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NEW ENGLAND ZENITH FUND
GOLDMAN SACHS MIDCAP VALUE SERIES ("MIDCAP VALUE")
LOOMIS SAYLES BALANCED SERIES (THE "BALANCED SERIES")
Supplement dated March 14, 2000
to Prospectus dated April 30, 1999
On March 13, 2000, the Board of Trustees of New England Zenith Fund (the
"Fund") approved a new subadvisory agreement relating to Midcap Value (the
"Midcap Value Agreement") and a new subadvisory agreement relating to the
Balanced Series (the "Balanced Agreement"). The Midcap Value Agreement, which
is subject to shareholder approval, is between New England Investment
Management, Inc. ("NEIM") and Harris Associates L.P. ("Harris"). The Balanced
Agreement, which is not subject to shareholder approval, is between NEIM and
Wellington Management Company, LLP ("Wellington"). The Midcap Value Agreement
and the Balanced Agreement are expected to become effective on or about May 1,
2000. The advisory agreement between NEIM and the Fund relating to each Series
will remain in effect and the fees payable thereunder to NEIM will not change.
MIDCAP VALUE AGREEMENT
Under the Midcap Value Agreement, Harris would become the subadviser to Midcap
Value, succeeding Goldman Sachs Asset Management ("GSAM"), and would become
responsible for the day-to-day management of Midcap Value's investment
operations under the oversight of NEIM. Accordingly, the name of Midcap Value
would be changed to the "Harris Oakmark Mid Cap Value Series" at the time
Midcap Value Agreement takes effect. Harris' address is Two North LaSalle
Street, Suite 500, Chicago, Illinois 60602-3790.
The transition from GSAM to Harris as subadviser of Midcap Value will involve
certain portfolio transaction costs as Harris restructures Midcap Value's
portfolio to reflect a change in Midcap Value's investment strategy and
classification, as described below. It is impossible to estimate with certainty
what the amount of these transaction costs will be, but it is currently not
expected that such costs will exceed 1.00% of Midcap Value's net asset value.
The subadvisory fee payable by NEIM to Harris under the Midcap Value Agreement
will remain at the same annual rate as that payable by NEIM to GSAM under
Midcap Value's current subadvisory agreement, as set forth in the Fund's
Statement of Additional Information.
The Fund intends to submit the Midcap Value Agreement for approval by Midcap
Value's shareholders at a meeting called to be held on April 13, 2000. Harris
plans to manage Midcap Value's portfolio using a substantially different
investment style than GSAM uses. Under Harris' management, Midcap Value could
own as few as 12 securities, but it generally expects to have 15 to 20
securities in its portfolio. In managing Midcap Value, Harris will normally
invest at least 65% of Midcap Value's total assets in equity securities of
companies with public stock market capitalizations within the range of the
market capitalization considered to be midcap by Morningstar, Inc. As of
January 31, 2000, this capitalization range was $1.67 billion to $10.54
billion. This capitalization range will change from time to time due to changes
in the value of U.S. stocks.
Harris uses a value investment style in selecting equity securities for Midcap
Value. Harris believes that, over time, a company's stock price converges with
its true business value. By "true business value" Harris means its estimate of
the price a knowledgeable buyer would pay to acquire the entire business.
Harris believes that investing in equity securities priced significantly below
what Harris believes is the true business value presents the best opportunity
to achieve Midcap Value's investment objective. Harris uses this value
philosophy to identify companies that it believes have discounted stock prices
compared to the companies' true business values.
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Midcap Value is currently classified as a "diversified" company under the
Investment Company Act of 1940, as amended. This classification could inhibit
Midcap Value in pursuing the new strategy proposed by Harris, particularly if
Harris deems it beneficial for Midcap Value to invest a relatively high
percentage of its assets in a few issuers. Accordingly, upon shareholder
approval, Midcap Value would change its classification from a "diversified" to
a "non-diversified" company to give Midcap Value additional flexibility to
pursue a more selective investment strategy.
William C. Nygren, CFA and Floyd J. Bellman, CFA, will be Midcap Value's
portfolio managers. Mr. Nygren is a Fund Manager of Harris and joined Harris as
an analyst in 1983. Mr. Nygren was Harris' Director of Research from September,
1990 to April, 1998. Mr. Bellman is a Vice President of Harris and joined
Harris as a portfolio manager in 1995.
BALANCED AGREEMENT
Under the Balanced Agreement, Wellington would become the subadviser to the
Balanced Series, succeeding Loomis, Sayles & Company, L.P. ("Loomis"), and
would become responsible for the day-to-day management of the Balanced Series'
investment operations under the oversight of NEIM. The name of the Balanced
Series would be changed to "Balanced Series" at the time the Balanced Agreement
takes effect. Wellington's address is 75 State Street, Boston, Massachusetts
02109.
The transition from Loomis to Wellington as subadviser of the Balanced Series
will involve certain portfolio transaction costs as Wellington restructures the
Balanced Series' portfolio to reflect a change in the Balanced Series'
investment strategy and classification, as described below. It is impossible to
estimate with certainty what the amount of these transaction costs will be, but
it is currently not expected that such costs will exceed 1.00% of the Balanced
Series' net asset value.
The subadvisory fee payable by NEIM to Wellington under the Balanced Agreement
will be at the annual rate of 0.325% of the first $100 million of the Balanced
Series' average daily net assets, 0.275% of the next $100 million of such
assets and 0.25% of such assets in excess of $200 million.
Wellington plans to manage the Balanced Series' portfolio using a substantially
different investment style than Loomis currently uses. The Balanced Series
total assets will be allocated 50% to 70% in equity securities and 30% to 50%
in fixed-income securities. Wellington will divide the Balanced Series' assets
between equity and fixed-income securities based on Wellington's judgment of
the projected investment environment for financial assets, relative fundamental
values, the attractiveness of each asset category, and expected future returns
of each asset category. Under normal market conditions, the duration of the
Balanced Series' fixed income portfolio will be within one year of the average
duration of the Lehman Aggregate Bond Index.
Wellington will invest the equity portfolio of the Balanced Series primarily in
stocks of U.S. companies with larger market capitalizations (generally greater
than $6 billion) using a combination of top-down industry and sector analysis
and bottom-up stock selection. Wellington attempts to identify sectors of the
economy and industries which Wellington believes will grow faster than the U.S.
economy. Wellington selects stocks for the Balanced Series that Wellington
believes have the following attributes: leadership position within an industry;
a strong balance sheet; a high return on equity; sustainable or increasing
dividends; a strong management team; and a globally competitive position.
Wellington will also invest the fixed-income portfolio of the Balanced Series
using a blend of top-down market analysis and bottom-up security analysis. The
Balanced Series may invest in, among other securities: U.S. government bonds;
mortgage-backed securities; Yankee bonds; and U.S. corporate bonds. Wellington
may also invest up to 25% of the fixed-income portfolio in high yield debt and
non-U.S. dollar bonds and up to 10% of the fixed-income portfolio in emerging
market debt.
Emerging markets 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 in the April 30, 1999 Prospectus (the
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"Prospectus"), 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 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. (Leverage in this context is a
measure of how much a company has borrowed in relation to its shareholders'
equity.) 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.
Wellington may also invest in asset-backed securities and supranational bonds.
Asset-backed securities are bonds and notes backed by certain assets, such as
anticipated car loan or credit card payments. Supranational bonds are issued by
organizations governed by representatives from different countries (e.g., the
World Bank) to finance reconstruction and development projects around the
world.
For additional information about the risks associated with the types of
investments that the Balanced Series may own after Wellington becomes
subadviser, please refer to the disclosure contained in the Prospectus.
Maya K. Bittar, CFA, will manage the equity portion of the Balanced Series and
Thomas L. Pappas, CFA, will manage the fixed-income portion of the Balanced
Series. Ms. Bittar is a Vice President of Wellington and has been a portfolio
manager there since 1998. From 1993 until she joined Wellington, Ms. Bittar was
employed by Firstar Investment Research and Management Company. Mr. Pappas is a
Senior Vice President and Partner of Wellington. He has been employed by
Wellington since 1987.
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