that the Sub-Adviser may provide advice to or take action
with respect to other clients, which advice or action, including the timing and
nature of such action, may differ from or be identical to advice given or action
taken with respect to the Series. The Sub-Adviser shall for all purposes hereof
be deemed to be an independent contractor and shall, unless otherwise provided
or authorized, have no authority to act for or represent the Trust or the
Manager in any way or otherwise be deemed an agent of the Trust or the Manager.
I. Liability. Except as may otherwise be provided by the 1940 Act or other
---------
federal securities laws, neither the Sub-Adviser nor any of its officers,
directors, employees or agents (the "Indemnified Parties") shall be subject to
any liability to the Manager, the Trust, the Series or any shareholder of the
Series for any
-4-
<PAGE>
error of judgment, any mistake of law or any loss arising out of any investment
or other act or omission in the course of, connected with, or arising out of any
service to be rendered under this Agreement, except by reason of willful
misfeasance, bad faith or gross negligence in the performance of the Sub-
Adviser's duties or by reason of reckless disregard by the Sub-Adviser of its
obligations and duties. The Manager shall hold harmless and indemnify the Sub-
Adviser for any loss, liability, cost, damage or expense (including reasonable
attorneys fees and costs) arising from any claim or demand by any past or
present shareholder of the Series that is not based upon the obligations of the
Sub-Adviser with respect to the Series under this Agreement. The Manager
acknowledges and agrees that the Sub-Adviser makes no representation or
warranty, express or implied, that any level of performance or investment
results will be achieved by the Series or that the Series will perform
comparably with any standard or index, including other clients of the Sub-
Adviser, whether public or private.
I. Effective Date and Termination. This Agreement shall become effective
------------------------------
as of the date of its execution, and
A. unless otherwise terminated, this Agreement shall continue in effect
for two years from the date of execution, and from year to year thereafter so
long as such continuance is specifically approved at least annually (i) by the
Board of Trustees of the Trust or by vote of a majority of the outstanding
voting securities of the Series, and (ii) by vote of a majority of the trustees
of the Trust who are not interested persons of the Trust, the Manager or the
Sub-Adviser, cast in person at a meeting called for the purpose of voting on
such approval;
A. this Agreement may at any time be terminated on sixty days' written
notice to the Sub-Adviser either by vote of the Board of Trustees of the Trust
or by vote of a majority of the outstanding voting securities of the Series;
A. this Agreement shall automatically terminate in the event of its
assignment or upon the termination of the Advisory Agreement;
A. this Agreement may be terminated by the Sub-Adviser on sixty days'
written notice to the Manager and the Trust, or, if approved by the Board of
Trustees of the Trust, by the Manager on sixty days' written notice to the Sub-
Adviser; and
e. if the Sub-Adviser requires the Series to change its name so as to
eliminate all references to Back Bay Advisors, L.P., then this Agreement shall
automatically terminate at the time of such change unless the continuance of
this Agreement after such change shall have been specifically approved by vote
of a majority of the outstanding voting securities of the Series and by vote of
a majority of the Trustees of the Trust who are not interested persons of the
Trust or the Sub-Adviser, cast in person at a meeting called for the purpose of
voting on such approval.
-5-
<PAGE>
Termination of this Agreement pursuant to this Section 10 shall be without
the payment of any penalty.
I. Amendment. This Agreement may be amended at any time by mutual consent
---------
of the Manager and the Sub-Adviser, provided that, if required by law, such
amendment shall also have been approved by vote of a majority of the outstanding
voting securities of the Series and by vote of a majority of the trustees of the
Trust who are not interested persons of the Trust, the Manager or the Sub-
Adviser, cast in person at a meeting called for the purpose of voting on such
approval.
I. Certain Definitions. For the purpose of this Agreement, the terms "vote
-------------------
of a majority of the outstanding voting securities," "interested person,"
"affiliated person" and "assignment" shall have their respective meanings
defined in the 1940 Act, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under the 1940 Act.
I. General.
-------
A. The Sub-Adviser may perform its services through any employee, officer
or agent of the Sub-Adviser, and the Manager shall not be entitled to the
advice, recommendation or judgment of any specific person; provided, however,
that the persons identified in the prospectus of the Series shall perform the
portfolio management duties described therein until the Sub-Adviser notifies the
Manager that one or more other employees, officers or agents of the Sub-Adviser,
identified in such notice, shall assume such duties as of a specific date.
A. If any term or provision of this Agreement or the application thereof
to any person or circumstances is held to be invalid or unenforceable to any
extent, the remainder of this Agreement or the application of such provision to
other persons or circumstances shall not be affected thereby and shall be
enforced to the fullest extent permitted by law.
-6-
<PAGE>
A. This Agreement shall be governed by and interpreted in accordance with
the laws of the Commonwealth of Massachusetts.
TNE ADVISERS, INC.
By:
John F. Guthrie, Jr.
Senior Vice President
BACK BAY ADVISORS, L.P.
By:
Name:
Title:
-7-
<PAGE>
SUB-ADVISORY AGREEMENT
SALOMON BROTHERS U.S. GOVERNMENT SERIES
This Sub-Advisory Agreement (this "Agreement") is entered into as of
November __, 1997 by and between TNE Advisers, Inc., a Massachusetts corporation
(the "Manager") and Salomon Brothers Asset Management Inc., a Delaware
corporation (the "Sub-Adviser").
WHEREAS, the Manager has entered into an Advisory Agreement dated August
30, 1996 (the "Advisory Agreement") with New England Zenith Fund (the "Trust"),
pursuant to which the Manager provides portfolio management and administrative
services to the Salomon Brothers U.S. Government Series of the Trust (the
"Series");
WHEREAS, the Advisory Agreement provides that the Manager may delegate any
or all of its portfolio management responsibilities under the Advisory Agreement
to one or more sub-advisers;
WHEREAS, the Manager desires to retain the Sub-Adviser to render portfolio
management services in the manner and on the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, the Manager and the Sub-Adviser agree as follows:
-1-
<PAGE>
I. Sub-Advisory Services.
---------------------
A. The Sub-Adviser shall, subject to the supervision of the Manager and
in cooperation with any administrator appointed by the Manager (the
"Administrator"), manage the investment and reinvestment of the assets of the
Series. The Sub-Adviser shall manage the Series in conformity with (1) the
investment objective, policies and restrictions of the Series set forth in the
Trust's prospectus and statement of additional information relating to the
Series, (2) any additional policies or guidelines established by the Manager or
by the Trust's trustees that have been furnished in writing to the Sub-Adviser
and (3) the provisions of the Internal Revenue Code (the "Code") applicable to
"regulated investment companies" (as defined in Section 851 of the Code) and
Section 817 of the Code, all as from time to time in effect (collectively, the
"Policies"), and with all applicable provisions of law, including without
limitation all applicable provisions of the Investment Company Act of 1940 (the
"1940 Act") and the rules and regulations thereunder. Subject to the foregoing,
the Sub-Adviser is authorized, in its discretion and without prior consultation
with the Manager, to buy, sell, lend and otherwise trade in any stocks, bonds
and other securities and investment instruments on behalf of the Series, without
regard to the length of time the securities have been held and the resulting
rate of portfolio turnover or any tax considerations; and the majority or the
whole of the Series may be invested in such proportions of stocks, bonds, other
securities or investment instruments, or cash, as the Sub-Adviser shall
determine. Notwithstanding the foregoing provisions of this Section 1.a,
however, the Sub-Adviser shall, upon written instructions from the Manager,
effect such portfolio transactions for the Series as the Manager shall determine
are necessary in order for the Series to comply with the Policies.
A. The Sub-Adviser shall furnish the Manager and the Administrator
monthly, quarterly and annual reports concerning transactions and performance of
the Series in such form as may be mutually agreed upon, and agrees to review the
Series and discuss the management of the Series with representatives or agents
of the Manager, the Administrator or the Trust at their reasonable request. The
Sub-Adviser shall permit all books and records with respect to the Series to be
inspected and audited by the Manager and the Administrator at all reasonable
times during normal business hours, upon reasonable notice. The Sub-Adviser
shall also provide the Manager, the Administrator or the Trust with such other
information and reports as may reasonably be requested by the Manager, the
Administrator or the Trust from time to time, including without limitation all
material as reasonably may be requested to the Trustees of the Trust pursuant to
Section 15(c) of the 1940 Act.
A. The Sub-Adviser shall provide to the Manager a copy of the Sub-
Adviser's Form ADV as filed with the Securities and Exchange Commission and as
amended from time to time and a list of the persons whom the Sub-Adviser wishes
to have authorized to give written and/or oral instructions to custodians of
assets of the Series.
<PAGE>
I. Obligations of the Manager.
--------------------------
A. The Manager shall provide (or cause the Trust's custodian to provide)
timely information to the Sub-Adviser regarding such matters as the composition
of assets in the Series, cash requirements and cash available for investment in
the Series, and all other information as may be reasonably necessary for the
Sub-Adviser to perform its responsibilities hereunder.
A. The Manager has furnished the Sub-Adviser a copy of the prospectus and
statement of additional information of the Series and agrees during the
continuance of this Agreement to furnish the Sub-Adviser copies of any revisions
or supplements thereto at, or, if practicable, before the time the revisions or
supplements become effective. The Manager agrees to furnish the Sub-Adviser
with minutes of meetings of the Trustees of the Trust applicable to the Series
to the extent they may affect the duties of the Sub-Adviser, and with copies of
any financial statements or reports made by the Series to its shareholders, and
any further materials or information which the Sub-Adviser may reasonably
request to enable it to perform its functions under this Agreement.
I. Custodian. The Manager shall provide the Sub-Adviser with a copy of the
---------
Series's agreement with the custodian designated to hold the assets of the
Series (the "Custodian") and any modifications thereto (the "Custody
Agreement"), copies of such modifications to be provided to the Sub-Adviser a
reasonable time in advance of the effectiveness of such modifications. The
assets of the Series shall be maintained in the custody of the Custodian
identified in, and in accordance with the terms and conditions of, the Custody
Agreement (or any sub-custodian properly appointed as provided in the Custody
Agreement). The Sub-Adviser shall have no liability for the acts or omissions
of the Custodian, unless such act or omission is required by and taken in
reliance upon instruction given to the Custodian by a representative of the Sub-
Adviser properly authorized to give such instruction under the Custody
Agreement. Any assets added to the Series shall be delivered directly to the
Custodian.
I. Proprietary Rights. The Manager agrees and acknowledges that the Sub-
------------------
Adviser is the sole owner of the names and marks "Salomon" and "Salomon
Brothers" and that all use of any designation consisting in whole or part of
such names or marks (a "Salomon Mark") under this Agreement shall inure to the
benefit of the Sub-Adviser. The Manager on its own behalf and on behalf of the
Series agrees not to use any Salomon Mark in any advertisement or sales
literature or other materials promoting the Series, except with the prior
written consent of the Sub-Adviser. Without the prior written consent of the
Sub-Adviser, the Manager shall not, and the Manager shall use its best efforts
to cause the Trust not to, make representations regarding the Sub-Adviser in any
disclosure document, advertisement or sales literature or other materials
relating to the Series. Upon termination of this Agreement for any reason, the
Manager shall cease, and the Manager shall use its best efforts to cause the
Series to cease, all use of any Salomon Mark(s) as soon as reasonably
practicable.
<PAGE>
I. Expenses. Except for expenses specifically assumed or agreed to be paid
--------
by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be liable for any
expenses of the Manager or the Trust including, without limitation, (a) interest
and taxes, (b) brokerage commissions and other costs in connection with the
purchase or sale of securities or other investment instruments with respect to
the Series, and (c) custodian fees and expenses. The Sub-Adviser will pay its
own expenses incurred in furnishing the services to be provided by it pursuant
to this Agreement.
I. Purchase and Sale of Assets. Absent instructions from the Manager to
---------------------------
the contrary, the Sub-Adviser shall place all orders for the purchase and sale
of securities for the Series with brokers or dealers selected by the Sub-
Adviser, which may include brokers or dealers affiliated with the Sub-Adviser,
provided such orders comply with Rule 17e-1 under the 1940 Act in all respects.
To the extent consistent with applicable law, purchase or sell orders for the
Series may be aggregated with contemporaneous purchase or sell orders of other
clients of the Sub-Adviser. The Sub-Adviser shall use its best efforts to
obtain execution of transactions for the Series at prices which are advantageous
to the Series and at commission rates that are reasonable in relation to the
benefits received. However, the Sub-Adviser may select brokers or dealers on
the basis that they provide brokerage, research or other services or products to
the Series and/or other accounts serviced by the Sub-Adviser. To the extent
consistent with applicable law, the Sub-Adviser may pay a broker or dealer an
amount of commission for effecting a securities transaction in excess of the
amount of commission or dealer spread another broker or dealer would have
charged for effecting that transaction if the Sub-Adviser determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research products and/or services provided by such broker or
dealer. This determination, with respect to brokerage and research services or
products, may be viewed in terms of either that particular transaction or the
overall responsibilities which the Sub-Adviser and its affiliates have with
respect to the Series or to accounts over which they exercise investment
discretion. Not all such services or products need be used by the Sub-Adviser
in managing the Series.
I. Compensation of the Sub-Adviser. As full compensation for all services
-------------------------------
rendered, facilities furnished and expenses borne by the Sub-Adviser hereunder,
the Manager shall pay the Sub-Adviser compensation at the annual rate of 0.225%
of the first $200 million of the average daily net assets of the Series, 0.15%
of the next $300 million of such assets and 0.10% of such assets in excess of
$500 million. Such compensation shall be payable monthly in arrears or at such
other intervals, not less frequently than quarterly, as the Manager is paid by
the Series pursuant to the Advisory Agreement. The Manager may from time to
time waive the compensation it is entitled to receive from the Trust, however,
any such waiver will have no effect on the Manager's obligation to pay the Sub-
Adviser the compensation provided for herein.
I. Non-Exclusivity. The Manager and the Series agree that the services of
---------------
the Sub-Adviser are not to be deemed exclusive and that the Sub-Adviser and its
affiliates are free to act as investment manager and provide other services to
various
<PAGE>
investment companies and other managed accounts, except as the Sub-Adviser and
the Manager or the Administrator may otherwise agree from time to time in
writing before or after the date hereof. This Agreement shall not in any way
limit or restrict the Sub-Adviser or any of its directors, officers, employees
or agents from buying, selling or trading any securities or other investment
instruments for its or their own account or for the account of others for whom
it or they may be acting, provided that such activities do not adversely affect
or otherwise impair the performance by the Sub-Adviser of its duties and
obligations under this Agreement. The Manager and the Series recognize and agree
that the Sub-Adviser may provide advice to or take action with respect to other
clients, which advice or action, including the timing and nature of such action,
may differ from or be identical to advice given or action taken with respect to
the Series. The Sub-Adviser shall for all purposes hereof be deemed to be an
independent contractor and shall, unless otherwise provided or authorized, have
no authority to act for or represent the Trust or the Manager in any way or
otherwise be deemed an agent of the Trust or the Manager.
I. Liability. Except as may otherwise be provided by the 1940 Act or other
---------
federal securities laws, neither the Sub-Adviser nor any of its officers,
directors, employees or agents (the "Indemnified Parties") shall be subject to
any liability to the Manager, the Trust, the Series or any shareholder of the
Series for any error of judgment, any mistake of law or any loss arising out of
any investment or other act or omission in the course of, connected with, or
arising out of any service to be rendered under this Agreement, except by reason
of willful misfeasance, bad faith or gross negligence in the performance of the
Sub-Adviser's duties or by reason of reckless disregard by the Sub-Adviser of
its obligations and duties. The Manager shall hold harmless and indemnify the
Sub-Adviser for any loss, liability, cost, damage or expense (including
reasonable attorneys fees and costs) arising from any claim or demand by any
past or present shareholder of the Series that is not based upon the obligations
of the Sub-Adviser with respect to the Series under this Agreement. The Manager
acknowledges and agrees that the Sub-Adviser makes no representation or
warranty, express or implied, that any level of performance or investment
results will be achieved by the Series or that the Series will perform
comparably with any standard or index, including other clients of the Sub-
Adviser, whether public or private.
I. Effective Date and Termination. This Agreement shall become effective
------------------------------
as of the date of its execution, and
A. unless otherwise terminated, this Agreement shall continue in effect
for two years from the date of execution, and from year to year thereafter so
long as such continuance is specifically approved at least annually (i) by the
Board of Trustees of the Trust or by vote of a majority of the outstanding
voting securities of the Series, and (ii) by vote of a majority of the trustees
of the Trust who are not interested persons of the Trust, the Manager or the
Sub-Adviser, cast in person at a meeting called for the purpose of voting on
such approval;
<PAGE>
A. this Agreement may at any time be terminated on sixty days' written
notice to the Sub-Adviser either by vote of the Board of Trustees of the Trust
or by vote of a majority of the outstanding voting securities of the Series;
A. this Agreement shall automatically terminate in the event of its
assignment or upon the termination of the Advisory Agreement;
A. this Agreement may be terminated by the Sub-Adviser on sixty days'
written notice to the Manager and the Trust, or, if approved by the Board of
Trustees of the Trust, by the Manager on sixty days' written notice to the Sub-
Adviser; and
e. if the Sub-Adviser requires the Series to change its name so as to
eliminate all references to the words "Salomon" or "Salomon Brothers," then this
Agreement shall automatically terminate at the time of such change unless the
continuance of this Agreement after such change shall have been specifically
approved by vote of a majority of the outstanding voting securities of the
Series and by vote of a majority of the Trustees of the Trust who are not
interested persons of the Trust or the Sub-Adviser, cast in person at a meeting
called for the purpose of voting on such approval.
Termination of this Agreement pursuant to this Section 10 shall be without
the payment of any penalty.
I. Amendment. This Agreement may be amended at any time by mutual consent
---------
of the Manager and the Sub-Adviser, provided that, if required by law, such
amendment shall also have been approved by vote of a majority of the outstanding
voting securities of the Series and by vote of a majority of the trustees of the
Trust who are not interested persons of the Trust, the Manager or the Sub-
Adviser, cast in person at a meeting called for the purpose of voting on such
approval.
I. Certain Definitions. For the purpose of this Agreement, the terms "vote
-------------------
of a majority of the outstanding voting securities," "interested person,"
"affiliated person" and "assignment" shall have their respective meanings
defined in the 1940 Act, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under the 1940 Act.
I. General.
-------
A. The Sub-Adviser may perform its services through any employee, officer
or agent of the Sub-Adviser, and the Manager shall not be entitled to the
advice, recommendation or judgment of any specific person; provided, however,
that the persons identified in the prospectus of the Series shall perform the
portfolio management duties described therein until the Sub-Adviser notifies the
Manager that one or more other employees, officers or agents of the Sub-Adviser,
identified in such notice, shall assume such duties as of a specific date.
<PAGE>
A. If any term or provision of this Agreement or the application thereof
to any person or circumstances is held to be invalid or unenforceable to any
extent, the remainder of this Agreement or the application of such provision to
other persons or circumstances shall not be affected thereby and shall be
enforced to the fullest extent permitted by law.
<PAGE>
A. This Agreement shall be governed by and interpreted in accordance with
the laws of the Commonwealth of Massachusetts.
TNE ADVISERS, INC.
By:
John F. Guthrie, Jr.
Senior Vice President
SALOMON BROTHERS ASSET MANAGEMENT INC
By:
Name:
Title:
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NEW ENGLAND ZENITH FUND
SUB-ADVISORY AGREEMENT
(Back Bay Advisors Money Market Series)
This Sub-Advisory Agreement (this "Agreement") is entered into as of
August 30, 1996 by and between TNE Advisers, Inc., a Massachusetts corporation
(the "Manager") and Back Bay Advisors, L.P. (the "Sub-Adviser").
WHEREAS, the Manager has entered into an Advisory Agreement dated August
30, 1996 (the "Advisory Agreement") with New England Zenith Fund (the "Trust"),
pursuant to which the Manager provides portfolio management and administrative
services to the Back Bay Advisors Money Market Series of the Trust (the
"Series");
WHEREAS, the Advisory Agreement provides that the Manager may delegate any
or all of its portfolio management responsibilities under the Advisory Agreement
to one or more sub-advisers;
WHEREAS, the Manager desires to retain the Sub-Adviser to render portfolio
management services in the manner and on the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, the Manager and the Sub-Adviser agree as follows:
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I. Sub-Advisory Services.
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A. The Sub-Adviser shall, subject to the supervision of the Manager
and in cooperation with any administrator appointed by the Manager (the
"Administrator"), manage the investment and reinvestment of the assets of the
Series. The Sub-Adviser shall manage the Series in conformity with (1) the
investment objective, policies and restrictions of the Series set forth in the
Trust's prospectus and statement of additional information relating to the
Series, (2) any additional policies or guidelines established by the Manager or
by the Trust's trustees that have been furnished in writing to the Sub-Adviser
and (3) the provisions of the Internal Revenue Code (the "Code") applicable to
"regulated investment companies" (as defined in Section 851 of the Code) and
Section 817 of the Code, all as from time to time in effect (collectively, the
"Policies"), and with all applicable provisions of law, including without
limitation all applicable provisions of the Investment Company Act of 1940 (the
"1940 Act") and the rules and regulations thereunder. Subject to the foregoing,
the Sub-Adviser is authorized, in its discretion and without prior consultation
with the Manager, to buy, sell, lend and otherwise trade in any stocks, bonds
and other securities and investment instruments on behalf of the Series, without
regard to the length of time the securities have been held and the resulting
rate of portfolio turnover or any tax considerations; and the majority or the
whole of the Series may be invested in such proportions of stocks, bonds, other
securities or investment instruments, or cash, as the Sub-Adviser shall
determine. Notwithstanding the foregoing provisions of this Section 1.a,
however, the Sub-Adviser shall, upon written instructions from the Manager,
effect such portfolio transactions for the Series as the Manager shall determine
are necessary in order for the Series to comply with the Policies.
A. The Sub-Adviser shall furnish the Manager and the Administrator
monthly, quarterly and annual reports concerning portfolio transactions and
performance of the Series in such form as may be mutually agreed upon, and
agrees to review the Series and discuss the management of the Series with
representatives or agents of the Manager, the Administrator or the Trust at
their reasonable request. The Sub-Adviser shall permit all books and records
with respect to the Series to be inspected and audited by the Manager and the
Administrator at all reasonable times during normal business hours, upon
reasonable notice. The Sub-Adviser shall also provide the Manager, the
Administrator or the Trust with such other information and reports as may
reasonably be requested by the Manager, the Administrator or the Trust from time
to time, including without limitation all material as reasonably may be
requested by the Trustees of the Trust pursuant to Section 15(c) of the 1940
Act.
A. The Sub-Adviser shall provide to the Manager a copy of the Sub-
Adviser's Form ADV as filed with the Securities and Exchange Commission and as
amended from time to time and a list of the persons whom the Sub-Adviser wishes
to have authorized to give written and/or oral instructions to custodians of
assets of the Series.
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I. Obligations of the Manager.
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A. The Manager shall provide (or cause the Trust's custodian to
provide) timely information to the Sub-Adviser regarding such matters as the
composition of assets in the Series, cash requirements and cash available for
investment in the Series, and all other information as may be reasonably
necessary for the Sub-Adviser to perform its responsibilities hereunder.
A. The Manager has furnished the Sub-Adviser a copy of the prospectus
and statement of additional information of the Series and agrees during the
continuance of this Agreement to furnish the Sub-Adviser copies of any revisions
or supplements thereto at, or, if practicable, before the time the revisions or
supplements become effective. The Manager agrees to furnish the Sub-Adviser with
minutes of meetings of the Trustees of the Trust applicable to the Series to the
extent they may affect the duties of the Sub-Adviser, and with copies of any
financial statements or reports made by the Series to its shareholders, and any
further materials or information which the Sub-Adviser may reasonably request to
enable it to perform its functions under this Agreement.
I. Custodian. The Manager shall provide the Sub-Adviser with a copy of
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the Series's agreement with the custodian designated to hold the assets of the
Series (the "Custodian") and any modifications thereto (the "Custody
Agreement"), copies of such modifications to be provided to the Sub-Adviser a
reasonable time in advance of the effectiveness of such modifications. The
assets of the Series shall be maintained in the custody of the Custodian
identified in, and in accordance with the terms and conditions of, the Custody
Agreement (or any sub-custodian properly appointed as provided in the Custody
Agreement). The Sub-Adviser shall have no liability for the acts or omissions of
the Custodian, unless such act or omission is required by and taken in reliance
upon instruction given to the Custodian by a representative of the Sub-Adviser
properly authorized to give such instruction under the Custody Agreement. Any
assets added to the Series shall be delivered directly to the Custodian.
I. Expenses. Except for expenses specifically assumed or agreed to be
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paid by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be liable for
any expenses of the Manager or the Trust including, without limitation, (a)
interest and taxes, (b) brokerage commissions and other costs in connection with
the purchase or sale of securities or other investment instruments with respect
to the Series, and (c) custodian fees and expenses. The Sub-Adviser will pay its
own expenses incurred in furnishing the services to be provided by it pursuant
to this Agreement.
I. Purchase and Sale of Assets. Absent instructions from the Manager to
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the contrary, the Sub-Adviser shall place all orders for the purchase and sale
of securities for the Series with brokers or dealers selected by the
Sub-Adviser,
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which may include brokers or dealers affiliated with the Sub-Adviser, provided
such orders comply with Rule 17e-1 under the 1940 Act in all respects. To the
extent consistent with applicable law, purchase or sell orders for the Series
may be aggregated with contemporaneous purchase or sell orders of other clients
of the Sub-Adviser. The Sub-Adviser shall use its best efforts to obtain
execution of transactions for the Series at prices which are advantageous to the
Series and at commission rates that are reasonable in relation to the benefits
received. However, the Sub-Adviser may select brokers or dealers on the basis
that they provide brokerage, research or other services or products to the
Series and/or other accounts serviced by the Sub-Adviser. Not all such services
or products need to be used by the Sub-Adviser in managing the Series.
I. Compensation of the Sub-Adviser. As full compensation for all
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services rendered, facilities furnished and expenses borne by the Sub-Adviser
hereunder, the Manager shall pay the Sub-Adviser compensation at the annual rate
of .15% of the first $100 million in average net assets and .10% of the excess
over $100 million in average net assets. Such compensation shall be payable
monthly in arrears or at such other intervals, not less frequently than
quarterly, as the Manager is paid by the Series pursuant to the Advisory
Agreement. The Manager may from time to time waive the compensation it is
entitled to receive from the Trust; however, any such waiver will have no effect
on the Manager's obligation to pay the Sub-Adviser the compensation provided for
herein.
II. Non-Exclusivity. The Manager and the Series agree that the services
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of the Sub-Adviser are not to be deemed exclusive and that the Sub-Adviser and
its affiliates are free to act as investment manager and provide other services
to various investment companies and other managed accounts, except as the Sub-
Adviser and the Manager or the Administrator may otherwise agree from time to
time in writing before or after the date hereof. This Agreement shall not in any
way limit or restrict the Sub-Adviser or any of its directors, officers,
employees or agents from buying, selling or trading any securities or other
investment instruments for its or their own account or for the account of others
for whom it or they may be acting, provided that such activities do not
adversely affect or otherwise impair the performance by the Sub-Adviser of its
duties and obligations under this Agreement. The Manager and the Series
recognize and agree that the Sub-Adviser may provide advice to or take action
with respect to other clients, which advice or action, including the timing and
nature of such action, may differ from or be identical to advice given or action
taken with respect to the Series. The Sub-Adviser shall for all purposes hereof
be deemed to be an independent contractor and shall, unless otherwise provided
or authorized, have no authority to act for or represent the Trust or the
Manager in any way or otherwise be deemed an agent of the Trust or the Manager.
I. Liability. Except as may otherwise be provided by the 1940 Act or
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other federal securities laws, neither the Sub-Adviser nor any of its officers,
directors, employees or agents (the "Indemnified Parties") shall be subject to
any liability to the Manager, the Trust, the Series or any shareholder of the
Series for any error of judgment, any mistake of law or any loss arising out of
any investment or
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other act or omission in the course of, connected with, or arising out of any
service to be rendered under this Agreement, except by reason of willful
misfeasance, bad faith or gross negligence in the performance of the Sub-
Adviser's duties or by reason of reckless disregard by the Sub-Adviser of its
obligations and duties. The Manager shall hold harmless and indemnify the Sub-
Adviser for any loss, liability, cost, damage or expense (including reasonable
attorneys fees and costs) arising from any claim or demand by any past or
present shareholder of the Series that is not based upon the obligations of the
Sub-Adviser with respect to the Series under this Agreement. The Manager
acknowledges and agrees that the Sub-Adviser makes no representation or
warranty, express or implied, that any level of performance or investment
results will be achieved by the Series or that the Series will perform
comparably with any standard or index, including other clients of the Sub-
Adviser, whether public or private.
I. Effective Date and Termination. This Agreement shall become
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effective as of the date of its execution, and
A. unless otherwise terminated, this Agreement shall continue in
effect for two years from the date of execution, and from year to year
thereafter so long as such continuance is specifically approved at least
annually (i) by the Board of Trustees of the Trust or by vote of a majority of
the outstanding voting securities of the Series, and (ii) by vote of a majority
of the trustees of the Trust who are not interested persons of the Trust, the
Manager or the Sub-Adviser, cast in person at a meeting called for the purpose
of voting on such approval;
A. this Agreement may at any time be terminated on sixty days'
written notice to the Sub-Adviser either by vote of the Board of Trustees of the
Trust or by vote of a majority of the outstanding voting securities of the
Series;
A. this Agreement shall automatically terminate in the event of its
assignment or upon the termination of the Advisory Agreement;
A. this Agreement may be terminated by the Sub-Adviser on sixty days'
written notice to the Manager and the Trust, or, if approved by the Board of
Trustees of the Trust, by the Manager on sixty days' written notice to the Sub-
Adviser; and
e. if the Sub-Adviser requires the Series to change its name so as to
eliminate all references to Back Bay Advisors, L.P., then this Agreement shall
automatically terminate at the time of such change unless the continuance of
this Agreement after such change shall have been specifically approved by vote
of a majority of the outstanding voting securities of the Series and by vote of
a majority of the Trustees of the Trust who are not interested persons of the
Trust or the Sub-Adviser, cast in person at a meeting called for the purpose of
voting on such approval.
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Termination of this Agreement pursuant to this Section 10 shall be without
the payment of any penalty.
I. Amendment. This Agreement may be amended at any time by mutual
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consent of the Manager and the Sub-Adviser, provided that, if required by law,
such amendment shall also have been approved by vote of a majority of the
outstanding voting securities of the Series and by vote of a majority of the
trustees of the Trust who are not interested persons of the Trust, the Manager
or the Sub-Adviser, cast in person at a meeting called for the purpose of voting
on such approval.
I. Certain Definitions. For the purpose of this Agreement, the terms
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"vote of a majority of the outstanding voting securities," "interested person,"
"affiliated person" and "assignment" shall have their respective meanings
defined in the 1940 Act, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under the 1940 Act.
I. General.
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A. The Sub-Adviser may perform its services through any employee,
officer or agent of the Sub-Adviser, and the Manager shall not be entitled to
the advice, recommendation or judgment of any specific person; provided,
however, that the persons identified in the prospectus of the Series shall
perform the portfolio management duties described therein until the Sub-Adviser
notifies the Manager that one or more other employees, officers or agents of the
Sub-Adviser, identified in such notice, shall assume such duties as of a
specific date.
A. If any term or provision of this Agreement or the application
thereof to any person or circumstances is held to be invalid or unenforceable to
any extent, the remainder of this Agreement or the application of such provision
to other persons or circumstances shall not be affected thereby and shall be
enforced to the fullest extent permitted by law.
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<PAGE>
A. This Agreement shall be governed by and interpreted in accordance
with the laws of the Commonwealth of Massachusetts.
TNE ADVISERS, INC.
By:
John F. Guthrie, Jr.
Senior Vice President
BACK BAY ADVISORS, L.P.
By:
Name:
Title:
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