NEW ENGLAND ZENITH FUND, 485APOS, 1999-02-11

NEW ENGLAND ZENITH FUND
485APOS, 1999-02-11

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<PAGE>

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. 24 [X]

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 [X]

Amendment No. 25 [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) (Zip Code)

(617)578-1388
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)

Thomas M. Lenz
501 Boylston Street
Boston, Massachusetts 02116
- --------------------------------------------------------------------------------
(Name and Address of Agent for Service)

Copy to:
John M. Loder
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)
[_] On (date) pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] On (date) pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[X] On (May 1, 1999) 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>

New England Zenith Fund

New England Zenith Fund (the "Fund") is a mutual fund that provides a range of
investment options through sixteen separate investment portfolios (the
"Series"), which can be broadly classified as follows:

<TABLE>
<CAPTION>
Money Market Series Equity Series
- ------------------------------------- -------------------------------------------------------
<S> <C> <C>
Back Bay Advisors Money Market Alger Equity Growth MFS Investors

Fixed-income Series Capital Growth MFS Research Managers
- -------------------------------------
Davis Venture Value Westpeak Growth and Income
Back Bay Advisors Bond Income
Goldman Sachs Midcap Value Westpeak Stock Index
Salomon Brothers Strategic Bond Opportunities
Loomis Sayles Small Cap
Salomon Brothers U.S. Government

Equity and Fixed-income Series International Equity Series
- ------------------------------------- -------------------------------------------------------

Back Bay Advisors Managed Morgan Stanley International Magnum Equity

Loomis Sayles Balanced

- -----------------------------------------------------------------------------------------------------------
</TABLE>

This Prospectus is designed to help you decide whether to invest in the Fund and
which Series best match your investment objectives. The Prospectus is divided
into four Sections:

I A brief overview of the structure of the Fund and the Series.

II Summaries of each Series, including investment objectives and
principal investment strategies and risks.

III More detailed descriptions of each Series, including the
investment process and investment risks.

IV Other information about the Fund, including information on
purchases and redemptions, portfolio valuation, securities
pricing and financial highlights.

The Securities and Exchange Commission has not approved or disapproved these
securities or passed on the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.

May 1, 1999
<PAGE>

Section I - Overview of New England Zenith Fund

Organization
- ------------

The Fund is a mutual fund consisting of multiple investment portfolios, the
Series. New England Investment Management, Inc. ("NEIM") is the investment
manager to all the Series except Capital Growth, which is managed by Capital
Growth Management ("CGM").

Investors
- ---------

Fund shares are offered only to separate accounts established by New England
Financial and Metropolitan Life or their affiliates (the "Separate Accounts").
The Fund serves as the investment vehicle for variable life insurance, variable
annuity and group annuity products of New England Financial and Metropolitan
Life or their affiliates. The general public may not directly purchase Fund
shares. The performance information in the Prospectus does not reflect charges
associated with the Separate Accounts or variable contracts that an investor in
the Fund may pay under insurance or annuity contracts.

Investment Advisory Services
- ----------------------------

All Series except Capital Growth
--------------------------------

NEIM has contracted with subadvisers to make the day-to-day investment decisions
for these Series. NEIM also provides a full range of administrative and
accounting services to these Series. NEIM receives a fee from the Fund for its
services to each of these Series. NEIM pays the subadvisers out of this fee.

Capital Growth
--------------

CGM makes the day-to-day investment decisions for Capital Growth and has
arranged for NEIM to provide administrative and accounting services to the
Series. CGM receives a fee from the Fund for its services to Capital Growth. CGM
pays NEIM out of this fee for providing administrative and accounting services
to Capital Growth.

A separate account is a pool of assets set aside by an insurance company to fund
payments under a specified group of insurance policies or contracts.

-2-
<PAGE>

Section II - Summary Information about each Series

The Summaries in this Section describe the investment objective, the principal
investment strategies and the principal investment risks of each Series. In
addition, each Summary contains two charts that show the performance record for
that Series. The bar charts show the annual total return of a Series for the
last ten years, or fewer if the Series has not been in existence that long. The
tables following the bar charts compare the average annual total returns of the
Series to the returns of a broad-based securities market index and to returns of
a group of other similar mutual funds underlying variable insurance products.

Types of Investments
- --------------------

Each Series invests in a variety of securities. Securities generally fall into
two main categories: equity and fixed-income. The following pages contain
summary information about the securities in which each Series invests.

Equity Securities
-----------------

Equity securities include common stocks, preferred stocks and other instruments
related to common and preferred stocks. Generally, common and preferred stocks
represent ownership interests in a corporation. Stocks often pay a dividend.

Investment advisers often characterize stocks as growth stocks or value stocks.
Generally, an investment adviser considers a stock to be a growth stock if it
expects the company's earnings to grow relatively rapidly. Generally, value
stocks are the stocks of companies that an investment adviser believes are
inexpensive relative to other stocks under current market conditions. A stock
may display characteristics of both classifications. Therefore, it is possible
that a stock may be characterized as a growth stock by some investment
professionals and as a value stock by other investment professionals.

Stocks are also often categorized according to the market capitalization of the
issuer. Market capitalization is calculated by multiplying the total number of
outstanding shares of an issuer by the market price of those shares. Some mutual
funds invest primarily in stocks of issuers with larger capitalizations, while
other mutual funds invest primarily in stocks of issuers with medium or small
capitalizations.

Fixed-income Securities
-----------------------

Fixed-income securities represent an obligation of an issuer to repay money that
it has borrowed. Generally, the issuer agrees to pay the investor interest in
return for the use of the money until the maturity date, as set forth in the
terms of the security. The rate of interest may be fixed or variable.

Investment Percentage Requirements and Capitalization
- -----------------------------------------------------

Several of the Series have adopted policies that set minimum or maximum
percentages of their assets to be allocated to certain types of investments or
to certain ranges of market capitalization. These percentage requirements and
capitalization ranges apply at the time an investment is made; a change in the
value of an investment after it is acquired is not treated as a violation of
these policies or ranges.

The annual total return of a Series consists of two components: the change in
value of shares of the Series from the beginning to the end of the year, and
income received by the holder of the shares of the Series during the year.

An index is an unmanaged group of securities, the performance of which is
calculated without considering expenses or transaction costs. Investors can use
indexes to compare the returns of mutual funds against the performance of
securities of the type held by those mutual funds.

A dividend is a payment made by a company to a shareholder that typically is
based on the issuer's performance. A dividend may be paid as cash or additional
securities.

The maturity date is the date on which a fixed-income security "matures." This
is the date on which the borrower must pay back the borrowed amount, the
principal.

-3-
<PAGE>

Back Bay Advisors Money Market Series

Investment Objective
- --------------------

The investment objective of the Back Bay Advisors Money Market Series ("Money
Market") is the highest possible level of current income consistent with
preservation of capital.

Principal Investment Strategies
- -------------------------------

Back Bay Advisors invests Money Market's assets in a managed portfolio of money
market instruments.

Principal Investment Risks
- --------------------------

An investment in Money Market is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. Although Money
Market seeks to preserve the value of your investment at $100.00 per share, it
is possible to lose money by investing in Money Market.

Factors that could harm the investment performance of Money Market include:

. A general decline in fixed-income security markets.

. Poor performance of individual fixed-income securities held by Money Market.

A money market fund is a type of mutual fund that only invests in certain types
of high quality securities with short maturities. These securities are sometimes
referred to as money market instruments. Please see Section III for more
information on money market instruments.

Investment Performance Record

Annual total return for each calendar year of Money Market's existence.

[BAR CHART APPEARS HERE]

YEAR TOTAL RETURN
---- ------------
1989 9.2%
1990 8.2%
1991 6.2%
1992 3.8%
1993 3.0%
1994 4.0%
1995 5.6%
1996 5.1%
1997 5.3%
1998 5.3%

-4-
<PAGE>

During the period shown above, the highest quarterly return was 2.4% for the
second quarter of 1989, and the lowest quarterly return was 0.7% for the second
quarter of 1993. Past performance of a Series does not necessarily indicate how
that Series will perform in the future.

Average Annual Total Returns for periods ending December 31
- --------------------------------------------------------------------------------
Past One Year Past Five Years Past Ten Years
- --------------------------------------------------------------------------------
Money Market 5.3% 5.1% 5.6%
- --------------------------------------------------------------------------------
91 day T-Bill Rate 4.8% 4.9% 5.2%
- --------------------------------------------------------------------------------

-5-
<PAGE>

Back Bay Advisors Bond Income Series

Investment Objective
- --------------------

The investment objective of the Back Bay Advisors Bond Income Series ("Bond
Income") is a high level of current income consistent with protection of
capital.

Principal Investment Strategies
- -------------------------------

Back Bay Advisors, Inc., Bond Income's subadviser, invests Bond Income's assets
primarily in fixed-income securities. Back Bay Advisors will invest at least 80%
of Bond Income's assets in investment grade securities, and may invest up to 10%
of Bond Income's assets in obligations of foreign issuers.

Principal Investment Risks
- --------------------------

Investing in Bond Income involves risks. Bond Income may not perform as well as
other investments, and it is possible for investors to lose money. Factors that
could harm the investment performance of Bond Income include:

. A general decline in U.S. or foreign fixed-income security markets.

. Poor performance of individual fixed-income securities held by Bond Income.

. The risks associated with investments in foreign securities, which are
discussed more fully in Section III.

Investment grade: Moody's and Standard & Poor's are rating agencies that assign
a "credit rating" to fixed-income securities and issuers based on the agency's
evaluation of the risk that the issuer will default on its obligations.
Securities or issuers that earn one of the top four ratings from Moody's or
Standard & Poor's are considered "investment grade." In this Prospectus, unrated
securities that, in the subadviser's judgment, are of similar quality to other
securities rated investment grade are also referred to as investment grade.

Fixed-income securities that are below investment grade quality are referred to
as high yield debt. High yield debt is typically riskier than investment grade
securities.

Investment Performance Record
- -----------------------------

Annual total return for each calendar year of Bond Income's existence:

[BAR CHART APPEARS HERE]

YEAR TOTAL RETURN
---- ------------
1984 12.6%
1985 16.7%
1986 15.8%
1987 1.4%
1988 8.4%
1989 12.3%
1990 8.1%
1991 18.0%
1992 8.2%
1993 12.6%
1994 -3.4%
1995 21.2%
1996 4.6%
1997 10.6%
1998 9.0%

-6-
<PAGE>

During the period shown above, the highest quarterly return was 7.7% for the
second quarter of 1995 and the lowest quarterly return was -3.1%% for the first
quarter of 1994. Past performance of a Series does not necessarily indicate how
that Series will perform in the future.

Average Annual Total Returns for periods ending December 31:

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Past One Year Past Five Years Past Ten Years
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bond Income 9.0% 8.2% 10.0%
- --------------------------------------------------------------------------------------------------
Lehman Intermediate Gov't/Corporate Bond 8.4% 6.6% 8.5%
Index
- --------------------------------------------------------------------------------------------------
A-rated Corporate Bond Funds
- --------------------------------------------------------------------------------------------------

</TABLE>

-7-
<PAGE>

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

Investment Objective
- --------------------

The investment objective of the Salomon Brothers Strategic Bond Opportunities
Series ("Strategic Bond") is a high level of total return consistent with
preservation of capital.

Principal Investment Strategies
- -------------------------------

Salomon Brothers Asset Management Inc ("SBAM"), Strategic Bond's subadviser,
invests substantially all of Strategic Bond's assets in three classes of
fixed-income securities: (1) domestic investment grade securities (including
U.S. Government obligations), (2) domestic and foreign high yield debt, and (3)
foreign government securities.

Fixed-income securities that are below investment grade quality are referred to
as high yield debt. High yield debt is typically riskier than investment grade
securities.

Principal Investment Risks
- --------------------------

Investing in Strategic Bond involves risks. Strategic Bond may not perform as
well as other investments, and it is possible for investors to lose money.
Factors that could harm the investment performance of Strategic Bond include:

. A general decline in U.S. or foreign fixed-income security markets.

. Poor performance of the classes of fixed-income securities held by
Strategic Bond.

. Poor performance of individual fixed-income securities held by Strategic
Bond.

. The risks associated with investments in foreign securities, which are
discussed more fully in Section III.

Investment Performance Record
- -----------------------------

Annual total return for each calendar year of Strategic Bond's existence.

[BAR CHART APPEARS HERE]

YEAR TOTAL RETURN
---- ------------
1995 19.4%
1996 14.4%
1997 11.1%
1998 2.0%

-8-
<PAGE>

During the period shown above, the highest quarterly return was 9.8% for the
second quarter of 1995, and the lowest quarterly return was -2.4% for the third
quarter of 1998. Past performance of a Series does not necessarily indicate how
that Series will perform in the future.

Average Annual Total Return for periods ending December 31
- --------------------------------------------------------------------------------
Past One Year Life of the Series
- --------------------------------------------------------------------------------
Strategic Bond 2.0% 10.7%
- --------------------------------------------------------------------------------
Lehman Aggregate Bond Index 8.7% 9.8%
- --------------------------------------------------------------------------------
General Bond Funds Data only available for
full one-year
periods
- --------------------------------------------------------------------------------

-9-
<PAGE>

Salomon Brothers U.S. Government Series

Investment Objective
- --------------------

The investment objective of the Salomon Brothers U.S. Government Series (the
"U. S. Government Series") is a high level of current income consistent with
preservation of capital and maintenance of liquidity.

Principal Investment Strategies
- -------------------------------

Salomon Brothers Asset Management Inc ("SBAM"), subadviser to the U.S.
Government Series, generally invests at least 80% of the assets of the U.S.
Government Series in fixed-income securities issued or guaranteed by the U.S.
Government or its agencies, authorities or instrumentalities ("U.S. Government
Securities") or in derivatives relating to such securities. The U.S. Government
Series may also invest up to 20% of its assets in investment grade fixed-income
securities that are not U.S. Government Securities.

A derivative is a financial instrument whose value is based on (derived from)
changes in the value of something else, such as a currency, an interest rate or
a security.

Principal Investment Risks
- --------------------------

Investing in the U.S. Government Series involves risks. The U.S. Government
Series may not perform as well as other investments, and it is possible for
investors to lose money. Factors that could harm the investment performance of
the U.S. Government Series include:

. A general decline in fixed-income security markets.

. Poor performance of the types of fixed-income securities in which U.S.
Government invests relative to other fixed-income securities.

. Poor performance of individual fixed-income securities held by the U.S.
Government Series.

Investment Performance Record
- -----------------------------

Annual total return for each calendar year of the existence of the U.S.
Government Series.

[BAR CHART APPEARS HERE]

YEAR TOTAL RETURN
---- ------------
1995 15.0%
1996 3.3%
1997 8.6%
1998 7.5%

-10-
<PAGE>

During the period shown above, the highest quarterly return was 5.5% for the
second quarter of 1995, and the lowest quarterly return was -1.5% for the first
quarter of 1996. Past performance of a Series does not necessarily indicate how
that Series will perform in the future.

Average Annual Total Returns for periods ending December 31
- --------------------------------------------------------------------------------
Past One Year Life of the Series
- --------------------------------------------------------------------------------
U.S. Government Series 7.5% 8.3%
- --------------------------------------------------------------------------------
Lehman Intermediate Gov't Bond Index 8.5% 8.2%
- --------------------------------------------------------------------------------
Lipper U.S. Mortgage and GNMA Funds Data only
available for full
one-year periods
- --------------------------------------------------------------------------------

-11-
<PAGE>

Back Bay Advisors Managed Series

Investment Objective
- --------------------

The investment objective of the Back Bay Advisors Managed Series (the "Managed
Series") is a favorable total return through investment in a diversified
portfolio.

Principal Investment Strategies
- -------------------------------

Back Bay Advisors, Inc., subadviser to the Managed Series, invests the assets of
the Managed Series in a portfolio of common stocks and fixed-income securities.
Back Bay Advisors will generally invest more of the assets of Managed Series in
common stocks than in fixed-income securities. The Managed Series will generally
invest in the stocks included in the S&P 500 Index and may invest in investment
grade fixed-income securities, high yield debt and fixed-income securities of
foreign issuers, including non-dollar denominated securities.

Fixed-income securities that are below investment grade quality are referred to
as high yield debt. High yield debt is typically riskier than investment grade
securities.

Principal Investment Risks
- --------------------------

Investing in the Managed Series involves risks. The Managed Series may not
perform as well as other investments, and it is possible for investors to lose
money. Factors that could harm the investment performance of the Managed Series
include:

. A general decline in the stocks included in the S&P 500 Index or U.S. or
foreign fixed-income security markets.

. Poor performance of individual equity securities or fixed-income securities
held by the Managed Series.

. Poor performance of equity securities relative to fixed-income securities
when Back Bay Advisors emphasizes investment in equity securities, or poor
performance of fixed-income securities relative to equity securities when
Back Bay Advisors emphasizes investment in fixed-income securities.

. The risks associated with investments in foreign securities, which are
discussed more fully in Section III.

Investment Performance Record
- -----------------------------

Annual total return for each calendar year of the existence of the Managed
Series:

[BAR CHART APPEARS HERE]
Year Total Return

1988 9.5%
1989 19.1%
1990 3.2%
1991 20.2%
1992 6.7%
1993 10.6%
1994 -1.1%
1995 31.3%
1996 15.3%
1997 26.6%
1998 19.7%

-12-
<PAGE>

During the period shown above, the highest quarterly return was 14.9% for the
fourth quarter of 1998, and the lowest quarterly return was -7.4% for the third
quarter of 1998. Past performance of a Series does not necessarily indicate how
that Series will perform in the future.

Average Annual Total Returns for periods ending December 31:

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Past One Year Past Five Years Past Ten Years
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Managed Series 19.7% 17.7% 14.7%
- ----------------------------------------------------------------------------------------
S&P 500 Index 28.8% 24.1% 19.2%
- ----------------------------------------------------------------------------------------
Lehman Gov't/ Corporate Index 9.5% 7.3% 9.3%
- ----------------------------------------------------------------------------------------
Lipper Flexible Portfolio Funds
- ----------------------------------------------------------------------------------------
</TABLE>

-13-
<PAGE>

Loomis Sayles Balanced Series

Investment Objective
- --------------------

The investment objective of the Loomis Sayles Balanced Series (the "Balanced
Series") is reasonable long-term investment return from a combination of
long-term capital appreciation and moderate current income.

Principal Investment Strategies
- -------------------------------

Loomis, Sayles & Company, L.P. ("Loomis Sayles"), subadviser to the Balanced
Series, invests the assets of the Balanced Series in a mix of equity and
fixed-income securities. The Balanced Series invests at least 25% of its assets
in fixed-income securities. Loomis Sayles has the flexibility to invest the
remaining 75% of the assets of the Balanced Series in either equity or
fixed-income securities, depending on its economic and investment outlook,
although under normal market conditions more than 50% of the total assets of the
Balanced Series will be invested in stocks that Loomis Sayles regards as value
stocks.

Principal Investment Risks
- --------------------------

Investing in the Balanced Series involves risks. The Balanced Series may not
perform as well as other investments, and it is possible for investors to lose
money. Factors that could harm the investment performance of the Balanced Series
include:

. A general decline in stock markets or fixed-income markets.

. Poor performance of individual stocks or fixed-income securities held by
Balanced.

. Potentially rapid price changes (volatility) of equity securities.

. Poor performance of equity securities relative to fixed-income securities
when Loomis Sayles emphasizes investment in equity securities, or poor
performance of fixed-income securities relative to equity securities when
Loomis Sayles is relatively heavily invested in fixed-income securities.

Investment Performance Record
- -----------------------------

Annual total return for each calendar year of Balanced's existence.

[BAR CHART APPEARS HERE]

Year Total Return
- ---- ------------

1995 24.8%
1996 16.9%
1997 16.2%
1998 9.1%

-14-
<PAGE>

During the period shown above, the highest quarterly return was 9.7% for the
fourth quarter of 1998, and the lowest quarterly return was -6.4% for the third
quarter of 1998. Past performance of a Series does not necessarily indicate how
that Series will perform in the future.

Average Annual Total Returns for periods ending December 31

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Past One Year Life of the Series
- ------------------------------------------------------------------------------------
<S> <C> <C>
Balanced Series 9.1% 15.9%
- ------------------------------------------------------------------------------------
S&P 500 Index 28.8% 28.4%
- ------------------------------------------------------------------------------------
Lehman Gov't/Corporate Index 9.5% 9.9%
- ------------------------------------------------------------------------------------
Lipper Balanced Funds Data only available for full one-year
periods
- ------------------------------------------------------------------------------------
</TABLE>

-15-
<PAGE>

Alger Equity Growth Series

Investment Objective
- --------------------

The investment objective of the Alger Equity Growth Series ("Equity Growth") is
long-term capital appreciation.

Principal Investment Strategies
- -------------------------------

Fred Alger Management, Inc. ("Alger"), Equity Growth's investment subadviser,
invests Equity Growth's assets primarily in growth stocks. Alger will ordinarily
invest at least 65% of Equity Growth's total assets in equity securities of
issuers with market capitalization of $1 billion or greater.

Principal Investment Risks
- --------------------------

Investing in Equity Growth involves risks. Equity Growth may not perform as well
as other investments, and it is possible for investors to lose money. Factors
that could harm the investment performance of Equity Growth include:

. A general decline in U.S. stock markets.

. Poor performance of individual stocks held by Equity Growth.

. Potentially rapid price changes (volatility) of equity securities.

Investment Performance Record
- -----------------------------

Annual total return for each calendar year of Equity Growth's existence.

[BAR CHART APPEARS HERE]

Year Total Return
- ---- ------------

1995 48.8%
1996 13.2%
1997 25.6%
1998 47.8%

During the period shown above, the highest quarterly return was 26.1% for the
fourth quarter of 1998, and the lowest quarterly return was -7.1% for the third
quarter of 1998. Past performance of a Series does not necessarily indicate how
that Series will perform in the future.

-16-
<PAGE>

Average Annual Total Returns for periods ending December 31

- --------------------------------------------------------------------------------
Past One Year Life of Series
- --------------------------------------------------------------------------------
Equity Growth 47.8% 30.1%
- --------------------------------------------------------------------------------
S&P 500 Index 28.8% 28.4%
- --------------------------------------------------------------------------------
Lipper Growth Funds Data only available
for full one-year
periods
- --------------------------------------------------------------------------------

-17-
<PAGE>

Capital Growth Series

Investment Objective
- --------------------

The investment objective of the Capital Growth Series ("Capital Growth") is the
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.

Principal Investment Strategies
- -------------------------------

CGM, Capital Growth's investment adviser, invests Capital Growth's assets
primarily in common stock of large capitalization companies whose earnings CGM
expects will grow at a faster rate than the United States economy. When market
conditions warrant, however, CGM may select stocks on the basis of overall
economic factors such as the general economic outlook, the level and direction
of interest rates and the potential impact of inflation. Capital Growth invests
primarily in equity securities of U.S. companies but may also invest in equity
securities of foreign issuers. Over time, Capital Growth has held larger
positions in a smaller number of issuers than many other mutual funds. CGM does
not consider income as a significant factor when selecting investments for
Capital Growth.

Principal Investment Risks
- --------------------------

Investing in Capital Growth involves risks. Capital Growth may not perform as
well as other investments, and it is possible for investors to lose money.
Factors that could harm the investment performance of Capital Growth include:

. A general decline in U.S. or world stock markets.

. Poor performance of individual stocks held by Capital Growth.

. Potentially rapid price changes (volatility) of equity securities.

Investment Performance Record
- -----------------------------

Annual total return for each calendar year of Capital Growth's existence.

[BAR CHART APPEARS HERE]

Year Total Return

1984 -0.6%
1985 68.1%
1986 95.2%
1987 52.7%
1988 -8.8%
1989 30.8%
1990 -3.5%
1991 54.0%
1992 -6.1%
1993 5.0%
1994 -7.1%
1995 38.0%
1996 21.1%
1997 23.5%
1998 34.1%

-18-
<PAGE>

During the period shown above, the highest quarterly return was 28.5% for the
fourth quarter of 1998, and the lowest quarterly return was -24.5% for the third
quarter of 1990. Past performance of a Series does not necessarily indicate how
that Series will perform in the future.

Average Annual Total Returns for periods ending December 31
- --------------------------------------------------------------------------------
Past One Year Past Five Years Past Ten Years
- --------------------------------------------------------------------------------
Capital Growth 34.1% 20.8% 18.4%
- --------------------------------------------------------------------------------
S&P 500 Index 28.8% 24.1% 19.2%
- --------------------------------------------------------------------------------
Lipper Growth Funds
- --------------------------------------------------------------------------------

-19-
<PAGE>

Davis Venture Value Series

Investment Objective
- --------------------

The investment objective of the Davis Venture Value Series ("Venture Value") is
growth of capital.

Principal Investment Strategies
- -------------------------------

Davis Selected Advisers, L.P. ("Davis Selected"), Venture Value's subadviser,
invests Venture Value's assets primarily in U.S. common stocks of issuers that
have a market capitalization of at least $5 billion and that it believes are of
high-quality growth companies at attractive prices. Davis Selected generally
selects stocks with the intention of holding them for the long term. Davis
Selected believes that managing risk is the key to delivering superior long-term
investment results; therefore, it considers how much could potentially be lost
on an investment before considering how much might be gained.

Principal Investment Risks
- --------------------------

Investing in Venture Value involves risks. Venture Value may not perform as well
as other investments, and it is possible for investors to lose money. Factors
that could harm the investment performance of Venture Value include:

. A general decline in the U.S. stock market.

. Poor performance of individual stocks held by Venture Value.

. Potentially rapid price changes (volatility) of equity securities.

Investment Performance Record
- -----------------------------

Annual total return for each calendar year of Venture Value's existence.

[BAR CHART APPEARS HERE]

Year Total Return

1995 39.3%
1996 25.8%
1997 33.5%
1998 14.4%

-20-
<PAGE>

During the period shown above, the highest quarterly return was 21.2% for the
fourth quarter of 1998, and the lowest quarterly return was -14.5% for the third
quarter of 1998. Past performance of a Series does not necessarily indicate how
that Series will perform in the future.

Average Annual Total Returns for periods ending December 31
- --------------------------------------------------------------------------------
Past One Year Life of Series
- --------------------------------------------------------------------------------
Venture Value 14.4% 25.6%
- --------------------------------------------------------------------------------
S&P 500 Index 28.8% 28.4%
- --------------------------------------------------------------------------------
Lipper Growth Funds Data only available for
full one-year periods
- --------------------------------------------------------------------------------

-21-
<PAGE>

Goldman Sachs Midcap Value Series

Investment Objective
- --------------------

The investment objective of the Goldman Sachs Midcap Value Series ("Midcap
Value") is long-term capital appreciation.

Principal Investment Strategies
- -------------------------------

Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co., invests, under normal circumstances, most of Midcap
Value's assets in equity securities and at least 65% of its total assets in
equity securities of companies with public stock market capitalizations within
the range of the market capitalization of companies constituting the Russell
Midcap Index. This range varies over time, and as of December 31, 1998 was
between $1 billion and $10 billion. GSAM may invest up to 25% of Midcap Value's
total assets in foreign securities (including 15% in securities issued in
emerging markets) and 35% of its total assets in fixed-income securities,
including up to 10% of its total assets in high yield debt. Midcap Value does
not focus on dividend income.

Fixed-income securities that are below investment grade quality are referred to
as high yield debt. High yield debt is typically riskier than investment grade
securities.

Principal Investment Risks
- --------------------------

Investing in Midcap Value involves risks. Midcap Value may not perform as well
as other investments, and it is possible for investors to lose money. Factors
that could harm the investment performance of Midcap Value include:

. A general decline in world stock markets or fixed-income securities
markets.

. Poor performance of individual stocks or fixed-income securities held by
Midcap Value.

. Potentially rapid price changes (volatility) of equity securities.

. The risks associated with investments in foreign securities, which are
discussed more fully in Section III.

Investment Performance Record
- -----------------------------

On May 1, 1998, GSAM succeeded Loomis Sayles as subadviser to Midcap Value. The
performance information set forth below relates to the life of the Series and
therefore, reflects the management of both GSAM and Loomis Sayles.

-22-
<PAGE>

Annual total return for each calendar year of Midcap Value's existence.

[BAR CHART APPEARS HERE]

Year Total Return
- ---- ------------
1994 -0.3%
1995 30.4%
1996 17.6%
1997 17.4%
1998 -5.5%

During the period shown above, the highest quarterly return was 16.4% for the
second quarter of 1997, and the lowest quarterly return was -19.8% for the third
quarter of 1998. Past performance of a Series does not necessarily indicate how
that Series will perform in the future.

Average Annual Total Returns for periods ending December 31

- --------------------------------------------------------------------------------
Past One Year Past Five Years Life of the Series
- --------------------------------------------------------------------------------
Midcap Value -5.5% 11.1% 12.5%
- --------------------------------------------------------------------------------
Russell Midcap Index 10.1% 17.3% 17.4%
- --------------------------------------------------------------------------------
Lipper Mid Cap Funds Data only available for
full one-year
periods
- --------------------------------------------------------------------------------

-23-
<PAGE>

Loomis Sayles Small Cap Series

Investment Objective
- --------------------

The investment objective of the Loomis Sayles Small Cap Series ("Small Cap") is
long-term capital growth from investments in common stocks or their equivalents.

Principal Investment Strategies
- -------------------------------

Loomis, Sayles & Company, L.P. ("Loomis Sayles"), Small Cap's subadviser, under
normal market conditions, will invest at least 65% of Small Cap's total assets
in equity securities of companies with market capitalizations that fall within
the capitalization range of those companies constituting the Russell 2000 Index.
Small Cap invests in both value and growth stocks.

Principal Investment Risks
- --------------------------

Investing in Small Cap involves risks. Small Cap may not perform as well as
other investments, and it is possible for investors to lose money. Factors that
could harm the investment performance of Small Cap include:

. A general decline in the U.S. stock market.

. Poor performance of individual stocks held by Small Cap.

. Potentially rapid price changes (volatility) of equity securities.

. Poor performance of small capitalization issuers relative to the
performance of issuers with larger capitalizations.

Investment Performance Record
- -----------------------------

Annual total return for each calendar year of Small Cap's existence.

[BAR CHART APPEARS HERE]

Year Total Return
- ---- ------------
1995 28.9%
1996 30.7%
1997 24.9%
1998 -1.7%

During the period shown above, the highest quarterly return was 17.4% for the
fourth quarter of 1998, and the lowest quarterly return was -18.5% for the third
quarter of 1998. Past performance of a Series does not necessarily indicate how
that Series will perform in the future.

-24-
<PAGE>

Average Annual Total Returns for periods ending December 31

- --------------------------------------------------------------------------------
Past One Year Life of the Series
- --------------------------------------------------------------------------------
Small Cap -1.7% 16.0%
- --------------------------------------------------------------------------------
Russell 2000 Index -2.6% 19.5%
- --------------------------------------------------------------------------------
Lipper Small Cap Funds Data only available for full
one-year periods
- --------------------------------------------------------------------------------

-25-
<PAGE>

MFS Investors Series

Investment Objective
- --------------------

The investment objective of the MFS Investors Series (the "Investors Series") is
reasonable current income and long-term growth of capital and income.

Principal Investment Strategies
- -------------------------------

Massachusetts Financial Services Company ("MFS"), subadviser to the Investors
Series, ordinarily invests at least 65% of the total assets of the Investors
Series in equity securities. Although the Series may invest in companies of any
size, the Series focuses on companies with large market capitalizations (greater
than $5 billion) that MFS believes has sustainable growth prospects and
attractive valuations based on current and expected earnings or cash flow. MFS
may also invest a substantial portion of the assets of the Investors Series in
foreign securities.

Principal Investment Risks
- --------------------------

Investing in the Investors Series involves risks. The Investors Series may not
perform as well as other investments, and it is possible for investors to lose
money. Factors that could harm the investment performance of the Investors
Series include:

. A general decline in stock markets.

. Poor performance of individual equity securities held by the Investors
Series.

. Potentially rapid price changes (volatility) of equity securities.

. The risks associated with investments in foreign securities, which are
discussed more fully in Section III.

Investment Performance Record
- -----------------------------

The Investors Series does not yet have an investment performance record.

-26-
<PAGE>

MFS Research Managers Series

Investment Objective
- --------------------

The investment objective of the MFS Research Managers Series (the "Research
Managers Series") is long-term growth of capital.

Principal Investment Strategies
- -------------------------------

Massachusetts Financial Services Company ("MFS"), subadviser to the Research
Managers Series, invests at least 80% of the total assets of the Research
Managers Series in equity securities. The Series invests primarily in companies
that MFS believes possess better than average prospects for long-term growth and
attractive valuations. MFS may also invest up to 20% of the net assets of the
Series in foreign securities.

Fixed-income securities that are below investment grade quality are referred to
as high yield debt. High yield debt is typically riskier than investment grade
securities.

Principal Investment Risks
- --------------------------

Investing in the Research Managers Series involves risks. The Research Managers
Series may not perform as well as other investments, and it is possible for
investors to lose money. Factors that could harm the investment performance of
the Research Managers Series include:

. A general decline in stock markets.

. Poor performance of individual equity securities held by the Research
Managers Series.

. Potentially rapid price changes (volatility) of equity securities.

. The risks associated with investments in foreign securities, which are
discussed more fully in Section III.

Investment Performance Record
- -----------------------------

The Research Managers Series does not yet have an investment performance record.

-27-
<PAGE>

Westpeak Growth and Income Series

Investment Objective
--------------------

The investment objective of the Westpeak Growth and Income Series ("Growth and
Income") is long-term total return through investment in equity securities.

Principal Investment Strategies
-------------------------------

Westpeak Investment Advisors, L.P., Growth and Income's subadviser, is not
limited to either the growth or value style of investing. Westpeak sometimes
invests more of Growth and Income's assets in value stocks, and sometimes
invests more heavily in growth stocks. Growth and Income invests primarily in
stocks of large capitalization U.S. companies, such as those included in the S&P
500 Index, but it may also invest in securities of smaller companies, such as
those included in the Russell 1000 Index. Westpeak emphasizes individual stock
selection rather than targeting particular industries or sectors which it
believes may outperform other sectors.

Principal Investment Risks
--------------------------

Investing in Growth and Income involves risks. Growth and Income may not perform
as well as other investments, and it is possible for investors to lose money.
Factors that could harm the investment performance of Growth and Income include:

. A general decline in the stock market.

. Poor performance of individual stocks held by Growth and Income.

. Potentially rapid price changes (volatility) of equity securities.

. Poor performance of growth stocks relative to value stocks when Westpeak
emphasizes investment in growth stocks, or poor performance of value stocks
relative to growth stocks when Westpeak emphasizes investment in value
stocks.

Investment Performance Record
- -----------------------------

Annual total return for each calendar year of Growth and Income's existence:

[BAR CHART APPEARS HERE]

Year Total Return
- ---- ------------
1994 -1.2%
1995 36.5%
1996 18.1%
1997 33.5%
1998 24.4%

-28-
<PAGE>

During the period shown above, the highest quarterly return was 19.5% for the
fourth quarter of 1998, and the lowest quarterly return was -12.5% for the third
quarter of 1998. Past performance of a Series does not necessarily indicate how
that Series will perform in the future.

Average Annual Total Returns for periods ending December 31:

- --------------------------------------------------------------------------------
Past One Year Past Five Years Life of the Series
- --------------------------------------------------------------------------------
Growth & Income 24.4% 21.5% 21.5%
- --------------------------------------------------------------------------------
S&P 500 Index 28.8% 24.1% 22.6%
- --------------------------------------------------------------------------------
Lipper Growth & Income Funds Data only available
for full one-year
periods
- --------------------------------------------------------------------------------

-29-
<PAGE>

Westpeak Stock Index Series

Investment Objective
- --------------------

The investment objective of the Westpeak Stock Index Series ("Stock Index") is
investment results that correspond to the composite price and yield performance
of United States publicly traded common stocks.

Principal Investment Strategies
- -------------------------------

Westpeak, subadviser to Stock Index, attempts to duplicate the composite price
and yield performance of the S&P 500 Index.

Westpeak will ordinarily invest Stock Index's assets in all of the 500 stocks
included in the S&P 500 Index. Each month, Westpeak purchases and sells stocks
as necessary to duplicate the proportions of stocks included in the S&P 500
Index.

Principal Investment Risks
- --------------------------

Investing in Stock Index involves risks. Stock Index may not perform as well as
other investments, and it is possible for investors to lose money. Factors that
could harm the investment performance of Stock Index include:

. A general decline in the value of stocks included in the S&P 500 Index.

. Potentially rapid price changes (volatility) of equity securities.

Investment Performance Record
- -----------------------------

After Stock Index pays expenses and fees, the performance of Stock Index may not
exactly track the performance of the S&P 500 Index.

Annual total return for each calendar year of Stock Index's existence:

[BAR CHART APPEARS HERE]

Year Total Return
- ---- ------------
1988 16.3%
1989 30.2%
1990 -4.1%
1991 30.4%
1992 7.3%
1993 9.7%
1994 1.1%
1995 36.9%
1996 22.5%
1997 32.5%
1998 27.9%

-30-
<PAGE>

During the period shown above, the highest quarterly return was 21.1% for the
fourth quarter of 1998, and the lowest quarterly return was -13.7% for the third
quarter of 1990. Past performance of a Series does not necessarily indicate how
that Series will perform in the future.

Average Annual Total Returns for periods ending December 31
- --------------------------------------------------------------------------------
Past One Year Past Five Years Past Ten Years
- --------------------------------------------------------------------------------
Stock Index 27.9% 23.5% 18.6%
- --------------------------------------------------------------------------------
S&P 500 Index 28.8% 24.1% 19.2%
- --------------------------------------------------------------------------------
Lipper S&P 500 Funds
- --------------------------------------------------------------------------------

-31-
<PAGE>

Morgan Stanley International Magnum Equity Series

Investment Objective
- --------------------

The investment objective of the Morgan Stanley International Magnum Equity
Series ("International Equity") is long-term capital appreciation through
investment primarily in international equity securities.

Principal Investment Strategies
- -------------------------------

Morgan Stanley Asset Management Inc. ("MSAM") is International Equity's
subadviser. On December 1, 1998, MSAM changed its name to Morgan Stanley Dean
Witter Investment Management Inc. but continues to do business in certain
instances (including as subadviser to International Equity) using the name
Morgan Stanley Asset Management. MSAM invests International Equity's assets in a
diversified portfolio of stocks of non-U.S. issuers domiciled in EAFE countries.
MSAM seeks to achieve superior long-term returns by creating a diversified
portfolio of stocks that MSAM believes are undervalued. To achieve this goal,
MSAM implements a combination of strategic geographic asset allocation and
fundamental, value-oriented stock selection implemented by regional experts
around the globe.

EAFE countries are countries included in the Morgan Stanley Capital
International EAFE Index. This index consists of companies headquartered in
approximately 20 countries, including Australia, New Zealand, many nations in
Western Europe and the more developed nations of Asia, such as Japan, Hong Kong
and Singapore.

Principal Investment Risks
- --------------------------

Investing in International Equity involves risks. International Equity may not
perform as well as other investments, and it is possible for investors to lose
money. Factors that could harm the investment performance of International
Equity include:

. A general decline in world stock markets.

. Poor performance of the stock markets in which International Equity invests
relative to the performance of other stock markets.

. Poor performance of individual stocks held by International Equity.

. Potentially rapid price changes (volatility) of equity securities.

. The risks associated with investments in foreign securities, which are
discussed more fully in Section III.

Investment Performance Record
- -----------------------------
Annual total return for each calendar year of International Equity's existence.

[BAR CHART APPEARS HERE]

Year Total Return

1995 6.0%
1996 6.9%
1997 -1.3%
1998 7.3%

-32-
<PAGE>

During the period shown above, the highest quarterly return was 14.8% for the
first quarter of 1998, and the lowest quarterly return was -17.1% for the third
quarter of 1998. Past performance of a Series does not necessarily indicate how
that Series will perform in the future.

Average Annual Total Returns for periods ending December 31

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Past One Year Life of the Series
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
International Equity 7.3% 5.1%
- -------------------------------------------------------------------------------------------------
Morgan Stanley International Capital (MSCI) 19.9% 8.0%
EAFE Index
- -------------------------------------------------------------------------------------------------
Lipper International Funds Data only available for full
one-year periods
- -------------------------------------------------------------------------------------------------
</TABLE>

-33-
<PAGE>

Section III - Additional Information about each Series

This Section contains additional information that may help you decide whether
and how much to invest in each Series. This Section discusses the principal
strategies and risks of investing in each Series. However, each Series may
invest in securities and engage in certain investment practices not discussed
below or in the Summary. For more information about these securities, strategies
and related risks, please see "Investment Risks" in the Fund's Statement of
Additional Information (the "SAI"). Please call the toll free number listed on
the back cover of the Prospectus to receive a free copy of the SAI.

Temporary Defensive Positions
- -----------------------------

Each Series other than Money Market and Stock Index may, for temporary defensive
purposes, hold all or a substantial portion of its assets in cash or
fixed-income investments. The types of securities in which a Series may invest
include U.S. Government securities, investment grade fixed-income securities,
money market instruments and repurchase agreements. No estimate can be made as
to when or for how long a Series may employ a defensive strategy. Although a
defensive strategy may help insulate a Series from a downturn in securities
markets, it could prevent the Series from capturing the gains it would otherwise
achieve if the Series did not employ a defensive strategy.

Portfolio Turnover
- ------------------

Each Series may engage in active and frequent trading of portfolio securities to
achieve its principal investment strategies. As a result, the Series may
experience high portfolio turnover. High portfolio turnover results in higher
brokerage and other transaction costs.

Investment Restrictions
- -----------------------

Each Series is restricted as to the types of investments it may make. These
restrictions are described in detail in the SAI. Some investment restrictions
are "fundamental," which means that the Fund's Trustees may only change them
after obtaining shareholder approval. The investment objective of each Series
may be changed without shareholder approval, except for the investment
objectives of the following Series: Small Cap, Bond Income, Capital Growth,
Growth and Income, Managed, Money Market and Stock Index.

Repurchase agreements are agreements under which a Series purchases one or more
securities from another party, usually a bank or a brokerage firm, with the
understanding that the counterparty will buy the securities back from the Series
at a later date. Repurchase agreements allow a Series to earn a return on
available cash at relatively low credit risk.

-34-
<PAGE>

Back Bay Advisors Money Market Series

Principal Investment Strategies
- -------------------------------

Back Bay Advisors invests Money Market's assets in a managed portfolio of money
market instruments.

Investment selection
--------------------

Money market instruments are short term fixed-income investments that include
the following:

. Obligations backed by the full faith and credit of the Unites States
Government, and other obligations issued or guaranteed by the United
States Government or its agencies, authorities or instrumentalities.

. 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).

. Repurchase agreements.

. Obligations of banks or savings and loan associations with net assets
of more than $100 million.

Principal Investment Risks
- --------------------------

Fixed-income Securities
-----------------------

Because of the short maturity and high credit quality of money market
instruments, the risks associated with these instruments is generally lower than
the risks associated with other fixed-income securities.

The value of most fixed-income securities generally will rise when interest
rates decline and fall when interest rates rise. Fixed-income securities involve
both credit risk and market risk. Some fixed-income securities also involve the
risk that an issuer will repay the principal or repurchase the security before
it matures. If this happens, the holder will no longer receive any interest on
that security. The holder could buy another security, but that other security
might pay a lower interest rate. Also, if the holder paid a premium when it
bought the security, the holder may receive less from the issuer than it paid
for the security.

Portfolio Management
- --------------------

At December 31, 1998, Back Bay Advisors managed approximately $9.5 billion in
assets. In addition to Series of the Fund, Back Bay Advisors advises 10 mutual
funds and several institutional accounts. Back Bay Advisors is located at 399
Boylston Street, Boston, Massachusetts 02116.

Money Market paid __% of its average net assets in advisory fees in the fiscal
year ended December 31, 1998.

Credit risk is the risk that the security's issuer will not pay the interest,
dividends or principal that it has promised to pay.

Market risk is the risk that the value of the security will fall because of
changes in market rates of interest or other factors.

Some securities pay a higher interest rate than the current market rate. An
investor may have to pay more than the security's principal to compensate the
seller for the value of the higher interest rate. This additional payment is a
premium.

-35-
<PAGE>

Back Bay Advisors Bond Income Series

Principal Investment Strategies
- -------------------------------

Back Bay Advisors invests Bond Income's assets primarily in fixed-income
securities. Back Bay Advisors will invest at least 80% of Bond Income's assets
in investment grade securities, and may invest up to 10% of Bond Income's assets
in obligations of foreign issuers.

Investment Selection
--------------------

Back Bay Advisors evaluates potential investments for Bond Income in several
steps.

Back Bay Advisors first allocates the assets of Bond Income that are available
for investment among three principal areas: corporate securities,
mortgage-backed securities and U.S. Treasury securities. Back Bay Advisors makes
this allocation based on its analysis of current and future interest rate trends
and market indicators. Once Back Bay Advisors makes this allocation, it searches
for investment opportunities in each area.

When evaluating domestic and foreign corporate fixed-income securities, Back Bay
Advisors first considers the relative attractiveness of corporate securities in
four different sectors: industrial, financial, utilities, and Yankee. Back Bay
Advisors allocates assets among the four sectors based on its evaluation of the
relative merits of each sector and its market outlook. Back Bay Advisors next
analyzes the credit quality of specific issuers and the market prices of
securities of those issuers.

When evaluating mortgage-backed securities, Back Bay Advisors reviews the
creditworthiness and likelihood of prepayment on the mortgages underlying those
securities.

When evaluating U.S. Treasury securities, Back Bay Advisors considers the
difference between the interest rates on U.S. Treasury securities of various
maturities and the interest rates on other fixed-income securities.

Back Bay Advisors generally attempts to maintain a duration for the Bond Income
portfolio that is within 1 1/2 years of the duration of the Lehman Aggregate
Bond Index.

Principal Investment Risks
- --------------------------

Fixed-income Securities
-----------------------

The value of most fixed-income securities generally will rise when interest
rates decline and fall when interest rates rise. Fixed-income securities involve
both credit risk and market risk. Some fixed-income securities also involve the
risk that an issuer will repay the principal or repurchase the security before
it matures. If this happens, the holder will no longer receive any interest on
that security. The holder could buy another security, but that other security
might pay a lower interest rate. Also, if the holder paid a premium when it
bought the security, the holder might receive less from the issuer than it paid
for the security.

The Yankee sector consists of senior debt issued by non-U.S. companies in U.S.
dollars.

Credit risk is the risk that the security's issuer will not pay the interest,
dividends or principal that it has promised to pay.

Market risk is the risk that the value of the security will fall because of
changes in market rates of interest or other factors.

-36-
<PAGE>

High yield debt
---------------

High yield debt has a higher credit risk and market risk than investment grade
fixed-income securities. Issuers could have high credit risk for many reasons,
including problems with product development or distribution, competition in
their markets or a high degree of leverage. High yield debt has higher market
risk for a variety of reasons, including greater sensitivity to interest rate
changes and economic downturns, and the difficulty some issuers may have when
trying to obtain additional financing. Also, high yield debt may be difficult to
value, and if other investors believe that a certain issuer's securities are
overvalued, the holder may be unable to sell those securities for what it
believes is an adequate price.

Foreign Securities
------------------

In addition to the risks associated with equity securities generally, foreign
securities present additional risks.

Regulation and Access to Information. Changes in foreign countries' laws may
- -------------------------------------
harm the performance and liquidity of the Series' investments in those
countries. Additionally, many countries have less stringent financial reporting
requirements than the United States, so it may be difficult to obtain
information to evaluate the business potential of foreign issuers.

Regional and National Risk. News and events unique to particular regions and
- ---------------------------
foreign countries will affect non-U.S. markets and issuers. These same events
may not affect the U.S. economy or similar issuers located in the United States
in the same manner. As a result, movements in the prices of foreign securities
may not correlate with the prices of U.S. securities.

Currency Risk. As many investments in foreign countries are denominated in
- --------------
foreign currencies, changes in the value of those countries' currencies relative
to the U.S. dollar may affect the value of those investments. These changes may
occur in response to events unrelated to the value of the security in the
issuer's home country. Back Bay Advisors may use certain techniques, such as
forward contracts or futures contracts, to manage these risks. However, Back Bay
Advisors cannot assure that these techniques will be effective.

Forward Contracts and Futures
-----------------------------

The Series may seek to avoid the risk of an unfavorable shift in currency rates
by entering into forward contracts or buying or selling futures contracts or
options on futures contracts.

Forward contracts. By entering into a forward contract, Bond Income is giving up
- ------------------
the potential gains (and avoiding the potential losses) that may occur if the
actual exchange rate on the specified date is different from the exchange rate
established in the contract.

Futures contracts. If the price of a futures contract changes more than the
- ------------------
price of the security or index on which the contract is based, Bond Income could
make or lose more money than if it had invested directly in the underlying
security or index. This added volatility increases the risk of these
investments. In addition, investors may be unwilling to buy or sell futures
contracts under some market

Leverage is a measure of how much a company has borrowed in relation to its
shareholders' equity.

A forward contract is an agreement to buy or sell securities or currencies on a
specified future date at a specific price.

A futures contract is an obligation to buy or sell an asset on a specified
future date or an obligation to pay or receive money based on the value of some
securities index or currency or interest rate on a specified future date.
Typically, futures contracts are traded on an exchange (rather than entered into
between two parties). Futures contracts are one kind of derivative.

A derivative is a financial instrument whose value is based on (derived from)
changes in the value of something else, such as a currency, an interest rate or
a security.

-37-
<PAGE>

conditions. If this happens, Bond Income might not be able to close out futures
transactions without incurring substantial losses.

Portfolio Management
- --------------------

At December 31, 1998, Back Bay Advisors managed approximately $9.5 billion in
assets. In addition to Series of the Fund, Back Bay Advisors manages 10 mutual
funds and several institutional accounts. Back Bay Advisors is located at 399
Boylston Street, Boston, Massachusetts 02116.

Catherine L. Bunting is primarily responsible for the day-to-day management of
Bond Income. Ms. Bunting is a Senior Vice President of Back Bay Advisors and has
served as Bond Income's portfolio manager since January 1989.

Bond Income paid __% of its average net assets in advisory fees in the fiscal
year ended December 31, 1998.

-38-
<PAGE>

Salomon Brothers Strategic Bond Opportunities Series

Principal Investment Strategies
- -------------------------------

Investment Selection
- --------------------

SBAM determines how to invest Strategic Bond assets in several steps:

SBAM has an investment committee consisting of senior portfolio managers which
analyzes current interest rate trends and their impact on potential economic
scenarios. This committee meets every month to revise its estimate of interest
rate and general market trends. Based on this analysis, Strategic Bond's
portfolio managers allocate assets among the various classes of securities in
which the Series invests. Once this allocation is set, SBAM focuses on specific
investment opportunities within those areas.

SBAM considers many factors when selecting individual fixed-income securities,
including the interest rate of the security, the interval at which the interest
rate adjusts, the date of maturity of the security and the creditworthiness of
the issuer. SBAM also considers Strategic Bond's likely need for liquidity,
which can be influenced by redemptions (and opportunities for purchases of other
securities), and the duration of the portfolio, which typically averages
approximately 4.5 years.

Principal Investment Risks
- --------------------------

Fixed-income Securities
- -----------------------

Foreign Securities
------------------

In addition to the risks associated with fixed-income securities generally,
foreign securities present additional risks.

Credit risk is the risk that the security's issuer will not pay the interest,
dividends or principal that it has promised to pay.

Market risk is the risk that the value of the security will fall because of
changes in market rates of interest or other factors.

Some securities pay a higher interest rate than the current market rate. An
investor may have to pay more than the security's principal to compensate the
seller for the value of higher interest rate. This additional payment is a
premium.

-39-
<PAGE>

Currency Risk. As many investments in foreign countries are denominated in
- --------------
foreign currencies, changes in the value of those countries' currencies relative
to the U.S. dollar may affect the value of those investments. These changes may
occur in response to events unrelated to the value of the security in the
issuer's home country. SBAM may use certain techniques, such as forward
contracts or futures contracts, to manage these risks. However, SBAM cannot
assure that these techniques will be effective.

A forward contract is an agreement to buy or sell securities or currencies on a
specified future date at a specific price.

A derivative is a financial instrument whose value is based on (derived from)
changes in the value of something else, such as a currency, an interest rate or
a security.

Forward Contracts and Futures
-----------------------------

The Series may seek to avoid the risk of an unfavorable shift in currency rates
by entering into forward contracts or buying or selling futures contracts or
options on futures contracts.

Forward contracts. By entering into a forward contract, Strategic Bond is giving
- ------------------
up the potential gains (and avoiding the potential losses) that may occur if the
actual exchange rate on the specified date is different from the exchange rate
established in the contract.

Futures contracts. If the price of a futures contract changes more than the
- ------------------
price of the security or index on which the contract is based, Strategic Bond
could make or lose more money than if it had invested directly in the underlying
security or index. This added volatility increases the risk of these
investments. In addition, investors may be unwilling to buy or sell futures
contracts under some market conditions. If this happens, Strategic Bond might
not be able to close out futures transactions without incurring substantial
losses.

Emerging Markets
----------------

Strategic Bond may invest in emerging markets, which are generally located in
the Asia-Pacific Region, Eastern Europe, Latin and South America and Africa. In
addition to the risks of foreign securities described above (which are
potentially greater for emerging markets securities than for other foreign
securities), emerging markets securities may be subject to other risks,
including increased risks of reduced liquidity, high inflation rates, political
uncertainty, high administrative and regulatory costs, repatriation of income
and less advantageous investment terms relative to foreign nationals.

High Yield Debt
---------------

High yield debt has a higher credit risk and market risk than investment grade
fixed-income securities. Issuers could have high credit risk for many reasons,
including problems with product development, distribution or competition in
their markets or a high degree of leverage. High yield debt has higher market
risk for a variety of reasons, including greater sensitivity to interest rate
changes and economic downturns, and the difficulty some issuers may have when
trying to obtain additional financing. Also, high yield debt may be difficult to
value, and if other investors believe that a certain issuer's securities are
overvalued, the holder may be unable to sell those securities for what it
believes is an adequate price.

Leverage is a measure of how much a company has borrowed in relation to its
shareholders' equity.

-40-
<PAGE>

High Yield, High Risk Foreign Securities
----------------------------------------

SBAM may invest up to 100% of Strategic Bond's total assets in high yield, high
risk foreign securities. High yield, high risk foreign securities are typically
issued by emerging countries, and will therefore be subject to emerging market
risks in addition to risks of foreign securities described above. Other risks
may include high interest rates and under collateralization.

Portfolio Management
- --------------------

At December 31, 1998, SBAM managed approximately $29 billion in assets. SBAM is
located at 7 World Trade Center, New York, New York 10048.

Roger Lavan is primarily responsible for the day-to-day management of the
investment grade portion of Strategic Bond's portfolio. Mr. Lavan joined SBAM as
the Director and Portfolio Manager in 1990 and served as a co-portfolio manager
of Strategic Bond from its inception until 1997.

Peter Wilby is primarily responsible for the day-to-day management of the high
yield and foreign sovereign securities portion of Strategic Bond's portfolio.
Mr. Wilby joined SBAM in 1989 and is a Managing Director of SBAM.

David Scott is primarily responsible for the day-to-day management of currency
transactions and certain non-dollar denominated debt securities investments of
Strategic Bond's portfolio. Mr. Scott joined SBAM in 1994 and is a Managing
Director of SBAM.

Strategic Bond paid __% of its average net assets in advisory fees in the fiscal
year ended December 31, 1998.

-41-
<PAGE>

Salomon Brothers U.S. Government Series

Principal Investment Strategies
- -------------------------------

SBAM generally invests at least 80% of the assets of the U.S. Government Series
in U.S. Government Securities or in derivatives relating to such securities. The
U.S. Government Series may also invest up to 20% of its assets in investment
grade fixed-income securities that are not U.S. Government Securities.

Investment Selection
--------------------

SBAM determines how to invest assets of the U.S. Government Series in several
steps.

SBAM has an investment committee consisting of senior portfolio managers which
analyzes current interest rate trends and their impact on potential economic
scenarios. This committee meets every month to revise its estimate of interest
rate and general economic trends. Based on this analysis, portfolio managers of
the Series allocate assets among various classes of securities, including U.S.
Treasury securities, mortgage-backed assets, investment grade fixed-income
securities and securities of agencies or instrumentalities of the U.S.
Government, including collateralized mortgage obligations, or "CMO's".

SBAM considers many factors when selecting individual fixed-income securities,
including the interest rate of the security, the interval at which that interest
rate adjusts, the date of maturity of the security and the creditworthiness of
the issuer. SBAM also considers the U.S. Government Series' likely need for
liquidity, which can be influenced by redemptions and opportunities for
purchases of other securities, and the duration of the portfolio, which
typically fluctuates between 2.5 and 5 years.

Principal Investment Risks
- --------------------------

Fixed-income Securities
-----------------------

Credit risk is the risk that the security's issuer will not pay the interest,
dividends or principal that it has promised to pay.

Market risk is the risk that the value of the security will fall because of
changes in market rates of interest or other factors.

Collateralized Mortgage Obligations (CMO's). One type of security in which the
- --------------------------------------------
U.S. Government Series can invest is CMO's. CMO's are fixed-income securities
that are secured ("collateralized") by a portfolio of mortgages or mortgage
securities. The underlying mortgages or mortgages securities of the CMO's
purchased by the U.S. Government Series are issued or guaranteed by the U.S.
Government or one of its agencies or instrumentalities, but the CMO's themselves
may not be so issued or guaranteed. Therefore, CMO's are often riskier than
other U.S. Government Securities.

-42-
<PAGE>

Portfolio Management
- --------------------

At December 31, 1998, SBAM managed approximately $29 billion in assets. SBAM is
located at 7 World Trade Center, New York, New York 10048.

Roger Lavan is primarily responsible for the day-to-day management of U.S.
Government Bond. Mr. Lavan joined SBAM as the Director and Portfolio Manager in
1990 and served as a co-portfolio manager of U.S. Government Bond from its
inception until 1997.

U.S. Government Bond paid __% of its average net assets in advisory fees in the
fiscal year ended December 31, 1998.

-43-
<PAGE>

Back Bay Advisors Managed Series

Principal Investment Strategies
- -------------------------------

Back Bay Advisors invests the assets of the Managed Series in a portfolio of
common stocks and fixed-income securities. Back Bay Advisors will generally
invest more of the assets of Managed Series in common stocks than in
fixed-income securities. The Managed Series will generally invest in the stocks
included in the S&P 500 Index and may invest in investment grade fixed-income
securities, high yield debt and fixed-income securities of foreign issuers,
including non-dollar denominated securities.

Investment Selection
--------------------

Back Bay Advisors evaluates potential investments for the Managed Series in
several steps.

Each week, Back Bay Advisors uses a quantitative model to evaluate and adjust
the Managed Series' allocation of assets between equity and fixed-income
securities. This model analyzes U.S. Government monetary policy, the relative
valuation of stock markets relative to fixed-income markets and the flow of
funds between stock markets and fixed-income markets.

Equity Securities. Back Bay Advisors generally invests all of the Managed
- -----------------
Series' equity portfolio in stocks included in the S&P 500. Back Bay Advisors
uses quantitative analysis to invest approximately 20% of this portfolio in
value stocks. Back Bay Advisors invests the remaining 80% of this portfolio to
reflect individual stock and industry sector weightings of the S&P 500.

Fixed-Income Securities. Back Bay Advisors first allocates the assets of the
- -----------------------
Managed Series that will be invested in fixed-income securities among three
areas: corporate securities, mortgage-backed securities and U.S. Treasury
securities. Back Bay Advisors makes this allocation based on its analysis of
current and future interest rate trends and market indicators. Once Back Bay
Advisors makes this allocation, it searches for investment opportunities in each
area.

When evaluating corporate fixed-income securities, Back Bay Advisors first
considers the relative attractiveness of domestic and foreign corporate
securities in four different sectors: industrial, financial, utilities, and
Yankee. Back Bay Advisors allocates assets among the four sectors based on its
evaluation of the relative merits of each sector and its market outlook. Back
Bay Advisors next analyzes the credit quality of specific issuers and the market
prices of securities of those issuers.

The Yankee sector consists of senior debt issued by non-U.S. companies in U.S.
dollars.

When evaluating mortgage-backed securities, Back Bay Advisors reviews the
creditworthiness and likelihood of prepayment on the mortgages underlying those
securities.

When evaluating U.S. Treasury securities, Back Bay Advisors considers the
difference between the interest rates on U.S. Treasuries of various maturities
and the interest rates on other fixed-income securities.

The duration of the fixed-income securities portfolio of the Managed Series
varies widely. Generally the duration ranges from 5 to 10 years, but Back Bay
Advisors sets no specific target for the duration of the Managed Series.

-44-
<PAGE>

Principal Investment Risks
- --------------------------

Equity Securities
-----------------

In general, equity securities are considered more volatile than fixed-income
securities. The prices of equity securities will rise and fall in response to
events that affect entire financial markets or industries (changes in inflation
or consumer demand, for example) and to events that affect particular companies
(news about the success or failure of a new product, for example).

Growth Stocks and Value Stocks. The prices of growth stocks may be more
- ------------------------------
sensitive to changes in current or expected earnings than the prices of other
stocks.

Fixed-income Securities
-----------------------

The value of most fixed-income securities generally will rise when interest
rates decline and fall when interest rates rise. Fixed-income securities involve
both credit risk and market risk. Some fixed-income securities also involve the
risk that an issuer will repay the principal or repurchase the security before
it matures. If this happens, the holder will no longer receive any interest on
that security. The holder could buy another security, but that other security
might pay a lower interest rate. Also, if the holder paid a premium when it
bought the security, the holder might receive less from the issuer than it paid
for the security.

Credit risk is the risk that the security's issuer will not pay the interest,
dividends or principal that it has promised to pay.

Market risk is the risk that the value of the security will fall because of
changes in market rates of interest or other factors.

High yield debt
---------------

Leverage is a measure of how much a company has borrowed in relation to its
shareholders' equity.

Foreign Securities
------------------

In addition to the risks associated with equity securities generally, foreign
securities present additional risks.

-45-
<PAGE>

As a result, movements in the prices of foreign securities may not correlate
with the prices of U.S. securities.

Currency Risk. As many investments in foreign countries are denominated in
- -------------
foreign currencies, changes in the value of those countries' currencies relative
to the U.S. dollar may affect the value of those investments. These changes may
occur in response to events unrelated to the value of the security in the
issuer's home country. Back Bay Advisors may use certain techniques, such as
forward contracts or futures contracts, to manage these risks. However, Back Bay
Advisors cannot assure that these techniques will be effective.

A forward contract is an agreement to buy or sell securities or currencies on a
specified future date at a specific price.

A futures contract is an obligation to buy or sell an asset on a specified
future date, or to pay or receive money based on the value of some securities
index or currency or interest rate on a specified future date. Typically,
futures contracts are traded on an exchange (rather than entered into between
two parties). Futures contracts are one kind of derivative.

A derivative is a security, the value of which is based on (derived from) the
movement of an underlying instrument. This instrument could be the price of
another security or other asset or an interest rate, among other things.

Forward Contracts and Futures
-----------------------------

The Series may seek to avoid the risk of an unfavorable shift in currency rates
by entering into forward contracts or buying or selling futures contracts or
options on futures contracts.

Forward contracts. By entering into a forward contract, the Managed Series is
- ------------------
giving up the potential gains (and avoiding the potential losses) that may occur
if the actual exchange rate on the specified date is different from the exchange
rate established in the contract.

Futures contracts. If the price of a futures contract changes more than the
- ------------------
price of the security or index on which the contract is based, the Managed
Series could make or lose more money than if it had invested directly in the
underlying security or index. This added volatility increases the risk of these
investments. In addition, investors may be unwilling to buy or sell futures
contracts under some market conditions. If this happens, the Managed Series
might not be able to close out futures transactions without incurring
substantial losses.

Portfolio Management
- --------------------

Peter Palfrey is primarily responsible for the day-to-day management of the
Managed Series. Mr. Palfrey is a Vice President of Back Bay Advisors and has
served as portfolio manager of the Managed Series since January 1994.

The Managed Series paid __% of its average net assets in advisory fees in the
fiscal year ended December 31, 1998.

-46-
<PAGE>

Loomis Sayles Balanced Series

Principal Investment Strategies
- -------------------------------

Loomis Sayles invests the assets of the Balanced Series in a mix of equity and
fixed-income securities. The Balanced Series invests at least 25% of its assets
in fixed-income securities. Loomis Sayles has the flexibility to invest the
remaining 75% of the assets of the Balanced Series in either equity or
fixed-income securities, depending on its economic and investment outlook,
although under normal market conditions more than 50% of the total assets of the
Balanced Series will be invested in stocks that Loomis Sayles regards as value
stocks.

Investment Selection
--------------------

Loomis Sayles usually invests approximately 60 to 65% of the total assets of the
Balanced Series in equity securities, although this equity allocation can shift,
depending on Loomis Sayles' longer-term outlook for returns on both equity and
fixed-income securities. When allocating assets, Loomis Sayles considers, among
other things, the valuation level of the general markets, the valuation level of
stocks in the Balanced Series' portfolio, the forecast earnings growth for those
companies, trends in inflation, the level of interest rates and the expected
direction of change in economic growth.

Equity Holdings
---------------

The Balanced Series' equity holdings generally consist of value stocks with a
minimum market capitalization of $2 billion. When selecting stocks for the
Balanced Series, Loomis Sayles screens all market sectors for stocks that have
below-average price/earnings ratios on next year's earnings. Loomis Sayles then
uses a proprietary quantitative model to review each stock that it believes will
improve its earnings outlook and ranks each stock within its industry group
based on valuation, earnings momentum and balance sheet strength. Stocks for
which Loomis Sayles analysts have positive opinions and which have high
quantitative rankings become leading purchase candidates for the Balanced
Series, at the discretion of the portfolio managers.

Fixed-income Holdings
---------------------

The Balanced Series' fixed-income holdings may consist of a variety of
securities including U.S. Treasury and agency issues, mortgage-backed
securities, asset-backed securities, and corporate bonds. The emphasis, however,
is on corporate bonds. The selection process for corporate bonds is a bottom-up
process in which individual securities are selected from Loomis Sayles'
corporate credit universe of approximately 600 issuers. Specific issues are
selected based upon credit fundamentals, yield spread versus U.S. Treasury
issues and maturity considerations. Holdings are limited to a maximum 5%
position in any one credit issuer, no more than 50% in any one sector (i.e.,
utilities, finance, or industrial bonds) and no more than 20% in any one
industry. Once a security is identified as a possible purchase candidate, the
portfolio managers consider market conditions, supply and demand, and other
economic factors when making a purchase decision.

-47-
<PAGE>

Principal Investment Risks
- --------------------------

Equity Securities
-----------------

Growth Stocks and Value Stocks. The prices of growth stocks may be more
- -------------------------------
sensitive to changes in current or expected earnings than the prices of other
stocks. The price of value stocks may fall, or simply may not increase very
much, if the market does not agree with the subadviser's view of the value of
the stock.

Market Capitalization. The stocks of large capitalization companies do not
- ----------------------
always have as much growth potential as smaller and medium capitalization
stocks.

Fixed-income Securities
-----------------------

Credit risk is the risk that the security's issuer will not pay the interest,
dividends or principal that it has promised to pay.

Market risk is the risk that the value of the security will fall because of
changes in market rates of interest or other factors.

When Issued Securities
----------------------

Loomis Sayles may purchase when-issued securities. If a Series has made a
commitment to purchase a when-issued security, the Series is obligated to
purchase that security on the settlement date, which is usually one week to one
month after the purchase commitment. If the value of the security falls (or
rises) before the settlement date, the Series will be exposed to that change in
value, because the price it must pay for the security is fixed at the time of
its purchase commitment. Favorable or unfavorable news about particular issuers
or markets could cause the value of the security to fall (or increase) more than
Loomis Sayles expected, and the Balanced Series may have to pay more (or less)
than it would otherwise have been willing to pay if it had not made the purchase
commitment. The Balanced Series will have cash or cash equivalents in a
segregated account sufficient to pay for any when-issued security at time of
settlement.

A when-issued security is a security that a buyer commits to purchase on some
future date, when that security is issued (the settlement date). The price of
the when-issued security that the buyer will pay is fixed at the time of the
purchase commitment.

Portfolio Management
- --------------------

Loomis Sayles has been in the investment management business since 1926. At
___________, 1998, Loomis Sayles managed approximately $_____ billion in assets.
Loomis Sayles' address is One Financial Center, Boston, Massachusetts 02110.

Tricia Mills, Barr Segal and Tom Kolefas are the portfolio managers for the
Balanced Series. Ms. Mills has served as portfolio manager since the Series
inception. Mr. Segal has served as portfolio manager since July 1997, and has
been a member of the

-48-
<PAGE>

Series' fixed-income securities investment team since 1996. Prior to 1996, Mr.
Segal was a Senior Portfolio Manager at TWC Group. Mr. Kolefas has served as
portfolio manager since September 1998. [Need to add prior history]

Fixed-income holdings
- ---------------------

The Balanced Series paid __% of its average net assets in advisory fees in the
fiscal year ended December 31, 1998.

-49-
<PAGE>

Alger Equity Growth Series

Principal Investment Strategies
- -------------------------------

Alger invests Equity Growth's assets primarily in growth stocks. Alger will
ordinarily invest at least 65% of Equity Growth's total assets in equity
securities of issues with market capitalization of $1 billion or greater.

Stock Selection
---------------

Alger seeks out and invests primarily in companies that are traded on domestic
stock exchanges or in the domestic over-the-counter market. The companies Alger
chooses for the portfolio of the Series may still be in the development stage,
may be older companies that appear to be entering a new stage of growth progress
due to factors like management changes or development of new technologies,
products or markets, or may be companies providing products or services with a
high unit volume growth rate. Alger focuses on fundamental characteristics of
individual companies and does not allocate assets based on specific industry
sectors.

Principal Investment Risks
- --------------------------

Equity Securities
-----------------

Market Capitalization. The stocks of large capitalization companies do not
- ----------------------
always have as much growth potential as smaller and medium capitalization
issuers.

Portfolio Management
- --------------------

At December 31, 1998, Alger managed approximately $10.5 billion in assets for 6
additional mutual funds (in addition to the Series) and other institutional
investors. Alger's address is 1 World Trade Center, Suite 9333, New York, New
York 10038.

David D. Alger and Ron Tartaro have served as Equity Growth's portfolio managers
since its inception in October 1994. Mr. Alger became Alger's President in 1995
and served as Executive Vice President and Director of Research before 1995. Mr.
Tartaro has been employed by Alger since 1990 and has been a Senior Vice
President since 1995.

Equity Growth paid __% of its average net assets in advisory fees in the fiscal
year ended December 31, 1998.

-50-
<PAGE>

Capital Growth Series

Principal Investment Strategies
- -------------------------------

CGM invests Capital Growth's assets primarily in common stock of large
capitalization companies whose earnings CGM expects will grow at a faster rate
than the United States economy. When market conditions warrant, however, CGM may
select stocks on the basis of overall economic factors such as the general
economic outlook, the level and direction of interest rates and the potential
impact of inflation. Capital Growth invests primarily in equity securities of
U.S. companies but may also invest in equity securities of foreign issuers. Over
time, Capital Growth has held larger positions in a smaller number of issuers
than many other mutual funds. CGM does not consider income as a significant
factor when selecting investments for Capital Growth.

Stock Selection
---------------

In general, CGM seeks companies with the following characteristics:

. A well-established record of above-average growth.

. The prospect of maintaining market leadership.

. The potential to benefit from internal revitalization or innovations,
changes in consumer demand or basic economic forces.

Although CGM searches for these types of companies, not every company in which
Capital Growth invests will have all of these characteristics. Rather than
strictly following a growth style, CGM may also invest in attractive value
stocks. In making an investment decision, CGM will generally:

. Use a top-down approach to analyze the overall economic factors that may
affect a potential investment.

. Thoroughly analyze certain industries and companies, evaluate the
fundamentals of each and focus on attractively valued companies.

. Purchase a security only after a thorough assessment of all information
that CGM deems to be relevant at the time of investment.

. Sell a stock if CGM's investment expectations are not being met, if CGM
identifies better opportunities or if CGM has attained its price objective.

Principal Investment Risks
- --------------------------

Equity Securities
-----------------

-51-
<PAGE>

Market Capitalization. The stocks of large capitalization companies do not
- ----------------------
always have as much growth potential as smaller and medium capitalization
stocks.

Portfolio Management
- --------------------

At December 31, 1998, CGM managed approximately $8 billion in assets and
currently serves as investment adviser to six additional mutual funds and to
other institutional investors. CGM's address is One International Place, Boston,
Massachusetts 02110.

Kenneth Heebner has managed Capital Growth since it was established in 1983. Mr.
Heebner co-founded and is currently Senior Portfolio Manager of CGM.

Capital Growth paid __% of its average net assets in advisory fees in the fiscal
year ended December 31, 1998.

-52-
<PAGE>

Davis Venture Value Series

Principal Investment Strategies
- -------------------------------

Davis Selected invests Venture Value's assets primarily in U.S. common stocks of
issuers that have a market capitalization of at least $5 billion and that it
believes are of high-quality growth companies at attractive prices. Davis
Selected generally selects stocks with the intention of holding them for the
long term. Davis Selected believes that managing risk is the key to delivering
superior long-term investment results; therefore, it considers how much could
potentially be lost on an investment before considering how much might be
gained.

Stock selection
---------------

Davis Selected has developed a list of ten characteristics that it believes
allow companies to sustain long-term growth and minimize risks to enhance their
potential for superior long-term returns. Although few companies exhibit all ten
characteristics, Davis Selected searches for companies that possess:

. Excellent management.
. Managers who own stock in their own company.
. Strong returns on investments of an issuer's capital.
. A lean expense structure.
. A dominant or growing market share in a growing market.
. A proven record as an acquirer.
. A strong balance sheet.
. Products or services that are not likely to become obsolete.
. Successful international operations.
. Innovation in all aspects of operations.

Davis Selected does not have particular allocation strategies, and emphasizes
individual stock selection rather than industry sectors. Davis Selected relies
heavily on its evaluation of the management of potential investments, and will
ordinarily visit the managers at their place of business to gain insight into
the relative value of different companies.

Principal Investment Risks
- --------------------------

Equity Securities
-----------------

Market Capitalization. The stocks of large capitalization companies do not
- ----------------------
always have as much growth potential as smaller and medium capitalization
stocks.

-53-
<PAGE>

Portfolio Management
- --------------------

At December 31, 1998, Davis Selected, together with its affiliated institutional
asset management companies, managed approximately $22 billion in assets. Davis
Selected's address is 124 East Mercy Street, Santa Fe, New Mexico 87501. Davis
Selected may delegate to Davis Selected Advisers-NY, Inc. any of its
responsibilities related to Venture Value. Davis Selected Advisers-NY, Inc. is a
wholly owned subsidiary of Davis Selected and is located at 609 Fifth Avenue,
New York, New York 10017.

Christopher C. Davis and Kenneth C. Feinberg are co-portfolio managers of
Venture Value. Christopher Davis has been the portfolio manager for Venture
Value and other equity funds managed by Davis Selected since February 1997.
Christopher Davis was co-portfolio manager of Venture Value with Shelby M.C.
Davis from October 1995 until February 1997. Prior to co-managing Venture
Value's portfolio, Christopher Davis worked as Shelby Davis' assistant portfolio
manager and research analyst. Mr. Feinberg has co-managed other equity funds for
Davis Selected since May 1998 and became co-portfolio manager for Venture Value
in May 1999. Mr. Feinberg was a research analyst at Davis Selected from December
1994 until May 1998, and before that he was an Assistant Vice President of
Investor Relations for Continental Corp.

As Chief Investment Officer, Shelby Davis provides investment themes and
strategies to, and helps select individual stocks for, Venture Value.

Venture Value paid __% of its average net assets in advisory fees in the fiscal
year ended December 31, 1998.

-54-
<PAGE>

Goldman Sachs Midcap Value Series

Principal Investment Strategies
- -------------------------------

GSAM invests, under normal circumstances, most of Midcap Value's assets in
equity securities and at least 65% of its total assets in equity securities of
companies with public stock market capitalizations within the range of the
market capitalization of companies constituting the Russell Midcap Index. This
range varies over time, and as of December 31, 1998 was between $1 billion and
$10 billion. GSAM may invest up to 25% of Midcap Value's total assets in foreign
securities (including 15% in securities issued in emerging markets) and 35% of
its total assets in fixed-income securities, including up to 10% of its total
assets in high yield debt. Midcap Value does not focus on dividend income.

Stock Selection
---------------

. High quality of the company's core business.

. The company's competitiveness and market position.

. The degree of regulation in markets in which the company operates.

. A record of success by the company's management team.

. The level of the company's financial leverage.

. A sustainable return on capital invested in the company's business.

Principal Investment Risks
- --------------------------

Equity Securities
-----------------

-55-
<PAGE>

Market Capitalization. The stocks of smaller capitalization companies involve
- ----------------------
potentially greater risks and higher volatility than those of larger, more
established companies.

Fixed-income Securities
-----------------------

The value of most fixed-income securities generally will rise when interest
rates decline and fall when interest rates rise. Fixed-income securities involve
both credit risk and market risk. Some fixed-income securities also involve the
risk that an issuer will repay the principal or repurchase the security before
it matures. If this happens, the holder will no longer receive any interest on
that security. The holder could buy another security, but that other security
might pay a lower interest rate. Also, if the holder paid a premium when it
bought the security, the holder might receive less from the issuer than it paid
for the security.

Credit risk is the risk that the security's issuer will not pay the interest,
dividends or principal that it has promised to pay.

Market risk is the risk that the value of the security will fall because of
changes in market rates of interest or other factors.

High yield debt
---------------

Leverage is a measure of how much a company has borrowed in relation to its
shareholders' equity.

Foreign Securities
------------------

In addition to the risks associated with securities generally, foreign
securities present additional risks.

Currency Risk. As many investments in foreign countries are denominated in
- --------------
foreign currencies, changes in the value of those countries' currencies relative
to the U.S. dollar may affect the value of those investments. These changes may
occur in response to events unrelated to the value of the security in the
issuer's home country. GSAM may use certain techniques, such as forward
contracts or futures contracts, to manage these risks. However, GSAM cannot
assure that these techniques will be effective.

A forward contract is an agreement to buy or sell securities or currencies on a
specified future date at a specific price.

A derivative is a financial instrument whose value is based on (derived from)
changes in the value of something else, such as a currency, an interest rate or
a security.

-56-
<PAGE>

Forward Contracts and Futures
-----------------------------

The Series may attempt to avoid the risk of an unfavorable shift in currency
rates by entering into forward contracts or buying or selling futures contracts
or options on futures contracts. The Series may also purchase futures contracts
(or options on futures contracts) to maintain exposure to the broad equity
markets or, in some cases, to increase overall returns for non-hedging purposes.

Forward contracts. By entering into a forward contract, Midcap Value is giving
- -----------------
up the potential gains (and avoiding the potential losses) that may occur if the
actual exchange rate on the specified date is different from the exchange rate
established in the contract.

Futures contracts. If the price of a futures contract changes more than the
- -----------------
price of the security or index on which the contract is based, Midcap Value
could make or lose more money than if it had invested directly in the underlying
security or index. This added volatility increases the risk of these
investments. In addition, investors may be unwilling to buying or selling
futures contracts under some market conditions. If this happens, GSAM might not
be able to close out futures transactions without incurring substantial losses.

Emerging Markets
----------------

Midcap Value may invest in emerging markets, which are generally located in the
Asia-Pacific Region, Eastern Europe, Latin and South America and Africa. In
addition to the risks of foreign securities described above (which are
potentially greater for emerging markets securities than for other foreign
securities), emerging markets securities may be subject to other risks,
including increased risks of reduced liquidity, high inflation rates, political
uncertainty, high administrative and regulatory costs, repatriation of income
and less advantageous investment terms relative to foreign nationals.

Portfolio Management
- --------------------

At November 30, 1998, GSAM managed approximately $191 billion in assets. GSAM is
located at One New York Plaza, New York, New York 10004.

Paul D. Farrell is the manager of a team of portfolio managers (the "Midcap
Value Team") that makes the day-to-day investment decisions for Midcap Value.
Mr. Farrell joined GSAM in 1991 and in 1998 became responsible for managing the
Midcap Value Team.

Eileen A. Aptman, Matthew B. McLennan, and Karma Wilson, all of whom are Vice
Presidents of GSAM, constitute the Midcap Value Team, and have served as
portfolio manager of Midcap Value since September 1998. Ms. Aptman joined GSAM
in 1993. Mr. McLennan joined GSAM in 1995. From 1994 to 1995 he worked in the
Investment Banking Division of Goldman Sachs in Australia. Ms. Wilson joined
GSAM in 1994. Prior to 1994 she was an investment analyst with Bankers Trust
Australia Ltd.

Midcap Value paid __% of its average net assets in advisory fees in the fiscal
year ended December 31, 1998.

-57-
<PAGE>

Loomis Sayles Small Cap Series

Principal Investment Strategies
- -------------------------------

Loomis Sayles, under normal market conditions, will invest at least 65% of Small
Cap's total assets in equity securities of companies with market capitalizations
that fall within the capitalization range of those companies constituting the
Russell 2000 Index. Small Cap invests in both value and growth stocks.

Stock Selection
---------------

Loomis Sayles begins with a universe of approximately 3000 companies that
generally fall within the market capitalization range of the Russell 2000 Index.
Small Cap's portfolio managers, with the assistance of Loomis Sayles' research
analysts, conduct fundamental analysis on these companies to identify companies
that Loomis Sayles believes have strong earnings prospects and growth potential
and that appear to the portfolio managers to be the most undervalued in the
current market. Finally, Loomis Sayles builds a diversified portfolio across
many economic sectors so that Small Cap is partially protected against the
inherent volatility of small capitalization companies. Portfolio managers and
research analysts regularly monitor the performance of the stocks held by Small
Cap and the fundamentals of the companies that have issued those stocks.

Principal Investment Risks
- --------------------------

Equity Securities
-----------------

Growth Stocks and Value Stocks. The prices of growth stocks may be more
- ------------------------------
sensitive to changes in current or expected earnings than the prices of other
stocks. The price of value stocks may fall, or simply may not increase very
much, if the market does not agree with the subadviser's view of the value of
the stock.

Market Capitalization. The stocks of small capitalization companies may
- ---------------------
underperform the broad equity markets and may be more volatile than other
stocks.

Real Estate Investment Trusts (REITs). One category of equity securities in
- -------------------------------------
which Small Cap invests are REIT's. REITs are generally categorized as equity
REITs or mortgage REITs, although some REITs have characteristics of both
classifications. Equity REITs invest directly in real property and receive
income from rent collection and sale of those properties. These REITs may
decline in value when the property they own declines in value. Mortgage REITs
invest in real estate mortgages and receive income from interest payments on
those mortgages. These REITs are particularly subject to credit risk and market
risk, although equity REITs are also sensitive to market risk.

Credit risk is the risk that the security's issuer will not pay the interest,
dividends or principal that it has promised to pay.

Market risk is the risk that the value of the security will fall because of
changes in market rates of interest or other factors.

-58-
<PAGE>

Portfolio Management
- --------------------

Loomis Sayles has been in the investment management business since 1926. At
December 31, 1998, Loomis Sayles managed approximately $_____ billion in assets.
Loomis Sayles' address is One Financial Center, Boston, Massachusetts 02110.

Christoper R. Ely and Jeffrey C. Petherick are the lead Portfolio Managers of
Small Cap. The other Portfolio Managers are Mary C. Champagne, Philip C. Fine
and David L. Smith.

Mr. Petherick, a Vice President of Loomis Sayles, has managed (or co-managed)
the Series since its inception and joined Loomis Sayles more than five years
ago. Mr. Ely, a Vice President of Loomis Sayles, has co-managed the Series since
May 1998 and joined Loomis Sayles in 1996. Before joining Loomis Sayles, Mr. Ely
was a Senior Vice President and portfolio manager at Keystone Investment
Management Company, Inc. Ms. Champagne, a Vice President of Loomis Sayles, has
co-managed the Series since 1995 and joined Loomis Sayles more than five years
ago.Mr. Fine, a Vice President of Loomis Sayles, has co-managed the Series since
May 1998 and joined Loomis Sayles in 1996. Before joining Loomis Sayles, Mr.
Fine was a Vice President and portfolio manager at Keystone Investment
Management Company, Inc. Mr. Smith, a Vice President of Loomis Sayles, has co-
managed the Series since May 1998 and joined Loomis Sayles in 1996. Before
joining Loomis Sayles, Mr. Smith was a Vice President and portfolio manager at
Keystone Investment Management Company, Inc.

Small Cap paid __% of its average net assets in advisory fees in the fiscal year
ended December 31, 1998.

-59-
<PAGE>

MFS Investors Series

Principal Investment Strategies
- -------------------------------

MFS ordinarily invests at least 65% of the total assets of the Investors Series
in equity securities. Although the Series may invest in companies of any size,
the Series focuses on companies with large market capitalizations (greater than
$5 billion) that MFS believes has sustainable growth prospectus and attractive
valuations based on current and expected earnings or cash flow. MFS may also
invest a substantial portion of the assets of the Investors Series in foreign
securities.

Stock Selection
---------------

MFS uses a bottom-up, as opposed to a top-down, investment style in managing the
Investors Series. This means that MFS selects securities based upon fundamental
analysis performed by the portfolio manager and MFS' large group of equity
research analysts.

Principal Investment Risks
- --------------------------

Equity Securities
-----------------

Market Capitalization. The stocks of large capitalization companies do not
- ---------------------
always have as much growth potential as smaller and medium capitalization
stocks.

Foreign Securities
- ------------------
In addition to the risks associated with securities generally, foreign
securities present additional risks.

-60-
<PAGE>

Currency Risk. As many investments in foreign countries are denominated in
- --------------
foreign currencies, changes in the value of those countries' currencies relative
to the U.S. dollar may affect the value of those investments. These changes may
occur in response to events unrelated to the value of the security in the
issuer's home country. MFS may use certain techniques, such as forward contracts
or futures contracts, to manage these risks. However, MFS cannot assure that
these techniques will be effective.

A forward contract is an agreement to buy or sell securities or currencies on a
specified future date at a specific price.

A derivative is a financial instrument whose value is based on (derived from)
changes in the value of something else, such as a currency, an interest rate or
a security.

Forward Contracts and Futures Contracts
---------------------------------------

The Series may seek to avoid the risk of an unfavorable shift in currency rates
by entering into forward contracts or buying or selling futures contracts or
options on futures contracts. The Series may also purchase futures contracts (or
options on futures contracts) to maintain exposure to the broad equity markets.

Forward contracts. By entering into a forward contract, the Investors Series is
- ------------------
giving up the potential gains (and avoiding the potential losses) that may occur
if the actual exchange rate on the specified date is different from the exchange
rate established in the contract.

Futures contracts. If the price of a futures contract changes more than the
- ------------------
price of the security or index on which the contract is based, the Investors
Series could make or lose more money than if it had invested directly in the
underlying security or index. This added volatility increases the risk of these
investments. In addition, investors may be unwilling to buy or sell futures
contracts under some market conditions. If this happens, the Investors Series
might not be able to close out futures transactions without incurring
substantial losses.

Portfolio Management
- --------------------

At ___________, 1998, MFS managed approximately $_____ in assets for __ mutual
funds and __ institutional accounts. MFS is located at 500 Boylston Street,
Boston, Massachusetts 02116.

John D. Laupheimer and [New Manager] are the portfolio managers of Investors
Series. Mr. Laupheimer is a Senior Vice President of MFS and has been employed
by MFS as a portfolio manager since 1981. [Insert Info on New Manager]

The Series will pay 0.90% of its average daily net assets in advisory fees.

-61-
<PAGE>

MFS Research Managers Series

Principal Investment Strategies
- -------------------------------

MFS invests at least 80% of the total assets of the Research Managers Series in
equity securities. The Series invests primarily in companies that MFS believes
possess better than average prospects for long-term growth and attractive
valuations. MFS may also invest up to 20% of the net assets of the Series in
foreign securities.

Stock Selection
---------------

A committee of investment research analysts selects portfolio securities for the
Research Managers Series. This committee includes investment analysts employed
by MFS and MFS International (U.K.) Limited, a wholly owned subsidiary of MFS.
The committee first allocates assets among various industries. Individual
analysts are then responsible for selecting what they view as the securities
best suited to meet the investment objective of the Series from within their
assigned industry responsibility. Analysts focus on companies that they believe
have favorable prospects for long-term growth, attractive valuations based on
current and expected earnings or cash flow, dominant or growing market share and
superior management. The Series may invest in companies of any size and its
investments may include securities traded on securities exchanges or in the
over-the-counter markets.

Principal Investment Risks
- --------------------------

Equity Securities
-----------------

-62-
<PAGE>

Foreign Securities
------------------

In addition to the risks associated with securities generally, foreign
securities present additional risks.

Regional and National Risk. News and events unique to particular regions and
- --------------------------
foreign countries will affect non-U.S. markets and issuers. These same events
may not affect the U.S. economy or similar issuers located in the United States
in the same manner. As a result, movements in the prices of foreign securities
may not correlate with the prices of U.S. securities.

Currency Risk. As many investments in foreign countries are denominated in
- --------------
foreign currencies, changes in the value of those countries' currencies relative
to the U.S. dollar may affect the value of those investments. These changes may
occur in response to events unrelated to the value of the security in the
issuer's home country. MFS may use certain techniques, such as forward contracts
or futures contracts, to manage these risks. However, MFS cannot assure that
these techniques will be effective.

A forward contract is an agreement to buy or sell securities or currencies on a
specified future date at a specific price.

A derivative is a financial instrument whose value is based on (derived from)
changes in the value of something else, such as a currency, an interest rate or
a security.

Forward Contracts and Futures
-----------------------------

Forward contracts. By entering into a forward contract, the Research Managers
- ------------------
Series is giving up the potential gains (and avoiding the potential losses) that
may occur if the actual exchange rate on the specified date is different from
the exchange rate established in the contract.

-63-
<PAGE>

Futures contracts. If the price of a futures contract changes more than the
- ------------------
price of the security or index on which the contract is based, the Research
Managers Series could make or lose more money than if it had invested directly
in the underlying security or index. This added volatility increases the risk of
these investments. In addition, investors may be unwilling to buy or sell
futures contracts under some market conditions. If this happens, MFS might not
be able to close out futures transactions without incurring substantial losses.

Portfolio Management
- --------------------

At ___________, 1998, MFS managed approximately $_____ in assets for __ mutual
funds and __ institutional accounts. MFS is located at 500 Boylston Street,
Boston, Massachusetts 02116.

The Research Managers Series is currently managed by a committee of various
equity research analysts employed by MFS and its affiliates.

The Research Managers Series will pay 0.90% of its average daily net assets in
advisory fees.

-64-
<PAGE>

Westpeak Growth and Income Series

Principal Investment Strategies
- -------------------------------

Westpeak is not limited to either the growth or value style of investing.
Westpeak sometimes invests more of Growth and Income's assets in value stocks,
and sometimes invests more heavily in growth stocks. Growth and Income invests
primarily in stocks of large capitalization U.S. companies, such as those
included in the S&P 500 Index, but it may also invest such assets in securities
of smaller companies, such as those included in the Russell 1000 Index. Westpeak
emphasizes individual stock selection rather than targeting particular
industries or sectors which it believes may outperform other sectors.

Stock Selection
---------------

Westpeak uses the following procedure to select stocks for Growth and Income:

. Westpeak collects extensive amounts of information on a large universe of
companies.

. Westpeak then develops a profile of characteristics that Westpeak believes
Growth and Income's portfolio should possess to best achieve the investment
objective of the Series. Westpeak considers many factors when developing
this profile, including historic earnings and other fundamentals, market
expectations for corporate earnings and overall growth prospects. Westpeak
regularly revises the profile in response to changing market conditions.

. Westpeak then ranks each of the companies in a variety of categories based
on the information it has collected about those companies.

. Westpeak then uses fundamental research, quantitative analysis and judgment
to select stocks that, when assembled in a single portfolio, will most
closely replicate the profile Westpeak builds for Growth and Income.

Principal Investment Risks
- --------------------------

Equity Securities
-----------------

Market Capitalization. The stocks of large capitalization companies do not
- ----------------------
always have as much growth potential as smaller and medium capitalization
stocks.

-65-
<PAGE>

Portfolio Management
- --------------------

At December 31, 1998, Westpeak managed approximately $6.2 billion in assets.
Westpeak manages several other mutual funds as well as equity portfolios for
corporate and public retirement plans, insurance and trust companies, and other
large institutional investors. Westpeak is located at 1011 Walnut Street,
Boulder, Colorado 80302.

Gerald H. Scriver is Westpeak's President, Chief Executive Officer and Chief
Investment Officer, and Philip J. Cooper, CFA, is its Executive Vice President,
Director of Portfolio Management. Mr. Scriver and Mr. Cooper have both served as
the portfolio managers of Growth and Income since its inception in 1993 and both
have been with Westpeak since it was established in 1991.

Growth and Income paid __% of its average net assets in advisory fees in the
fiscal year ended December 31, 1998.

-66-
<PAGE>

Westpeak Stock Index Series

Principal Investment Strategies
- -------------------------------

Westpeak attempts to duplicate the composite price and yield performance of the
S&P 500 Index.

Westpeak will ordinarily invest Stock Index's assets in all of the 500 stocks
included in the S&P 500 Index. Each month, Westpeak adjusts the proportions of
stocks included in Stock Index to replicate the proportions of stocks included
in the S&P 500 Index.

Stock Selection
---------------

Westpeak collects data each day on the proportions of the 500 stocks included in
the S&P 500. Each month, Westpeak purchases and sells stocks as necessary to
duplicate the proportions of stocks included in the S&P 500 Index.

Principal Investment Risks
- --------------------------

Equity Securities
-----------------

Market Capitalization. The stocks of large capitalization companies do not
- ----------------------
always have as much growth potential as smaller and medium capitalization
stocks.

Portfolio Management
- --------------------

Stock Index paid __% of its average net assets in advisory fees in the fiscal
year ended December 31, 1998.

-67-
<PAGE>

Morgan Stanley International Magnum Equity Series

Principal Investment Strategies
- -------------------------------

MSAM invests International Equity's assets in a diversified portfolio of stocks
of non-U.S. issuers domiciled in EAFE countries. MSAM seeks to achieve superior
long-term returns by creating a diversified portfolio of stocks that MSAM
believes are undervalued. To achieve this goal, MSAM implements a combination of
strategic geographic asset allocation and fundamental, value-oriented stock
selection implemented by regional experts around the globe.

Stock Selection
---------------

MSAM evaluates potential investments for International Equity in several steps.

The New York-based portfolio management team decides upon the appropriate
allocation of International Equity's assets among Europe, Japan and developed
Asia (including Australia/New Zealand). This regional allocation is based on a
variety of factors, including relative valuations, earnings expectations,
macroeconomic factors and input from the regional stock selection teams and from
MSAM's Asset Allocation Committee, which is made up of several of MSAM's most
senior investment officers.

Once the allocations to Europe, Asia and Japan have been determined, overseas
investment teams in London (for European stocks), Tokyo (for Japanese stocks)
and Singapore (for Asia stocks) decide which stocks that International Equity
should purchase for their respective geographic regions. These three regional
teams look for stocks that they believe to be undervalued by the market. The
regional specialists analyze various company's finances, products and
management, typically meeting with each company's management before a stock is
purchased for International Equity.

Principal Investment Risks
- --------------------------

Equity Securities
-----------------

Foreign Securities
------------------

In addition to the risks associated with equity securities generally, foreign
securities present additional risks.

Regulation and Access to Information. Changes in foreign countries' laws may
- -------------------------------------
harm the performance and liquidity of the Series' investments in those
countries.

-68-
<PAGE>

Additionally, many countries have less stringent financial reporting
requirements than the United States, so it may be difficult to obtain
information to evaluate the business potential of foreign issuers.

Currency Risk. As many investments in foreign countries are denominated in
- --------------
foreign currencies, changes in the value of those countries' currencies relative
to the U.S. dollar may affect the value of those investments. These changes may
occur in response to events unrelated to the value of the security in the
issuer's home country. MSAM may use certain techniques, such as forward
contracts or futures contracts, to manage these risks. However, MSAM cannot
assure that these techniques will be effective.

A forward contract is an agreement to buy or sell securities or currencies on a
specified future date at a specific price.

A derivative is a financial instrument whose value is based on (derived from)
changes in the value of something else, such as a currency, an interest rate or
a security.

Forward Contracts and Futures
-----------------------------

Forward contracts. By entering into a forward contract, International Equity is
- ------------------
giving up the potential gains (and avoiding the potential losses) that may occur
if the actual exchange rate on the specified date is different from the exchange
rate established in the contract.

Futures contracts. If the price of a futures contract changes more than the
- ------------------
price of the security or index on which the contract is based, International
Equity could make or lose more money than if it had invested directly in the
underlying security or index. This added volatility increases the risk of these
investments. In addition, investors may be unwilling to buy or sell futures
contracts under some market conditions. If this happens, International Equity
might not be able to close out futures transactions without incurring
substantial losses.

Portfolio Management
- --------------------

At December 31, 1998, MSAM, together with its affiliated institutional asset
management companies, managed approximately $_____ billion in assets. MSAM's
address is 1221 Avenue of the Americas, New York, New York 10020.

Francine J. Bovich, a Managing Director of Morgan Stanley and MSAM, joined MSAM
in 1993. She is primarily responsible for managing International Equity's
portfolio. Previously, Ms. Bovich was a Principal and Executive Vice President
of Westwood Management Corp., a registered investment adviser. Barton Biggs,
Managing Director of MSAM, heads MSAM's Asset Allocation Committee.

International Equity paid __% of its average net assets in advisory fees in the
fiscal year ended December 31, 1998.

-69-
<PAGE>

Section IV - Other Information About The Fund

Year 2000
- ---------

The Fund depends on the smooth functioning of computer systems for both its
internal operations and overall investment performance. Many computer systems in
use today cannot distinguish between the year 1900 and the year 2000. If
computer systems fail to process information properly relating to the year 2000,
the Fund's operations and services could be harmed, and the securities in which
the Fund invests may not perform as well as they otherwise might.

NEIM, CGM, the subadvisers and certain other service providers to the Series
have reported that each expects to modify its systems, as necessary, prior to
January 1, 2000 to address the so-called "year 2000 problem." However, there can
be no assurance that the problems will be corrected, and Fund operations and
services provided to shareholders may be affected. Although the subadvisers to
certain of the Series may consider the year 2000 problem when evaluating
investment opportunities, there can be no assurance that improperly functioning
computers will not affect specific issuers or broad markets.

Purchase and Redemption of Shares
- ---------------------------------

Shares of each Series are purchased only by the Separate Accounts. These
Separate Accounts may purchase or redeem shares of a Series on each day that the
New York Stock Exchange (the "NYSE") is open for business. The Fund sells and
redeems shares of each Series at the net asset value for that Series calculated
at the close of regular trading on the NYSE, ordinarily 4:00 p.m. Eastern time
each day. These transactions are made on the same day that the purchase order or
redemption request is received by the Fund from the Separate Accounts. No
transactions occur on those days that the NYSE is closed for trading.

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. The Fund may also postpone payment when trading on the NYSE is
restricted or during an emergency in which disposing of securities or fairly
determining the value of net assets is impracticable. The Fund may also suspend
redemption rights when the SEC permits such suspension for the protection of
investors.

Share Valuation and Pricing
- ---------------------------

Net Asset Value
---------------

Each Series determines the net asset value of its shares as of the close of
regular trading on each day that the NYSE is open. The net asset value per share
for each Series is calculated by dividing the Series' total net assets by its
number of outstanding shares.

Securities Valuation
--------------------

The entire Money Market 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 normally are valued
at market value. On the rare occasions when no current market value is available
for a portfolio security, the Fund's Board of Trustees is responsible for making
a good faith determination of fair

-70-
<PAGE>

value, although the Board has delegated responsibility for day-to-day fair
value calculations to CGM and the subadvisers of the Series.

Dividends and Capital Gain Distributions
- ----------------------------------------

Money Market
------------

Money Market declares its net investment income daily and pays these amounts
monthly as a dividend. Money Market does not expect to realize any long-term
capital gains, but if it does, these gains will be distributed once a year.

Other Series
------------

Currently, each Series other than Money Market annually pays as dividends
substantially all net investment income (including any short-term capital
gains). These Series also annually distribute all net realized capital gains, if
any, after offsetting any capital loss carryovers. Each Series, other than Money
Market, may pay dividends from net investment income more or less often if the
Fund's Board of Trustees deems it appropriate and if such change would not cause
such Series to fail to qualify as regulated investment company under the
Internal Revenue Code.

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

Dividends and distributions of each Series are automatically reinvested in
additional shares of that Series.

Taxes
- -----

Each Series is a separate entity for federal income tax purposes and intends to
qualify as a regulated investment company under the Internal Revenue Code. 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. Although each Series intends to operate so that it will have no federal
income tax liability, if any such liability is incurred, the investment
performance of such Series will be adversely affected. In addition, Series
investing in foreign securities and currencies may be subject to foreign taxes.
These taxes could reduce the investment performance of such Series.

In order for contract holders to receive the favorable tax treatment that
is generally available to holders of variable annuity and variable life
contracts, the separate accounts underlying such contracts, as well as the
Series in which such accounts invest, must meet certain diversification
requirements. Each Series intends to comply with these requirements. If a Series
does not meet such requirements, income allocable to the variable annuity and
variable life contracts, including accumulated investment earnings, would be
taxable immediately to the holders of such contracts. For a description of the
tax consequences for variable annuity and variable life contract owners, see the
prospectus for those contracts.

-71-
<PAGE>

Adviser/Subadviser Relationship
- -------------------------------

NEIM was organized in 1994 by New England Financial to serve as the investment
adviser of the Fund. NEIM is located at 501 Boylston Street, Boston,
Massachusetts 02116.

The Fund has received an exemptive order from the Securities and Exchange
Commission that permits NEIM to enter into new subadvisory agreements with
either a current or a new subadviser that is not an affiliate of the Fund or
NEIM, without obtaining shareholder approval. The Fund's Board of Trustees must
approve any new subadvisory agreements under this order, and the Fund must
comply with certain other conditions.

The exemptive order also permits the Fund to continue to employ an existing
subadviser without shareholder approval after events that would otherwise cause
an automatic termination of a subadvisory agreement (and the need for a
shareholder vote). This continuation must be approved by the Board of Trustees.
The Fund will notify shareholders of any subadviser changes and any other event
of which notification is required under the order.

-72-
<PAGE>

Financial Highlights. The financial highlights table is intended to help you
- ---------------------
understand each Series' financial performance for the past 5 years (or the life
of the Series, for these Series that have not been in existence for 5 years).
Certain information reflects financial results for a single share of the
relevant Series. The total returns in the table represent the rate that an
investor would have earned (or lost) on an investment in the Series (assuming
reinvestment of all dividends and distributions). The information for the years
ended December 31, 1997 and 1998 has been audited by Deloitte & Touche, LLP,
whose report for 1998, along with the Fund's financial statements, are included
in the annual report which is available upon request. Prior to 1997, Coopers &
Lybrand L.L.P. acted as the Fund's independent accountants and provided reports
which accompany the financial statements for those periods.

Money Market
------------

<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------------------------

1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <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 3.89 5.50 4.99 5.08
---- ---- ---- ----

Total from Investment Operations 3.89 5.50 4.99 5.08
---- ---- ---- ----

Less Distributions
Distributions from Net Investment Income (3.89) (5.50) (4.99) (5.08)
------ ------ ------ ------

Total Distributions (3.89) (5.50) (4.99) (5.08)
------ ------ ------ ------

Net Asset Value, End of Year $100.00 $100.00 $100.00 $100.00
======= ======= ======= =======

Total Return (%) 4.01 5.64 5.11 5.20

Ratio of Operating Expenses to
Average Net Assets (%) 0.40 0.50 0.50 0.45

Ratio of Net Investment Income to
Average Net Assets (%) 3.89 5.50 4.99 5.21

Net Assets,
End of Period (000) $73,960 $90,148 $116,999 $111,009

The Ratio of Operating Expenses to
Average New Assets without giving
effect to the voluntary expense limitations
would have been (%)(a) ___ 0.51 0.50 0.45
</TABLE>

- ------
(a) During the periods presented, 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. NEIM terminated this agreement on [ ], 1999.

-73-
<PAGE>

Bond Income
-----------

<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------------------------

1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value
Beginning of the Year $106.14 $ 95.53 $108.67 $105.63
------- ------- ------- -------

Income from Investment Operations
Net Investment Income 7.05 7.34 7.72 7.43

Net Gains of (Losses) on Investments
(both realized and unrealized) (10.61) 12.85 (2.70) 4.05
------- ----- ------ ----

Total from Investment Operations (3.56) 20.19 5.02 11.48
------ ----- ---- -----

Less Distributions
Distributions from Net Investment Income (7.05) (7.05) (7.74) (7.51)

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 (0.32) (1.08)
---- ---- ------ ------

Total Distributions (7.05) (7.05) (8.06) (8.59)
------ ------ ------ ------

Net Asset Value, End of Year $ 95.53 $108.67 $105.63 $108.52
======= ======= ======= =======

Total Return (%) (3.36) 21.20 4.61 10.90

Ratio of Operating Expenses to
Average Net Assets (%) 0.44 0.55 0.52 0.52

Ratio of Net Investment Income to
Average Net Assets (%) 6.75 7.22 7.22 6.97

Portfolio Turnover Rate (%) 82 73 98 40

Net Assets,
End of Period (000) $126,234 $162,712 $180,359 $202,888
</TABLE>

-74-
<PAGE>

Strategic Bond
--------------

<TABLE>
<CAPTION> Year Ended December 31,
October 31, 1994 --------------------------------------------------
to
December 31, 1994 1995 1996 1997 1998
----------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.00 $ 9.74 $10.85 $11.62
------ ------ ------ ------

Income from Investment Operations
Net Investment Income 0.12 0.58 0.51 0.75

Net Gains of (Losses) on Investments
(both realized and unrealized) (0.26) 1.30 1.05 0.54
------ ---- ---- ----

Total from Investment Operations (0.14) 1.88 1.56 1.29
------ ---- ---- ----

Less Distributions
Distributions from Net Investment Income (0.12) (0.55) (0.60) (0.76)

Distributions from Net Realized Capital Gains 0.00 (0.22) (0.19) (0.14)

Total Distributions (0.12) (0.77) (0.79) (0.90)
------ ------ ------ ------

Net Asset Value, End of Period $ 9.74 $10.85 $11.62 $12.01
====== ====== ====== ======

Total Return (%) (1.40)(b) 19.38 14.36 11.07
Ratio of Operating Expenses to
Average Net Assets (%)(d) 0.85(c) 0.85 0.85 0.85
Ratio of Net Investment Income to
Average Net Assets (%) 7.05(c) 8.39 7.79 6.45
Portfolio Turnover Rate (%) 403(c) 202 176 258

Net Assets,
End of Period (000) $3,450 $9,484 $35,808 $71,202

The Ratio of Operating Expenses to Average Net
Assets without giving effect to the voluntary expense
limitation would have been (%)(d) 2.01(c) 2.44 1.19 0.87
</TABLE>

- ----------
(a) Commencement of operations.
(b) Not computed on an annualized basis.
(c) Computed on an annualized basis.
(d) During the periods presented, NEIM has agreed to pay operating expenses
of the Series in excess of an annual expense limit of 0.85% of average
daily net assets, subject to the obligation of the Series to repay NEIM
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 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 NEIM more than two years after the end of the
fiscal year in which such expense was incurred.

-75-
<PAGE>

U.S. Government Series
----------------------

<TABLE>
<CAPTION> Year Ended December 31
October 31, 1994 -------------------------------------------------
to
December 31, 1994 1995 1996 1997 1998
----------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.00 $ 9.96 $11.04 $10.83
------ ------ ------ ------

Income from Investment Operations
Net Investment Income 0.10 0.33 0.58 0.53

Net Gains of (Losses) on Investments
(both realized and unrealized) (0.04) 1.16 (0.21) 0.40
------ ---- ------ ----

Total from Investment Operations 0.06 1.49 0.37 0.93
---- ---- ---- ----

Less Distributions
Distributions from Net Investment Income (0.10) (0.33) (0.56) (0.53)
Distributions from Net Realized Capital Gains 0.00 (0.08) 0.00 (0.05)
Distributions in Excess of Net Realized Capital Gains 0.00 0.00 0.00 (0.04)

Total Distributions (0.10) (0.41) (0.58) (0.62)
------ ------ ------ ------

Net Asset Value, End of Period $ 9.96 $11.04 $10.83 $11.14
====== ====== ====== ======

Total Return (%) (0.60)(b) 15.02 3.31 8.57
Ratio of Operating Expenses to
Average Net Assets (%)(d) 0.70(c) 0.70 0.70 0.70
Ratio of Net Investment Income to
Average Net Assets (%) 5.70(c) 5.62 6.13 6.42
Portfolio Turnover Rate (%) 1,409(c) 415 388 572

Net Assets,
End of Period (000) $2,012 $7,542 $13,211 $22,143

The Ratio of Operating Expenses to Average Net
Assets without giving effect to the voluntary expense
limitation would have been (%)(d) 2.54(c) 2.90 1.37 0.98
</TABLE>

- ----------
(a) Commencement of operations.
(b) Not computed on an annualized basis.
(c) Computed on an annualized basis.
(d) During the periods presented, NEIM has agreed to pay operating expenses
of the Series in excess of an annual expense limit of 0.70% of average
daily net assets, subject to the obligation of the Series to repay NEIM
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 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 NEIM more than two years after the end of the
fiscal year in which such expense was incurred.

-76-
<PAGE>

Managed Series
--------------
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------------------

1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value
Beginning of the Year $137.18 $130.30 $163.52 $170.37
------- ------- ------- -------

Income from Investment Operations
Net Investment Income 5.42 6.34 6.43 6.38

Net Gains or (Losses) on Investments
(both realized and unrealized) (6.92) 34.33 18.21 38.47
------- ----- ----- -----

Total from Investment Operations (1.50) 40.67 24.64 44.85
------ ----- ----- -----

Less Distributions
Distributions from Net Investment Income (5.38) (6.34) (6.34) (6.42)

Distributions in Excess of Net Investment Income 0.00 (0.23) 0.00 0.00

Distributions from Net Realized Capital Gains 0.00 (0.88) (11.45) (18.95)

Distributions from Paid-in Capital 0.00 0.00 0.00 0.00
---- ---- ---- ----

Total Distributions (5.38) (7.45) (17.79) (25.37)
------ ------ ------- -------

Net Asset Value, End of Year $130.30 $163.52 $170.37 $189.85
======= ======= ======= =======

Total Return (%) (1.11) 31.26 15.01 26.56

Ratio of Operating Expenses to
Average Net Assets (%) 0.54 0.64 0.62 0.61

Ratio of Net Investment Income to
Average Net Assets (%) 3.98 4.06 3.64 3.20

Portfolio Turnover Rate (%) 76 51 72 65

Net Assets,
End of Period (000) $121,877 $147,536 $160,888 $188,783
</TABLE>

-77-
<PAGE>

Balanced Series
---------------

<TABLE>
<CAPTION> Year Ended December 31,
October 31, 1994 ----------------------------------------------------
to
December 31, 1994 1995 1996 1997 1998
----------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.00 $ 9.94 $11.95 $13.55
------ ------ ------ ------

Income from Investment Operations
Net Investment Income 0.05 0.26 0.27 0.28

Net Gains or (Losses) on Investments
(both realized and unrealized) (0.06) 2.20 1.73 1.90
------ ---- ---- ----

Total from Investment Operations (0.01) 2.46 2.00 2.18
------ ---- ---- ----

Less Distributions
Distributions from Net Investment Income (0.05) (0.26) (0.27) (0.27)

Distributions in Excess of Net Realized
Capital Gains 0.00 (0.19) (0.13) (0.60)

Total Distributions (0.05) (0.45) (0.40) (0.87)
------ ------ ------ ------

Net Asset Value, End of Period $ 9.94 $11.95 $13.55 $14.86
====== ====== ====== ======

Total Return (%) (0.10)(b) 24.79 16.91 16.18
Ratio of Operating Expenses to
Average Net Assets (%)(d) 0.85(c) 0.85 0.85 0.85
Ratio of Net Investment Income to
Average Net Assets (%) 4.16(c) 4.03 3.08 2.79
Portfolio Turnover Rate (%) 0(c) 72 59 60

Net Assets,
End of Period (000) $2,722 $18,823 $58,525 $137,443

The Ratio of Operating Expenses to Average Net
Assets without giving effect to the voluntary expense
limitation would have been (%)(d) 3.73(c) 1.85 0.99 0.86
</TABLE>

-78-
<PAGE>

Equity Growth
-------------

<TABLE>
<CAPTION> Year Ended December 31
October 31, 1994(a) -----------------------------------------------------
to
December 31,1994 1995 1996 1997 1998
---------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.00 $ 9.56 $13.80 $15.58
------ ------ ------ ------

Income from Investment Operations
Net Investment Income 0.02 0.01 0.04 0.02

Net Gains or (Losses) on Investments
(both realized and unrealized) (0.44) 4.65 1.78 3.92
------ ---- ---- ----

Total from Investment Operations (0.42) 4.66 1.82 3.94
------ ---- ---- ----

Less Distributions
Distributions from Net Investment Income (0.02) (0.01) (0.04) (0.02)

Distributions from Net Realized Capital Gains 0.00 (0.41) 0.00 (1.88)

Total Distributions (0.02) (0.42) (0.04) (1.90)
------ ------ ------ ------

Net Asset Value, End of Period $ 9.56 $13.80 $15.58 $17.62
====== ====== ====== ======

Total Return (%) (4.20)(b) 48.80 13.17 25.63
Ratio of Operating Expenses to
Average Net Assets (%)(d) 0.85(c) 0.85 0.90 0.87
Ratio of Net Investment Income to
Average Net Assets (%) 1.07(c) 0.14 0.24 0.12
Portfolio Turnover Rate (%) 32(c) 107 78 137

Net Assets,
End of Period (000) $1,917 $46,386 $120,456 $205,318

The Ratio of Operating Expenses to Average Net
Assets without giving effect to the voluntary expense
limitation would have been (%)(d) 2.74(c) 2.45 0.90 0.87
</TABLE>

- ----------
(a) Commencement of operations.
(b) Not computed on an annualized basis.
(c) Computed on an annualized basis.
(d) During the periods presented, NEIM has agreed to pay operating expenses
of the Series in excess of an annual expense limit of 0.85% (through
December 31, 1995) of average daily net assets, subject to the
obligation of the Series to repay NEIM 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 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 NEIM 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.

-79-
<PAGE>

Capital Growth
--------------

<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------------------------

1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value
Beginning of the Year $351.63 $312.30 $374.62 $427.08
------- ------- ------- -------

Income from Investment Operations
Net Investment Income 5.28 3.47 3.08 2.52

Net Gains or (Losses) on Investments
(both realized and unrealized) (30.54) 114.91 74.80 95.67
------- ------ ----- -----

Total from Investment Operations (25.26) 118.38 77.88 98.19
------- ------ ----- -----

Less Distributions
Distributions from Net Investment Income (5.15) (3.48) (3.08) (2.52)

Distributions From Net Realized Capital Gains (8.92) (52.58) (22.34) (123.15)

Distributions from Paid-in Capital 0.00 0.00 0.00 0.00
---- ---- ---- ----

Total Distributions (14.07) (56.06) (25.42) (125.67)
------- ------- ------- --------

Net Asset Value, End of Year $312.30 $374.62 $427.08 $399.60
======= ======= ======= =======

Total Return (%) (7.07) 38.03 21.08 23.48

Ratio of Operating Expenses to
Average Net Assets (%) 0.67 0.71 0.69 0.67

Ratio of Net Investment Income to
Average Net Assets (%) 1.61 0.92 0.79 0.52

Portfolio Turnover Rate (%) 140 242 207 214

Net Assets,
End of Period (000) $667,127 $921,444 $1,142,660 $1,425,719
</TABLE>

-80-
<PAGE>

Venture Value
-------------
<TABLE>
<CAPTION>
October 31, 1994 Year Ended December 31
---------------- -----------------------------------------------
to
December 31, 1994 1995 1996 1997 1998
----------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.00 $ 9.62 $13.10 $16.09
------ ------ ------ ------
Income from Investment Operations
Net Investment Income 0.03 0.10 0.13 0.18

Net Gains or (Losses) on Investments
(both realized and unrealized) (0.38) 3.68 3.26 5.20
------ ------ ------ ------

Total from Investment Operations (0.35) 3.78 3.39 5.38
------ ------ ------ ------
Less Distributions
Distributions from Net Investment Income (0.03) (0.10) (0.13) (0.14)

Distributions from Net Realized
Capital Gains 0.00 (0.20) (0.27) (0.53)

Total Distributions (0.03) (0.30) (0.40) (0.67)
------ ------ ------ ------

Net Asset Value, End of Period $ 9.62 $13.10 $16.09 $20.80
====== ====== ====== ======

Total Return (%) (3.50)(b) 39.28 25.84 33.50
Ratio of Operating Expenses to
Average Net Assets (%)(d) 0.90(c) 0.90 0.90 0.90
Ratio of Net Investment Income to
Average Net Assets (%) 2.54(c) 1.39 1.25 0.94
Portfolio Turnover Rate (%) 1(c) 20 18 17

Net Assets,
End of Period (000) $3,371 $35,045 $108,189 $280,448

The Ratio of Operating Expenses to Average Net
Assets without giving effect to the voluntary expense
limitation would have been (%)(d) 3.97(c) 1.51 0.96 0.90
</TABLE>
- ----------
(a) Commencement of operations.
(b) Not computed on an annualized basis.
(c) Computed on an annualized basis.
(d) During the periods presented, NEIM has agreed to pay operating expenses of
the Series in excess of an annual expense limit of 0.90% of average daily
net assets, subject to the obligation of the Series to repay NEIM 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 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 NEIM more than two years after the end of the fiscal year in which
such expense was incurred.

-81-
<PAGE>

Small Cap
---------
<TABLE>
<CAPTION>
May 2, 1994(a) Year Ended December 31
to -----------------------------------------------------
December 31, 1994 1995 1996 1997 1998
---------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $100.00 $96.61 $118.80 $144.29
------- ------ ------- -------
Income from Investment Operations
Net Investment Income 0.14 0.85 1.05 1.22

Net Gains of (Losses) on Investments
(both realized and unrealized) (3.38) 26.93 35.03 34.11
------- ------ ------- -------

Total from Investment Operations (3.24) 27.78 36.08 35.33
------- ------ ------- -------

Less Distributions
Distributions from Net Investment Income (0.15) (0.78) (1.03) (1.21)

Distributions from Net Realized Capital Gains 0.00 (4.81) (9.56) (19.49)

Total Distributions (0.15) (5.59) (10.59) (20.70)
------- ------ ------- -------

Net Asset Value, End of Period $ 96.61 $118.80 $144.29 $158.92
======= ======= ======= =======

Total Return (%) (3.23)(b) 28.88 30.67 24.85
Ratio of Operating Expenses to
Average Net Assets (%)(d) 1.00(c) 1.00 1.00 1.00
Ratio of Net Investment Income to
Average Net Assets (%) 0.32(c) 1.26 1.15 0.97
Portfolio Turnover Rate (%) 80(c) 98 62 87

Net Assets,
End of Period (000) $3,105 $27,741 $89,194 $200,105

The Ratio of Operating Expenses to Average Net
Assets without giving effect to the voluntary expense
limitation would have been (%)(d) 2.31(c) 1.91 1.29 1.14
</TABLE>
- --------
(a) Commencement of operations.
(b) Not computed on an annualized basis.
(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.

-82-
<PAGE>

Midcap Value(a)
---------------
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------

1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period $113.67 $112.77 $142.44 $157.88
------- ------- ------- -------
Income from Investment Operations
Net Investment Income 0.59 0.42 0.11 0.00

Net Gains of (Losses) on Investments
(both realized and unrealized) (0.89) 33.80 24.88 27.12
------- ------- ------- -------
Total from Investment Operations (0.30) 34.22 24.99 27.12
------- ------- ------- -------

Less Distributions
Distributions from Net Investment
Income (0.60) (0.40) (0.13) 0.00
Distributions from Net Realized
Capital Gains 0.00 (4.15) (9.42) (14.41)
Distributions From Paid-In Capital 0.00 0.00 0.00 0.00
Total Distributions (0.60) (4.55) (9.55) (14.41)
------- ------- ------- -------

Net Asset Value, End of Period $112.77 $142.44 $157.88 $170.59
======= ======= ======= =======

Total Return (%) (0.27) 30.35 17.58 17.35
Ratio of Operating Expenses to
Average Net Assets (%)(b) 0.84 0.85 0.85 0.85
Ratio of Net Investment Income to
Average Net Assets (%) 0.67 0.37 0.08 (0.16)
Portfolio Turnover Rate (%) 67 58 65 49
Net Assets, End of Period (000) $25,622 $48,832 $82,667 $114,617
The Ratio of Operating Expenses to
Average Net Assets without giving
effect to the voluntary expense
limitation would have been (%)(b) 0.84 1.06 0.92 0.86
</TABLE>
- ----------
(a) On May 1, 1998, GSAM succeeded Loomis, Sayles & Company, L.P. as subadviser
to the Series.
(b) Prior to May 1, 1998, the Series' adviser voluntarily agreed to bear
expenses of the Series (other than the advisory fees and any brokerage
costs, interest, taxes or extraordinary expenses) in excess of 0.15% of the
Series' average daily net assets. Commencing May 1, 1998, NEIM has agreed
to pay operating expenses of the Series in excess of an annual expense
limit of 0.90% of average daily net assets, subject to the obligation of
the Series to repay NEIM 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 NEIM more than two years after
the end of the fiscal year in which such expense was incurred.

-83-
<PAGE>

Growth and Income
-----------------
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------------------

1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $112.32 $109.03 $141.31 $151.77
------- ------- ------- -------

Income from Investment Operations
Net Investment Income 1.90 1.77 1.78 1.37

Net Gains or (Losses) on Investments
(both realized and unrealized) (3.25) 37.91 23.69 48.76
------ ----- ----- -----

Total from Investment Operations (1.35) 39.68 25.47 50.13
------ ----- ----- -----

Less Distributions
Distributions from Net Investment Income (1.92) (1.71) (1.82) (1.35)
Distributions from Net Realized Capital Gains 0.00 (5.69) (13.19) (20.57)
Distributions in Excess of Net Realized
Capital Gains 0.00 0.00 0.00 0.00
Distributions from Paid-In Capital (0.02) 0.00 0.00 0.00

Total Distributions (1.94) (7.40) (15.01) (21.92)
------ ------ ------- -------

Net Asset Value, End of Period $109.03 $141.31 $151.77 $179.98
======= ======= ======= =======

Total Return (%) (1.21) 36.46 18.10 33.48
Ratio of Operating Expenses to
Average Net Assets (%)(a) 0.85 0.85 0.85 0.82
Ratio of Net Investment Income to
Average Net Assets (%) 2.30 1.63 1.40 0.91
Portfolio Turnover Rate (%) 133 92 104 93

Net Assets,
End of Period (000) $22,934 $48,129 $82,330 $152,738

The Ratio of Operating Expenses to Average Net
Assets without giving effect to the voluntary expense
limitation would have been (%)(a) 0.86 1.06 0.91 0.82
</TABLE>
- ----------
(a) During the periods presented, the Series adviser voluntarily agreed to
bear the expenses of the Series (other than the advisory fees and any
brokerage costs, interest, taxes or extraordinary expenses) in excess of
0.15% of the Series' average daily net assets. NEIM terminated this
agreement on [ ], 1999.

-84-
<PAGE>

Stock Index
-----------
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------------------------

1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value
Beginning of the Year $76.48 $ 75.35 $100.09 $119.62
------ ------- ------- -------

Income from Investment Operations
Net Investment Income 1.80 1.88 1.91 1.86
Net Gains of (Losses) on Investments
(both realized and unrealized) (0.92) 25.89 20.58 36.95
------ ----- ----- -----
Total from Investment Operations 0.88 27.77 22.49 38.81
---- ----- ----- -----

Less Distributions
Distributions from Net Investment Income (1.82) (1.85) (1.93) (1.86)
Distributions from Net Realized Capital Gains (0.16) (1.18) (1.03) (0.67)
Distributions in Excess of Net Realized Capital
Gains 0.00 0.00 0.00 (0.14)
Distributions In Excess of Net Investment Income 0.00 0.00 0.00 0.00
Distributions From Paid-In Capital (0.03) 0.00 0.00 0.00
------ ---- ---- ----

Total Distributions (2.01) (3.03) (2.96) (2.67)
------ ------ ------ ------

Net Asset Value, End of Year $ 75.35 $100.09 $119.62 $155.76
======= ======= ======= =======

Total Return (%) 1.14 36.88 22.47 32.50

Ratio of Operating Expenses to
Average Net Assets (%)(a) 0.33 0.40 0.40 0.40

Ratio of Net Investment Income to
Average Net Assets (%) 2.59 2.20 1.84 1.41

Portfolio Turnover Rate (%) 2 5 4 3

Net Assets,
End of Period (000) $37,164 $58,671 $80,764 $126,584

The ratio of expenses without giving
effect to the voluntary expense
limitation would have been (%)(a) ___ 0.54 0.50 0.43
</TABLE>
- --------
(a) During the periods presented, the Series' adviser has voluntarily
agreed to bear the expenses of the Series (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. NEIM
terminated this agreement on [ ], 1999.

85
<PAGE>

International Equity
--------------------
<TABLE>
<CAPTION>
Year Ended December 31
October 31, 1994 --------------------------------------------
to
December 31, 1994 1995 1996 1997 1998
----------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.00 $10.23 $10.73 $11.29
------ ------ ------ ------

Income from Investment Operations
Net Investment Income 0.03 0.09 0.06 0.08
Net Gains or (Losses) on Investments
(both realized and unrealized) 0.23 0.53 0.68 (0.23)
---- ---- ---- ------
Total from Investment Operations 0.26 0.62 0.74 (0.15)
---- ---- ---- ------

Less Distributions
Distributions from Net Investment Income (0.02) (0.09) (0.02) (0.09)
Distributions in Excess of Net Investment Income 0.00 (0.03) 0.00 0.00
Distributions from Net Realized Capital Gains 0.00 0.00 (0.16) (0.08)
Distributions in Excess of Net Realized Capital Gains 0.00 0.00 0.00 (0.11)
Distributions From Paid-In Capital (0.01) 0.00 0.00 0.00
------ ---- ----- ----
Total Distributions (0.03) (0.12) (0.18) (0.28)
------ ------ ------ ------

Net Asset Value, End of the Period $10.23 $10.73 $11.29 $10.86
====== ====== ====== ======

Total Return (%) 2.60(c) 6.03 6.87 (1.30)
Ratio of Operating Expenses to
Average Net Assets (%)(e) 1.30(d) 1.30 1.30 1.30
Ratio of Net Investment Income to
Average Net Assets (%) 2.56(d) 1.29 0.67 0.96
Portfolio Turnover Rate (%) 4(d) 89 64 115

Net Assets,
End of Period (000) $2,989 $16,268 $39,392 $53,035

The Ratio of Operating Expenses to Average Net
Assets without giving effect to the voluntary expense
limitation would have been (%)(e) 5.38(d) 3.12 1.66 1.59
- ----------
</TABLE>
(a) On May 1, 1997, MSAM succeeded Draycott Partners, Ltd. as investment
subadviser of the Series.
(b) Commencement of operations.
(c) Not computed on an annualized basis.
(d) Computed on an annualized basis.
(e) During the periods presented, NEIM has agreed to pay operating expenses of
the Series in excess of an annual expense limit of 1.30% of average daily
net assets, subject to the obligation of the Series to repay NEIM 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 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 NEIM more than two years after the end of the fiscal year in which
such expense was incurred.

-86-
<PAGE>

NEW ENGLAND ZENITH FUND
501 Boylston Street, Boston, Massachusetts 02117
(800) 356-5015

Statement of Additional Information (SAI)
- -----------------------------------------

The Fund's SAI contains more detailed information about the Fund. The SAI is
incorporated by reference into this prospectus, which means that it is a part of
this prospectus for legal purposes.

Shareholder Reports
- -------------------

The Fund's annual and semi-annual reports to shareholders contain additional
information about each Series. The Fund's annual report discusses the market
conditions and investment strategies that significantly affected each Series'
performance during its last fiscal year. The financial statements in the Fund's
most recent annual report to shareholders are incorporate by reference into this
prospectus.

To obtain copies of these materials:
- ------------------------------------

You may obtain free copies of the SAI or shareholder reports, request other
information about a Series, or make shareholder inquiries by writing to New
England Securities Corporation, 399 Boylston Street, Boston, Massachusetts
02116.

You may review and copy information about the Fund, including the SAI and
shareholder reports, at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. You may call 1-800-SEC-0330 for information
about the operation of the Public Reference Room. You may also access reports
and other information about the Fund on the Internet at http://www.sec.gov. You
may get copies of this information, upon payment of a duplication fee, by
writing the Public Reference Station of the Securities and Exchange Commission,
Washington, D.C. 20549-6009.

New England Zenith Fund's Investment Company Act file number is 811-3728.

-87-
<PAGE>

NEW ENGLAND ZENITH FUND

STATEMENT OF ADDITIONAL INFORMATION

May 1, 1999

This Statement of Additional Information is not a prospectus. This Statement of
Additional Information relates to the Prospectus of New England Zenith Fund
dated May 1, 1999 (the "Prospectus"), and should only be read in conjunction
therewith. A copy of the Prospectus may be obtained from New England Securities
Corporation, 399 Boylston Street, Boston, Massachusetts 02116.
<PAGE>

TABLE OF CONTENTS

Page
----

Investment Objectives and Policies

Investment Restrictions

Miscellaneous Investment Practices

Determination of Net Asset Values

Fund Performance

Trustees and Officers

Advisory Arrangements

Expense Deferrals and Limits

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 principal investment strategies of each
Series (collectively and individually the "Series") of New England Zenith Fund
(the "Fund") are set forth in Sections II and III of the Prospectus. There can
be no assurance that a 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 Money Market, Bond Income, Capital Growth, Growth
and Income, Stock Index, Managed and Small Cap, 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.

Morgan Stanley International Magnum Equity Series

International Equity seeks long-term capital appreciation through
investment primarily in international equity securities. The production of any
current income is incidental to this objective. Morgan Stanley Asset Management
Inc. ("MSAM") is subadviser to International Equity. On December 1, 1998, MSAM
changed its name to Morgan Stanley Dean Witter Investment Management Inc. but
continues to do business under certain circumstances (including as subadviser to
International Equity) using the name Morgan Stanley Asset Management.

MSAM seeks to achieve International Equity's investment objective by
investing the Series' assets primarily in common and preferred stocks,
convertible securities, rights or warrants to purchase common stocks and other
equity securities of non-U.S. issuers, in accordance with the EAFE country (as
defined below) weightings determined by MSAM. The equity securities in which the
Series may invest may be denominated in any currency.

The countries in which the Series will primarily invest are those
comprising the Morgan Stanley Capital International EAFE Index (the "EAFE
Index"), which includes Australia, Japan, New Zealand, most nations located in
Western Europe and certain developed countries in Asia, such as Hong Kong and
Singapore (each an "EAFE country," and collectively the "EAFE countries"). The
Series may invest up to 5% of its assets in non-EAFE countries. Under normal
circumstances, at least 65% of the total assets of the Series will be invested
in equity securities of issuers in at least three countries outside the United
States.

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

MSAM's approach is to establish regional allocation strategies. By
analyzing a variety of 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.

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

Although the Series' objective is long-term capital appreciation, it
frequently sells securities to reflect changes in market, industry or individual
company conditions or outlook even though it may only have held those securities
for a short period.

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As a result of these policies, the 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
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. After taking over
the portfolio on May 1, 1997, MSAM restructured the portfolio through a program
trade. Brokerage costs associated with such trade did not exceed more than 2% of
the Series' average net asset value.

Alger Equity Growth Series

Equity Growth's 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 65% of its total assets in equity
securities of companies that, at the time of purchase of the securities, have
total market capitalization of $1 billion or greater; the Series may invest up
to 35% of its total assets in equity securities of companies that, at the time
of purchase, have total market capitalization of less than $1 billion. The
Series anticipates that it will invest primarily in companies whose securities
are traded on domestic stock exchanges or in the over-the-counter market.

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

The Series (with respect to 35% of its total assets) may also purchase
money market instruments and repurchase agreements. With respect to 15% of its
net assets, the Series may purchase restricted securities, including Rule 144A
securities, 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.

Although Equity Growth's objective is long-term capital appreciation, it
frequently sells securities to reflect changes in market, industry or individual
company conditions or outlook even though it may only have held those securities
for a short period. As a result of these policies, the 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 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.

Capital Growth Series

Capital Growth 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 include common stocks and securities
convertible into common stocks. Equity securities are volatile investments,
subject to price declines as well as advances, and involve greater risks than
some other investment media.

As disclosed in the Prospectus, Capital Growth 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
Capital Growth's 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.

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The 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 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 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 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.

Davis Venture Value Series

Venture Value's investment objective is growth of capital. The Series seeks
to achieve its objective by investing primarily in domestic common stocks that
its subadviser, Selected Advisers, L.P. ("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
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 $5
billion. It may also invest in issues with smaller capitalizations.

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

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

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

Goldman Sachs Midcap Value Series

Midcap Value seeks to provide investors with long-term capital
appreciation. Goldman Sachs Asset Management ("GSAM") invests, under normal
circumstances, substantially all of the Series' assets in equity securities and
at least 65% of its total assets in equity securities of companies with public
stock market capitalizations (based upon shares available for trading on an
unrestricted basis) within the range of the market capitalization of companies
constituting the Russell Midcap Index at the time of investment. Such range
varies over time, and as of December 31, 1998, was between $1 billion and $10
billion. If the capitalization of an issuer increases above or decreases below
this range after purchase of such issuer's securities, the Series may, but is
not required to, sell the securities. Dividend income, if any, is an incidental
consideration.

GSAM evaluates securities using a value approach, employing fundamental
analysis to identify securities that are, in its view, underpriced relative to a
combination of such companies' long-term earnings prospects, growth potential,
future cash flows 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 companies
that have experienced difficulties and that, in the opinion of GSAM, are
available at attractive prices.

The Series may invest up to 35% of its total assets in fixed-income
securities, including up to 10% of its total assets in high yield debt (as
defined in "Miscellaneous Investment Practices - Lower Rated Fixed-income
Securities"). 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.

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Loomis Sayles Small Cap Series

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

Loomis, Sayles & Company, L.P. ("Loomis Sayles") manages the Series by
investing primarily in stocks of small capitalization companies with good
earnings growth potential that Loomis Sayles believes are undervalued by the
market. 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 stocks, but with an additional 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.

MFS Investor Series

The Investors Series' investment objective is to provide reasonable current
income and long-term growth and income.

Under normal conditions, Massachusetts Financial Services Company ("MFS")
will invest at least 65% of the Series' assets in equity securities of companies
that are believed to have long-term prospects for growth and income.

Consistent with its investment objective and policies described above, the
Series may also invest up to 20% of its net assets in foreign securities
(including emerging market securities) which are not traded on a U.S. exchange.

MFS Research Managers Series

The Research Managers Series' investment objective is to provide
long-term growth of capital and future income.

The portfolio securities of the Series are selected by a committee of
investment research analysts. This committee includes investment analysts
employed by MFS and its affiliates. The Series' assets are allocated among
industries by the analysts acting together as a group. Individual analysts are
then responsible for selecting what they view as the securities best suited to
meet the Series' investment objective with their assigned industry
responsibility.

The Series policy is to invest a substantial proportion of its assets in
equity securities of companies believed to possess better than average prospects
for long term growth. A small proportion of the assets may be invested in bonds,
short-term obligations, preferred stocks or common stocks whose principal
characteristic is income production rather than growth. Such securities may also
offer opportunities for growth of capital as well as income. In the case of both
growth stocks and income issues, emphasis is placed on selection on progressive,
well-managed companies. The Series' non-convertible debt investments, if any,
may consist of "investment grade" securities (rated Baa or better by Moody's or
better by S&P or by Fitch), and, with respect to no more than 10% of the Series'
net assets, securities in the lower rated categories (rated Ba or lower by
Moody's or BB or lower by S&P, by Fitch or by Duff & Phelps) or securities which
the adviser believes to be of similar quality to these lower rated securities
(commonly known as "junk bonds"). For a description of bond ratings, see
Appendix A to this SAI.

Consistent with this investment objective and policies described above, the
Series may also invest up to 20% of its net assets in foreign securities
(including emerging market securities) which are not traded on a U.S. exchange.

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Westpeak Growth and Income Series

As disclosed in the Prospectus, Growth and Income 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). Growth and Income will ordinarily invest substantially all of its assets
in equity securities.

The Series may engage in transactions in futures contracts solely for the
purpose of maintaining full exposure of the portfolio to the movements of broad
equity markets at times when the Series holds a cash position pending investment
in stocks or in anticipation of redemptions.

Although Growth and Income's 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, Growth and Income, 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 Growth and Income that are not invested in equity securities
will be held in cash or invested as described below under "Miscellaneous
Investment Practices--Money Market Instruments."

Westpeak Stock Index Series

As disclosed in the Prospectus, Stock Index uses the Standard & Poor's 500
Composite Stock Index ("S&P 500 Index") as the standard of performance
comparison. Westpeak believes that this 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.

Stock Index 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 Stock Index's portfolio.
As described in the Prospectus, stocks will be selected in an attempt to mirror
the performance of the S&P 500 Index. From time to time, adjustments may be made
in Stock Index's 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 Stock Index, 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 Stock Index 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.

It is Stock Index's policy to be fully invested in common stocks. However,
Stock Index 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. ("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.) In addition,
the Stock Index 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 Stock Index's investment objective to
provide investment results that correspond to the price and yield performance of
a universe of common stocks. Investors in Stock Index therefore bear the risk of
general declines in stock prices in the stock markets.

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The index that Stock Index 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

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

The Series is "flexibly managed" in that sometimes it invests more heavily
in equity securities and at other times it invests more heavily in fixed-income
securities, depending on Loomis Sayles' view of the economic and investment
outlook. Most of the Series' equity investments are normally in dividend-paying
common stocks of recognized investment quality that are expected to achieve
growth in earnings and dividends over the long term. Fixed-income securities
include notes, bonds, non-convertible preferred stock and money market
instruments. The Series may invest in adjustable rate mortgage securities,
asset-backed securities 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 S&P or Moody's (or in unrated securities
that Loomis Sayles determines to be of comparable quality). During the fiscal
year ended December 31, 1998, ____% 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 such assets were invested in
fixed-income securities rated below this level. The Series invests at least 25%
of its assets in fixed-income securities and, under normal market conditions,
more than 50% of its assets in equity securities. The Series also may invest in
foreign securities.

Back Bay Advisors Managed Series

The investment objective of the Managed Series is to provide a favorable
total investment 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. These investments will be made in
proportions that Back Bay Advisors deems appropriate for an investor who wishes
to invest in a portfolio containing a diversified mix of assets.

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

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.

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
Index, 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.

The portion of Managed Series' investment portfolio consisting of notes and
bonds will be invested in bonds of the types in which the 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, commonly known as "high yield debt" or "junk
bonds," are described under the heading "Miscellaneous Investment Practices."
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

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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. During the fiscal year ended
December 31, 1998, ___% 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.

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

Salomon Brothers Strategic Bond Opportunities Series

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

Based upon the assessment by Salomon Brothers Asset Management Inc ("SBAM")
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, but deemed to be of comparable quality in the subadviser's judgment,
and domestic and foreign corporate debt and sovereign debt securities rated
below investment grade. The Series may invest in fixed and floating rate loans
("Loans") arranged through private negotiations between a foreign sovereign
entity and one or more financial institutions, in the form of participation in
such Loans and assignments of all or a portion of such loans from third parties.
See "Miscellaneous Investment Practices--Loan Participations and Assignments"
below.

Depending on market conditions, the Series may invest without limit in high
yield debt, which involve significantly greater risks, including price
volatility and risk of default in the payment of interest and principal, than
investments in higher-quality securities. Although SBAM does not anticipate
investing in excess of 75% of the Series' assets in domestic and developing
country debt securities that are rated below investment grade, the Series may
invest a greater percentage in such securities when, in the opinion of the
subadviser, the yield available from such securities outweighs their additional
risks. Certain of the debt securities in which the Series may invest may be
rated as low as "C" by Moody's or "D" by S&P or, if unrated, determined to be of
comparable quality to securities so rated. Securities rated below investment
grade quality are considered high yield, high risk securities and are commonly
known as "high yield debt" or "junk bonds." See "Miscellaneous Investment
Practices--Lower Rated Fixed-Income Securities" below. During the fiscal year
ended December 31, 1998, ___% 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 SBAM 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 "Miscellaneous Investment Practices--High
Yield/High Risk Foreign Sovereign Debt Securities" below. There is no limit on
the value of the Series' assets that may be invested in the securities of any
one country or in assets denominated in any one country's currency.

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

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

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

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

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

Although the Series' objective is a high level of total return consistent
with the preservation of capital, 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 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 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

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. 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 and Rule 144A securities.

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

Up to 20% of the Series' assets may be invested in securities rated BB or B
by S&P or Ba or B by Moody's at the time of investment. The Series will not
invest in any securities rated below B at the time of investment (or if unrated
securities that Back Bay Advisors determines to be of comparable quality).
During the fiscal year ended December 31, 1998, 19% 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 B
or lower by S&P or 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 "high yield debt" or "junk bonds." 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 Series may lend securities it owns so long as such loans do not exceed
15% of the Series' total assets.

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

Salomon Brothers U.S. Government Series

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

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<PAGE>

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

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

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

(2) U.S. Treasury obligations;

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

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

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

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

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

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

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

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

Back Bay Advisors Money Market Series

Money Market 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

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<PAGE>

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.

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.

For a fuller description of those money market instruments and some of the
risks relating thereto, see "Miscellaneous Investment Practices - Money Market
Instruments" below. Money Market will invest only in securities which the
Series' subadviser acting pursuant to guidelines established by the Fund's Board
of Trustees, has determined are of high quality and present minimal credit risk.

All the Series' investments mature in less than 397 days and the average
maturity of the 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 "Determination of Net Asset
Values" and "Fund Performance." Where obligations of greater than one year are
used to secure the 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 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 Series may not necessarily invest
in money market instruments paying the highest available yield at a particular
time. The Series, consistent with its investment objective, attempts to maximize
income by engaging in portfolio trading and by buying and selling portfolio
investments in anticipation of or in response to changing economic and money
market conditions and trends. The Series may also invest to take advantage of
what are believed to be temporary disparities in the yields of different
segments of the high grade money market or among particular instruments within
the same segment of the market. These policies, as well as the relatively short
maturity of obligations to be purchased by the Series, may result in frequent
changes in the Series' investment portfolio of money market instruments.

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

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<PAGE>

INVESTMENT RESTRICTIONS

The following is a description of restrictions on the investments to be
made by the sixteen Series. Except as specifically listed below, and except for
restrictions marked with an asterisk, these restrictions may not be changed
without the approval of a majority of the outstanding voting securities of the
relevant Series. Percentage tests regarding any investment restriction apply
only at the time a Series is making that investment. State insurance laws and
regulations may impose additional limitations on a Series' investments,
including its ability to borrow, lend, and use options, futures, and other
derivative instruments. In addition, these laws may require that a Series'
investments meet additional diversification or other requirements.

Investment Restrictions Applicable to Capital Growth, Stock Index, Managed, Bond
Income and Money Market

Each of the Series listed above will not:

(1) Purchase any securities (other than the 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 Stock Index and the 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 the 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 Money Market
and the 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 Stock Index
or the 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 Bond Income Series, Capital Growth and the 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 Bond Income Series, Capital Growth and the
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

-13-
<PAGE>

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

(12) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts, commodities or commodity contracts (except that Stock Index and
the Managed Series may buy or sell futures contracts on stock indexes and
the 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 Money Market) 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

Money Market 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 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 "Miscellaneous Investment Practices--Lending of Portfolio
Securities" below;

(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; Stock Index Series

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<PAGE>

Neither Capital Growth nor the Stock Index will:

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
"Miscellaneous Investment Practices--Lending of Portfolio Securities" below;

(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, Capital Growth 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 Capital Growth nor Stock Index will pledge more than 2% of its
assets.

Back Bay Advisors Managed Series

The 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 "Miscellaneous Investment Practices--Lending of
Portfolio Securities" below;

(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 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 Managed Series will not pledge more than 2% of
its assets.

Investment Restrictions Applicable to Small Cap, International Equity, Equity
Growth, Venture Value, Midcap Value, Growth and Income, Balanced, Strategic Bond
and U.S. Government Series

Each of the Series listed above will not:

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

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

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

*(4) With respect to 75% of the Series' total assets acquire more than
10% of the outstanding voting securities of an issuer;

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<PAGE>

(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 real estate or commodities or commodity contracts,
except that the Series may buy and sell futures contracts and option. Each
Series may enter into foreign exchange contracts and may also enter into
swap agreements and other financial transactions not requiring the delivery
of physical commodities. (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.

MFS Investors and Research Managers Series

Neither of the above Series shall:

(1) borrow amounts from banks in excess of 33 1/3% of its assets
including amounts borrowed;

(2) underwrite securities issued by other persons except insofar as the
Series may technically be deemed an underwriter under the Securities Act of
1933, as amended (the "1933 Act") in selling a portfolio security;

(3) purchase or sell real estate (including limited partnership interest
but excluding securities secured by real estate or interests therein and
securities of companies, such as real estate investment trust, which deal in
real estate or interests therein), interest in oil, gas, or mineral leases,
commodities or commodity contracts (excluding currencies and any type of option,
futures contracts and forward contracts) in the ordinary course of its business.
The Series reserve the freedom

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<PAGE>

of action to hold and sell real estate, mineral leases, commodities or
commodities contracts (including currencies and any type of option, futures
contract and forward contracts) acquired as a result of the ownership of
securities;

(4) issue any senior securities except as permitted by the 1940 Act. For
purposes of this restriction, collateral arrangements with respect to any type
of swap, option, forward contracts and futures contracts and collateral
arrangements with respect to initial and variation margin are not deemed to be
the issuance of a senior security;

(5) make loans to other persons. For these purposes, the purchase of
commercial paper, the purchase of a portion or all of an issue of debt
securities, the lending of portfolio securities, or the investment of the
Series' assets in repurchase agreements shall not be considered the making of a
loan; or

(6) purchase any securities of an issuer of a particular industry, if as a
result, 25% or more of its gross assets would be invested in securities of
issuers whose principal business activities are in the same industry (except
there is no limitation with respect to obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities and repurchase agreements
collateralized by such obligations);

*(7) invest in illiquid investments, including securities subject to legal or
contractual restrictions on resale or for which there is no readily available
market (e.g. trading in the security is suspended, or, in the case of unlisted
securities, where no market exists) if more than 15% of the Series' assets
(taken at market value) would be invested in such securities. Repurchase
agreements maturing in more than seven days will be deemed to be illiquid for
purposes of the Series' limitation on investment in illiquid securities.
Securities that are not registered under the 1933 Act, but are deemed to be
liquid by the Board of Trustees (or its delegee), will not be subject to this
15% limitation;

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<PAGE>

Variable Contract Related Investment Restrictions

Separate accounts supporting variable life insurance and variable annuity
contracts are subject to certain diversification requirements imposed by
regulations adopted under the Code. Because the Fund is intended as an
investment vehicle for variable life insurance and variable annuity separate
accounts, Section 817(h) of the Internal Revenue Code requires that the Fund's
investments, and accordingly the investments of each Series, be "adequately
diversified" in accordance with Regulations promulgated by the Department of the
Treasury. Failure to do so means the variable life insurance and variable
annuity contracts would cease to qualify as life insurance and annuities for
federal tax purposes. Regulations specifying the diversification requirements
have been issued by the Department of the Treasury. The Fund intends to comply
with these requirements.

MISCELLANEOUS INVESTMENT PRACTICES

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

Practices Series
- --------- ------
Money Market Instruments All Series

Repurchase All Series

U.S. Government Securities All Series

Equity Securities Small Cap, International Equity, Equity
Growth, Capital Growth, Midcap Value,
Venture Value, Growth and Income, Stock
Index, Balanced, Managed, Investors,
Research Managers

Fixed-income Securities All Series

Lower Rated Fixed Income Securities Midcap Value, Balanced, Managed,
(High Yield Debt) Strategic Bond, Bond Income, Research
Managers

Foreign Securities All Series except Stock Index and Money
Market

Illiquid Securities All Series

Convertible Securities International Equity, Equity Growth,
Capital Growth, Midcap Value, Balanced,
Managed, Strategic Bond, Bond Income,
Investors, Research Managers

Reverse Repurchase Agreements and Strategic Bond, U.S. Government
Dollar Rolls

Lending of Portfolio Securities International Equity, Equity Growth,
Venture Value, Midcap Value, Managed,
Strategic Bond, Bond Income, U.S.
Government, Investors, Research Managers

Privately-issued Mortgage Securities Strategic Bond, U.S. Government, Midcap
Value

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<PAGE>

Asset-backed Securities; Types of Midcap Value, Balanced, Strategic Bond,
Credit Support U.S. Government

STRIPs Midcap Value, Balanced, Strategic Bond,
U.S. Government

Stripped Mortgage Securities Midcap Value, Balanced, Strategic Bond,
U.S. Government

Swaps, Caps, Floors, Collars, Etc. Midcap Value, Strategic Bond

Eurodollar Futures and Options Strategic Bond, U.S. Government

High Yield/High Risk Foreign Strategic Bond, Investors
Sovereign Debt Securities

Purchasing and Selling Futures All Series except Money Market
(and options thereon)

Purchasing and Selling Options All Series except Money Market
on Securities

Writing Options International Equity, Midcap Value,
Venture Value, Strategic Bond, U.S.
Government, Investors

Foreign Currency Transactions, International Equity, Venture Value,
including Forward Contracts Midcap Value Strategic Bond, Bond Income,
Managed, Investors, Research Managers

Real Estate Investment Trusts Small Cap, International Equity, Equity
Growth, Capital Growth, Midcap Value,
Venture Value, Growth and Income, Stock
Index, Balanced, Managed, Investors,
Research Managers

Emerging Markets Midcap Value, Strategic Bond, Investors,
Research Managers

Collateralized Mortgage Obligations Midcap Value, Balanced, Managed,
Strategic Bond, Bond Income

Adjustable Rate U.S. Government Midcap Value, Balanced, Strategic Bond,
Securities U.S. Government, Investors, Research
Managers

Inverse Floaters Midcap Value, Balanced, Strategic Bond,
U.S. Government

Structured Notes Midcap Value, Strategic Bond

Loan Participations and Assignments Strategic Bond

When Issued Securities Small Cap, International Equity, Equity
Growth, Midcap Value, Venture Value,
Managed, Balanced, Bond Income, Strategic
Bond, Investors

Forward Commitments Midcap Value Investors, Research Managers

Investment Company Securities International Equity, Equity Growth,
Midcap Value, Venture Value, Growth and
Income, Stock Index, Managed, Investors,
Research Managers

Short Sales Against the Box International Equity, Equity Growth,
Midcap Value, Investors

Zero Coupon Securities Balanced, Managed, Strategic Bond, U.S.
Government

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<PAGE>

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.

In addition, Midcap Value, 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-2.

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

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.

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<PAGE>

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.

U.S. Government Securities often do not involve the same 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.

Equity Securities - The Series listed above may invest in equity
-----------------
securities. 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.

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

Fixed-income securities involve both credit risk and market risk. Credit risk is
the risk that the security's issuer will fail to fulfill its obligation to pay
interest, dividends or principal on the security. Market risk is the risk that
the value of the security will fall because of changes in market rates of
interest. Except to the extent values are affected by other factors such as
developments relating to a specific issuer, generally the value of a
fixed-income security can be expected to rise when interest rates decline and
conversely, the value of such a security can be expected to fall when interest
rates rise. Some fixed-income securities also involve prepayment or call risk.
This is the risk that the issuer will repay a Series the principal on the

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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 International
Equity 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 (High Yield Debt) Each Series listed
-----------------------------------------------------
above may invest in high yield debt. The Balanced Series, the Managed Series and
Strategic Bond Series may invest 100% of their total assets in high yield debt.
Bond Income may invest 20% of its total assets, and each of Midcap Value and the
Research Managers Series may invest 10% of their total assets, in high yield
debt. Fixed-income securities rated BB or lower by S&P or Ba or lower by Moody's
(and comparable unrated securities) are of below "investment grade" quality, are
considered high yield, high risk securities and are commonly known as "high
yield debt" or "junk bonds". Lower quality fixed-income securities generally
provide higher yields, but are subject to greater credit and market risk than
higher quality fixed-income securities. Lower quality fixed-income securities
are considered predominantly speculative with respect to the ability of the
issuer to meet principal and interest payments. The ability of a Series
investing in lower quality fixed-income securities to achieve its investment
objective may be more dependent on the relevant adviser's or subadviser's own
credit analysis than it would be for a Series investing in higher quality bonds.
The market for lower quality fixed-income securities may be more severely
affected than some other financial markets by economic recession or substantial
interest rate increases, by changing public perceptions of this market or by
legislation that limits the ability of certain categories of financial
institutions to invest in these securities. In addition, the secondary market
may be less liquid for lower rated fixed-income securities. This lack of
liquidity at certain times may affect the valuation of these securities and may
make the valuation and sale of these securities more difficult. For more
information, including a detailed description of the ratings assigned by S&P and
Moody's, please refer to "Appendix A-1--Description of Bond Ratings."

Foreign Securities - 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"). International
Equity and Strategic Bond may invest up 100% of their total assets in foreign
securities. Each of the following Series will not purchase a foreign security
if, as a result, the Series' holdings of foreign securities would exceed the
indicated percentage of the Series' total assets: Bond Income 10%; Small Cap and
U.S. Government, 20%; Midcap Value 25%; Investors, 75%; and Research Managers,
20%.

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.

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<PAGE>

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.

Illiquid Securities - 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.

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. 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.

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

Reverse repurchase agreements involve sales by a Series of portfolio assets
concurrently with an agreement by that 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 a 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

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<PAGE>

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 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 herein. Any voting rights, or rights to consent, relating to
securities loaned pass to the borrower. However, if a material event affecting
the investment occurs, such loans will be called so that the securities may be
voted by the Series. A Series pays various fees in connection with such loans,
including shipping fees and reasonable custodian and placement fees.

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

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

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

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

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<PAGE>

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

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

Stripped Mortgage Securities - Stripped mortgage securities are derivative
----------------------------
multiclass mortgage securities. Stripped mortgage securities may be issued by
agencies or instrumentalities of the U.S. Government, or by private issuers,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing. Stripped
mortgage securities have greater volatility than other types of mortgage
securities in which the Series invest. 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
treated as 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

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<PAGE>

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 1940 Act, as amended, and, thus, will not be treated as
being subject to the Series' borrowing restrictions. A Series will not enter
into any swap, cap, floor, collar or other derivative transaction unless the
counterparty is deemed creditworthy by that Series' subadviser. If a
counterparty defaults, the Series may have contractual remedies pursuant to the
agreements related to the transaction. The swap market has grown substantially
in recent years with a large number of banks and investment banking firms acting
both as principals and as agents utilizing standardized swap documentation. As a
result, the swap market has become relatively liquid. Caps, floors and collars
are more recent innovations for which standardized documentation has not yet
been fully developed and, for that reason, they are less liquid than swaps.

The liquidity of swap agreements will be determined by a Series' subadviser
based on various factors, including (1) the frequency of trades and quotations,
(2) the number of dealers and prospective purchasers in the marketplace, (3)
dealer undertakings to make a market, (4) the nature of the security (including
any demand or tender features), and (5) the nature of the marketplace for trades
(including the ability to assign or offset a portfolio's rights and obligations
relating to the investment). Such determination will govern whether a swap will
be deemed to be within the 15% restriction on investments in illiquid
securities.

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 (up to 75% of the net assets of Investors Series) may invest in these
bonds, which are typically issued by developing or emerging countries, whose
ability to pay principal and interest may be adversely affected by many factors,
including high rates of inflation, high interest rates, currency exchange rate
fluctuations or difficulties, political uncertainty or instability, the
country's cash flow position, the availability of sufficient foreign exchange on
the date a payment is due, the relative size of its debt service burden to the
economy as a whole, the policy of the International Monetary Fund, the World
Bank and other international agencies, the obligor's balance of payments,
including export performance, its access to international credit and
investments, fluctuations in the international prices of commodities which it
imports or exports and the extent of its foreign reserves and access to foreign
exchange. Currency devaluations may also adversely affect the ability of a
sovereign obligor to obtain sufficient foreign exchange to service its external
debt.

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

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<PAGE>

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.

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

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

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. 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

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<PAGE>

which a Series may invest will not be subject to similar restructuring
arrangements or to requests for new credit which may adversely affect the
Series' holdings.

Futures and Options on Futures - The Series listed above may purchase and sell
- ------------------------------
futures and options on futures.

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.

Stock Index 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 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. Growth and Income may engage in transactions in futures
contracts solely for the purpose of maintaining full exposure of the portfolio
to the movements of broad equity markets at times when the Series holds a cash
position pending investment in stocks or in anticipation of redemptions.

Options on Futures. 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.

For a discussion of additional risks related to futures and options, see
the discussion below.

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<PAGE>

Options on Securities - 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. For a discussion of additional risks related to futures and options,
see the discussion below.

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

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

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

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<PAGE>

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

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

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

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

Writing Options - The Series listed above may write covered call or put
---------------
options. 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, or
other liquid assets 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 or other liquid assets 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.

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<PAGE>

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

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

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

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

Foreign Currency Transactions, including Forward Contracts - The Series
----------------------------------------------------------
listed above may engage in foreign currency 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.
Each Series may also purchase options on foreign currencies. 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 other liquid assets 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 on
Futures" and "Risks related to Futures and Options" above. Each Series may use
foreign currency transactions for hedging purposes only.

Real Estate Investment Trusts ("REITs") - The Series listed above may
---------------------------------------
invest in REITs, which 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

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<PAGE>

certain requirements under the Code. The 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 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 Code and failing to maintain their
exemption from the 1940 Act. REITs, and mortgage REITs in particular, are also
subject to interest rate risk.

Emerging Markets - The Series listed above may invest in the securities of
----------------
issuers in emerging countries (up to the limit of each Series' ability to invest
in foreign securities, except that Midcap Value may invest up to 15% of its
total assets in securities of issuers in emerging countries). Investing in
securities of issuers in emerging countries involves risks in addition to those
discussed in the Prospectus under "Foreign Securities." 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
subadviser, 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 countries or limit investment by foreign countries 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." below.

Collaterallized Mortgage Obligations - The Series listed above may invest
------------------------------------
in collateralized mortgage obligations (a"CMO"). A CMO is a debt security
collateralized by a portfolio of mortgages or mortgage securities held under a
trust indenture. In some cases, the underlying mortgages or mortgage securities
are issued or guaranteed by the U.S. Government or an agency or instrumentality
thereof, but the obligations purchased by a Series will in many cases not be so
issued or guaranteed. The issuer's obligation to make interest and principal
payments is secured by the underlying portfolio of mortgages or mortgage
securities. CMOs are issued with a number of classes or series which have
different maturities and which may represent interests in some or all of the
interest or principal on the underlying collateral or a combination thereof. In
the event of sufficient early prepayments on such mortgages, the class or series
of 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.

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

-32-
<PAGE>

Inverse Floaters - 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.

Structured Notes - The Series listed above may 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.

Loan Participations and Assignments - Strategic Bond 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

-33-
<PAGE>

from any set-off between the Lender and the borrower. When the Series purchases
Assignments from Lenders, the Series will acquire direct rights against the
borrower on the Loan, except that under certain circumstances such rights may be
more limited than those held by the assigning Lender.

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

When-Issued Securities - The Series listed above may invest in when-issued
----------------------
securities. 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 - Midcap Value 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
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 risk of
loss if the value of the security to be purchased declines prior to the
settlement date. Although the Series will generally purchase securities on a
forward commitment basis with the intention of acquiring such securities for its
portfolio, the Series may dispose of forward commitments prior to settlement if
the subadviser deems it appropriate to do so.

Investment Company Securities - The Series listed above, other than
-----------------------------
Investors and Research Managers, may invest up to 10% of their assets in
securities of other investment companies ("funds"). Investors and Research
Managers may invest in funds to the extent permitted by the 1940 Act. 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. Venture Value may only invest in securities of investment
companies investing primarily in foreign securities.

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

Short Sales "Against the Box"- The Series listed above may engage in short
----------------------------
sales "against the box." 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
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.

Zero Coupon Securities - The 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.

-34-
<PAGE>

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.

RESOLVING MATERIAL CONFLICTS

Currently, shares in the Fund are available only to separate accounts
established by New England Financial ("NEF"), MetLife or their subsidiaries of
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 NEF 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 NEF or MetLife. Such events
might include changes in state insurance law or federal income tax law, changes
in investment management of any Series of the Fund or differences between voting
instructions given by variable life insurance and variable annuity contract
owners. Insurance companies investing in the Fund will be responsible for
proposing and executing any necessary remedial action and the Board of Trustees
has an obligation to determine whether such proposed action adequately remedies
any such conflicts.

DETERMINATION OF NET ASSET VALUES

The net asset value per share of each Series 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. 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 Money Market)

Each Series other than Money Market values its securities in the manner set
forth below.

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 trading market. Equity securities traded on a national securities
exchange or exchanges or on the NASDAQ National Market System for which there is
no reported sale during the day, and equity securities not so traded are 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 subadviser 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 subadviser and approved by the Board. Such
valuations are determined by using methods based on market transactions for
comparable securities and on various relationships between securities that are
generally recognized by institutional traders.

-35-
<PAGE>

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 subadviser,
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 that 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 subadviser 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 subadviser and approved by the Board.

An option written by a Series of the Fund generally will be valued at the
last sale price or, in the absence of the last price, the last offer price. A
futures contract will be valued at the unrealized gain or loss on the contract
to the current settlement price may not be used if the market makes a limit move
with respect to a particular futures contract or if the securities underlying
the futures contract experience significant price fluctuations after
determination of the settlement price. When settlement price is not used,
futures contracts will be valued at fair value as determined by or under the
direction of the Fund's Board of Trustees.

Securities traded primarily on an exchange outside the United States which
closes before the close of the New York Stock Exchange generally will be valued
for purposes of calculating a Series' net asset value at the last sale price on
that non-U.S. exchange, except that when an occurrence after the closing of that
exchange is likely to have materially changes such security's value as
determined by or under the direction of the Fund's Board of Trustees.

All other securities and assets of each Series are valued at their fair
market value as determined in good faith by the adviser or subadviser of that
Series (or pricing service selected by the adviser or subadviser) under the
supervision of the Fund's Board of Trustees. The value of any assets for which
the market price is expressed in terms of foreign currency will be translated
into U.S. dollars at the prevailing market rate on the date of net asset value
computation, or, if no such rate is quoted at such time, at such other
appropriate rate as may be determined by or under the direction of the Fund's
Board of Trustees.

Money Market

The portfolio securities of Money Market 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 Money Market may at
times be more or less than their market value.

By using amortized cost valuation, the Money Market 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 Money Market were not constant and were permitted to fluctuate with
the market value of the portfolio securities of the Series. However, as a result
of the following procedures, the Fund believes any difference will normally be
minimal. Quarterly, the Fund's Trustees monitor the deviation between the net
asset value per share of the 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 0.50% the Board of
Trustees will consider what action, if any, should be initiated to provide fair
valuation of the portfolio securities of Money Market 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.

-36-
<PAGE>

FUND PERFORMANCE
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.

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 NEF or NEIM. If these
arrangements had not been in effect, certain Series' total return would have
been lower (see "Effect of Expense Deferrals and Limits" below).

Total Return
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------
Series 1989 1990 1991 1992 1993 1994
- ------ ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Small Cap (1) -- -- -- -- -- (3.2)%(1)

International Equity (2) -- -- -- -- -- 2.6%(3)

Equity Growth -- -- -- -- -- (4.2)%(3)

Capital Growth 30.8% (3.5)% 54.0% (6.1)% 15.0% (7.1)%

Midcap Value (5) -- -- -- -- 14.7%(6) (0.3)%

Venture Value -- -- -- -- -- (3.5)%(3)

Growth and Income -- -- -- -- 14.2%(7) (1.2)%

Stock Index (7) 30.2% (4.1)% 30.4% 7.3% 9.7% 1.1%

Balanced Series -- -- -- -- -- (0.1)%(3)

Managed Series 19.1% 3.2% 20.2% 6.7% 10.7% (1.1)%

Strategic Bond -- -- -- -- -- (1.4)%(3)

Bond Income 12.3% 8.1% 18.0% 8.2% 12.6% (3.4)%

U.S. Government Series -- -- -- -- -- 0.6%(3)

Money Market 9.2% 8.2% 6.2% 3.8% 3.0% 4.0%

S&P 500(9) 31.6% (3.1)% 30.3% 7.6% 10.1% 1.3%

Lehman Intermediate Government/Corporate 12.8% 9.2% 14.6% 7.2% 8.8% (2.0)%
Bond Index(10)

Consumer Price Index(11) 4.7% 6.1% 3.1% 2.9% 2.8% 2.8%

Dow Jones Industrial Average(12) 32.2% (1.0)% 24.2% 7.4% 16.9% 5.1%
</TABLE>

-37-
<PAGE>

<TABLE>
<CAPTION>
Average
Average Average Annual
Annual Annual Total
Total Total Return
Return Return Since
For the For the Commence-
Ten Five ment
Year Ended December 31, Years Years of Offering
------------------------------------------- Ending Ending through
Series 1995 1996 1997 1998 12/31/98 12/31/98 12/31/98
- ------ ---- ---- ---- ---- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Small Cap 28.9% 30.7% 24.9% -- -- 21.3%

International Equity(2) 6.0% 6.7% (1.3)% -- -- 4.4%

Equity Growth 48.8% 13.2% 25.6% -- -- 25.0%

Capital Growth 38.0% 21.1% 23.5% 13.9% 17.1% 23.2%(4)

Midcap Value 30.4% 17.6% 17.4% -- -- 16.7%

Venture Value 39.3% 25.8% 33.5% -- -- 25.3%

Growth and Income 36.5% 18.1% 33.5% -- -- 27.2%

Stock Index 36.9% 22.5% 32.5% 17.5% 19.8% 14.9%(8)

Balanced Series 24.8% 16.9% 16.2% -- -- 18.1%

Managed Series 31.3% 15.1% 26.6% 13.7% 15.9% (8)

Strategic Bond Series 19.4% 14.4% 11.1% -- -- 13.5%

Bond Income 21.2% 4.6% 10.9% 9.9% 8.9% 10.5%(4)

U.S. Government Series 15.0% 3.3% 8.6% -- -- 8.6%

Money Market 5.6% 5.1% 5.2% 5.8% 4.6% 6.5%(4)

S&P 500(9) 37.4% 23.0% 33.32% 20.2% 18.0%

Lehman Intermediate
Government/Corporate Bond Index(10) 15.3% 2.9% 7.9 6.6% 8.3% --

--
Consumer Price Index(11) 2.6% 3.3% 1.7% 2.6% 3.4% --
--
Dow Jones Industrial Average(12) 37.0% 28.9% 24.9% 22.0% 18.6% --
</TABLE>

Represents unannualized total return for the period May 2, 1994, when Small
Cap commenced operations, to December 31, 1994. The Series was not available
through variable insurance or variable annuity products until October 31, 1994.

(2) Effective May 1, 1997, MSAM began managing the Series, succeeding Draycott
Partners, Ltd.

(3) Represents unannualized total return for the period beginning October 31,
1994 when International Equity, Equity Growth, Venture Value, Balanced,
Strategic Bond and U.S. Government Series commenced operations, to December
31, 1994.

(4) Capital Growth, Bond Income and Money Market 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.

-38-
<PAGE>

(6) Represents unannualized total return 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, to
December 31, 1993.

(7) Represents unannualized total return 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 Managed Series and Stock
Index became publicly available. Operations for the Series 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) Westpeak succeeded Back Bay Advisors as investment adviser to the Series on
August 1, 1993.

(10) 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.

(11) 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.

(12) 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.

(13) 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.

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

Yield of the Balanced Series, Managed Series, Strategic Bond, Bond Income
-------------------------------------------------------------------------
and the U.S. Government Series. 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 Series' yields 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 NEF or MetLife or their
affiliates. 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 Money Market. Money Market's 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

-39-
<PAGE>

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 Money Market will vary
depending on prevailing interest rates, the operating expenses of Money Market
and the quality, maturity and type of instruments held in the portfolio of Money
Market. Yield information may be useful in reviewing Money Market's performance
and providing a basis for comparison with other investment alternatives,
although the yield of Money Market 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 NEF or MetLife their affiliates. 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 Money
Market may be for any specified period in the future.

Calculation of Total Return. As summarized in the Prospectus in Section
---------------------------
III, 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 NEF or NEIM. 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. Balanced, Managed, Bond Income, U.S.
Government, Strategic Bond and Money Market 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 Bond Income, Money Market, Balanced,
Managed, U.S. Government and Strategic Bond) may also be used to compare the
performance of a Series against certain widely acknowledged standards or indices
for stock and bond market performance, including, but not limited to, the S&P
500 Index, the Dow Jones Industrial Average, the Lehman Government/Corporate
Bond Index, the Lehman Intermediate Government/Corporate Bond Index, the
S&P/BARRA Growth Index, the S&P/BARRA Value Index, the Lipper Variable Balanced
Fund Average, the Lipper Variable Growth and Income Average, the Lipper Variable
A-Rated Corporate Bond Fund Average, the Lipper Variable Flexible Portfolio Fund
Average, the Lipper Variable General Bond Fund Average, the Lipper Variable
Growth Fund Average, the Lipper Variable International Fund Average, the Lipper
Variable Intermediate Investment Grade Debt Fund Average, the Lipper Variable
Small Company Fund Average, the Lipper Variable S&P 500 Index Fund Average, the
Lipper Variable U.S. Mortgage and GNMA Fund Average, the Russell 2000 Index, the
Russell 1000, the Russell Midcap Index, the Lehman Brothers Aggregate Bond
Index, the Lehman Brothers Intermediate Government Bond Index and the Morgan
Stanley Capital International Europe, AustraAsia, Far East Index, or against the
U.S. Bureau of Labor Statistics' Consumer Price Index.

-40-
<PAGE>

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.

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.

-41-
<PAGE>

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 $[ ] million.

The Russell Midcap Index is an unmanaged index which consists of the 800
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.

EXPENSE DEFERRALS AND LIMITS

Voluntary Expense Agreement

Pursuant to the voluntary expense agreement relating to Small Cap, NEIM 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. NEIM may terminate this expense agreement at any time. As a
result of the current voluntary expense agreement (and assuming the Series incur
the same level of management fees as in 1998 and no taxes, interest or
extraordinary expenses), Small Cap's expense ratio during this Prospectus'
effectiveness, assuming the continuation of the voluntary expense agreement, is
expected to be 1.00% of the Series' average daily net assets.

Expense Deferral Arrangement

Pursuant to an expense deferral arrangement relating to the International
Equity, Equity Growth, Venture Value, Midcap Value, Balanced, Strategic Bond,
U.S. Government, Investors and Research Managers Series, NEIM 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 NEIM 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 NEIM more than two years after the end of the fiscal
year in which such expense was incurred. The expense deferral arrangements can
be prospectively discontinued by NEIM but any expenses that were deferred while
a

-42-
<PAGE>

Series' expense limit was in place can never be charged to that Series unless
that Series' expenses fall below the limit. The expense limits (annual rates as
a percentage of the Series net average daily net assets) are as follows:

Series Deferral Arrangement Under Expense Limit
- ---------------------------------- ----------------------------------------

International Equity 1.30%
Equity Growth 0.90%
Venture Value 0.90%
Midcap Value 0.90%
Balanced 0.85%
Strategic Bond 0.85%
U.S. Government 0.70%
Investors 0.90%
Research Managers 0.90%

Additional Information About Expenses

Each Series pays all expenses not borne by its adviser or subadviser 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 NEF or its affiliates, other than affiliated registered investment
companies.

The table below sets forth the total expenses incurred by each Series
during the year ended December 31, 1998 and what the Series' expenses would have
been without the voluntary expenses agreement or expense deferral arrangement
for the same period.
<TABLE>
<CAPTION>
Total Expenses
(as a percentage of net assets)
Total Expenses without voluntary expense agreement
Series (as of a percentage of average net assets) or expense deferral arrangement for the year
for the year ended December 31, 1998 ended December 31, 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>

Small Cap
International Equity
Equity Growth
Capital Growth
Midcap Value
Venture Value
Growth and Income
Stock Index
Balanced Series
Managed
Strategic Bond
Bond Income
U.S. Government
Money Market
Investors
Research Managers
</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.

-43-
<PAGE>

The table below sets forth restated total return information for the Series
showing what such returns would have been without giving effect to the voluntary
expense agreements or the expense deferral arrangement, as the case may be, in
effect during the periods presented.
<TABLE>
<CAPTION>
1-Year Total Return 5-Year Average Annual 10-Year Average Since-Inception
Without Giving Effect Total Return Annual Total Return Average Annual Return
to Expense Deferral Without Giving Effect Without Giving Without Giving Effect
Arrangement or to Expense Deferral Effect to Expense to the Expense
Voluntary Expense Arrangement or Deferral Arrangement Deferral Arrangement
Agreements Voluntary Expense or Voluntary Expense of Voluntary Expense
for the Agreements Agreements Agreements for the
year ended for the period ended for the period period ended 12/31/98
12/31/98 12/31/98 ended --------
-------- -------- 12/31/98
--------
<S> <C> <C> <C> <C>
Small Cap
(inception 5/1/94) % -- -- %

International Equity -- -- %
(inception (10/31/94)

Equity Growth % -- -- %
(inception 10/31/94)

Capital Growth
(inception 8/26/83)

Venture Value
(inception 10/31/94)

Midcap Value (b)
(inception 4/30/93)

Growth and Income
(inception 4/30/93)

Stock Index
(inception 5/1/87)

Balanced Series
(inception 10/31/94)

Managed Series
(inception 5/1/87)

Strategic Bond
(inception 10/31/94)

Bond Income
(inception 8/26/83)

U.S. Government Series
(inception 10/31/94)

Money Market
(inception 8/26/83)
</TABLE>

-44-
<PAGE>

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

(b) On May 1, 1998 GSAM succeeded Loomis Sayles as subadviser to the Goldman
Sachs Midcap Value Series.

TRUSTEES AND OFFICERS

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, NEIM is the investment adviser of each of the Series except Capital
Growth, for which CGM serves as investment adviser.

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 (48) -- Trustee; Pilot House, Lewis Wharf, Boston, MA 02110;
-------
formerly, Chief Executive Officer and Managing Partner, Hawthorne, Krauss and
Associates (corporate financial advisor); Executive Vice President,
Enterprise Transformation MediaOne, Inc. (a cable television company);
Director, Perini Corporation (construction); Director, Avid Technologies
(computer software company); Director, Commercial Union Assurance Co.
(property and casualty insurance company)

JOSEPH M. HINCHEY (74) -- Trustee; 193 Wamphassuc Road, Stonington, CT 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 (78) -- 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.

DALE ROGERS MARSHALL (62) -- Trustee; 26 East Main Street, Norton, MA 02766;
-------
President, Wheaton College; formerly, Academic Dean, Wellesley College.

JOHN J. ARENA (62) -- Trustee; 330 Beacon Street, Boston, MA 02116; Retired;
-------
formerly, Vice Chairman of the Board of Directors of Bay Banks, Inc. and
President of Bay Banks Investment Management.

JOHN W. FLYNN (59) -- Trustee; 791 Main Street, Warren, RI 02885; Retired;
-------
formerly, Vice Chairman, Chief Financial Officer, Fleet Financial Group.

JOHN T. LUDES (62) -- Trustee; 1700 E. Putnam Avenue, Old Greenwich, CT 06870;
-------
President and Chief Operating Officer, American Brands (global conglomerate);
formerly, President and CEO, Acushnet Company.

FREDERICK K. ZIMMERMANN* (47) -- Chairman of the Board, Chief Executive Officer,
----------------------------------------------
President and Trustee; Chief Investment Officer and Executive Vice President,
---------------------
NELICO; Chairman of the Board and President, NEIM; Director and Vice
President - Investments, NEF until 1996; Chairman of the Board and President,
New England Pension and Annuity Company.

ANNE M. GOGGIN* (50) -- Senior Vice President and Trustee; Senior Vice President
---------------------------------
and Associate General Counsel, NEF; Vice President, General Counsel,
Secretary and Clerk, New England Securities Corp.

JOHN F. GUTHRIE (55) -- Senior Vice President; Vice President, NEF; Senior Vice
---------------------
President, NEIM

ALAN C. LELAND (46) -- Senior Vice President; Senior Vice President, NEF; Chief
---------------------
Financial Officer, NEIM

PETER DUFFY ( ) -- Treasurer; formerly, Executive Vice President, New England
---------
Funds, L.P.

THOMAS M. LENZ (40) -- Secretary; Counsel, NEF; Secretary and Clerk; NEIM
---------
(since December 1998); formerly, Vice President, State Street Bank and Trust
Company from 1996 until December 1998; Senior Vice President U.S./Offshore
Product Development and Associate General Counsel, Signature Financial Group,
Inc. prior to 1996.

-45-
<PAGE>

* Denotes trustee who is an "interested person" as defined in 1940 Act.

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 NEF or its predecessor,
New England Mutual Life Insurance Company 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 NEF 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 affiliates of CGM, NEIM, any
subadviser of the Fund or NES receive no compensation from the Fund, for their
services in such capacities, although they may receive compensation from NEF 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 of the Fund 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, 1998, 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 Board of Managers of NEVA.

Aggregate Compensation Total Compensation from
from the Fund the Fund and NEVA
Name of Trustee in 1998 in 1998
- --------------- ------- -------
Nancy Hawthorne
Joseph M. Hinchey
Robert B. Kittredge
Laurens MacLure(b)
Dale Rogers Marshall
John J. Arena
John W. Flynn
John T. Ludes
- ----------------

(a) Also includes compensation paid by the portfolios of the CGM Funds, a
group of mutual funds for which CGM, the investment adviser of Capital
Growth and NEVA, serves as investment adviser.

(b) Retired from service as a trustee of the Fund effective July 31, 1998

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.

-46-
<PAGE>

At [April 15, 1999,] the officers and trustees of the Fund as a group owned
less than 1% of the outstanding shares of the Fund [or any Series].

ADVISORY ARRANGEMENTS

Advisory Structure. Pursuant to separate advisory agreements, each dated
------------------
August 30, 1996 (May 1, 1997 in the case of the International Equity and May 1,
1998 in the case of Midcap Value and May 1, 1999 in the case of the Investors
and Research Managers Series), NEIM has agreed to manage the investment and
reinvestment of assets of each Series other than the Capital Growth Series. NEIM
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 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 Capital Growth.

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. CGM, in the
case of Capital Growth, has subcontracted with NEIM to provide such services to
that Series at no extra cost to the Series.

NEIM (formerly named TNE Advisers, Inc.) is a wholly-owned subsidiary of
New England Life Holdings, Inc., which is a wholly-owned subsidiary of NEF,
which in turn is a wholly owned subsidiary of MetLife New England Holdings, Inc.
("MetLife Holdings"). MetLife Holdings is wholly owned MetLife. NEIM oversees,
evaluates and monitors the subadvisers' provision of investment advisory
services to all of the Series (except Capital Growth) and provides general
business management and administration to all of the Series (except Capital
Growth).

Subject to the supervision of NEIM 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 Nvest
Holdings, Inc. which in turn is a wholly owned subsidiary of Nvest Companies,
L.P. ("Nvest Companies"). Nvest Companies owns the entire limited partnership
interest in Back Bay Advisors. Nvest Companies managing general partner, Nvest
Corporation, is a wholly owned subsidiary of MetLife New England Holdings, Inc.,
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 Nvest Companies. Nvest Companies' advising general
partner, Nvest, L.P., is a publicly-traded company listed on the New York Stock
Exchange. Nvest Corporation is the sole general partner of Nvest, L.P. Nvest
Companies' 14 principal subsidiary or affiliated assets management firms,
collectively, had more than $125 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 NEF 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 Managed, Bond Income and Money Market Series.

Loomis Sayles, subadviser to Small Cap and the 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 NEF 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 Nvest Holdings, Inc. Nvest Companies owns the entire limited
partnership interest in Loomis Sayles.

MSAM, subadviser to International Equity, 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

-47-
<PAGE>

of Morgan Stanley Dean Witter & Co., which is a preeminent financial services
firm that maintains leading market positions in each of its three primary
businesses - securities, asset management and credit services. MSAM serves as
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 Equity Growth. 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, both
employees of CGM. In addition to advising Capital Growth, 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 Nvest Holdings, Inc. Nvest Companies 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 Growth and
Income and Stock Index.

Davis Selected Advisers, L.P. ("Davis Selected") provides investment
advisory services for mutual funds and other clients; it is subadviser to
Venture Value. 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, Inc. ("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 U.S. Government Series and together with its affiliate,
Salomon Brothers Asset Management Limited ("SBAM Ltd."), to Strategic Bond.

SBAM is a corporation organized under the laws of Delaware on December 24,
1987 and is a registered investment adviser pursuant to the Investment Advisers
Act of 1940, as amended. As of February 28, 1998, SBAM and its worldwide
affiliates managed approximately $27 billion of assets. SBAM is a wholly owned
subsidiary of Salomon Brothers Holding Company Inc. ("SBHC"). SBHC is a wholly
owned subsidiary of Salomon Smith Barney Holdings Inc.("SSBH"), which in turn is
a wholly owned subsidiary of Travelers Group, Inc. ("Travelers")

SBAM Ltd. is a company organized under the laws of England. SBAM Limited
provides certain advisory services to SBAM relating to currency transactions and
investments in non-dollar denominated debt securities for the benefit of the
Strategic Bond Series. SBAM Ltd. is a wholly owned subsidiary of Salomon
Brothers Europe Limited, which is a wholly-owned by Salomon (International)
Finanz AG,(25%) and Salomon International Limited (75%) which in turn is a
wholly owned subsidiary of SBHC. SBHC is a wholly-owned subsidiary of SSBH which
in turn is wholly owned by Travelers. The principal address of SBAM Ltd. and
Salomon Brothers Europe Limited is Victoria Plaza, 111 Buckingham Palace Road,
London SW1W OSB, England, and the principal address of Salomon (International)
Finanz AG is Schipfe 2, 8001 Zurich, Switzerland. SBAM Limited is a member of
the Investment Management Regulatory Organization Limited in the United Kingdom
and is registered as an investment adviser pursuant to the Investment Advisers
Act of 1940, as amended.

GSAM, subadviser to Midcap Value, 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. The
principal business address of Goldman Sachs is 85 Broad Street, New York, New
York 10004.

MFS, subadviser to the Investors and Research Managers Series, and its
predecessor organizations have a history of money management dating from 1924.
MFS is a subsidiary of Sun Life of Canada (U.S.) Financial Services Holdings,
Inc., which in turn is an indirect wholly owned subsidiary of Sun Life Assurance
Company of Canada ("Sun Life").

-48-
<PAGE>

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, subject to any fee reductions or deferrals as described under
"Expense Deferral and Limits."

Annual Percentage
---------- Average Daily Net
Series Rate Asset Value Levels
------ ---- ------------------
Small Cap 1.00% all assets

International Equity 0.90% all assets

Equity Growth 0.75% all assets

Capital Growth 0.70% the first $200 million
0.65% the next $300 million
0.60% the next $1.5 billion
0.55% amounts in excess of $2 billion
Midcap Value(a) 0.75% all assets

Venture Value 0.75% all assets

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

Stock Index 0.25% all assets

Balanced Series 0.70% all assets

Managed Series 0.50% all assets

Strategic Bond 0.65% all assets

Bond Income 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

U.S. Government Series 0.55% all assets

Money Market 0.35% the first $500 million
0.30% the next $500 million
0.25% amounts in excess of $1 billion

Investors 0.75% all assets

Research Managers 0.75% all assets

(a) Prior to May 1, 1998 the advisory fee payable by Midcap Value 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.

-49-
<PAGE>

Subadvisory Fees. NEIM pays each sub-adviser at the following rates for
providing subadvisory services to the following Series:

<TABLE>
<CAPTION>
Annual Percentage Rates Paid Average Daily Net Asset
Series by NEIM to the Subadvisers Value Levels
- ------ -------------------------- ------------
<S> <C> <C>
Small Cap 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

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

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

Midcap Value*** 0.45% of the first $100 million
0.40% of the next $400 million
0.35% of amounts in excess of $500 million

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

Growth and Income 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

Stock Index 0.10% of all assets

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

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

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

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

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

-50-
<PAGE>

<TABLE>
<S> <C> <C>
Investors 0.40% of the first $150 million
0.375% of the next $150 million
0.350% of amounts in excess of $300 million

Research Managers 0.40% of the first $150 million
0.375% of the next $150 million
0.350% of amounts in excess of $300 million
</TABLE>

*Prior to May 1, 1997 the subadviser of International Equity was Draycott
Partners Ltd. and the subadvisory fee rate payable for the 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 Equity Growth 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 NEIM (then, TNE Advisers) that the
sub-advisory fee payable by NEIM 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 NEIM, but does not reduce
the advisory fees payable by the Series. The fee reduction agreement will expire
at such time as NEIM has recovered certain expenses (generally, those expenses
borne by NEIM under the Expense Deferral Arrangement prior to January 1, 1996
which are not recovered from the Series).

***Prior to May 1, 1998, the subadviser of Midcap Value was Loomis Sayles, and
the subadvisory fee rate payable for the 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 Strategic Bond, SBAM's
London based affiliate, SBAM Ltd. 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.

In connection with Davis Selected's service as subadviser to Venture Value,
Davis Selected may delegate any and all responsibilities to its New York based
subsidiary, DSA-NY. 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 fiscal years ended December 31, 1996, 1997, and 1998 each Series
(except the Capital Growth) paid the following amounts in advisory fees to NEIM.

Amount Paid to NEIM
-------------------
Series 1996 1997 1998
- ------ ---- ---- ----
Small Cap $506,242 $1,404,831
International Equity (1) 256,659 422,850
Equity Growth 620,895 1,246,269
Midcap Value (2) 454,015 711,667
Venture Value 495,948 1,425,245
Growth and Income 443,509 808,891
Stock Index 170,651 261,396
Balanced Series 252,822 607,641
Managed Series 759,811 878,632
Strategic Bond 130,094 353,611
Bond Income 672,348 747,372
U.S. Government Series 59,626 92,762
Money Market 350,632 405,959

-51-
<PAGE>

(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, Midcap Value was subadvised by Loomis, Sayles &
Company, L.P. On January 28, 1998, the Board of Trustees approved a new
subadvisory agreement by and between TNE Advisers, Inc. (now NEIM) and
Goldman Sachs Asset Management, which was approved by shareholders on April
10, 1998. 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, 1997 and 1998, Capital Growth
paid CGM a total of $6,398,659, $8,434,722 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. Except in
the case of the Strategic Bond, U.S. Government and Midcap Value, 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" as defined in the 1940 Act. 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 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 or subadviser.

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 Code. 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, 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.

-52-
<PAGE>

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

Certain officers of Loomis Sayles have responsibility for the management of
other client portfolios. The Detroit office of Loomis Sayles buys and sells
portfolio securities for Small Cap. The Pasadena office buys and sells portfolio
securities for the 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 Growth and Income or Stock Index 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 Growth and Income and Stock Index. 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 Growth and Income and Stock Index 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 Capital Growth also invests. If Capital
Growth 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 Capital Growth purchases
or sells. In other cases, however, it is believed that these practices may
benefit Capital Growth Series. It is the opinion of the trustees that the
desirability of retaining CGM as adviser for Capital Growth outweighs the
disadvantages, if any, which might result from these practices.

Certain officers and employees of SBAM, Davis Selected, MSAM, GSAM, Alger
Management and MFS have responsibility for portfolio management for other
clients (including other registered investment companies and affiliates of SBAM,
Davis Selected, MSAM, GSAM, Alger Management or MFS) some of which may invest in
securities in which the respective Series that these subadvisers manage also
invest. In such circumstances, SBAM, Davis Selected, MSAM, GSAM, Alger
Management or MFS 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, Alger Management or MFS, 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, Alger Management and
MFS as subadvisers for the respective Series outweighs the disadvantages, if
any, which might result from these practices.

-53-
<PAGE>

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 NEF.

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

Other Arrangements. 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, 1996, 1997 and 1998 $1,574,016, $1,061,801
and $______ respectively, and NEIM (formerly, TNE Advisers) $______ for the
fiscal year ended 1998, relating to Capital Growth. For the fiscal year ended
December 31, 1996, under a Service Agreement between New England Funds, L.P. and
NEIM, NEIM paid $18,011 for Balanced Series, $14,419 for the International
Equity, $10,000 for U.S. Government, $11,629 for Strategic Bond, $31,230 for
Venture Value and $38,435 for Equity Growth $24,599 for Small Cap, $30,928 for
Midcap Value, $63,191 for the Managed, $68,830 for Bond Income, $32,318 for
Stock Index and $44,919 for Money Market. For the fiscal year ended 1997 under
an administrative services agreement between New England Funds and NEIM, NEIM
paid $26,923 for Balanced, $26,923 for International Equity, $26,923 for the
U.S. Government, $26,923 for Strategic Bond, $26,923 for Venture Value, $26,923
for Equity Growth, $26,923 for the Bond Income, $26,923 for the Managed, $26,923
for the Money Market. For the fiscal year ended 1998 under an administrative
services agreement between New England Funds and NEIM, NEIM paid $_____for
Balanced, $_____for International Equity, $________ for U.S. Government,
$_______ for Strategic Bond, $______ for the Venture Value, $______ for Equity
Growth, $_______ for Bond Income, $________ for Managed, $________for Money
Market.

-54-
<PAGE>

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 Balanced, Managed, Bond Income, Strategic
- ---------------------------------------------------------------------------
Bond, U.S. Government and Money Market Series
- ---------------------------------------------

It is expected that the portfolio transactions of Balanced, Managed, Bond
Income and Money Market 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 1996, 1997 and 1998 was 98%, 40% and ___%
respectively, for Bond Income, 72%, 65%, and _____% respectively, for the
Managed. The Balanced Series' portfolio turnover rates for the fiscal years
ended December 31, 1996, 1997 and 1998 were 59%, 60% and ___%, respectively.
Over the same periods the Strategic Bond portfolio turnover rates were 176%,
258% and ___% respectively. For U.S. Government portfolio turnover rates were
288%, 572% and ___% respectively for the fiscal years ended 1996, 1997 and 1998.

Small Cap, International Equity, Equity Growth, Capital Growth, Midcap Value,
- -----------------------------------------------------------------------------
Venture Value, Balanced and Managed (Common Stock Transactions)
- ---------------------------------------------------------------

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

For the fiscal years ending in 1996, 1997 and 1998 brokerage transactions
for Capital Growth aggregating $3,548,037,504, $4,668,741,649 and
$_____respectively and commissions of $4,124,163, $4,245,443 and $____
respectively, were paid as commissions on such transactions and $747,543,
$690,456 and $______of those commissions were paid to brokers providing research
services. For the fiscal years ending in 1996, 1997 and 1998 the Stock Index
Series paid brokerage commissions aggregating $9,955, $12,015 and $____
respectively. For the same periods, the Managed Series paid brokerage
commissions aggregating $11,697, $31,499 and $____ respectively. For the fiscal
years ending December 31, 1996, 1997 and 1998, the Midcap Value paid brokerage
commissions of $72,377, $74,700 and $ ___ and $2,080, $1,300 and $____were paid
to brokers providing research services. Growth and Income paid brokerage
commissions of $106,927, $163,690 and $_____ of which $44,431, $77,711 and $____
were paid to brokers providing research services, for the fiscal years ended
1996, 1997 and 1998, respectively. For the fiscal years ended December 31, 1996,
1997 and 1998 Small Cap paid brokerage commissions of $462,358, $394,066 and
$____of which $24,045 $42,246 and $____ respectively were paid to brokers
providing research services. For the period the fiscal year end 1996, 1997 and
1998 International Equity paid brokerage commissions of $127,196, $146,747 and
$_______. Venture Value paid brokerage commissions of $81,002, $148,966 and
$_____ for the fiscal years ended 1996, 1997 and 1998. Equity Growth paid
brokerage commissions of $174,495, $489,199 and $____ for the fiscal years ended
1996, 1997 and $____. For the fiscal years ended 1996, 1997 and 1998 Balanced
paid brokerage commissions of $66,712, $115,075 and $_____of which $7,006,
$3,436 and $______ were paid to brokers providing research services.

-55-
<PAGE>

Growth and Income, Stock Index, Strategic Bond and U.S. Government Series
- -------------------------------------------------------------------------

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

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

A Series may pay brokerage commissions to an affiliated broker for acting
as the respective Series' agent on purchases and sales of securities for the
portfolio of the Series. SEC rules require that commissions paid to an
affiliated broker of a mutual fund for portfolio transactions not exceed "usual
and customary" brokerage commissions. The rules define "usual and customary"
commissions to include amounts which are "reasonable and fair" compared to the
commission, fee or other remuneration received or to be received by other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time." The Trustees of the Fund, 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. Equity Growth paid $174,495, $489,199 and $____in brokerage
commissions to Fred Alger and Company, Inc., an affiliated broker, for the
fiscal years ended December 31, 1996, 1997 and 1998, respectively. The amount
paid by the Equity Growth represents approximately all of that Series' aggregate
brokerage commissions for the years ended December 31, 1996, 1997 and 1998. For
the fiscal year ended December 31, 1996, 1997 and 1998 Venture Value paid a
total of $5,316, $54,840 and $______in brokerage commissions to Shelby Cullum
Davis, Inc., an affiliated broker. This amount represents 6.6%, 36% and ____% of
the Series aggregate brokerage commissions for the fiscal year ended December
31, 1996, 1997 and 1998. For the fiscal year ended December 31, 1997 and 1998
International Equity Series paid a total of $2,395 and $_________in brokerage
commissions to Morgan Stanley & Co., Incorporated, Morgan Stanley & Co.,
Limited, and Morgan Stanley Securities, Limited and Dean Witter Reynolds, Inc.,
each an affiliate broker representing 1.6% and ____% of the total brokerage
commissions paid for the fiscal year ended December 31, 1997 and 1998,
respectively.

DESCRIPTION OF THE FUND

The Fund is a diversified, open-end management investment company
registered under the 1940 Act and was 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. Capital Growth, Bond Income and Money Market all commenced investment
operations in 1983. The Stock Index Series commenced operations on March 30,
1987. The Managed Series commenced investment operations on May 1, 1987. Midcap
Value (prior to May 1, 1998 the Series was named the Loomis Sayles Avanti Growth
Series) and the Growth and Income (prior to August 30, 1996 the Series was named
Westpeak Value Growth Series) commenced investment operations in April 1993.
Small Cap commenced investment operations on May 1, 1994. Equity Growth,
International Equity (prior to May 1, 1997 the Series was named the Draycott
International Equity Series), Venture Value, Balanced Series, Strategic Bond and
the U.S. Government Series commenced investment operations on October 31, 1994.

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<PAGE>

The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of each of the 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 separate series of shares. The Fund is a
"series" company as that term is used in Section 18(f) of the 1940 Act.

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

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

As of March 31, 1999, all of the outstanding voting securities of the Fund
were owned by separate accounts of MetLife and/or NEF, and may, from time to
time, be owned by those separate accounts and the general account of NEF and its
affiliates. Therefore, MetLife and NEF 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 NEF 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 NEF 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 NEF 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). NEF 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, NEF 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
NEF 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 NEF 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

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<PAGE>

the trustees holding office have been elected by shareholders and (ii) if there
is a vacancy on the Board of Trustees, unless, after filling such vacancy, at
least two-thirds of the trustees holding office will 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 of Fund
shares or other provisions relating to Fund shares in response to applicable
laws or regulations.

TAXES

The following discussion of federal income tax consequences is based on the
Code and the regulations issued thereunder as in effect on the date of this SAI.
New legislation, as well as administrative changes or court decisions, may
significantly change the conclusions expressed herein and may have a retroactive
effect with respect to the transactions contemplated herein.

Each of the Series intends to qualify as a "regulated investment company"
("RIC") under Subchapter M of the Code. A Series that is a RIC and distributes
to its shareholders at least 90% of its taxable net investment income
(including, for this purpose, its net realized short-term capital gains) and 90%
of its tax-exempt interest income (reduced by certain expenses), will not be
liable for federal income taxes to the extent its taxable net investment income
and its net realized long-term and short-term capital gains, if any, are
distributed to its shareholders.

A number of technical rules are prescribed for computing net investment
income and net capital gains. For example, a Series is generally treated as
certain foreign currency losses and capital losses arising after October 31 of a
given year may be treated as if they arise on the first day of the next taxable
year.

In order to qualify as a RIC under the Code, in addition to satisfying the
distribution requirement described above, each Series must (a) derive at least
90% of its gross income each taxable year from dividends, interest, payments
with respect to securities loans, gains from the sale or other disposition of
stock, securities, or foreign currencies, and certain other related income,
including generally, certain gains from options, futures, and forward contracts;
and (b) diversify its holdings so that, at the end of each fiscal quarter of the
Series' taxable year, (i) at least 50% of the market value of the Series' assets
is represented by cash and cash items, U.S. Government Securities, securities of
other RICs, and other securities, with such other securities limited, in respect
of any one issuer, to an amount that does not exceed 10% of the voting
securities of such issuer or 5% of the value of the Series' total assets; and
(ii) not more than 25% of the value of its assets is invested in the securities
(other than U.S. Government Securities and securities of other RICs) of any one
issuer or two or more issuers which the Series controls and which are engaged in
the same, similar or related trades or businesses.

If a Series fails to qualify as a RIC for any year, all of its income will
be subject to tax at corporate rates, and its distributions (including capital
gain distributions) will be taxable as ordinary income dividends to its
shareholders to the extent of the Series' current and accumulated earnings and
profits.

In addition to qualifying under Subchapter M by meeting the requirements
described above, each Series intends to meet the diversification requirements of
Subchapter L of the Code so that non-qualified variable annuity contracts funded
by each Series will not fail to qualify as annuities for tax purposes. In
general, for a Series to meet the investment diversification requirements of
Subchapter L of the Code, Treasury regulation 1.817-5 requires that no more than
55% of the total value of the assets of the Series be represented by any one
investment, no more than 70% by any two investments, no more than 80% by three
investments and no more than 90% by four investments. Generally, for purposes of
the regulations, all securities of the same issuer are treated as one
investment. In the context of U.S. Government securities (including any security
that is issued, guaranteed or insured by the United States or an instrumentality
of the United States), each U.S. Government agency or instrumentality is treated
as a separate issuer. In the context of shares of registered investment
companies, each series,

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<PAGE>

fund or portfolio is treated as a separate issuer. Compliance with the
Subchapter L regulations is tested on the last day of each calendar year
quarter.

Notwithstanding the distribution requirement described above, which only
requires a Series to distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital
gain, a RIC is generally subject to a nondeductible 4% excise tax to the extent
it fails to distribute by the end of any calendar year at least 98% of its
ordinary income for the one-year period ending on October 31 of that year, plus
certain other amounts.

The excise tax is inapplicable to any RIC all of the shareholders of which
are either tax-exempt pension trusts or separate accounts of life insurance
companies funding variable contracts. Although each Series believes that it is
not subject to the excise tax, each Series believes that it is not subject to
the excise tax, each Series intends to make the distributions required to avoid
the imposition of the tax, provided such payments and distributions are
determined to be in the best interest of such Series' shareholders.

Dividends declared by each Series in October, November, or December of any
year and payable to shareholders of record on a date in such month will be
deemed to have been paid by the Series and received by the shareholders on
December 31 of that year if paid by the Series at any time during the following
January.

TRANSFER AGENT

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

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

The financial statements of the Fund and the related reports of independent
accountants included in the Fund's annual report for the year ended December 31,
1998 are incorporated herein by reference.

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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.

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

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<PAGE>

(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.

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<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.

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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

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<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

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<PAGE>

Wall Street Letter
Wall Street Week
Washington Post
WBZ
WBZ-TV
WCVB-TV
WEEI
WHDH
Worcester Telegram
Worth Magazine
WRKO

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<PAGE>

APPENDIX C
ADVERTISING AND PROMOTIONAL LITERATURE

Advertising and promotional literature prepared by NEF for products it
issues or administers may include references to NEIM or Nvest Companies and its
affiliates that perform advisory and subadvisory functions for NEIM 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

NEF's advertising and promotional literature may include references to
other NEF or Nvest Companies' 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 & Tang Mutual
Funds, the Oakmark Family of Funds and Jurika & Voyles and their fund groups.

References to subadvisers unaffiliated with NEIM or NEF that perform
subadvisory functions on behalf of New England Zenith Fund and their respective
fund groups may be contained in NEF's advertising and promotional literature
including, but not limited to, Alger Management, Davis Selected, SBAM, GSAM and
MSAM.

NEF'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

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<PAGE>

. Current and historical statistics about:

- total dollar amount of assets managed
- TNE Adviser, Inc. 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 the Fund. Any such references will
indicate that the Fund 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 NEF or
its affiliates may make reference to the following information about Nvest
Companies and its affiliates:

Nvest Companies is one of the largest publicly traded managers
in the U.S. listed on the New York Stock Exchange. Nvest Companies
maintains over $100 billion in assets under management. In addition,
promotional materials may include:

New England Securities Corporation an indirect subsidiary of
NEF, may be referenced in Fund advertising and promotional literature
concerning the marketing services it provides to Nvest Companies-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.

References to the Series may be included in NEF'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,

-67-
<PAGE>

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 NEF 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 NEF 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 NEF 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, the Fund and investing
in NEF'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
- - the services of Trust Consultants Inc., 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.

-68-
<PAGE>

Registration Nos. 2-83538
811-3728

NEW ENGLAND ZENITH FUND
-----------------------

PART C. OTHER INFORMATION
-----------------

Item 23 Exhibits:
---------

(1) 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.

(2) 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.

(3) 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.

(4) 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.

(5) 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.

(6) 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.

(7) 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.

(8) 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.

(9) Amendment No. 8 to the Agreement and Declaration of Trust is
incorporated herein by reference to Post-Effective No. 24 (File No.
2-83538) filed on May 1, 1998.

(10) Amendment No. 9 to the Agreement and Declaration of Trust is
incorporated herein by reference to Post-Effective No. 24 (File No.
2-83538) filed on May 1, 1998.

(11) Amendment No. 10 to the Agreement and Declaration of Trust to be
filed by amendment.
<PAGE>

Registration Nos. 2-83538
811-3728

(1) By-Laws, as amended, are incorporated herein to Post-Effective
Amendment No. 23 (File No. 2-83538) filed on March 2, 1998.

(2) Amendment to By-Laws relating to Electronic Proxy Voting is
incorporated herein to Post-Effective Amendment No. 23 (File No.
2-83538) filed on March 2, 1998.

c. None.

(1) Advisory Agreements by and between the Fund, on behalf of each of its
Loomis Sayles Small Cap, Alger Equity 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, Back Bay Advisors Money Market Series and
Morgan Stanley International Magnum Equity Series are is incorporated
herein by reference to Post-Effective No. 24 (File No. 2-83538) filed
on May 1, 1998 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

(2) Form of Advisory Agreement between the Fund on behalf of its Goldman
Sachs Midcap Value Series is incorporated herein by reference to
Post-Effective No. 24 (File No. 2-83538) filed on May 1, 1998.

(3) Forms of Advisory Agreement by and between the Fund, on behalf of each
of its MFS Investors Series and MFS Research Managers Series, are
filed herewith as Exhibits d(3)(i) and d(3)(ii), respectively.

(4) Advisory Agreement between the Fund, on behalf of its Capital Growth
Series and Capital Growth Management Limited Partnership is
incorporated herein by reference to Post-Effective Amendment No. 23
(File No. 2-83538) filed on March 2, 1998.

(5) Subadvisory Agreements relating to the following Series of the
Registrant, by and between TNE Advisers, Inc. and the subadvisers
indicated in parentheses, are incorporated herein to Post-Effective
Amendment No. 23 (File No. 2-83538) filed on March 2, 1998 as Exhibits
5(b) as follows:

-2-
<PAGE>

Registration Nos. 2-83538
811-3728

(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 Management 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)

(6) 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.

(7) Sub-Advisory Agreement for the Morgan Stanley International Magnum
Equity Series by and between TNE Advisers and Morgan Stanley Asset
Management Inc. ("MSAM") is filed herewith as Exhibit d(7).

(8) Form of Sub-Advisory Agreement for the Goldman Sachs Midcap Value
Series between TNE Advisers, Inc. and Goldman Sachs Midcap Value
Series is incorporated herein by reference to Post-Effective No. 24
(File No. 2-83538) filed on May 1, 1998.

(9) Forms of Sub-Advisory Agreement for the MFS Investors Series and the
MFS Research Managers Series are filed herewith as Exhibits d(9)(i)
and d(9)(ii), respectively.

e. Distribution Agreement between New England Securities Corporation and
the Fund on behalf of the Alger Equity Growth, Back Bay Advisors Bond
Income, Back Bay Advisors Managed, Back Bay Advisors Money Market,
Capital Growth, Morgan Stanley International Magnum Equity (formerly,
Draycott International Equity), Loomis Sayles Avanti Growth, Loomis
Sayles Balanced, Loomis Sayles Small Cap, Salomon Brothers Strategic
Bond Opportunities and Salomon Brothers U. S. Government Series, dated
August 30, 1996, is incorporated herein by reference to Post-Effective
No. 24 (File No. 2-83538) filed on May 1, 1998.

f. None.

(1) 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"), dated
September 24, 1992, is

-3-
<PAGE>

Registration Nos. 2-83538
811-3728

incorporated herein by reference to Post-Effective No. 24 (File No.
2-83538) filed on May 1, 1998.

(2) Amendment No. 1, dated April 29, 1993, to the Amended and Restated
Custodian Contract, among the Fund, The New England and State Street
relating to the applicability of the Custodian Contract to the
Westpeak Growth and Income and Loomis Sayles Avanti Growth Series, is
incorporated herein by reference to Post-Effective No. 24 (File No.
2-83538) filed on May 1, 1998.

(3) Amendment No. 2, dated April 29, 1994, to the Amended and Restated
Custodian Contract, 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 No. 24 (File No. 2-83538) filed on May 1, 1998.

(4) Amendment No. 3, dated October 31, 1994, to the Amended and Restated
Custodian Contract, among the Fund, The New England and State Street
relating to the applicability of the Custodian Contract to each of the
Loomis Sayles Balanced Series, Draycott International Equity Series,
Salomon Brothers U.S. Government Series, Salomon Brothers Strategic
Bond Opportunities Series, Davis Venture Value Series, Alger Equity
Growth Series and CS First Boston Strategic Equity Opportunities
Series is incorporated herein by reference to Post-Effective No. 24
(File No. 2-83538) filed on May 1, 1998.

(1) Transfer Agency Agreement by and between the Fund and The New England
is incorporated herein by reference to Post-Effective No. 24 (File No.
2-83538) filed on May 1, 1998.

(2) 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 (renamed Goldman Sachs Midcap Value
Series) is incorporated herein by reference to Post-Effective No. 24
(File No. 2-83538) filed on May 1, 1998.

(3) 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 No. 24 (File No. 2-83538) filed
on May 1, 1998.

(4) 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 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 No. 24 (File No. 2-83538) filed on May 1,
1998.

Form of Expense Agreement between the Fund and The New England is incorporated
herein by reference to Post-Effective Amendment No. 5 (File No. 2-83538) filed
on December 29, 1986.

-4-
<PAGE>

Registration Nos. 2-83538
811-3728

(5) Form of Expense Agreement between the Fund and TNE Advisers, Inc. is
filed herewith as Exhibit h(6).

(6) Powers of Attorney of Trustees are incorporated by reference to Post -
Effective Amendment No. 22 on Form N-1A (File No. 2-83538) filed on
February 28, 1997.

(7) 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.

(1) 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 and
filed via EDGAR in Post-Effective No. 24 (File No. 2-83538) filed on
May 1, 1998.

(2) 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.

(3) 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 and is incorporated herein by
reference to the EDGAR filing to Post-Effective No. 24 (File No.
2-83538) filed on May 1, 1998.

(4) 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 is
incorporated herein by reference to the EDGAR filing of Post-Effective
No. 24 (File No. 2-83538) filed on May 1, 1998.

(5) 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.

(1) Consent of Deloitte & Touche, L.L.P., to be filed by amendment.

-5-
<PAGE>

Registration Nos. 2-83538
811-3728

(2) Consent of Coopers and Lybrand, LLP, to be filed by amendment.

k. None.

(1) 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.

(2) Investment Letter of The New England relating to the Loomis Sayles
Avanti Growth Series is incorporated herein by reference to
Post-Effective No. 24 (File No. 2-83538) filed on May 1, 1998.

(3) Investment Letter of The New England relating to the Westpeak Value
Growth Series is incorporated herein by reference to Post-Effective
No. 24 (File No. 2-83538) filed on May 1, 1998.

(4) Investment Letter of The New England relating to the Loomis Sayles
Small Cap Series is incorporated herein by reference to Post-Effective
No. 24 (File No. 2-83538) filed on May 1, 1998.

m. None.

n. To be filed by amendment.

o. None.

Item 24. Persons Controlled by or Under Common Control with Registrant
-------------------------------------------------------------

None.

-6-
<PAGE>

Registration Nos. 2-83538
811-3728

Item 25. Indemnification
---------------

See Article 4 of the Fund's By-Laws filed as Exhibit 2 to
Post-Effective Amendment No. 8 on Form N-1A (File No. 2-83538) which
Exhibit is incorporated herein by reference. In addition, the Fund
maintains a trustees and officers liability insurance policy with a
maximum coverage of $15 million under which the Fund and its trustees
and officers are named insureds.

Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the Fund's By-Laws, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer or controlling person of the
Registrant in the successful defense of any action, suit of
proceeding) is asserted by such trustee, officer or controlling person
in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and
will be governed by the final adjudication of such issue.

-7-
<PAGE>

Registration Nos. 2-83538
811-3728

Item 26. Business and other Connections of Investment Adviser
----------------------------------------------------

[THE INFORMATION PRESENTED HEREIN AT ITEM 26 WAS PRESENTED AS ITEM 28
OF POST-EFFECTIVE AMENDMENT NO. 22 AND WILL BE UPDATED BY THE FUND BY
AMENDMENT]

(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.

Name and Office with Name and Address of
TNE Advisers, Inc. Other Affiliations Nature of Connection
- --------------------------------------------------------------------------------

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 Chairman, President and
Annuity Company Vice President of
501 Boylston Street Investments
Boston, MA 02117

NEL Partnership I, Inc. Director and President
501 Boylston Street
Boston, MA 02117

-8-
<PAGE>

Registration Nos. 2-83538
811-3728

New England Life Mortgage Chairman and
Funding Corp. President
501 Boylston Street
Boston, MA 02117

NELRECO Troy, Inc. Director
501 Boylston Street
Boston MA 02117

TNE Funding Corp. Chairman and President
501 Boylston Street
Boston, MA 02117

John F. Guthrie, Jr. New England Life Insurance Vice President
Senior Vice President Company
& Director 501 Boylston Street
Boston, MA 02117

New England Portfolio President of Portfolio
Advisors, Inc. Strategy
501 Boylston Street
Boston, MA 02117

New England Pension & Vice President of
Annuity Co. Portfolio Strategy
501 Boylston Street
Boston, MA 02117

New England Variable 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 Vice President
Advisors, Inc.
501 Boylston Street
Boston, MA 02117

Maura A. Murphy New England Life Attorney and Assistant
Chief Legal Officer, Insurance Co. Secretary
Secretary and Clerk 501 Boylston Street
Boston, MA 02117

New England Securities Corp. Assistant Secretary
399 Boylston Street
Boston, MA 02116

-9-
<PAGE>

Registration Nos. 2-83538
811-3728

Alan C. Leland New England Life Senior Vice President
Chief Financial Officer Insurance Co.
and Treasurer 501 Boylston Street
Boston, MA 02117

(b) Capital Growth Management Limited Partnership, the adviser of the
Capital Growth Series, provides investment advice to a number of other
registered investment companies and to other organizations and
individuals.

Name and Office with Name and Address of
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).

Name and Office with
Back Bay Advisors or Name and Address of
Back Bay Advisors, Inc. Other Affiliations Nature of Connection
- --------------------------------------------------------------------------------

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
Director 501 Boylston Street Officer
Boston, MA 02117

New England Funds, L.P. Chairman of the Board
399 Boylston Street and Director
Boston, MA 02116

NEF Corporation Director
399 Boylston Street
Boston, MA 02116

New England Life Insurance Director
Company
501 Boylston Street
Boston, MA 02117

-10-
<PAGE>

Registration Nos. 2-83538
811-3728

New England Investment President, CEO and
Companies, Inc. Director
399 Boylston Street
Boston, MA 02116

Westpeak Investment Chairman and Director
Advisors, Inc.
1011 Walnut Street,
Suite 300
Boulder, CO 80302

NEF Corporation Director
399 Boylston Street
Boston, MA 02116

Name and Office with
Westpeak Investment Name and Address of
Advisors, Inc. Other Affiliations Nature of Connection
- -----------------------------------------------------------------------------

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

(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.

-11-
<PAGE>

Registration Nos. 2-83538
811-3728

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
Advisers, 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
Officer, Chief Investment
Officer, Director

Peter S. Voss, NEIC Chairman of the Board,
Chairman of the Board, 399 Boylston Street Chief Executive Officer
Director 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
Director 399 Boylston Street President
Boston, MA 02116

New England Investment Director
Associates, Inc

-12-
<PAGE>

Registration Nos. 2-83538
811-3728

399 Boylston Street
Boston, MA 02116

NEF Corporation Director
399 Boylston Street
Boston, MA 02116

Edward N. Wadsworth, NEIC Executive Vice
Clerk and Secretary, 399 Boylston Street President, Clerk,
Chief Legal Officer Boston, MA 02116 Secretary and General
Counsel

Marlborough Capital Assistant Clerk
Advisors, Inc.
399 Boylston Street
Boston, MA 02116

New England Investment Secretary
Associates, Inc.
399 Boylston Street
Boston, MA 02116

Robert A. Franz, None None
Senior Vice President

Philip J. Cooper, None None
Executive Vice President
Compliance Officer

(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:

Name and Office with
Loomis Sayles or Loomis Name and Address of
Sayles & Company, L.P. Other Affiliations Nature of Connection
- ------------------------ ------------------- --------------------
Robert J. Blanding, None None
President and Chief Operating
Officer

Sandy P. Tichenor, None None
Vice President, General
Counsel, Secretary and Clerk

-13-
<PAGE>

Registration Nos. 2-83538
811-3728

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

Meri Anne Beck, None None
Vice President

(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.

Name and Office with Name and Address of
Fred Alger Management Inc. Other Affiliations Nature of Connection
- -----------------------------------------------------------------------------

Fred M. Alger III, Alger Properties, Inc. Chairman
Chairman 75 Maiden Lane
New York, NY 10038

The Alger Fund Chairman
75 Maiden Lane
New York, NY 10038

Alger Associates, Inc. Chairman
75 Maiden Lane
New York, NY 10038

Castle Convertible Fund, Chairman
Inc.
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

-14-
<PAGE>

Registration Nos. 2-83538
811-3728

Alger Shareholder Chairman
Services, Inc.
30 Montgomery Street
Jersey City, NJ 07302

The Alger American Fund Chairman
75 Maiden Lane
New York, NY 10038

Alger Life Insurance Chairman
Agency, Inc.
75 Maiden Lane
New York, NY 10038

Analysts Resources, Inc. Chairman
75 Maiden Lane
New York, NY 10038

The Alger Retirement Fund Chairman
75 Maiden Lane
New York, NY 10038

Fred Alger International Chairman
Advisory, S.A.
11, rue Aldringen
L-1118 Luxembourg
Grand Duchy of Luxembourg

The Alger American Asset Chairman
Growth Fund
11, rue Aldringen
L-1118 Luxembourg
Grand Duchy of Luxembourg

David D. Alger, The Alger Fund Trustee and President
Director and President 75 Maiden Lane
New York, NY 10038

Alger Properties, Inc. Director and President
75 Maiden Lane
New York, NY 10038

Alger Associates, Inc. Director and President
75 Maiden Lane
New York, NY 10038

Castle Convertible Director and President
Fund, Inc.
75 Maiden Lane
New York, NY 10038

Fred Alger & Company, Director and President
Incorporated
30 Montgomery Street
Jersey City, NJ 07302

-15-
<PAGE>

Registration Nos. 2-83538
811-3728

Alger Shareholder Director and President
Services, Inc.
30 Montgomery Street
Jersey City, NJ 07302

The Alger American Fund Trustee and President
75 Maiden Lane
New York, NY 10038

Spectra Fund Director and President
75 Maiden Lane
New York, NY 10038

Alger Life Insurance Director and President
Agency, Inc.
75 Maiden Lane
New York, NY 10038

Analysts Resources, Inc. Director and President
75 Maiden Lane
New York, NY 10038

The Alger Retirement Fund Trustee and President
75 Maiden Lane
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 75 Maiden Lane President and Treasurer
Vice President New York, NY 10038
and Director
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 Executive Vice
Services, Inc. President and Treasurer
30 Montgomery Street
Jersey City, NJ 07302

The Alger Fund Treasurer
75 Maiden Lane
New York, NY 10038

-16-
<PAGE>

Registration Nos. 2-83538
811-3728

The Alger American Fund Treasurer
75 Maiden Lane
New York, NY 10038

Castle Convertible Fund, Inc.
75 Maiden Lane
New York, NY 10038

Spectra Fund Treasurer
75 Maiden Lane
New York, NY 10038

Alger Life Insurance Executive Vice
Agency Inc. President and Treasurer
75 Maiden Lane
New York, NY 10038

Analysts Resources, Inc. Executive Vice
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 Secretary and General
Services, Inc. Counsel
30 Montgomery Street
Jersey City, N.J. 07302

Alger Properties, Inc. Secretary
75 Maiden Lane
New York, NY 10038

Alger Life Insurance Secretary
Agency, Inc.
75 Maiden Lane
New York, NY 10038

-17-
<PAGE>

Registration Nos. 2-83538
811-3728

Analysts Resources, Inc. Secretary
75 Maiden Lane
New York, NY 10038

The Alger Fund Secretary
75 Maiden Lane
New York, NY 10038

Castle Convertible Secretary
Fund, Inc.
75 Maiden Lane
New York, NY 10038

Spectra Fund Secretary
75 Maiden Lane
New York, NY 10038

The Alger American Fund Secretary
75 Maiden Lane
New York, NY 10038

The Alger Retirement Fund Secretary
75 Maiden Lane
New York, NY 10038

Fred Alger International Secretary
Advisory, S.A.
11, rue Aldringen
L-1118 Luxemborg
Grand Duchy of Luxembourg

(g) Davis Selected Advisers, L.P., the subadviser of the Venture Value
Series, provides investment advice to a number of other registered
investment companies and to other organizations and individuals.

Such subadviser's directors and officers have been engaged during the
past two years in the following other businesses, vocations or
employments of a substantial nature (former affiliations are marked
with an asterisk).

Name and Office with
Davis Selected Name and Address of
Advisers, L.P. Other Affiliations Nature of Connection
- -----------------------------------------------------------------------------

Shelby M.C. Davis Selected American Director and President
Chairman and Majority Shares, Inc.
Shareholder of the 124 East Marcy Street
General Partner Santa Fe, NM 87501

Selected Special Director and President
Shares, Inc.
124 East Marcy Street
Santa Fe, NM 87501

Selected Capital Trustee and President
Preservation Trust
124 East Marcy Street
Santa Fe, NM 87501

-18-
<PAGE>

Registration Nos. 2-83538
811-3728

Davis Series, Inc. Director and President
124 East Marcy Street
Santa Fe, NM 87501

Davis Tax-Free High Director and President
Income Fund
124 East Marcy Street
Santa Fe, NM 87501

Davis High Income Fund Director and President
124 East Marcy Street
Santa Fe, NM 87501

Davis New York Venture Director and President
Fund, Inc.
124 East Marcy Street
Santa Fe, NM 87501

Davis International Director and President
Series, Inc.
124 East Marcy Street
Santa Fe, NM 87501

Davis Venture Director and Chairman
Advisers, Inc.
124 East Marcy Street
Santa Fe, NM 87501

Shelby Cullom Davis Director and
Financial Consultants Shareholder
70 Pine Street
New York, NY 10270

Fiduciary Trust Co., Consultant
International
2 World Trade Center
New York, NY 10048

Carolyn H. Spolidoro, Davis New York Venture Vice President
Vice President of the Fund, Inc.
General Partner 124 East Marcy Street
Santa Fe, NM 87501

Davis Series, Inc. Vice President
124 East Marcy Street
Santa Fe, NM 87501

Davis High Income Fund Vice President
124 East Marcy Street
Santa Fe, NM 87501

Davis Tax-Free High Vice President
Income Fund
124 East Marcy Street
Santa Fe, NM 87501

-19-
<PAGE>

Registration Nos. 2-83538
811-3728

Davis Venture Vice President
Advisers, Inc.
124 East Marcy Street
Santa Fe, NM 87501

Davis International Vice President
Series, Inc.
124 East Marcy Street
Santa Fe, NM 87501

Eileen Street, Davis New York Venture Assistant Treasurer and
Senior Vice President and Fund, Inc. Assistant Secretary
Secretary of the General 124 East Marcy Street
Partner Santa Fe, NM 87501

Davis Tax-Free High Assistant Treasurer and
Income Fund Assistant Secretary
124 East Marcy Street
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 Assistant Treasurer and
Shares, Inc. Assistant Secretary
124 East Marcy Street
Santa Fe, NM 87501

Selected Special Shares Assistant Treasurer and
124 East Marcy Street Assistant Secretary
Santa Fe, NM 87501

Davis International Assistant Treasurer and
Services, Inc. Assistant Secretary
124 East Marcy Street
Santa Fe, NM 87501

Selected Capital Assistant Treasurer and
Preservation Trust Assistant Secretary
124 East Marcy Street
Santa Fe, NM 87501

Andrew A. Davis, Shelby Cullom Davis & Co. Consultant
President of the 70 Pine Street
General Partner New York, NY 10270

Capital Ideas, Inc. Consultant
140 North Beach Road
Hobe Sound, FL 33475

-20-
<PAGE>

Registration Nos. 2-83538
811-3728

Davis Series, Inc. Vice President
124 East Marcy Street
Santa Fe, NM 87501

Davis International Vice President
Series, Inc.
124 East Marcy Street
Santa Fe, NM 87501

Davis Tax-Free High Vice President
Income Fund
124 East Marcy Street
Santa Fe, NM 87501

Davis High Income Fund Vice President
124 East Marcy Street
Santa Fe, NM 87501

Davis New York Venture Vice President
Fund, Inc.
124 East Marcy Street
Santa Fe, NM 87501

(h) Salomon Brothers Asset Management Inc, the subadviser of Salomon Brothers
U.S. Government Series and Salomon Brothers Strategic Bond Opportunities
Series, provides investment advice to a number of other registered
investment companies and to other organizations and individuals.

Such subadviser's directors and officers have been engaged during the past
two years in the following other businesses, vocations or employments of a
substantial nature (former affiliations are marked with an asterisk).

Name and Office with
Salomon Brothers Name and Address of
Asset Management Inc. Other Affiliations Nature of Connection
- --------------------------------------------------------------------------------
Thomas W. Brock, Salomon Brothers Inc Managing Director
Chairman and Chief 7 World Trade Center
Executive Officer New York, NY 10048

Vilas Gadkari, Salomon Brothers Inc. Managing Director
Director Victoria Plaza
111 Buckingham Palace Road
London SWIW05B England

Salomon Brothers Managing Director
International Limited
Victoria Plaza
111 Buckingham Palace Road
London SW1W05B England

Rodney B. Berens Salomon Brothers Inc Managing Director
7 World Trade Center
New York, NY 10048

-21-
<PAGE>

Registration Nos. 2-83538
811-3728

Salomon Brothers Managing Director
International Limited
Victoria Plaza
111 Buckingham Palace Road
London SW1W05B England

Richard J. Carbone, Salomon Brothers Inc Controller
Treasurer 7 World Trade Center
New York, NY 10048

Michael S. Hyland, Salomon Brothers Inc. Managing Director
President 7 World Trade Center
New York, NY 10048

Salomon Brothers Asset Chairman
Management Limited*
7 World Trade Center
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

(i) Morgan Stanley Asset Management Inc. ("MSAM"), the subadviser of Morgan
Stanley International Magnum Equity Series, is a wholly-owned subsidiary of
Morgan Stanley Group Inc. Which provides investment advice to a number of
other registered investment companies and to other organizations and
individuals.

Listed below are the officers and Directors of Morgan Stanley Asset
Management Inc. ("MSAM"). The information as to any other business,
profession, vocation, or employment of a substantial nature engaged in by
the Chairman, President and Directors during the past two fiscal years, is
incorporated by reference to Schedules A and D of Form ADV filed by MSAM
pursuant to the Advisers Act (SEC File No. 801-15757).

Name and Office with
Morgan Stanley Asset Name and Address of
Management Inc. Other Affiliations Nature of Connection
- -----------------------------------------------------------------------------
James M. Allwin, None
Director

Barton M. Biggs, None
Director

Gordon S. Gray, None
Director

-22-
<PAGE>

Registration Nos. 2-83538
811-3728

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

(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-______)

Name and Office with Name and Address of
GSAM Other Affiliations Nature of Connection
- -----------------------------------------------------------------------------
Jon S. Corzine
Chief Executive Officer

Robert J. Hurst
Managing Director

Henry M. Paulson, Jr.
Chief Operating Officer

John A. Thain
Chief Financial Officer

-23-
<PAGE>

Registration Nos. 2-83538
811-3728

John L. Thornton
Managing Director

Roy J. Zuckerburg
Managing Director

Item 27. Principal Underwriters
----------------------
(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
New England Variable Account
New England Variable Annuity Separate Account

(b) The directors and officers of the Registrant's principal underwriter,
New England Securities Corporation, and their addresses are as follows:
<TABLE>
<CAPTION>
Positions and Officer's Offices with
Name Principal Underwriter Registrant
---- --------------------- ------------
<S> <C> <C>
Thomas W. McConnell** President, Director and None
Chief Executive Officer

Frederick K. Zimmermann* Chairman of the Board, Chairman of the
Director 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
</TABLE>

-24-
<PAGE>

Registration Nos. 2-83538
811-3728

Larry Thiel Vice President None

Robert E. Schneider* Director None

* Business Address: 501 Boylston Street, Boston, MA 02117
** Business Address: 399 Boylston Street, Boston, MA 02116
***Business Address: 500 Boylston Street, Boston, MA 02117

Item 28. 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

-25-
<PAGE>

Registration Nos. 2-83538
811-3728

Rule 31a-1(a); 31a-1(b)(9), (10), (11);
31a-1(f)
Rule 31a-2(a); 31a-2(e)

For the Morgan Stanley International Magnum Equity Series:

Morgan Stanley Asset Management
1221 Avenue of the Americas
New York, New York 10021

Rule 31a-1(a); 31a-1(b)(9), (10), (11);
31a-1(f)
Rule 31a-2(a); 31a-2(e)

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 MFS Investors Series and the MFS Research Managers Series:

Massachusetts Financial Services Company
501 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)

-26-
<PAGE>

Registration Nos. 2-83538
811-3728

For the Capital Growth Series:

Capital Growth Management Limited Partnership
One Financial Center
Boston, Massachusetts 02111

Rule 31a-1(a); 31a-1(b)(9), (10), (11);
31a-1(f)
Rule 31a-2(a); 31a-2(e)

(d) New England Securities Corporation
399 Boylston Street
Boston, Massachusetts 02116

Rule 31a-1(d)
Rule 31a-2(c)

Item 29. Management Services
-------------------

Not applicable.

Item 30. 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.

-27-
<PAGE>

Registration Nos. 2-83538
811-3728

SIGNATURES

Pursuant to the requirements of the Securities Act and the Investment Company
Act, the Fund has duly caused this registration statement to be signed on its
behalf by the undersigned, duly authorized, in the city of Boston and the
Commonwealth of Massachusetts on the tenth day of February, 1999.

New England Zenith Fund

By: FREDERICK K. ZIMMERMANN*
------------------------
Frederick K. Zimmermann President

*By: /s/ ANNE GOGGIN
-----------------------------
Anne Goggin Attorney-in-Fact

Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following person in the capacities and
on the date indicated.

FREDERICK K. ZIMMERMANN* Chairman of the Board; February 10, 1999
- ------------------------ Chief Executive Officer;
Frederick K. Zimmermann President and Trustee

PETER DUFFY* Treasurer February 10, 1999
- ------------------------ Principal Financial and
Peter Duffy Accounting Officer

JOHN J. ARENA* Trustee February 10, 1999
- ------------------------
John J. Arena

JOHN W. FLYNN* Trustee February 10, 1999
- ------------------------
John W. Flynn

/s/ ANNE GOGGIN Trustee February 10, 1999
- ------------------------
Anne Goggin

NANCY HAWTHORNE* Trustee February 10, 1999
- ------------------------
Nancy Hawthorne

JOSEPH M. HINCHEY* Trustee February 10, 1999
- ------------------------
Joseph M. Hinchey

-28-
<PAGE>

Registration Nos. 2-83538
811-3728

ROBERT B. KITTREDGE* Trustee February 10, 1999
- ------------------------
Robert B. Kittredge

JOHN T. LUDES* Trustee February 10, 1999
- ------------------------
John T. Ludes

DALE ROGERS MARSHALL* Trustee February 10, 1999
- ------------------------
Dale Rogers Marshall

*By: /s/ ANNE GOGGIN
--------------------------
Anne Goggin
Attorney-in-Fact
February 10, 1999

-29-
<PAGE>

EXHIBIT INDEX
-------------

EXHIBIT
NUMBER EXHIBIT
- ------ -------

d(3)(i) Form of Advisory Agreement between the Fund on behalf of MFS
Investors Series and TNE Advisers, Inc.

d(3)(ii) Form of Advisory Agreement between the Fund on behalf of MFS Research
Managers Series and TNE Advisers, Inc.

d(7) Sub-Advisory Agreement for the Morgan Stanley International Magnum
Equity Series by and between TNE Advisers, Inc. and Morgan Stanley
Asset Management Inc.

d(9)(i) Form of Sub-Advisory Agreement for the MFS Investor Series between
TNE Advisers, Inc. and Massachusetts Financial Services Company

d(9)(ii) Form of Sub-Advisory Agreement for the MFS Research Managers Series
between TNE Advisers, Inc. and Massachusetts Financial Services
Company

h(6) Form of Expense Agreement by and between TNE Advisers, Inc. and the
Fund.

<PAGE>

EXHIBIT d(3)(i)

NEW ENGLAND ZENITH FUND

ADVISORY AGREEMENT
(MFS Investors Series)

AGREEMENT made as of this 1st day of May, 1999 by and between NEW ENGLAND
ZENITH FUND, a Massachusetts business trust (the "Fund"), with respect to its
MFS Investors 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:

1. (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.

(b) 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 an 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.
<PAGE>

(c) 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.

2. 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;

(b) 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

(c) regularly reporting to the Board of Trustees of the Fund with
respect to the implementation of the investment policies of the Series.

3. 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;

(b) 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);

(c) 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;

(d) 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

-2-
<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

(e) 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.

4. 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;

(b) any of the costs of preparing, printing and distributing sales
literature;

(c) 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;

(d) registration, filing and other fees in connection with requirements
of regulatory authorities;

(e) the charges and expenses of any entity appointed by the Fund for
custodial, paying agent, shareholder servicing and plan agent services;

(f) charges and expenses of independent accountants retained by the
Fund;

(g) charges and expenses of any transfer agents and registrars
appointed by the Fund;

(h) brokers' commissions and issue and transfer taxes chargeable to
the Fund in connection with securities transactions to which the Fund is a
party;

(i) taxes and fees payable by the Fund to federal, state or other
governmental agencies;

(j) any cost of certificates representing shares of the Fund;

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<PAGE>

(k) legal fees and expenses in connection with the affairs of the Fund
including registering and qualifying its shares with federal and state
regulatory authorities;

(l) expenses of meetings of shareholders and trustees of the Fund; and

(m) interest, including interest on borrowings by the Fund.

5. 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.

6. 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.

7. 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.

8. 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.

9. 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

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<PAGE>

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.

10. 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;

(b) 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;

(d) this Agreement may be terminated by the Manager on ninety days'
written notice to the Fund;

(e) 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.

11. 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.

12. For the purpose of this Agreement, the terms "vote of a majority of the
outstanding voting securities," "interested person," "affiliated person" and
"assignment"

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<PAGE>

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.

13. 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 MFS Investors Series

By: By:
--------------------------------- -------------------------------
John F. Guthrie, Jr. John F. Guthrie, Jr.
Senior Vice President Senior Vice President

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<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 MFS Investors 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.

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<PAGE>

EXHIBIT d(3)(ii)

NEW ENGLAND ZENITH FUND

ADVISORY AGREEMENT
(MFS Research Managers Series)

AGREEMENT made as of this 1st day of May, 1999 by and between NEW ENGLAND
ZENITH FUND, a Massachusetts business trust (the "Fund"), with respect to its
MFS Research Managers Series (the "Series"), and TNE ADVISERS, INC., a
Massachusetts corporation (the "Manager").

WITNESSETH:

NOW THEREFORE, in consideration of the premises and covenants hereinafter
contained, the parties agree as follows:

2. 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:

(b) 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

(c) regularly reporting to the Board of Trustees of the Fund with
respect to the implementation of the investment policies of the Series.

3. 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;

(d) 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