UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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New England Zenith Fund
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NEW ENGLAND ZENITH FUND
Balanced Series
INFORMATION STATEMENT
This Information Statement is being furnished by the Board of Trustees (the
"Trustees") of New England Zenith Fund (the "Trust") to the shareholders of
the Balanced Series (the "Series"). This Information Statement is being mailed
to shareholders beginning on or about July 28, 2000 to all of the Series'
shareholders of record as of the close of business on June 30, 2000 (the
"Shareholders"). A copy of the Annual Report of the Trust for the fiscal year
ended December 31, 1999 may be obtained without charge by calling (800) 356-
5015.
NO SHAREHOLDER VOTE WILL BE TAKEN WITH RESPECT TO THE MATTERS DESCRIBED IN
THIS INFORMATION STATEMENT. WE ARE NOT ASKING YOU FOR A PROXY, AND YOU ARE
REQUESTED NOT TO SEND US A PROXY.
I. INTRODUCTION
The Trust is a diversified, open-end management investment company organized
in 1987 as a business trust under the laws of The Commonwealth of
Massachusetts. The Trust is a series type company with sixteen investment
portfolios. The Series is one of those portfolios. New England Investment
Management, Inc. ("NEIM") acts as adviser to the Series. Prior to May 1, 2000,
Loomis, Sayles & Company, L.P. ("Loomis Sayles") acted as subadviser to the
Series pursuant to a subadvisory agreement dated August 30, 1996 between
Loomis Sayles and NEIM (the "Previous Subadvisory Agreement").
On March 13, 2000, the Trustees approved a new subadvisory agreement (the
"New Subadvisory Agreement") between NEIM and Wellington Management Company,
LLC ("Wellington") with respect to the Series, which took effect as of May 1,
2000. In connection with the appointment of Wellington pursuant to the New
Subadvisory Agreement, the Trustees terminated the Previous Subadvisory
Agreement, and as of May 1, 2000 Loomis Sayles no longer served as subadviser
to the Series.
The Investment Company Act of 1940, as amended (the "1940 Act") generally
provides that an investment adviser or subadviser to a mutual fund may act as
such only pursuant to a written contract which has been approved by a vote of
the fund's shareholders, as well as by a vote of a majority of the trustees of
the fund who are not parties to such contract or interested persons of any
party to such contract. The Trust and NEIM, however, have received from the
Securities and
1
Exchange Commission an exemption from the shareholder approval voting
requirement in certain circumstances (the "SEC Exemption"). Under the SEC
Exemption, NEIM is permitted, under specified conditions, to enter into new
and amended subadvisory agreements for the management of the portfolio of a
series of the Trust, including agreements with new subadvisers that are not
affiliated persons of NEIM or the Trust, and agreements with existing
subadvisers if there is a material change in the terms of the subadvisory
agreement or if there is an "assignment," as defined in the 1940 Act, or other
event causing termination of the existing subadvisory agreement, without
obtaining the approval of the Trust's shareholders of such new or amended
subadvisory agreement. Such agreements must nevertheless be approved by the
Trustees, in accordance with the requirements of the 1940 Act. One of the
conditions of the SEC Exemption is that within 90 days after entering into a
new or amended subadvisory agreement without shareholder approval, such series
of the Trust must provide an information statement to its shareholders setting
forth substantially the information that would be required to be contained in
a proxy statement for a meeting of shareholders to vote on the approval of the
agreement. In accordance with the SEC Exemption, the Trust is furnishing this
information statement to the Shareholders in order to provide information
regarding the New Subadvisory Agreement.
II. THE AGREEMENTS
Advisory Agreement
NEIM currently serves as investment adviser to the Series pursuant to an
advisory agreement between NEIM and the Trust dated August 30, 1996, as
amended on May 1, 2000 (the "Advisory Agreement"). The Advisory Agreement
provides that NEIM will, subject to its rights to delegate such
responsibilities to other parties, provide to the Series both portfolio
management services and administrative services.
Under the Advisory Agreement as in effect prior to May 1, 2000, a management
fee was payable by the Series to NEIM at the annual rate of 0.70% of the
Series' average daily net assets. For the fiscal year ended December 31, 1999,
the aggregate management fee payable by the Series to NEIM under the Advisory
Agreement was $1,386,037. In connection with the Trustees' review of NEIM's
proposal to change subadviser of the Series, the Trustees on April 27, 2000
approved a recommendation of NEIM that the Advisory Agreement be amended and
restated to provide that the management fee payable to NEIM by the Series
thereunder be reduced to the annual rate of 0.70% of the first $200 million of
the average daily net assets of the Series and 0.675% of the amount of such
assets in excess of $200 million. No shareholder approval was required for
this reduction, which took effect on May 1, 2000. There are no other
substantive differences between the Advisory Agreement as in effect prior to
May 1, 2000 and the Advisory Agreement as amended and restated as of May 1,
2000.
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Description of Previous Subadvisory Agreement
Under the Previous Subadvisory Agreement, NEIM delegated its portfolio
management responsibilities for the Series to Loomis Sayles. The Previous
Subadvisory Agreement required Loomis Sayles to manage the investment and
reinvestment of the assets of the Series, subject to the supervision of NEIM.
Under the terms of the Previous Subadvisory Agreement, Loomis Sayles was
authorized to effect portfolio transactions for the Series, using its own
discretion and without prior consultation with NEIM. Loomis Sayles also was
required to report periodically to NEIM and the Trustees.
Under the Previous Subadvisory Agreement, an investment advisory fee was
payable by NEIM to Loomis Sayles at the annual rate of 0.50% of the first $25
million of the Series' average daily net assets, 0.40% of the next $75 million
of such assets and 0.30% of such assets in excess of $100 million. For the
fiscal year ended December 31, 1999, the aggregate investment advisory fee
payable by NEIM to Loomis Sayles under the Previous Subadvisory Agreement was
$719,017. The Series paid no fee to Loomis Sayles under the Previous
Subadvisory Agreement.
The Trustees most recently approved the continuation of the Previous
Subadvisory Agreement for a one-year period at a meeting held on June 17,
1999. Shareholders of the Series approved the Previous Subadvisory Agreement
at a meeting held on December 28, 1995. The purpose of the submission of the
Previous Subadvisory Agreement for shareholder approval at such time was to
approve its continuance following the merger of NEIM's former parent company,
New England Life Insurance Company, with and into Metropolitan Life Insurance
Company ("MetLife").
Description of New Subadvisory Agreement
The New Subadvisory Agreement requires Wellington to manage the investment
and reinvestment of the assets of the Series, subject to the supervision of
NEIM. Under the terms of the New Subadvisory Agreement, which NEIM entered
into with Wellington at no extra cost to the Series, Wellington is authorized
to effect portfolio transactions for the Series in the discretion of
Wellington and without prior consultation with NEIM. Wellington is required to
report periodically to NEIM and the Trustees. Under the New Subadvisory
Agreement, NEIM compensates Wellington at an annual rate of 0.325% of the
first $100 million of the 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.
The New Subadvisory Agreement provides that it will continue in effect for
two years from its 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 or by vote of a majority of the outstanding voting
securities of the Series
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and (ii) by vote of a majority of the Trustees who are not "interested
persons," as that term is defined in the 1940 Act, of the Trust, NEIM or
Wellington, cast in person at a meeting called for the purpose of voting on
such approval. Any amendment to the New Subadvisory Agreement must be approved
by NEIM and Wellington and, if required by law, by vote of a majority of the
Trustees who are not interested persons of the Trust, NEIM or Wellington, cast
in person at a meeting called for the purpose of voting on such approval,
and/or by vote of a majority of the outstanding voting securities of the
Series.
The New Subadvisory Agreement may be terminated without penalty (i) by vote
of the Board of Trustees, including a majority of the Trustees who are not
interested persons of the Trust, NEIM or Wellington, or by vote of a majority
of the outstanding voting securities of the Series, upon sixty days' written
notice to Wellington, (ii) by Wellington upon sixty days' written notice to
NEIM and the Trust, or (iii) if approved by the Board of Trustees, by NEIM
upon sixty days' written notice to Wellington. The New Subadvisory Agreement
terminates automatically in the event of its assignment or upon the
termination of the Advisory Agreement.
The New Subadvisory Agreement provides that Wellington and its officers,
partners, managing directors, employees, affiliates or agents (the
"Indemnified Parties") shall not be subject to any liability in connection
with the performance of services thereunder in the absence of a violation of
law, willful misfeasance, bad faith or gross negligence in the performance of
any Indemnified Party's duties or by reason of reckless disregard by any
Indemnified Party of its obligations and duties thereunder. Furthermore, NEIM
has agreed to indemnify Wellington for any loss (i) arising from shareholder
claims that are not based upon the obligations of Wellington with respect to
the Series under the New Subadvisory Agreement or (ii) resulting from the
failure of NEIM to inform Wellington of certain insurance restrictions or
changes therein.
Comparison of Previous and New Subadvisory Agreements
The New Subadvisory Agreement is substantially similar to the Previous
Subadvisory Agreement, except (1) references to Loomis Sayles have been
changed to references to Wellington; (2) the New Subadvisory Agreement
provides for a lower subadvisory fee schedule than did the Previous
Subadvisory Agreement; (3) NEIM is not permitted to use Wellington's name in
any marketing, promotional or other documents without Wellington's prior
consent to each use; and (4) certain other minor differences. If the New
Subadvisory Agreement had been in effect during the fiscal year ended December
31, 1999, the subadvisory fee payable by NEIM would have been $593,973, or
17.39% less than the $719,017 that was payable to Loomis Sayles under the
Previous Subadvisory Agreement for this period. The advisory fee payable by
the Series to NEIM would have been the same whether the New Subadvisory
Agreement or the Previous Subadvisory Agreement had been in effect during the
fiscal year ended December 31, 1999.
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III. INFORMATION ABOUT WELLINGTON
Trustee Review
Based on a review of the investment approach and investment practices used
by Loomis Sayles in managing the Series' portfolio, the Series' performance
record under Loomis Sayles' management, the performance record of Wellington
in managing balanced accounts, and the performance of other balanced funds,
NEIM recommended, and the Trustees determined, that it would be appropriate
for Wellington to assume responsibility for the day-to-day management of the
Series' portfolio. As a result, on March 13, 2000, the Trustees approved the
termination of the Previous Subadvisory Agreement and approved the New
Subadvisory Agreement, such termination and new agreement to take effect as of
May 1, 2000.
In connection with the change of subadviser, the Series' name was changed to
"Balanced Series."
In determining to approve the appointment of Wellington as subadviser to the
Series, the Trustees considered numerous additional factors that they
considered relevant, including the qualifications of Wellington and its
personnel and their ability to provide portfolio management services to the
Series. The Trustees also considered extensive information about the Series,
Wellington's management style and Wellington's proposed approach to managing
the Series' portfolio, including information about Wellington's organizational
structure, investment and legal and compliance personnel, compliance
procedures and financial condition. In addition, the Trustees considered
Wellington's status as a respected investment adviser and the fact that the
Previous Subadvisory Agreement and the New Subadvisory Agreement are
substantially similar to each other, except for the lower subadvisory fee
schedule under the New Subadvisory Agreement and the other differences noted
previously.
The Trustees also considered Wellington's policies for placing portfolio
transactions of the Series with broker-dealers that furnish brokerage and
research services to Wellington, as described below. The Trustees also took
into account Wellington's substantial experience and reputation as a manager
of equity and fixed income investments, and the prominence of the Wellington
name in the marketplace for investment advice, as possible factors that might
enhance the marketability of the insurance products that invest in the Series,
and thus lead to growth in the size of the Series, although such growth cannot
be assured.
In addition, the Trustees considered that, in connection with the change of
subadviser, the Advisory Agreement would be amended and restated to provide
for a lower management fee payable by the Series (to the extent asset levels
of the Series grow in the future to exceed $200 million).
5
Based on this review, the Trustees concluded that it was appropriate and
desirable for Wellington to assume responsibility for the management of the
Series under the New Subadvisory Agreement.
Changes in Investment Style
In managing the Series' portfolio pursuant to the Previous Subadvisory
Agreement, Loomis Sayles was required to invest at least 25% of the assets of
the Series in fixed-income securities, and had the flexibility to invest the
remaining 75% of the assets of the Series in either equity or fixed-income
securities. Loomis Sayles usually invested approximately 60-65% of the total
assets of the Series in equity securities, and the remaining 35-40% of the
total assets of the Series in fixed-income securities.
Generally, the Series' equity holdings consisted of value stocks with a
minimum market capitalization of $2 billion. When selecting equity securities
for the Series, Loomis Sayles screened all market sectors for stocks with
below-average price/earnings ratios (on the then upcoming year's earnings).
Loomis Sayles then used a proprietary quantitative model to review each stock
that it believed would improve its earnings and outlook and ranked each stock
within that stock's industry group based on valuation, earnings momentum and
balance sheet strength.
In the Series' fixed-income portfolio, Loomis Sayles emphasized corporate
bond investments for the fixed-income portfolio of the Series, although the
overall portfolio included at one time or another a variety of securities,
including U.S. Treasury and agency issues, mortgage-backed securities and
asset backed securities. The selection process for corporate bonds involved
bottom-up analysis in which individual securities were selected from Loomis
Sayles' corporate credit universe of approximately 600 issuers. Holdings were
limited to a maximum 5% position in any one credit issuer, no more than 50% in
any one sector and no more than 20% in any one industry.
Wellington manages the Series' portfolio using a substantially different
investment style than Loomis Sayles used. The Series' total assets will be
allocated 50% to 70% in equity securities and 30% to 50% in fixed-income
securities. Wellington divides the 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 Series'
fixed income portfolio will be within one year of the average duration of the
Lehman Aggregate Bond Index.
Wellington invests the equity portfolio of the Balanced Series primarily in
stocks of U.S. companies with larger market capitalizations (generally greater
than
6
$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 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 also invests the fixed-income portfolio of the Series using a
blend of top-down market analysis and bottom-up security analysis. The 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.
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 loans 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.
Wellington has restructured the Series' portfolio to reflect Wellington's
judgments as to valuation and stock selection. Wellington has notified the
Trust that the estimated transaction costs of this restructuring did not
exceed 1% of the Series' net asset value. Based on the Series' net asset value
at May 1, 2000, these estimated costs were not in excess of approximately
$1,720,000. Restructuring costs consisted primarily of brokerage fees and
dealer spreads or markups related to purchasing and selling securities for the
Series' portfolio. These amounts are treated as capital items, rather than
operating expenses. They thus reduced the Series' net asset value, rather than
increased its operating expenses.
Portfolio Transactions and Brokerage
Portfolio transactions for the Series will be placed with those securities
brokers and dealers that Wellington believes will provide the best value in
transaction and research services for the Series, either in a particular
transaction or over a period of time. Wellington does not currently have any
registered broker dealer affiliates.
In valuing brokerage services, Wellington makes a judgment as to which
brokers are capable of providing the most favorable net price (not necessarily
the lowest commission) and the best execution in a particular transaction.
Best execution connotes not only general competence and reliability of a
broker, but specific expertise and effort of a broker in overcoming the
anticipated difficulties
7
in fulfilling the requirements of particular transactions, because the
problems of execution and the required skills and effort vary greatly among
transactions.
Although some transactions involve only brokerage services, many involve
research services as well. In valuing research services, Wellington makes a
judgment of the usefulness of research and other information provided by a
broker to Wellington in managing the Series' investment portfolio. In some
cases, the information (e.g., data or recommendations concerning particular
securities) relates to the specific transaction placed with the broker, but
typically the research consists of a wide variety of information concerning
companies, industries, investment strategy and economic, financial and
political conditions and prospects, which information may be useful to
Wellington in advising the Series.
Wellington will be the principal source of information and advice to the
Series and will be responsible for making and initiating the execution of the
investment decisions for the Series. The Trustees recognize, however, that it
is important for Wellington, in performing its responsibilities to the Series,
to continue to receive and evaluate the broad spectrum of economic and
financial information that many securities brokers have customarily furnished
in connection with brokerage transactions, and that in compensating brokers
for their services, it is in the interest of the Series to take into account
the value of the information received for use in advising the Series.
Consequently, the commission paid to brokers providing research services may
be greater than the amount of commission another broker would charge for the
same transaction. The extent, if any, to which the obtaining of such
information may reduce the expenses of Wellington in providing management
services to the Series will not be determinable. In addition, it is understood
by the Trustees that other clients of Wellington might also benefit from the
information obtained for the Series, in the same manner that the Series might
also benefit from information obtained by Wellington in performing services
for other Wellington clients.
Wellington Operations
Wellington is a professional investment counseling firm that provides
services to investment companies, employee benefit plans, endowments,
foundations and other institutions and individuals. Wellington and its
predecessor organizations have provided investment advisory services since
1928. As of December 31, 1999, Wellington had more than $235 billion in total
assets under management. Wellington is a Massachusetts limited liability
partnership whose managing partners are Laurie A. Gabriel, Duncan M. McFarland
and John R. Ryan. Wellington is located at 75 State Street, Boston,
Massachusetts 02109.
8
Wellington acts as investment adviser or subadviser to the following other
mutual funds, which have similar investment objectives to that of the Series.
Annual Management (or Approximate Net Assets
Subadvisory) Fee Rate as of March 31, 2000
Fund (as a % of net assets) ($ millions)
- ---- --------------------------- ----------------------
Vanguard Wellesley Income
Fund First $ 1,000,000,000 0.100% $ 6,244.0
Next $ 2,000,000,000 0.050%
Next $ 7,000,000,000 0.040%
Over $10,000,000,000 0.030%
Vanguard Wellington Fund First $ 1,000,000,000 0.100% $22,891.6
Next $ 2,000,000,000 0.050%
Next $ 7,000,000,000 0.040%
Over $10,000,000,000 0.030%
VVIF--Balanced Fund First $ 500,000,000 0.100% $ 525.1
Next $ 500,000,000 0.050%
Over $ 1,000,000,000 0.040%
The Hartford Advisers (MF) First $ 50,000,000 0.325% $ 1,774.4
Next $ 100,000,000 0.250%
Next $ 350,000,000 0.200%
Next $ 500,000,000 0.150%
Over $ 1,000,000,000 0.125%
Hartford Advisers HLS (VA) First $ 50,000,000 0.325% $14,319.8
Next $ 100,000,000 0.250%
Next $ 350,000,000 0.200%
Over $ 500,000,000 0.150%
AS Multi-Asset First $ 50,000,000 0.250% $ 127.9
Next $ 100,000,000 0.175%
Over $ 150,000,000 0.150%
AS Strategic Multi-Asset First $ 50,000,000 0.300% $ 78.4
Next $ 100,000,000 0.200%
Next $ 350,000,000 0.175%
Over $ 500,000,000 0.150%
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IV. OTHER INFORMATION
Information About NEIM
NEIM is a wholly-owned subsidiary of New England Life Holdings, Inc., which
is a wholly-owned subsidiary of New England Life Insurance Company ("New
England Financial"), which in turn is a wholly-owned subsidiary of MetLife New
England Holdings, Inc. ("MetLife Holdings"). MetLife Holdings is wholly owned
by MetLife, which in turn is a wholly-owned subsidiary of MetLife, Inc., a
publicly traded company. The Chairman of the Board and President of NEIM is
Anne M. Goggin. Ms. Goggin and John F. Guthrie, Jr. are NEIM's directors. Ms.
Goggin is the Chairman of the Board and President of the Trust, and her
principal occupation is Senior Vice President and General Counsel of New
England Financial. Mr. Guthrie is a Senior Vice President of the Trust, and
his principal occupation is Vice President of New England Financial. The
address of NEIM, New England Life Holdings, Inc., New England Financial, Ms.
Goggin and Mr. Guthrie and is 501 Boylston Street, Boston, Massachusetts
02116. The address of MetLife, MetLife Holdings and MetLife, Inc. is One
Madison Avenue, New York, New York 10010.
Ownership of Shares
Shares of the Series are available for purchase only by separate accounts
established by New England Financial, MetLife and their affiliates. The Trust
serves as the investment vehicle for variable insurance, variable annuity and
group annuity products of New England Financial, MetLife or their affiliates.
Shares of the Series are not offered for direct purchase by the investing
public. The number of shares of beneficial interest of the Series issued and
outstanding as of June 30, 2000, was 12,247,115.538.
Record Ownership
As of June 30, 2000, all of the shares of the Series were owned by one of:
(1) New England Variable Life Separate Account ("NEVL Account"), a separate
account of New England Financial; (2) The New England Variable Account ("TNE
Account"), a separate account of MetLife; (3) New England Variable Annuity
Separate Account ("NEVA Account"), a separate account of New England
Financial; (4) certain separate accounts of MetLife established for the
pooling of contributions under certain tax-qualified group annuity contracts
("MetLife Accounts"); and (5) certain separate accounts of New England
Financial established for the pooling of contributions under certain tax-
qualified group annuity contracts ("NEF Accounts"). The table below sets out
the number of shares and percentage of the Series' shares represented by such
number for each
10
separate account. The percentage of shares outstanding may not total 100% due
to rounding.
NEVL Account TNE Account NEVA Account
------------------------- ------------------------ ------------------------
Number of % Number of % Number of %
Shares Outstanding Shares Outstanding Shares Outstanding
--------- ----------- --------- ----------- --------- -----------
[Insert Information]
MetLife Account NEF Account
--------------------------------- ------------------------------------------------
Number of % Number of %
Shares Outstanding Shares Outstanding
--------- ----------- --------- -----------
New England Financial and MetLife have informed the Trust that, as of June
30, 2000, other than as set forth above, no person or company beneficially
owned 5% or more of the shares of the Series. As of June 30, 2000, the
officers and Trustees as a group owned less than 1% of the outstanding shares
of the Series.
Principal Underwriter
New England Securities Company, the principal underwriter of the Trust, is
located at 399 Boylston Street, Boston, MA 02116.
11