As filed with the Securities and Exchange Commission on November
7, 1997 (File Nos. 33- and 811- )
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940
NEW ENGLAND FUNDS TRUST IV
(Exact Name of Registrant as Specified in Charter)
399 Boylston Street
Boston, Massachusetts 02116
(Address of Principal Executive Offices)
Registrant's Telephone Number: (617) 578-1388
With a copy to:
Robert E. O'Hare, Esq. Joseph R. Fleming, Esq.
New England Funds, L.P. Dechert Price & Rhoads
399 Boylston Street Ten Post Office Square,
South
Boston, Massachusetts 02116 Boston, MA 02109
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of the
registration statement.
Title of Securities Being Registered...Shares of beneficial
interest, without par value.
Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until
Registrant files a further amendment that specifically states
that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act
of 1933, or until this Registration Statement becomes effective
on such date as the Commission, acting pursuant to Section 8(a)
of the Securities Act of 1933, may determine.
NEW ENGLAND FUNDS TRUST IV
CROSS REFERENCE SHEET
Items Required by Form N-1A
PART A: Information Required in a Prospectus
Prospectuses for Class A, B, C and Y Shares
1 COVER PAGE: Cover Page
2 SYNOPSIS: Fund Expenses
3 CONDENSED FINANCIAL INFORMATION: Not Applicable
4 GENERAL DESCRIPTION OF REGISTRANT: Investment Strategy;
Fund Management; Additional Facts about the Funds
5 MANAGEMENT OF THE FUND: Fund Management
6 CAPITAL STOCK AND OTHER SECURITIES: Additional facts about
the Funds; Fund Dividend Payments; Income Tax
Considerations
7 PURCHASE OF SECURITIES BEING OFFERED: Fund Management;
Fund
Details; Additional Facts about the Funds
8 REDEMPTION OR REPURCHASE: Selling Fund Shares; Additional
Facts about the Funds
9 PENDING LEGAL PROCEEDINGS: Not Applicable
PART B: Information Required in a Statement of Additional
Information
Statement of Additional Information for Class A, B, C and Y
Shares
10 COVER PAGE: Cover Page
11 TABLE OF CONTENTS: Table of Contents
12 GENERAL INFORMATION AND HISTORY: Not Applicable
13 INVESTMENT OBJECTIVES AND POLICIES: Investment Objectives
and Policies; Fund Transactions
14 MANAGEMENT OF THE FUND: Management of the Trust
15 CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES:
Management of the Trust
16 INVESTMENT ADVISORY AND OTHER SERVICES: Management of the
Trust
17 BROKERAGE ALLOCATION AND OTHER PRACTICES: Not Applicable
18 CAPITAL STOCK AND OTHER SECURITIES: Description of the
Trust and Ownership of Shares
19 PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING
OFFERED: How to Buy Shares; Net Asset Value and Public
Offering Price; Reduced Sales Charges; Redemptions
20 TAX STATUS: Income Dividends, Capital Gain Distributions
and Tax Status
21 UNDERWRITERS: Management of the Trust
22 CALCULATION OF PERFORMANCE DATA: Standard Performance
Measures
23 FINANCIAL STATEMENTS: Financial Statements
Information contained herein is subject to completion or
amendment. A registration statement relating to these securities
has been filed with the Securities and Exchange Commission.
These securities may not be sold nor may offers to buy be
accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any
sale of these securities in any state in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such state.
Subject to Completion
Preliminary Prospectus dated November 7, 1997
[sail logo]
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
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New England One Growth Fund
New England One Moderate Fund
New England One Conservative Fund
PROSPECTUS AND APPLICATION
March, 1998
FOR GENERAL INFORMATION ON THE FUNDS OR ANY OF THEIR SERVICES AND
FOR ASSISTANCE IN OPENING AN ACCOUNT, CONTACT YOUR INVESTMENT
DEALER OR CALL THE DISTRIBUTOR TOLL-FREE AT 800-225-5478.
New England One Growth Fund, New England One Moderate Fund and
New England One Conservative Fund (the "Funds" and each a "Fund")
are diversified series of New England Funds Trust IV (the
"Trust"), a registered open-end management investment company.
New England One Growth Fund's investment objective is long-term
growth of capital. New England One Moderate Fund's investment
objective is total return from growth of capital and,
secondarily, current income. New England One Conservative Fund's
investment objective is total return from a combination of
current income and growth of capital. Each Portfolio seeks to
accomplish its objective by investing primarily in a number of
other related mutual funds (the "Underlying Funds"). There can
be no assurance that a Fund will achieve its objective, which may
be changed without shareholder approval.
Each Fund offers three classes of shares to the general public
(Classes A, B and C). The offering price is based on the net
asset value per share next determined after an order is received.
Class A share purchases generally involve a sales charge at the
time of purchase. No initial sales charge applies to Class B
share purchases. A contingent deferred sales charge (a "CDSC"),
however, is imposed upon certain redemptions of Class B shares.
Class B shares automatically convert to Class A shares eight
years after purchase. No initial sales charge or CDSC applies to
purchases or redemptions of Class C shares, which do not have a
conversion feature. Class B shares and Class C shares bear higher
annual 12b-1 fees than Class A shares. See "Buying Fund Shares --
Sales Charges." Through a separate prospectus, each Fund also
offers an additional class of shares, Class Y shares, to certain
institutional investors. To obtain more information about Class Y
shares, please call New England Funds, L.P. (the "Distributor")
at 800-225-5478.
This prospectus sets forth information you should know before
investing in the Funds. Please read it carefully and keep it for
future reference. A statement of additional information (the
"Statement") about the Funds dated March, 1998 has been filed
with the Securities and Exchange Commission (the "SEC") and is
available free of charge. To obtain a copy of the Statement,
write to New England Funds, L.P., SAI Fulfillment Desk, 399
Boylston Street, Boston, MA 02116 or call toll free at 800-225-
5478. The Statement, which contains more detailed information
about the Funds and is incorporated into this prospectus by
reference, is also available along with other related materials
on the SEC's Internet Web site (http://www.sec.gov).
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND INVOLVE RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
FUND EXPENSES
1
INVESTMENT STRATEGY
5
FUND MANAGEMENT
13
BUYING FUND SHARES
13
OWNING FUND SHARES
21
FUND DIVIDEND PAYMENTS
22
SELLING FUND SHARES
23
FUND DETAILS
25
INCOME TAX CONSIDERATIONS
26
THE FUNDS' EXPENSES
27
PERFORMANCE CRITERIA
28
ADDITIONAL FACTS ABOUT THE FUNDS
29
GLOSSARY OF TERMS
31
APPENDIX A
A-1
APPENDIX B
B-1
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FUND EXPENSES
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SCHEDULE OF FEES
New England One Growth Fund
New England One Moderate Fund
New England One Conservative Fund
Expenses are one of several factors to consider when you invest
in a Fund. The following table summarizes your maximum
transaction costs from investing in a Fund and estimated annual
expenses for that Fund. The example shows the cumulative
expenses attributable to a hypothetical $1,000 investment in each
Fund for the periods specified.
SHAREHOLDER TRANSACTION EXPENSES
CLASS A CLASS B
CLASS C
Maximum Initial Sales Charge Imposed 5.75% None
None
on a Purchase (as a percentage of
offering price)(1)(2)
Maximum Contingent Deferred Sales (3) 5.00%
None
Charge (as a percentage of original
purchase price or redemption
proceeds, as applicable)(2)
(1) A reduced sales charge applies in some cases. See "Buying
Fund Shares -- Reduced Sales Charges (Class A Shares
Only)."
(2) Does not apply to reinvested distributions.
(3) A 1.00% contingent deferred sales charge applies with
respect to any portion of certain purchases of Class A
shares greater than $1,000,000 redeemed within 1 year after
purchase but not to any other purchases or redemptions of
Class A shares. See "Buying Fund Shares -- Sales Charges."
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
CLASS A CLASS B
CLASS C
Management Fees 0.10% 0.10%
0.10%
12b-1 Fees 0.25% 1.00%**
1.00%**
Other Expenses* 0.00% 0.00%
0.00%
Total Fund Operating Expenses 0.35% 1.10%
1.10%
* The payment of each Fund's pro rata share of expenses is
subject to the Special Servicing Agreement. Please refer to "The
Funds' Expenses -- Special Servicing Agreement."
** Because of the higher 12b-1 fees, long-term shareholders may
pay more than the economic equivalent of the maximum front-end
sales charge permitted by rules of the National Association of
Securities Dealers, Inc.
Each Fund's shareholders will indirectly bear that Fund's pro
rata share of fees and expenses incurred by the Underlying Funds
in which the Fund is invested. The investment returns of each
Fund, therefore, will be net of that Fund's share of the expenses
of the Underlying Funds in which the Fund is invested. The chart
below shows the expense ratios of each Underlying Fund after fee
waiver or reimbursement, where applicable, as of its most recent
fiscal year end.
EXPENSE RATIOS OF THE UNDERLYING FUNDS IN WHICH THE FUNDS
INITIALLY WILL INVEST
EXPENSE
EXPENSE
UNDERLYING FUND RATIO UNDERLYING FUND
RATIO
EQUITY FUNDS BOND FUNDS
Loomis Sayles Bond
0.75%
Fund
Delafield Fund, Inc. 1.29%* Loomis Sayles Global
0.90%*
Bond Fund
Loomis Sayles 1.00%* New England Strategic
1.03%
International Equity Income Fund
Fund
Loomis Sayles Small 0.94% New England Bond
0.80%
Cap Value Fund Income Fund
New England Growth 0.93%
Fund
New England Growth 1.05% MONEY MARKET FUND
Opportunities Fund
New England Value Fund 1.06% New England Cash
0.88%
Management
Trust - Money Market
Series
The Oakmark Fund 1.18%
The Oakmark 1.32%
International Fund
The Oakmark Select 1.41%
Fund
Jurika & Voyles Mini- 1.50%*
Cap Fund
* Expense rates for these Underlying Funds were maintained by
certain of their service providers affiliated with New England
Funds, L.P. through fee waivers, reimbursements, fee reductions
or some similar method for their respective fiscal periods.
Absent such maintenance of expenses, each Underlying Fund's total
operating expenses would have been: Delafield Fund, Inc. -
1.49%; Loomis Sayles International Equity Fund - 1.17%; Jurika &
Voyles Mini-Cap Fund - 1.74%; and Loomis Sayles Global Bond Fund
- - 1.62%. If the relevant service providers had not maintained
the Underlying Funds' expenses, their total returns for the
period would have been lower.
The average weighted expense ratios borne by New England One
Conservative Fund, New England One Moderate Fund and New England
One Growth Fund are expected to be [ ]%, [ ]% and [ ]%,
respectively (see "Investment Strategy -- How the Funds Pursue
Their Investment Objectives" for a description of the initial
allocation of each Fund's assets among the Underlying Funds).
The Underlying Funds in which each of the Funds is invested will
vary and the proportion of the assets of the Funds invested in
each of the Underlying Funds will fluctuate. Therefore, the
average weighted expense ratios of the Funds may be greater or
less than the percentages listed above at any given time.
EXAMPLE
Using the ratios set forth above, the total pro rata expenses
relating to a $1,000 investment in each class of a Fund, assuming
a 5% annual return and, unless otherwise indicated, redemption at
the end of each period are listed below. Investors do not pay
the majority of these expenses directly; they are paid by each
Underlying Fund before it distributes its net investment income
to a Fund. The example for each Fund is based upon the initial
mix of Underlying Funds for that Fund set forth in the table
above. The Funds' investment adviser may, in its discretion,
alter the mix of Underlying Funds in which a Fund is invested at
any time.
NEW ENGLAND ONE
CONSERVATIVE FUND CLASS A CLASS B
CLASS C
(1) (2)
1 Year $ $ $ $
3 Years $ $ $ $
NEW ENGLAND ONE
MODERATE FUND CLASS A CLASS B
CLASS C
(1) (2)
1 Year $ $ $ $
3 Years $ $ $ $
NEW ENGLAND ONE
GROWTH FUND CLASS A CLASS B
CLASS C
(1) (2)
1 Year $ $ $ $
3 Years $ $ $ $
(1) Assumes redemption at end of period.
(2) Assumes no redemption at end of period.
See "The Funds' Expenses -- Special Servicing Agreement" for an
explanation of the Special Servicing Agreement. This example
assumes that each Fund reinvests all dividends and distributions
paid by the Underlying Funds. THIS EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES OF THE FUNDS AND UNDERLYING FUNDS MAY
VARY FROM YEAR TO YEAR AND MAY BE HIGHER OR LOWER THAN THOSE
SHOWN.
The purpose of this fee schedule is to assist you in
understanding the various costs and expenses that you will bear
directly or indirectly if you invest in the Funds. For additional
information about each Fund's fees and other expenses, please see
"Fund Management," " The Funds' Expenses" and "Additional Facts
About the Funds."
A wire fee (currently $5.00) will be deducted from your proceeds
if you elect to transfer redemption proceeds by wire.
PERFORMANCE OF THE UNDERLYING FUNDS
Past investment performance of the Underlying Funds, as shown in
the table below, is provided to indicate the experience of the
various advisers in managing the Underlying Funds and may be
relevant to your consideration of the Funds. However, the past
investment performance of the Underlying Funds should not be
considered to be indicative of future performance of the
Underlying Funds or the Funds. Investors should consider that,
because each Fund will invest in varying combinations of
Underlying Funds, the performance of a Fund will reflect the
combined performance of the Underlying Funds in which it invests
and will be affected by the varying allocation of investments in
Underlying Funds. Moreover, in addition to the expenses borne by
each Underlying Fund, the Funds will incur investment advisory
fees and may incur some or all of their own direct expenses under
the Special Servicing Agreement (see "The Funds' Expenses --
Special Servicing Agreement" below). Accordingly, the investment
performance of the Funds will be less than the weighted average
of the returns of the Underlying Funds in which they invest.
The following chart shows the average annual total returns, if
available, as a percentage of net asset value for each of the
initial Underlying Funds for their most recent one-, five-, ten-
year or life of fund periods. Unless otherwise noted, total
return figures relate to each Underlying Fund's Class Y shares,
which impose no sales loads or Rule 12b-1 fees.
AVERAGE ANNUAL TOTAL
RETURNS(1)
INCEP- ONE FIVE TEN
LIFE OF
TION DATE YEAR YEARS YEARS
FUND
EQUITY FUNDS
Delafield Fund, 11/19/93 n/a n/a n/a
n/a
Inc.(2)
Loomis Sayles 5/10/91 18.30% 10.69% --
10.11%
International
Equity Fund
Loomis Sayles Small 5/13/91 30.35% 17.38% --
20.85%
Cap Value Fund
New England Growth 11/27/68 20.88% 10.02% 14.58%
- --
Fund(3)
New England Growth 5/6/31 17.21% 13.53% 12.72%
- --
Opportunities
Fund(3)
New England Value 3/31/94 26.43% -- --
21.67%
Fund
The Oakmark Fund 8/5/91 18.1% 25.8% --
29.2%
The Oakmark 9/30/92 24.9% -- --
16.0%
International Fund
The Oakmark Select 11/1/96 n/a n/a n/a
n/a
Fund(2)
Jurika & Voyles 9/30/94 38.46% -- --
46.86%
Mini-Cap Fund(4)
BOND FUNDS
Loomis Sayles Bond 5/16/91 10.29% 14.29% --
14.32%
Fund
Loomis Sayles Global 5/10/91 15.02% 8.50% --
10.51%
Bond Fund
New England 5/1/95 14.52% -- --
15.00%
Strategic Income
Fund(3)
New England Bond 1/1/95 4.59% -- --
12.49%
Income Fund
MONEY MARKET FUND YIELD* EFFECTIVE
YIELD*
New England Cash 7/10/78 4.46% 4.56%
Management
Trust - Money Market
Series
* Seven days ended June 30, 1996.
(1) As of each Underlying Fund's most recent fiscal reporting
period.
(2) Performance data not available.
(3) Although the Fund offers Class Y shares, it did not offer
Class Y shares prior to 1997. The inception date and average
annual total return provided are those of the Fund's Class A
shares, which may have a higher expense ratio due to sales
charges applicable to Class A shares but not Class Y shares.
(4) The Fund does not offer Class Y shares. The inception date
and average annual total return provided are those of the Fund's
Class J shares, which impose no sales load.
All total return calculations assume that dividends and capital
gains distributions, if any, were reinvested.
PERFORMANCE FIGURES ARE HISTORICAL AND ARE NOT INTENDED TO
INDICATE FUTURE INVESTMENT PERFORMANCE.
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INVESTMENT STRATEGY
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INVESTMENT OBJECTIVES
NEW ENGLAND ONE GROWTH FUND (the "Growth Fund")
The Growth Fund seeks long-term growth of capital.
NEW ENGLAND ONE MODERATE FUND (the "Moderate Fund")
The Moderate Fund seeks total return from growth of capital and,
secondarily, from current income.
NEW ENGLAND ONE CONSERVATIVE FUND (the "Conservative Fund")
The Conservative Fund seeks total return from a combination of
current income and growth of capital.
HOW THE FUNDS PURSUE THEIR INVESTMENT OBJECTIVES
To achieve their investment objectives, the Funds invest
primarily in mutual funds offered by New England Funds, L.P. and
its affiliates, including certain funds comprising the New
England Funds (the "New England Funds"), the Oakmark Family of
Funds, the Loomis Sayles Funds, the Jurika & Voyles Fund Group,
Reich & Tang Equity Fund, Inc., and Delafield Fund, Inc. The
funds in which the Funds may invest are referred to as the
"Underlying Funds" (see the table below and Appendix B). The
investment adviser or subadviser of each of the Underlying Funds
is an affiliated investment management subsidiary of New England
Investment Companies, L.P. ("NEIC"). Certain of the Underlying
Funds are managed by subadvisers that are unaffiliated with NEIC.
Some of the Underlying Funds are equity mutual funds ("Underlying
Equity Funds"), which invest primarily in stocks to achieve
growth. Other Underlying Funds are bond mutual funds
("Underlying Bond Funds"), which invest for income and, in some
cases, appreciation as well.
Each Fund will invest its cash flows according to a fixed
allocation model, selected to generate a reasonable level of
total return while controlling for risk. Each Fund will
rebalance its portfolio no more than annually as a means of
maintaining the return and risk characteristics of a Fund. Under
normal market conditions, the Funds will invest according to the
following guidelines:
GROWTH FUND
The Growth Fund will invest in a selected mix of equity and bond
funds from among the Underlying Funds. Under normal market
conditions, the Growth Fund is expected to invest approximately
90% of its assets in equity funds and 10% of its assets in bond
funds. The equity funds are included in the mix primarily to
generate growth of capital while the bond funds are intended to
reduce volatility and contribute towards total return.
The investments of the Growth Fund will be allocated initially as
shown below, based on NEFM's allocations effective on the date of
this Prospectus:
New England Growth Opportunities Fund
Delafield Fund, Inc.
The Oakmark Fund
New England Growth Fund
The Oakmark International Fund
Loomis Sayles International Equity Fund
New England Strategic Income Fund
Loomis Sayles Small Cap Value Fund
The Oakmark Select Fund
NEFM may alter the allocation of investments for the Fund at any
time.
MODERATE FUND
The Moderate Fund will invest in a selected mix of equity and
bond funds from among the Underlying Funds. The equity funds are
included in the mix primarily to generate growth of capital while
the bond funds are intended to generate current income. Under
normal market conditions, the Moderate Fund is expected to invest
approximately 70% of its assets in equity funds and 30% of its
assets in bond funds.
The investments of the Moderate Fund will be allocated initially
as shown below, based on NEFM's allocations effective on the date
of this Prospectus:
New England Bond Income Fund
New England Growth Fund
New England Growth Opportunities Fund
New England Strategic Income Fund
Jurika & Voyles Mini-Cap Fund
The Oakmark Fund
Delafield Fund, Inc.
The Oakmark International Fund
Loomis Sayles International Equity Fund
Loomis Sayles Small Cap Value Fund
NEFM may alter the allocation of investments for the Fund at any
time.
CONSERVATIVE FUND
The Conservative Fund will invest in a selected mix of bond and
equity funds from among the Underlying Funds. Under normal
market conditions, the Conservative Fund is expected to invest
approximately 60% of its assets in bond funds and 40% of its
assets in equity funds. The bond funds are included in the mix
to generate current income primarily while the equity funds are
intended to generate growth of capital.
The investments of the Conservative Fund will be allocated
initially as shown below, based on NEFM's allocations effective
on the date of this Prospectus:
Loomis Sayles International Equity Fund
Loomis Sayles Bond Fund
New England Value Fund
Delafield Fund, Inc.
The Oakmark Fund
Loomis Sayles Global Bond Fund
New England Strategic Income Fund
New England Bond Income Fund
New England Growth Opportunities Fund
NEFM may alter the allocation of investments for the Fund at any
time.
RISK PROFILE: POTENTIAL RISK AND REWARD. The value of a Fund's
investments in Underlying Equity Funds will fluctuate with
changes in the stock market and changes in the economy. The
value of a Fund's investments in Underlying Bond Funds can be
expected to vary inversely to changes in prevailing interest
rates. While fixed-income securities with longer maturities tend
to produce higher yields, the prices of longer maturity
securities are also subject to greater market fluctuations as a
result of changes in interest rates. Certain Underlying Funds in
which a Fund invests may purchase high yield securities and
mortgage-backed securities. High yield securities usually entail
greater risk and may be more volatile and less liquid than other
fixed-income securities. Mortgage-backed securities are subject
to the same risks as fixed-income securities in general, but also
may react differently or less favorably to changes in interest
rates as a result of prepayment risk. In addition, investing in
Underlying Funds that invest internationally involves different
or increased risks. Foreign investment means that the
performance of a Fund will be affected by currency values, the
political and regulatory environment, greater volatility of
securities exchanges and overall political and economic factors
in the countries in which the Underlying Funds invest. Certain
Underlying Funds may invest in emerging market country
securities, which may increase these risks, but may offer
superior growth opportunities.
WHY INVEST IN THE FUNDS?
The Funds are designed for investors who prefer to have their
asset allocation decisions made by professional money managers,
appreciate the advantages of broad diversification in one
investment, or are looking for a core investment for their
retirement portfolio.
The primary advantages of the Funds for investors are
simplification, convenience and economy. Each Fund provides an
investor access to the Underlying Funds without the required
minimum investment for each. Through a single investment, they
will be able to achieve broad diversification in pursuit of one
of three distinct objectives.
The proliferation of mutual funds over the last several years
have left many investors in search of a simple means by which to
manage and understand their investments. With new investment
categories emerging each year and with each mutual fund reacting
differently to political, economic and business events, many
investors are forced to make complex investment decisions with
limited experience, time or personal resources. The Funds offer
broad diversification and ongoing professional asset allocation.
Each of the Funds invests in a select group of Underlying Funds
suited to the Fund's particular investment objective. The
allocation of assets within each Fund is determined by New
England Funds Management, L.P. ("NEFM" or the "Adviser")
according to fundamental and quantitative investment analysis.
The assets will be adjusted only periodically and only within
pre-determined ranges designed to ensure broad diversification.
There should not be any sudden large-scale changes in asset
allocation. New England Funds are not designed as market timing
vehicles but rather as cost-effective and simple modes of helping
investors meet retirement and other long-term goals.
THE UNDERLYING FUNDS
The Underlying Funds that initially will be considered for
investment by each Fund are described below. The Underlying
Funds in which the Funds intend to invest may change from time to
time and the Funds may invest in Underlying Funds in addition to
those described below at the discretion of NEFM without
shareholder approval. Other Underlying Funds in which the Funds
may invest are described in Appendix B.
The value of each Underlying Fund's investments and the income
they generate will vary from day-to-day and generally reflect
market conditions, interest rates, and other company, political,
or economic developments both in the United States and abroad.
When a Fund redeems shares of an Underlying Fund, they may be
worth more or less than their original cost. As with any mutual
fund, there is no assurance that an Underlying Fund will achieve
its objective.
The Underlying Funds spread investment risk in varying degrees by
limiting their holdings in any one company or industry.
Nevertheless, each Underlying Fund will experience price
volatility the extent of which will be affected by the types of
securities and techniques the particular Underlying Fund uses.
Each Underlying Fund may invest in securities and engage in
derivative transactions described in Appendix A to pursue
portfolio strategy. Derivatives involve certain risks that are
different from the risks associated with other securities.
Each Underlying Fund normally will be invested according to its
investment strategy. However, an Underlying Fund may also have
the ability to invest without limitation in high-quality money
market instruments or other investments for temporary, defensive
purposes.
The following is intended to summarize the investment objectives
and strategies of the Underlying Funds. These summaries do not
reflect all of the investment policies and strategies that are
disclosed in each Underlying Fund's prospectus, and are not an
offer of the Underlying Funds' shares.
EQUITY FUNDS
DELAFIELD FUND, INC.
The investment objectives of Delafield Fund, Inc. are to seek
long-term preservation of capital (sufficient growth to outpace
inflation over an extended period of time) and growth of capital.
The Fund will seek to achieve these objectives by investing
primarily in the equity securities of domestic companies which,
based on the research of the Fund's adviser are considered to be
undervalued or to represent special situations (i.e., companies
undergoing change that might cause their market value to grow at
a rate faster than the market generally). The Fund will under
normal circumstances have substantially all of its assets (i.e.,
more than 65%) invested in a diversified portfolio of equity
securities, including common stocks, securities convertible into
common stocks or rights or warrants to subscribe for or purchase
common stocks. The Fund at times may also invest less than 35%
of its total assets in debt securities and preferred stocks
offering a significant opportunity for price appreciation.
LOOMIS SAYLES SMALL CAP VALUE FUND
The investment objective of Loomis Sayles Small Cap Value Fund is
long-term capital growth from investments in common stocks or
their equivalent. The Fund seeks to achieve its objective by
investing primarily in equity securities of small capitalization
companies with good earnings growth potential that the Fund's
adviser believes are undervalued by the market. The Fund will
normally invest at least 65% of its total assets in companies
with market capitalization of less than $1 billion and may invest
up to 35% of its assets in large companies. The Fund's adviser
seeks to build a core small capitalization portfolio of stocks of
solid companies with reasonable growth prospects that are
attractively priced in relation to the companies' earnings with a
smaller emphasis on special situations and turnarounds (companies
that have experienced significant business problems but which the
Fund's adviser believes have favorable prospects for recovery),
as well as unrecognized stocks. Current income is not a
consideration in selecting the Fund's investments. The Fund may
invest up to 20% of its assets in securities of foreign issuers.
The Fund may also engage in foreign currency hedging transactions
and purchase Rule 144A securities.
THE OAKMARK FUND
The Oakmark Fund seeks long-term capital appreciation by
investing primarily in equity securities. Although income is
considered in the selection of securities, the Fund is not
designed for investors whose primary investment objective is
income.
The Fund invests principally in securities of U.S. issuers.
However, it may invest up to 25% of its total assets (valued at
the time of investment) in securities of non-U.S. issuers,
including foreign government obligations and foreign equity and
debt securities that are traded over-the-counter or on foreign
exchanges. There are no geographic limits on the Fund's foreign
investments, but the Fund does not expect to invest more than 5%
of its assets in securities of issuers based in emerging markets.
THE OAKMARK INTERNATIONAL FUND
The Oakmark International Fund seeks long-term capital
appreciation by investing primarily in equity securities of non-
U.S. issuers. Although income is considered in the selection of
securities, the Fund is not designed for investors whose primary
investment objective is income.
The Fund's adviser considers the relative political and economic
stability of the issuer's home country, the ownership structure
of the company and the company's accounting practices in
evaluating the potential rewards and risks of an investment
opportunity. The Fund may invest in securities traded in mature
markets (for example, Japan, Canada and the United Kingdom), in
less developed markets (for example, Mexico and Thailand) and in
selected emerging markets (such as Peru and India). Investments
in securities of non-U.S. issuers, especially those traded in
less developed or emerging markets, present additional risk.
There are no limits on the Fund's geographic asset distribution,
but, to provide adequate diversification, the Fund ordinarily
invests in the securities markets of at least five countries
outside the United States.
JURIKA & VOYLES MINI-CAP FUND
The Jurika & Voyles Mini-Cap Fund seeks to maximize long-term
capital appreciation. The Fund invests primarily in the common
stock of quality companies having small market capitalizations
that offer current value and significant future growth potential.
The Fund will invest at least 65% of its total assets in the
common stock of companies having market capitalizations at the
time of purchase of between $50 million and $500 million. The
Fund typically expects that at least 80% of its equity holdings
will fall within this capitalization range. The average and
median market capitalizations will fluctuate over time as a
result of market valuation levels and the availability of
specific investment opportunities.
LOOMIS SAYLES INTERNATIONAL EQUITY FUND
Loomis Sayles International Equity Fund's investment objective is
high total investment return through a combination of capital
appreciation and current income. The Fund seeks to achieve its
objective by investing primarily in equity securities of
companies organized or headquartered outside the United States.
Under normal conditions the Fund will invest at least 65% of its
total assets in equity securities of issuers from at least three
countries outside the United States. For temporary defensive
purposes, the Fund may invest as much as 100% of its assets in
issuers from one or two countries, which may include the United
States. The Fund may also engage in foreign currency hedging
transactions, options transactions, and Rule 144A securities.
NEW ENGLAND GROWTH FUND
The Fund seeks long-term growth of capital through investment in
equity securities of companies whose earnings are expected to
grow at a faster rate than the United States economy. Most of
the Growth Fund's investments are normally in common stocks,
although the Fund may invest in any type of equity securities.
The Fund does not consider current income as a factor in
selecting its investments. The Fund may invest in foreign
securities.
NEW ENGLAND VALUE FUND
New England Value Fund seeks a reasonable long-term investment
return from a combination of market appreciation and dividend
income from equity securities. Substantially all of the Fund's
investments are normally in equity securities. In selecting
investments for the Fund, the emphasis is ordinarily placed on
undervalued securities. Although long-term market appreciation
is ordinarily the basis for security selection, current income
may be a significant consideration when yields appear to be
favorable compared to overall opportunities for capital
appreciation. The Fund may invest in foreign securities.
NEW ENGLAND GROWTH OPPORTUNITIES FUND
New England Growth Opportunities Fund seeks opportunities for
long-term growth of capital and income. It is normally the
policy of the Fund to invest in a diversified portfolio of common
stocks considered by the Fund's subadviser to have possibilities
for long-term appreciation of capital and income. Emphasis will
be given to both undervalued securities and securities of
companies with growth potential. The Fund will ordinarily invest
substantially all of its assets in equity securities. The Fund
may invest in foreign securities that are traded in U.S. markets.
THE OAKMARK SELECT FUND
The Oakmark Select Fund seeks long-term capital appreciation by
investing primarily in a non-diversified portfolio of equity
securities. The Fund invests principally in securities of U.S.
issuers. However, it may invest up to 25% of its total assets
(valued at the time of investment) in securities of non-U.S.
issuers, including foreign government obligations and foreign
equity and debt securities that are traded over-the-counter or on
foreign exchanges. There are no geographic limits on the Fund's
foreign investments, but the Fund does not expect to invest more
than 5% of its assets in securities of issuers based in emerging
markets. As a "non-diversified" fund, the Fund is not limited
under the Investment Company Act of 1940 (the "1940 Act") in the
percentage of its assets that it may invest in any one issuer.
BOND FUNDS
LOOMIS SAYLES BOND FUND
Loomis Sayles Bond Fund's investment objective is high total
investment return through a combination of current income and
capital appreciation. The Fund seeks to achieve its objective by
normally investing substantially all of its assets in fixed-
income securities, although up to 20% of its assets may be
invested in preferred stocks. At least 65% of the Fund's total
assets will normally be invested in bonds. The Fund may invest
any portion of its assets in securities of Canadian issuers, and
up to 20% of its assets in securities of other foreign issuers.
The Fund may also invest up to 35% of its assets in securities of
below investment grade quality.
LOOMIS SAYLES GLOBAL BOND FUND
Loomis Sayles Global Bond Fund's investment objective is high
total investment return through a combination of high current
income and capital appreciation. The Fund seeks to achieve its
objective by investing primarily in investment grade fixed-income
securities denominated in various currencies, including U.S.
dollars, or in multicurrency units. Under normal conditions, the
Fund will invest at least 65% of its total assets in fixed-income
securities of issuers from at least three countries, which may
include the United States, and no more than 40% of its assets in
issuers headquartered in any one country. However, up to 100% of
the Fund's assets may be denominated in U.S. dollars. The Fund
may engage in options and futures transactions, repurchase
transactions, foreign currency hedging transactions and swap
transactions.
NEW ENGLAND BOND INCOME FUND
New England Bond Income Fund seeks a high level of current income
consistent with what the Fund considers reasonable risk. The
Fund invests primarily in corporate and U.S. Government bonds.
At least 80% of its total assets will be invested in bonds
carrying investment grade ratings from one of the recognized
rating services. The Fund may also purchase non-rated or lower-
rated bonds. The Fund may invest in debt instruments rated in
the rating categories of B (by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Ratings Group ("S&P")) or higher
and in instruments that are unrated. The Fund may invest in
securities of any maturity and in zero coupon securities. The
Fund may also invest in collateralized mortgage obligations
("CMOs"). The Fund may invest in convertible securities and in
Rule 144A securities. The Fund may invest in foreign securities
but will do so only when the Fund's subadviser believes the
associated risks are minimal as compared to similar securities of
domestic issuers. The Fund may engage in a variety of options
and futures transactions with respect to U.S. or foreign
government securities and corporate fixed-income securities.
NEW ENGLAND STRATEGIC INCOME FUND
New England Strategic Income Fund seeks high current income with
a secondary objective of capital growth. The Fund seeks to
achieve its investment objectives by investing at least 65% of
its total assets in debt instruments. The Fund may invest in
debt instruments issued by corporations based in the United
States or abroad and debt instruments that are convertible into
equity securities. The Fund may also invest in U.S. Government
securities and in securities issued or guaranteed by foreign
governments (including their political subdivisions, agencies,
authorities and/or instrumentalities) and securities issued by
supranational agencies. The Fund may invest in securities of
emerging markets. The Fund may invest in debt instruments in any
rating category, including debt instruments rated in the lower
rating categories and in instruments that are unrated.
MONEY MARKET FUND
NEW ENGLAND CASH MANAGEMENT TRUST - MONEY MARKET SERIES
Money Market Series seeks maximum current income consistent with
preservation of capital and liquidity. The Fund invests in a
variety of higher quality money market instruments. Money Market
Series invests in certificates of deposit, bankers' acceptances
and other dollar-denominated obligations of banks whose net
assets exceed $100 million. Up to 100% of the Fund's assets may
be invested in these kinds of obligations.
The Fund may invest in commercial paper and other corporate debt
obligations that satisfy the Fund's quality and maturity
standards. The Fund may also invest in U.S. Government
securities.
- ----------------------------------------------------------------
FUND MANAGEMENT
- ----------------------------------------------------------------
The Funds retain the investment management firm of New England
Funds Management, L.P., 399 Boylston Street, Boston,
Massachusetts 02116, to manage the Funds' daily investment and
business affairs subject to the policies established by the
Trust's Board of Trustees. NEFM provides executive and other
personnel for the management of the Trust. Determinations
concerning allocations of the Funds' assets among the Underlying
Funds is made by a team of experienced investment professionals
provided by NEFM. The Trustees have overall responsibility for
the management of the Trust under Massachusetts law.
Each Fund pays NEFM a management fee at the annual rate of 0.10%
of the Fund's average daily net assets.
The general partner of each of NEFM and the Distributor is a
special purpose corporation that is an indirect, wholly-owned
subsidiary of NEIC. NEIC's sole general partner, New England
Investment Companies, Inc., is an indirect wholly-owned
subsidiary of Metropolitan Life Insurance Company ("MetLife").
- -----------------------------------------------------------------
BUYING FUND SHARES
- ----------------------------------------------------------------
MINIMUM INVESTMENT
$2,500 is the minimum for an initial investment in a Fund, and
$100 is the minimum for each subsequent investment. There are
special initial investment minimums for the following plans:
[] $25 (for initial and subsequent investments) for payroll
deduction investment programs for 401(k), SARSEP, SEP,
SIMPLE Plans, 403(b)(7) retirement plans and certain other
retirement plans.
[] $100 on initial and subsequent investments for automatic
investing through the Investment Builder program.
[] $250 on initial and $100 on subsequent investments for
retirement plans with tax benefits such as corporate
pension
and profit sharing plans and Keogh plans.
[] $500 on initial and $100 on subsequent investments for
IRAs.
[] $2,000 on initial and $100 on subsequent investments for
accounts registered under the Uniform Gifts to Minors Act
or
the Uniform Transfers to Minors Act.
6 WAYS TO BUY FUND SHARES
You may purchase Class A, Class B and Class C shares of the Funds
in the following ways:
THROUGH YOUR INVESTMENT DEALER:
Many investment dealers have a sales agreement with the
Distributor and would be pleased to accept your order.
BY MAIL:
FOR AN INITIAL INVESTMENT, simply complete an application and
return it with a check payable to New England Funds, P.O. Box
8551, Boston, MA 02266-8551.
FOR SUBSEQUENT INVESTMENTS, please mail your check to New England
Funds, P.O. Box 8551, Boston, MA 02266-8551 along with a letter
of instruction or an additional deposit slip from your
statements. To make investing even easier, you can also order
personalized investment slips by calling 800-225-5478 between
8:00 a.m. and 7:00 p.m. (Eastern time).
All purchases made by check should be in U.S. dollars and made
payable to New England Funds, or, in the case of a retirement
account, the custodian or trustee. Third party checks will
generally not be accepted except under certain circumstances
approved by the Distributor. When purchases are made by check or
periodic account investment, redemptions may not be allowed until
the investment being redeemed has been in the account for a
minimum of 10 calendar days.
USING NEW ENGLAND FUNDS PERSONAL ACCESS LINE{TM} 800-346-5984
NEW ENGLAND FUNDS PERSONAL ACCESS LINE{TM}, NEW ENGLAND FUNDS'
AUTOMATED SERVICE SYSTEM, GIVES YOU 24-HOUR ACCESS TO YOUR
ACCOUNT. THROUGH YOUR TOUCH-TONE TELEPHONE, YOU CAN RECEIVE YOUR
ACCOUNT BALANCE, YOUR RECENT TRANSACTIONS, FUND PRICES AND RECENT
PERFORMANCE INFORMATION. YOU CAN ALSO PURCHASE, SELL OR EXCHANGE
CLASS A OR CLASS C SHARES OF ANY NEW ENGLAND FUND. FOR MORE
INFORMATION ABOUT USING NEW ENGLAND FUNDS PERSONAL ACCESS
LINE{TM}, CALL US AT 800-225-5478 BETWEEN 8:00 A.M. AND 7:00 P.M.
(EASTERN TIME).
BY WIRE TRANSFER OF FEDERAL FUNDS:
FOR AN INITIAL INVESTMENT, call us at 800-225-5478 between 8:00
a.m. and 7:00 p.m. (Eastern time) on a day when the Funds are
open for business to obtain an account number and wire transfer
instructions.
FOR SUBSEQUENT INVESTMENTS, direct your bank to transfer funds to
State Street Bank and Trust Company, [ABA #011000028, DDA
#99011538], Credit [name of Fund (class of shares),] Shareholder
Name, Shareholder Account Number. Funds may be transferred
between 9:00 a.m. and 4:00 p.m. (Eastern time) on a day when the
Funds are open for business. Your bank may charge a fee for this
service.
BY INVESTMENT BUILDER:
Investment Builder is New England Funds' automatic investment
plan. You may authorize automatic monthly transfers of $100 or
more from your bank checking or savings account to purchase
shares of one or more of the Funds.
FOR AN INITIAL INVESTMENT, please indicate that you would like to
begin an automatic investment plan through Investment Builder on
the enclosed application. Indicate the amount of the monthly
investment and enclose a check marked "Void" or a deposit slip
from your bank account.
TO ADD INVESTMENT BUILDER TO AN EXISTING ACCOUNT, please call us
at 800-225-5478 for a Service Options Form.
BY ELECTRONIC PURCHASE THROUGH AUTOMATED CLEARING HOUSE:
You may purchase additional shares electronically through the
Automated Clearing House ("ACH") system as long as your bank or
credit union is a member of the ACH system and you have a
completed, approved ACH application on file with the applicable
Fund.
To purchase through ACH, call 800-225-5478 between 8:00 a.m. and
7:00 p.m. (Eastern time) on a day when the Funds are open for
business. You may also purchase shares through ACH by calling New
England Funds Personal Access Line{TM} at 800-346-5984 twenty-
four hours a day. Under normal circumstances, the New York Stock
Exchange (the "Exchange") closes at 4:00 p.m. (Eastern time).
Purchase orders accepted through ACH or New England Funds
Personal Access Line{TM} will be complete only upon the receipt
by New England Funds of funds from your bank and, on the day that
the funds are received, will be processed at the net asset value
next determined at the close of regular trading on the Exchange
on days that the Exchange is open. Proceeds of redemptions of
Fund shares purchased through ACH may not be available for up to
ten days after the purchase date.
TO MAKE INVESTING EVEN EASIER, YOU CAN ALSO ORDER PERSONALIZED
INVESTMENT SLIPS BY CALLING 800-225-5478.
BY EXCHANGE FROM ANOTHER NEW ENGLAND FUND:
You may also purchase shares of a Fund by exchanging shares from
another New England Fund. Please see "Owning Fund Shares --
Exchanging among New England Funds" for complete details.
GENERAL
All purchase orders are subject to acceptance by the applicable
Fund and will be effected at the net asset value next determined
after the order is received in proper form by State Street Bank
and Trust Company ("State Street Bank") (except orders received
by your investment dealer before the close of trading on the
Exchange and transmitted to the Distributor by 5:00 p.m. (Eastern
time) on the same day, which will be effected at the net asset
value determined on that day). Although Funds do not anticipate
doing so, each reserves the right to suspend or change the terms
of sales of shares.
Class B shares and certain shareholder features may not be
available to persons whose shares are held in street name
accounts.
You will not receive any certificates for your Class A shares
unless you request them in writing from the Distributor. The
Funds' "open account" system for recording your investment
eliminates the problems and expense of handling and safekeeping
certificates. Certificates will not be issued for Class B shares
or Class C shares. If you wish transactions in your account to
be effected by another person under a power of attorney from you,
special rules apply. Please contact your investment dealer or the
Distributor for details.
If you hold certificates for your Class A shares, you must
enclose them with your redemption request or your request will
not be honored. The Funds recommend that certificates be sent by
registered mail.
SALES CHARGES
Each Fund offers three classes of shares to the general public:
CLASS A SHARES
Class A shares are offered at net asset value plus a sales charge
which varies depending on the size of your purchase. They are
also subject to a 0.25% annual service fee. Shares are offered
subject to the following sales charges:
SALES CHARGE AS A % OF
DEALER'S
VALUE PUBLIC CONCESSION
OF TOTAL OFFERING NET AMOUNT AS A % OF
INVESTMENT PRICE INVESTED OFFERING
PRICE
Less than $50,000 5.75% 6.10% 5.00%
$50,000 - $99,999 4.50% 4.71% 4.00%
$100,000 - $249,999 3.50% 3.63% 3.00%
$250,000 - $499,999 2.50% 2.56% 2.15%
$500,000 - $999,999 2.00% 2.04% 1.70%
$1,000,000 or more None None *
* The Distributor may, at its discretion, pay investment
dealers who initiate and are responsible for such purchases
(except investments by plans under Sections 401(a) or
401(k)
of the Internal Revenue Code of 1986, as amended (the
"Code"), whose total investments amount to $1 million or
more or that have 100 or more eligible employees
("Retirement Plans")) a commission of up to the following
amounts: 1% on the first $3 million invested, 0.50% on the
excess over $3 million. For investments by Retirement
Plans, the Distributor may, at its discretion, pay
investment dealers who initiate and are responsible for
such
purchases a commission of up to the following amounts: 1%
on
the first $3 million invested, and 0.50% on amounts over $3
million and up to $10 million. These commissions are not
payable if the purchase represents the reinvestment of a
redemption made during the previous 12 calendar months.
Section 401(a), 401(k), 457 and 403(b) plans that have
total
investment assets of at least $10 million are eligible to
purchase Class Y shares of a Fund, which are described in a
separate prospectus.
CONTINGENT DEFERRED SALES CHARGE (CLASS A SHARES ONLY). For
purchases of $1,000,000 or more of Class A shares of a Fund or
purchases by Retirement Plans as defined above, a CDSC, at the
rate of 1% of the lesser of the purchase price or the net asset
value at the time of redemption, applies to redemptions of shares
within one year after purchase. If an exchange is made to Class A
shares of any of New England Cash Management Trust Money Market
Series or U.S. Government Series or New England Tax Exempt Money
Market Trust (the "Money Market Funds"), then the one-year
holding period for purposes of determining the expiration of the
CDSC will stop and will resume only when an exchange is made back
into Class A shares of a series of New England Funds Trust I, New
England Funds Trust II, New England Funds Trust III or New
England Funds Trust IV (the "Trusts"). If the Money Market Fund
shares are redeemed rather than exchanged back into the Trusts,
then a CDSC applies to the redemption. For purposes of the CDSC,
it is assumed that the shares held the longest are the first to
be redeemed. No CDSC applies to a redemption of shares followed
by a reinvestment effected within 30 days after the date of the
redemption.
CLASS B SHARES
Class B shares are offered at net asset value, without an initial
sales charge, and are subject to a 0.25% annual service fee, a
0.75% annual distribution fee for 8 years (at which time they
automatically convert to Class A shares) and a CDSC if they are
redeemed within 6 years of purchase. The holding period for
purposes of timing the conversion to Class A shares and
determining the CDSC will continue to run after an exchange to
Class B shares of a series of the Trusts. If the exchange is made
to Class B shares of a Money Market Fund, then the holding period
stops and will resume only when an exchange is made back into
Class B shares of a series of the Trusts. If the Money Market
Fund shares are redeemed rather than exchanged back into a series
of the Trusts, then a CDSC applies to the redemption, at the same
rate as if the Class B shares of the Fund had been redeemed at
the time they were exchanged for Money Market Fund shares. For
the purpose of the CDSC, it is assumed that the shares held the
longest are the first to be redeemed.
The CDSC will be assessed on an amount equal to the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no CDSC will be imposed on
increases in net asset value above the initial purchase price. In
addition, no CDSC will be assessed on shares of the same Fund
purchased with reinvested dividends or capital gains
distributions. The amount of the CDSC, if any, will vary
depending on the number of years from the time of payment for the
purchase of Class B shares until the time of redemption of such
shares. The CDSC equals the following percentages of the dollar
amounts subject to the charge:
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF DOLLAR
YEAR SINCE PURCHASE AMOUNT SUBJECT TO
CHARGE
1st 5%
2nd 4%
3rd 3%
4th 3%
5th 2%
6th 1%
thereafter 0%
Year one ends one year after the day on which the purchase was
accepted, and so on.
The CDSC is deducted from the proceeds of the redemption, not the
amount remaining in the account, unless otherwise requested, and
is paid to the Distributor. The CDSC may be eliminated for
certain persons and organizations. See "Sales Charges -- General"
below. At the time of sale, the Distributor pays investment
dealers a commission of 3.75% and advances the first year's
service fee (up to 0.25%) on purchases of Class B shares.
CLASS C SHARES
Class C shares are offered at net asset value, without an initial
sales charge or CDSC, are subject to a 0.25% annual service fee
and a 0.75% annual distribution fee and do not convert to another
class.
A, B OR C SHARES -- WHICH SHOULD YOU CHOOSE?
YOUR CHOICE OF SHARE CLASS DEPENDS ON THE SIZE OF YOUR INVESTMENT
AND HOW LONG YOU INTEND TO HOLD YOUR SHARES. IN GENERAL, THERE
ARE ONLY MINOR DIFFERENCES IN PERFORMANCE RESULTS FOR THE
DIFFERENT CLASSES IF HELD FOR THE LONG TERM. CONSULT YOUR
FINANCIAL REPRESENTATIVE FOR HELP IN DECIDING WHICH CLASS IS
APPROPRIATE FOR YOU.
DECIDING WHICH CLASS TO PURCHASE
The decision as to whether Class A, Class B or Class C shares are
more appropriate for an investor depends on the amount and
intended length of the investment. Investors making large
investments, qualifying for a reduced initial sales charge, might
consider Class A shares because Class A shares have lower 12b-1
fees and pay correspondingly higher dividends per share. For
these reasons, the Distributor will treat any order of $1 million
or more for Class B shares as a Class A order. Any order of $1
million or more for Class C shares will be treated as an order
for Class A shares, unless you indicate on the relevant section
of your application that you have been informed of the relative
advantages and disadvantages of Class A and C shares. Investors
making smaller investments might consider Class B or Class C
shares because 100% of the purchase is invested immediately.
Investors making smaller investments who anticipate redeeming
their shares within six years may find Class C shares more
favorable than Class B shares, because Class B shares are subject
to a CDSC on redemptions made within six years after purchase.
Class B shares are more favorable than Class C shares for
investors who anticipate holding their investment for more than
eight years, since Class B shares convert to Class A shares (and
thus bear lower ongoing fees) after eight years. Consult your
investment dealer for advice applicable to your particular
circumstances.
GENERAL
NO CDSC ON ANY CLASS OF SHARES APPLIES in connection with (1)
redemptions by retirement plans qualified under Sections 401(a)
or 403(b)(7) of the Code, when such redemptions are necessary to
make distributions to plan participants; (2) distributions from
an IRA due to death, disability or a tax-free return of an excess
contribution; (3) distributions by other employee benefit plans
to pay benefits; and (4) distributions by a Section 401(a) plan
due to death. For 403(b)(7) and IRA accounts established before
January 3, 1995, the CDSC is waived for redemptions made after
attainment of age 59 1/2. The CDSC is waived for redemptions made
to make required minimum distributions after attainment of age 70
1/2 for 403(b)(7) and IRA accounts established on or after
January 3, 1995. There is also no CDSC on redemptions following
the death or disability (as defined in Section 72(m)(7) of the
Code) of a shareholder if the redemption is made within one year
after the shareholder's death or disability. In addition, there
is no CDSC on certain withdrawals pursuant to a Systematic
Withdrawal Plan. See "Selling Fund Shares -- 4 Ways to Sell Fund
Shares -- By Systematic Withdrawal Plan" below.
Each Fund receives the net asset value next determined after an
order is received on sales of each class of shares. The sales
charge is allocated between the investment dealer and the
Distributor. The Distributor receives the CDSC. For purposes of
the CDSC, an exchange from one series of the Trusts to another
series of the Trusts is not considered a redemption or a
purchase. For federal tax purposes, however, such an exchange is
considered a redemption and a purchase and, therefore, would be
considered a taxable event on which you may recognize a gain or a
loss.
The Distributor may, at its discretion, reallow the entire sales
charge imposed on the sale of Class A shares of a Fund to
investment dealers from time to time. The staff of the SEC is of
the view that dealers receiving all or substantially all of the
sales charge may be deemed underwriters of that Fund's shares.
For new amounts invested, the Distributor may, at its expense,
pay investment dealers who sell shares of a Fund at net asset
value to an eligible governmental authority 0.025% of the average
daily net assets of an account at the end of each calendar
quarter for up to one year. These commissions are not payable if
the purchase represents the reinvestment of redemption proceeds
from any series of the Trusts or if the account is registered in
street name.
The Distributor may, at its expense, provide additional
promotional incentives or payments to dealers who sell shares of
a Fund (including in some cases, exclusively to New England
Securities Corporation, a broker-dealer affiliate of the
Distributor, and MetLife). In some instances additional
compensation is provided to certain dealers who achieve certain
sales goals or who have sold or may sell significant amounts of
shares. Such compensation may include (i) full reallowance of the
sales charge on the Class A shares; (ii) additional compensation
with respect to the sale of Class A, B and C shares; or (iii)
financial assistance programs to dealers in connection with
conferences, sales or training programs, seminars, advertising
and sales campaigns and/or shareholder services arrangements.
Certain dealers who have sold or may sell significant amounts of
shares also may receive compensation in the form of payment for
travel expenses, including lodging, incurred in connection with
trips taken by invited registered representatives to locations,
within or outside of the U.S., for educational seminars or
meetings of a business nature.
The Distributor may provide non-cash incentives for achievement
of specified sales levels by representatives of participating
broker-dealers and financial institutions. Such incentives
include, but are not limited to, merchandise from gift catalogues
or other sources. The participation of representatives in such
incentive programs is at the discretion of the broker-dealer or
financial institution with which the representative is
associated.
REDUCED SALES CHARGES (CLASS A SHARES ONLY)
[] COMBINING ACCOUNTS -- purchases by all qualifying accounts
of all series and classes of the Trusts (which do not
include the Money Market Funds unless the shares were
purchased through an exchange from a series of the Trusts)
may be combined with purchases of qualifying accounts of a
spouse, parents, children, siblings, grandparents or
grandchildren, individual fiduciary accounts, sole
proprietorships and/or single trust estates. The values of
all accounts are combined to determine the sales charge.
[] UNIT HOLDERS OF UNIT INVESTMENT TRUSTS -- unit investment
trust distributions of less than $1 million may be invested
in Class A shares of a Fund at a reduced sales charge of
1.50% of the public offering price (or 1.52% of the net
amount invested).
[] ELIGIBLE GOVERNMENTAL AUTHORITIES -- no sales charge or
CDSC
applies to investments by any state, county or city or any
instrumentality, department, authority or agency thereof
that has determined that a Fund is a legally permissible
investment and that is prohibited by applicable investment
laws from paying a sales charge or commission in connection
with the purchase of shares of any registered investment
company.
[] CLIENTS OF AN ADVISER OR SUBADVISER -- no sales charge or
CDSC applies to investments of $25,000 or more in a Fund by
(1) clients of an adviser or subadviser to any series of
the
Trusts, any director, officer or partner of a client of an
adviser or subadviser to any series of the Trusts, and the
parents, spouses and children of the foregoing; (2) any
individual who is a participant in a Keogh or IRA plan
under
a prototype plan document of an adviser or subadviser to
any
series of the Trusts if at least one participant in the
plan
qualifies under category (1) above; and (3) an individual
who invests through an IRA and is a participant in an
employee benefit plan that is a client of an adviser or
subadviser to any series of the Trusts. Any investor
eligible for these arrangements should so indicate in
writing at the time of the purchase.
[] Shares of a Fund may be purchased at net asset value by
investment advisers, financial planners or other
intermediaries who place trades for their own accounts or
the accounts of their clients and who charge a management,
consulting or other fee for their services; clients of such
investment advisers, financial planners or other
intermediaries who place trades for their own accounts if
the accounts are linked to the master account of such
investment adviser, financial planner or other intermediary
on the books and records of the broker or agent; and
retirement and deferred compensation plans and trusts used
to fund those plans, including, but not limited to, those
defined in Sections 401(a), 403(b), 401(k) and 457 of the
Code and "rabbi trusts." Investors may be charged a fee if
they effect transactions through a broker or agent.
[] There is no sales charge, CDSC or initial investment
minimum
related to investments by certain current and retired
employees of the Trusts' investment advisers and
subadvisers, the Distributor, New England Life Insurance
Company ("NELICO") or MetLife or any other company
affiliated with NELICO or MetLife; current and former
directors and trustees of the Trusts, NELICO or MetLife or
their predecessor companies; agents and general agents of
NELICO or MetLife and their insurance company subsidiaries;
current and retired employees of such agents and general
agents; registered representatives of broker-dealers who
have selling arrangements with the Distributor; the spouse,
parents, children, siblings, grandparents or grandchildren
of the persons listed above; any trust, pension, profit
sharing or other benefit plan for any of the foregoing
persons; and any separate account of NELICO or MetLife or
of
any insurance company affiliated with NELICO or MetLife.
[] Shares of a Fund are available at net asset value for
investments by participant-directed 401(a) and 401(k) plans
that have 100 or more eligible employees.
[] Shares of a Fund are available at net asset value for
investments by non-discretionary and non-retirement
accounts
of bank trust departments or trust companies, but are
unavailable if the trust department or institution is part
of an organization not principally engaged in banking or
trust activities.
[] Shares of a Fund also may be purchased at net asset value
through certain broker-dealers and/or financial services
organizations without any transaction fee. Such
organizations may receive compensation, in an amount of up
to 0.35% annually of the average value of the Fund shares
held by their customers. This compensation may be paid by
NEFM out of its own assets, or may be paid indirectly by
the
applicable Fund in the form of servicing, distribution or
transfer agent fees.
[] Shareholders of Reich and Tang Government Securities Trust
may exchange their shares of that fund for Class A shares
of
a Fund at net asset value and without imposition of a sales
charge.
The reduction or elimination of the sales charge in connection
with sales described above reflects the absence or reduction of
sales expenses associated with such sales.
- ----------------------------------------------------------------
OWNING FUND SHARES
- ----------------------------------------------------------------
EXCHANGING AMONG
NEW ENGLAND FUNDS
CLASS A SHARES
Except as indicated in the next two sentences, you may exchange
Class A shares of any Fund for Class A shares of any other series
of the Trusts without paying a sales charge; such exchanges will
be made at the next-determined net asset value of the shares.
CLASS B SHARES
You may exchange Class B shares of any Fund for Class B shares of
any other series of the Trusts. Such exchanges will be made at
the next-determined net asset value of the shares. Class B shares
will automatically convert on a tax-free basis to Class A shares
eight years after they are purchased (excluding the time the
shares are held in a Money Market Fund). See "Sales Charges --
Class B Shares" above.
CLASS C SHARES
You may exchange Class C shares of any Fund for Class C shares of
any other series of the Trusts which offers Class C shares or for
Class A shares of the Money Market Funds.
AUTOMATIC EXCHANGE PLAN
EACH FUND HAS AN AUTOMATIC EXCHANGE PLAN UNDER WHICH SHARES OF A
CLASS OF THE FUND ARE AUTOMATICALLY EXCHANGED EACH MONTH FOR
SHARES OF THE SAME CLASS OF OTHER SERIES OF THE TRUSTS. THE
MINIMUM MONTHLY EXCHANGE AMOUNT UNDER THE PLAN IS $100. THERE IS
NO FEE FOR EXCHANGES MADE PURSUANT TO THIS PROGRAM, BUT THERE MAY
BE A SALES CHARGE AS DESCRIBED ON THIS PAGE.
TO MAKE AN EXCHANGE, please call 800-225-5478 between 8:00 a.m.
and 7:00 p.m. (Eastern time) on a day when the Funds are open for
business, call New England Funds Personal Access Line{TM} at 800-
346-5984 twenty-four hours a day or write to New England Funds,
L.P. Exchange requests after 4:00 p.m. (Eastern time), or after
the Exchange closes if it closes earlier than 4:00 p.m., will be
processed at the net asset value determined at the close of
regular trading on the next day the Exchange is open. The
exchange must be for a minimum of $1,000 (or the total net asset
value of your account, whichever is less), except that under the
Automatic Exchange Plan the minimum is $100. All exchanges are
subject to the eligibility requirements of the series into which
you are exchanging. In connection with any exchange, you must
obtain and carefully read a current prospectus of the series into
which you are exchanging. The exchange privilege may be exercised
only in those states where shares of such other series may be
legally sold.
You have the automatic privilege to exchange your Fund shares by
telephone. New England Funds, L.P. will employ reasonable
procedures to confirm that your telephone instructions are
genuine, and, if it does not, it may be liable for any losses due
to unauthorized or fraudulent instructions. New England Funds,
L.P. will require a form of personal identification prior to
acting upon your telephone instructions, will provide you with
written confirmations of such transactions and will record your
instructions. For federal tax purposes, an exchange of shares
from one series of the Trusts for shares of another series is
considered to be a redemption and purchase and, therefore, is
considered to be a taxable event on which you may recognize a
gain or a loss.
Except as otherwise permitted by SEC rule, shareholders will
receive at least 60 days' advance notice of any material change
to the exchange privilege.
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FUND DIVIDEND PAYMENTS
- ----------------------------------------------------------------
Each Fund intends to pay dividends at least annually. Each Fund
pays as dividends substantially all net investment income (other
than long-term capital gains) each year and distributes annually
all net realized long- and short-term capital gains (after
applying any available capital loss carryovers). The trustees of
the Trust may adopt a different schedule as long as payments are
made at least annually. If you intend to purchase shares of a
Fund shortly before it declares a dividend or a capital gain
distribution, you should be aware that a portion of the purchase
price may be returned to you as a taxable distribution.
You have the option to reinvest all distributions in additional
shares of the same class of the applicable Fund or in shares of
the same class of other series of the Trusts, to receive
distributions from dividends and interest in cash while
reinvesting distributions from capital gains in additional shares
of the same class of the Fund or of the same class of other
series of the Trusts, or to receive all distributions in cash.
Income distributions and capital gains distributions will be
reinvested in shares of the same class of the Fund at net asset
value (without a sales charge or CDSC) unless you select another
option. You may change your distribution option by notifying New
England Funds, L.P. in writing or by calling 800-225-5478. If you
elect to receive your dividends in cash and the dividend checks
sent to you are returned "undeliverable" to the Fund or remain
uncashed for six months, your cash election will automatically be
changed and your future dividends will be reinvested.
DIVIDEND DIVERSIFICATION PROGRAM
You may also establish a dividend diversification program, which
allows you to have all dividends and any other distributions
automatically invested in shares of the same class of another New
England Fund, subject to the investor eligibility requirements of
that other fund and to state securities law requirements. Shares
will be purchased at the selected fund's net asset value (without
a sales charge or CDSC) on the dividend record date. A dividend
diversification account must be in the same registration
(shareholder name) as the distributing fund account and, if a new
account in the purchased fund is being established, the purchased
fund's minimum investment requirements must be met. Before
establishing a dividend diversification program into any other
New England Fund, you must obtain and carefully read a copy of
that fund's prospectus.
- ----------------------------------------------------------------
SELLING FUND SHARES
- ----------------------------------------------------------------
4 WAYS TO SELL FUND SHARES
You may sell Class A, Class B and Class C shares of a Fund in the
following ways:
THROUGH YOUR INVESTMENT DEALER:
Call your authorized investment dealer for information.
BY TELEPHONE:
You or your investment dealer may redeem (sell) shares by
telephone using any of the three methods described below:
Wired to Your Bank Account -- If you have previously selected the
telephone redemption privilege on your account, shares may be
redeemed by calling 800-225-5478 between 8:00 a.m. and 7:00 p.m.
(Eastern time) on a day when the Funds are open for business.
Class A and C shares only may also be redeemed by calling New
England Funds Personal Access Line{TM} at 800-346-5984 twenty-
four hours a day. The proceeds (LESS ANY APPLICABLE CDSC)
generally will be wired on the next business day to the bank
account previously chosen by you on your application. A wire fee
(currently $5.00) will be deducted from the proceeds.
Your bank must be a member of the Federal Reserve System or have
a correspondent bank that is a member. If your account is with a
savings bank, it must have only one correspondent bank that is a
member of the System.
Mailed to Your Address of Record -- Shares may be redeemed by
calling 800-225-5478 between 8:00 a.m. and 7:00 p.m. (Eastern
time) on a day when the Funds are open for business and
requesting that a check for the proceeds (LESS ANY APPLICABLE
CDSC) be mailed to the address on your account, provided that the
address has not changed over the previous month and that the
proceeds are for $100,000 or less. Generally, the check will be
mailed to your address of record on the business day after your
redemption request is received.
Through ACH -- Shares may be redeemed electronically through the
ACH system, provided that you have an approved ACH application on
file with the Fund. To redeem through ACH, call 800-225-5478
between 8:00 a.m. and 7:00 p.m. (Eastern time) on a day when the
Funds are open for business or, for Class A and C shares only,
call New England Funds Personal Access Line{TM} at 800-346-5984
twenty-four hours a day. The proceeds (LESS ANY APPLICABLE CDSC)
generally will arrive at your bank within three business days;
their availability will depend on your bank's particular rule.
Redemption requests accepted after 4:00 p.m. (Eastern time), or
after the Exchange closes if it closes before 4:00 p.m., will be
processed at the net asset value determined at the close of
regular trading on the next day that the Exchange is open.
BY MAIL:
You may redeem your shares at their net asset value (LESS ANY
APPLICABLE CDSC) next determined after receipt of your request in
good order by sending a written request (including any necessary
special documentation) to New England Funds, P.O. Box 8551,
Boston, MA 02266-8551.
The request must include the name of the Fund, your account
number, the exact name(s) in which your shares are registered,
the number of shares or the dollar amount to be redeemed and
whether you wish the proceeds mailed to your address of record,
wired to your bank account or transmitted through ACH. All owners
of the shares must sign the request in the exact names in which
the shares are registered (this appears on your confirmation
statement) and indicate any special capacity in which you are
signing (such as trustee, custodian, under power of attorney or
on behalf of a partnership, corporation or other entity).
If you are redeeming shares worth less than $100,000 and the
proceeds check is made payable to the registered owner(s) and
mailed to the record address, no signature guarantee is required.
Otherwise, you generally must have your signature guaranteed by
an eligible guarantor institution in accordance with procedures
established by New England Funds, L.P. Signature guarantees by
notaries public are not acceptable.
Additional written information may be required for redemptions by
certain benefit plans and IRAs. Contact the Distributor or your
investment dealer for details.
BY SYSTEMATIC WITHDRAWAL PLAN:
You may establish a Systematic Withdrawal Plan that allows you to
redeem shares and receive payments on a regular schedule. In the
case of shares subject to a CDSC, the amount or percentage you
specify may not exceed, on an annualized basis, 10% of the value
of your Fund account (based on the day you establish your plan).
Redemption of shares pursuant to the Systematic Withdrawal Plan
will not be subject to a CDSC. For information, contact the
Distributor or your investment dealer. Since withdrawal payments
may have tax consequences, you should consult your tax adviser
before establishing such a plan.
GENERAL. Redemption requests will be effected at the net asset
value next determined after your redemption request is received
in proper form by State Street Bank or your investment dealer
(except that orders received by your investment dealer before the
close of regular trading on the Exchange and transmitted to the
Distributor by 5:00 p.m. Eastern time on the same day will
receive that day's net asset value). Redemption proceeds (LESS
ANY APPLICABLE CDSC) will normally be mailed to you within seven
days after State Street Bank or the Distributor receives your
request in good order. However, in those cases where you have
recently purchased your shares by check or an electronic funds
transfer through the ACH system and you make a redemption request
within 10 days after such purchase or transfer, the Fund may
withhold redemption proceeds until the Fund knows that the check
or the funds have cleared.
During periods of substantial economic or market change,
telephone redemptions may be difficult to implement. If you are
unable to contact the Distributor by telephone, shares may be
redeemed by delivering the redemption request in person to the
Distributor or by mail as described above. Requests are processed
at the net asset value next determined after the request is
received.
Special rules apply with respect to redemptions under powers of
attorney. Please call your investment dealer or the Distributor
for more information.
Telephone redemptions are not available for tax qualified
retirement plans or for Fund shares held in certificate form. If
certificates have been issued for your investment, you must send
them to New England Funds along with your request before a
redemption request can be honored. See the instructions for
redemption by mail above.
A Fund may suspend the right of redemption and may postpone
payment for more than seven days when the Exchange is closed for
other than weekends or holidays, or if permitted by the rules of
the SEC when trading on the Exchange is restricted or during an
emergency which makes it impracticable for the Fund to dispose of
its securities or to determine fairly the value of its net
assets, or during any other period permitted by the SEC for the
protection of investors.
If NEFM determines, in its sole discretion, that it would be
detrimental to the best interests of the remaining shareholders
of a Fund to make payment wholly or partly in cash, the Fund may
pay the redemption price in whole or in part by a distribution in
kind of readily marketable securities held by the Fund in lieu of
cash. Securities used to redeem Fund shares in kind will be
valued in accordance with the Fund's procedures for valuation
described under "Fund Details -- How Fund Share Price Is
Determined." Securities distributed by a Fund in kind will be
selected by NEFM in light of the Fund's objective and will not
generally represent a pro rata distribution of each security held
in the Fund's portfolio. Investors may incur brokerage charges on
the sale of any such securities so received in payment of
redemptions.
REPURCHASE OPTION
(CLASS A SHARES ONLY)
You may apply your proceeds from the redemption of Class A shares
of a Fund (without a sales charge) to the repurchase of Class A
shares of any series of the Trusts. To qualify, you must reinvest
some or all of the proceeds within 120 days after your redemption
and notify New England Funds or your investment dealer at the
time of reinvestment that you are taking advantage of this
privilege. You may reinvest the proceeds either by returning the
redemption check or by sending your check for some or all of the
redemption amount. Please note: For federal income tax purposes,
a redemption is a sale that involves tax consequences (even if
the proceeds are later reinvested). Please consult your tax
adviser.
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FUND DETAILS
- -----------------------------------------------------------------
HOW FUND SHARE PRICE IS
DETERMINED
The net asset value ("NAV") of each Fund is determined as of the
close of regular trading (normally, 4:00 p.m. (Eastern time)) on
the Exchange on each day the Exchange is open. Shares of the
Underlying Funds are valued at their reported NAVs. Although the
NAV will be calculated at the close of all regular trading days,
the NAV reported to The Nasdaq Stock Market for distribution to
news agencies will be delayed by one business day.
The net asset value per share of each class is determined by
dividing the value of the shares of the Underlying Funds held by
each class (determined as explained above) plus any cash and
other assets (including dividends and interest receivable but not
collected) less all liabilities (including accrued expenses), by
the number of shares of such class outstanding. The public
offering price of each Fund's Class A shares is determined by
adding the applicable sales charge to the net asset value. See
"Buying Fund Shares -- Sales Charges" above. The public offering
price of each Fund's Class B and Class C shares is the net asset
value per share.
The price you pay for a share will be determined using the next
set of calculations made after your order is accepted by New
England Funds, L.P. In other words, if, on a Tuesday morning,
your properly completed application is received, your wire is
received or your dealer places your trade for you, the price you
pay will be determined by the calculations made as of the close
of regular trading on the Exchange on Tuesday. If you buy shares
through your investment dealer, the dealer must receive your
order by the close of regular trading on the Exchange and
transmit it to the Distributor by 5:00 p.m. (Eastern time) to
receive that day's public offering price.
CALCULATING THE PRICE OF SHARES
Total Market
Value of
Underlying Other Any
Funds + Assets - Liabilities
- ------------------------------------- = Net Asset Value (NAV)
Total Number of Outstanding
Shares in a Class
THE PUBLIC OFFERING PRICE FOR CLASS A SHARES IS THE NAV PLUS THE
APPLICABLE SALES CHARGE. THE PUBLIC OFFERING PRICE FOR CLASS B
AND CLASS C SHARES IS THE NAV.
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INCOME TAX CONSIDERATIONS
- ----------------------------------------------------------------
Each Fund intends to meet all requirements of the Code necessary
to qualify as a "regulated investment company" and thus generally
does not expect to pay any federal income tax on investment
income and capital gains distributed to shareholders in cash or
in additional shares. Unless you are a tax-exempt entity, your
distributions derived from a Fund's short-term capital gains and
ordinary income are taxable to you as ordinary income. (A portion
of these distributions may qualify for the dividends-received
deduction for corporations.) Distributions derived from a Fund's
long-term capital gains ("capital gains distributions"), if
designated as such by a Fund, are taxable to you as long-term
capital gains, regardless of how long you have owned shares in
the Fund. Both income distributions and capital gains
distributions are taxable whether you elect to receive them in
cash or additional shares.
Distributions received by a Fund from an Underlying Fund
generally will be ordinary income dividends, includible in the
Fund's ordinary income, if paid from the Underlying Fund's
ordinary income or net short-term capital gains. Distributions
paid from an Underlying Fund's net long-term capital gains
generally will be treated by the Fund as long-term capital gains.
To avoid an excise tax, each Fund intends to distribute prior to
calendar year end virtually all of the Fund's ordinary income
earned during that calendar year, and virtually all of the
capital gain net income the Fund realized during the twelve
months ending October 31 but not previously distributed. If
declared in October, November or December to shareholders of
record in such a month, and paid the following January, these
distributions will be considered for federal income tax purposes
to have been received by shareholders on December 31.
Upon a sale or other disposition of shares in a Fund, you may
realize a gain or loss which will be a capital gain or loss if
you held your shares as a capital asset and, if so, may qualify
for reduced federal tax rates depending upon your holding period
for your shares.
Each Fund is required to withhold 31% of all taxable
distributions, including redemption proceeds, it pays to you if
you do not provide a correct, certified taxpayer identification
number, if the Fund is notified that you have underreported
income in the past, or if you fail to certify to the Fund that
you are not subject to such withholding. If you are a tax-exempt
shareholder, a corporate shareholder or fall within another
category of shareholders that are exempt from those rules,
however, these back-up withholding rules generally will not apply
so long as you furnish the Fund with an appropriate
certification.
Annually, if you are not a corporate shareholder or otherwise
exempt from the information reporting rules, and you earn more
than $10 in taxable income from a Fund, you will receive a Form
1099 to assist you in reporting the prior calendar year's
distributions on your federal income tax return. You should
consult your tax adviser about any state or local taxes that may
apply to such distributions. Be sure to keep the Form 1099 as a
permanent record. A fee may be charged for any duplicate
information requested.
The foregoing is a summary of certain federal income tax
consequences of an investment in a Fund for shareholders who are
U.S. citizens or corporations. Shareholders should consult a
competent tax adviser as to the effect of an investment in a Fund
on their particular federal, state and local tax situations.
- ----------------------------------------------------------------
THE FUNDS' EXPENSES
- ----------------------------------------------------------------
Under separate plans adopted pursuant to Rule 12b-1 under the
1940 Act, each Fund pays the Distributor a monthly service fee at
an annual rate not to exceed 0.25% of the Fund's average daily
net assets attributable to each class of the Fund's shares. The
Distributor may pay up to the entire amount of this fee to
securities dealers who are dealers of record with respect to the
applicable Fund's shares, for providing personal services to
investors in shares of the Fund and/or the maintenance of
shareholder accounts. The service fee is payable only to
reimburse the Distributor for amounts it pays or expends in
connection with the provision of personal services to investors
and/or the maintenance of shareholder accounts. To the extent
that the Distributor's reimbursable expenses in any year exceed
the maximum amount payable under the service plan for that year,
such expenses may be carried forward for reimbursement in future
years in which the plan remains in effect. Under the plans
applicable to each Fund's Class B and Class C shares, each Fund
pays the Distributor a distribution fee at an annual rate of
0.75% of the Fund's average daily net assets attributable to each
of its Class B and Class C shares in consideration of the
services rendered in connection with the sale of such shares by
the Distributor. The Distributor may pay all or any portion of
the distribution fee to securities dealers or other organizations
(including, but not limited to, any affiliate of the Distributor)
as commissions, asset-based sales charges or other compensation
with respect to the sale of Class B or Class C shares of the
Funds, and may retain all or any portion of the distribution fee
as compensation for the Distributor's services as principal
underwriter of such Class B or Class C shares.
SPECIAL SERVICING AGREEMENT
All expenses of the Funds other than advisory fees and Rule 12b-1
fees will be paid for in accordance with a Special Servicing
Agreement (the "Agreement") among NEFM, the Trust on behalf of
the Funds, the Distributor, New England Funds Trust I, New
England Funds Trust II, New England Funds Trust III, New England
Cash Management Trust, Jurika & Voyles Fund Group, Loomis Sayles
Funds, Harris Associates Investment Trust, Reich & Tang Equity
Fund, Inc. and Delafield Fund, Inc. Under the Agreement, NEFM
will arrange for all of the services pertaining to the operation
of the Funds including the shareholder servicing and fund
accounting services provided by the Distributor. In addition,
the Agreement provides that, if the officers of any Underlying
Fund, at the direction of its Board of Directors/Trustees,
determine that the aggregate expenses of the Funds are less than
the estimated savings to the Underlying Fund from the operation
of the Funds, the Underlying Fund will bear those expenses in
proportion to the average daily value of its shares owned by each
Fund. Consequently, no Underlying Fund will be expected to carry
expenses that are in excess of the estimated savings to it. The
estimated savings are expected to result primarily from the
elimination of numerous separate shareholder accounts which
either currently are or have the potential to be invested
directly in the Underlying Funds. The estimated savings produced
by the operation of a Fund will most likely suffice to offset
most, if not all, the expenses incurred by that Fund other than
management or Rule 12b-1 fees.
In the event that the aggregate financial benefits to the
Underlying Funds do not exceed the costs of a Fund, that Fund
will pay the portion of the costs determined to be greater than
the benefits. These costs include accounting, custody, auditing,
legal, blue sky and trustees' fees, as well as organizational,
prospectus, shareholder reporting, proxy, general administrative
and miscellaneous expenses.
All expenses of the Funds, excluding certain non-recurring and
extraordinary expenses, will be paid for in accordance with the
Agreement, including fees and expenses incurred in connection
with membership in investment company organizations;
organizational, legal, auditing and accounting expenses; taxes
and governmental fees; the fees and expenses of the transfer
agent; the expenses of and the fees for registering or qualifying
securities for sale; the fees and expenses of the trustees of the
Trust who are not affiliated with NEFM; the cost of printing and
distributing reports and notices to shareholders; and the fees
and disbursements of custodians.
- -----------------------------------------------------------------
PERFORMANCE CRITERIA
- -----------------------------------------------------------------
Each Fund may include total return information for each class of
shares in advertisements or other written sales material. A Fund
will show each class's average annual total return for the one-,
five- and ten-year periods (or the life of the Fund, if shorter)
through the end of the most recent calendar quarter. Total return
is measured by comparing the value of a hypothetical $1,000
investment in a class at the beginning of the relevant period to
the value of the investment at the end of the period (assuming
deduction of the current maximum sales charge on Class A shares,
automatic reinvestment of all dividends and capital gains
distributions and, in the case of Class B shares, imposition of
the CDSC to the period quoted). Total return may be quoted with
or without giving effect to any voluntary expense limitations in
effect during the relevant period. A Fund or classes may also
show total return over other periods, on an aggregate basis for
the period presented, or without deduction of a sales charge. If
a sales charge is not deducted in calculating total return, the
class's total return is higher.
Each Fund may also include the yield of each class of its shares,
accompanied by the total return, in advertising and other written
material. Yield will be computed in accordance with the SEC's
standardized formula by dividing the adjusted net investment
income per share earned during a recent thirty-day period by the
maximum offering price of a share of the relevant class (reduced
by any earned income expected to be declared shortly as a
dividend) on the last day of the period. Yield calculations will
reflect any voluntary expense limitations in effect for the Fund
during the relevant period.
Each Fund may present one or more distribution rates for each
class in its sales literature. These rates will be determined by
annualizing the class's distributions from net investment income
and net short-term capital gain over a recent 12-month, 3-month
or 30-day period and dividing that amount by the maximum offering
price or the net asset value on the last day of such period. If
the net asset value, rather than the maximum offering price, is
used to calculate the distribution rate, the rate will be higher.
All performance information is based on past results and is not
an indication of likely future performance.
- ----------------------------------------------------------------
ADDITIONAL FACTS ABOUT THE FUNDS
- ----------------------------------------------------------------
[] The Trust was organized in 1997 as a Massachusetts business
trust and is authorized to issue an unlimited number of
full
and fractional shares in multiple series and classes
thereof.
[] When you invest in a Fund, you acquire freely transferable
shares of beneficial interest that entitle you to receive
annual dividends as determined by the Trust's trustees and
to cast a vote for each share you own at shareholder
meetings. Shares of a Fund vote separately from shares of
other series of the Trust, except as otherwise required by
law. Shares of all classes of a Fund vote together, except
as to matters relating to a class's Rule 12b-1 plan, on
which only shares of that class are entitled to vote.
[] Except for matters that are explicitly identified as
"fundamental" in this prospectus or the Statement, the
investment policies of a Fund may be changed by the Trust's
trustees without shareholder approval or, in most cases,
prior notice. The investment objective of each Fund is not
fundamental. If there is a change in a Fund's objective,
shareholders should consider whether the Fund remains an
appropriate investment in light of their current financial
position and needs.
[] Each Fund offers Class Y shares to certain qualified
investors. Class Y shares are identical to Class A, Class
B
and Class C shares, except that Class Y shares have no
sales
charge or CDSC, bear no Rule 12b-1 fees (all of which may
affect performance) and have separate voting rights in
certain circumstances. Absent the Special Servicing
Agreement, Class Y shares may bear their own transfer
agency
and prospectus printing costs and do not bear any portion
of
those costs relating to other classes of shares.
[] No series of the Trust is liable for the obligations of any
other series of the Trust. However, because the Prospectus
pertains to more than one Fund, it is possible that one of
the Funds to which the Prospectus pertains might become
liable for any misstatement, inaccuracy, or incomplete
disclosure in the Prospectus concerning any other Fund to
which the Prospectus pertains. The trustees of the Trust
have considered this possible liability and approved the
use
of this combined prospectus for the Funds.
[] The Trust does not generally hold regular shareholder
meetings and will do so only when required by law.
Shareholders of the Trust may remove the trustees of the
Trust from office by votes cast at a shareholder meeting or
by written consent.
[] The Funds' distributor, New England Funds, L.P., an
affiliate of NEFM, is located at 399 Boylston Street,
Boston, MA 02116.
[] The transfer and dividend paying agent for the Fund is New
England Funds, L.P., 399 Boylston Street, Boston, MA 02116.
New England Funds, L.P. has subcontracted certain of its
obligations as such to State Street Bank, 225 Franklin
Street, Boston, MA 02110.
[] New England Funds, L.P. also performs certain accounting
and
administrative services for the Funds. Each Fund
reimburses
New England Funds, L.P., subject to the Special Servicing
Agreement described above, for all or part of its expenses
for providing such administrative services.
[] If the balance in your account with a Fund is less than a
minimum amount set by the trustees of the Trust from time
to
time (currently $1,000 for all accounts except for those
indicated below), the Fund may close your account and send
the proceeds to you. Shareholders who are affected by this
policy will be notified of the Fund's intention to close
the
account and will have 60 days immediately following the
notice to bring the account up to the minimum. The minimum
does not apply to automatic investment plans or accounts
that have fallen below the minimum solely because of
fluctuations in the Fund's net asset value per share.
[] Each Fund's annual report contains additional performance
information and is available upon request and without
charge. Each Fund will send a single copy of its annual
and
semi-annual reports to an address to which more than one
shareholder of record with the same last name has indicated
that mail is to be delivered. Shareholders may request
additional copies of any annual or semi-annual report in
writing or by telephone.
[] The Class A, Class B, Class C and Class Y structure could
be
terminated should certain IRS rulings be rescinded.
[] Summit Cash Reserves Fund (the "Cash Fund"), a series of
Financial Institutions Series Trust, is related to the
Funds
for purposes of investment and investor services. Shares
of
all classes of a Fund may be exchanged for shares of the
Cash Fund at net asset value. If shares of the Fund that
are exchanged for shares of the Cash Fund are subject to a
CDSC, the holding period for purposes of determining
expiration of the CDSC will stop and resume only when an
exchange is made back into shares of a series of the Trust.
If Fund shares subject to a CDSC are exchanged for Cash
Fund
shares and the Cash Fund shares are later redeemed rather
than being exchanged back into shares of a series of the
Trusts, then a CDSC will apply at the same rate as if the
Fund shares were redeemed at the time of the exchange.
[] The Trust's trustees have the authority without shareholder
approval to issue other classes of shares of a Fund that
represent an interest in the Fund's investment portfolio
but
that have different sales loads and fee arrangements.
[] With regard to the voting of all proxies in connection with
its investments in the Underlying Funds, each Fund intends
to vote the shares of an Underlying Fund held by it in the
same proportion as the vote of all other holders of such
Fund's shares. The effect of such "mirror" voting is to
neutralize the Funds' influence on corporate matters
regarding the Underlying Funds in which the Funds invest.
[] Shareholder inquiries should be directed to the Distributor
by calling 800-225-5478 or writing to New England Funds,
L.P., 399 Boylston Street, Boston, MA 02116.
- ----------------------------------------------------------------
GLOSSARY OF TERMS
- ----------------------------------------------------------------
CAPITAL GAIN DISTRIBUTIONS - Properly designated payments to
shareholders of net long-term capital gains in excess of net
short-term capital losses earned from selling securities in a
fund's portfolio. Capital gain distributions are usually paid
once a year.
CONTINGENT DEFERRED SALES CHARGE (CDSC) -- A fee that may be
charged when a shareholder sells fund shares.
DISTRIBUTION FEE -- An annual asset-based sales charge that is
used to pay for sales-related expenses.
INCOME DISTRIBUTIONS -- Payments to shareholders resulting from
interest or dividend income or from net short-term capital gains
in excess of net long-term capital losses earned by the fund's
portfolio.
MUTUAL FUND -- The pooled assets of a group of investors,
professionally managed in pursuit of a specific objective.
NET ASSET VALUE (NAV) -- The market value of one share of a
mutual fund on any given day without sales charge or CDSC.
Determined by dividing the fund's total net assets by the number
of fund shares outstanding.
OPEN END MANAGEMENT INVESTMENT COMPANY -- A mutual fund that
allows investors to redeem fund shares directly from the fund
company on any business day.
PUBLIC OFFERING PRICE -- The price of one share of a mutual fund,
including its initial sales charge, if there is one.
RECORD DATE -- The date on which mutual fund investors must own a
fund's shares to be eligible to receive specific income or
capital gain distributions.
SERVICE FEE -- Payments by a fund to a fund's distributor or a
financial representative for personal services to investors
and/or for maintenance of shareholder accounts.
TOTAL RETURN -- The change in value of an investment in the fund
over a specific time period, assuming all earnings are reinvested
in additional shares of the fund. Expressed as a percentage.
YIELD -- The rate at which a fund earns income, expressed as a
percentage. Yield calculations are standardized among mutual
funds, based on a formula developed by the SEC.
12B-1 FEES -- Fees paid by a mutual fund under a plan adopted
under 1940 Act Rule 12b-1. Can include both distribution fees and
service fees.
APPENDIX A
DESCRIPTIONS OF CERTAIN RISKS RELATED TO VARIOUS SECURITIES
INVESTED IN, AND INVESTMENT TECHNIQUES EMPLOYED BY, THE
UNDERLYING FUNDS IN WHICH THE FUNDS MAY INVEST
The following pages contain more detailed information about types
of instruments in which the Underlying Funds (for purposes of
this Appendix A only, the "Funds") may invest and strategies an
adviser or subadviser may employ in pursuit of an Underlying
Fund's investment objective.
[] EQUITY SECURITIES
Equity securities are securities that represent an
ownership
interest (or the right to acquire such an interest) in a
company, and include common and preferred stocks and
securities exercisable for or convertible into common or
preferred stocks (such as warrants, convertible debt
securities and convertible preferred stock). While offering
greater potential for long-term growth, equity securities
are more volatile and more risky than some other forms of
investment. Therefore, the value of an investment in a
Fund
may sometimes decrease instead of increase. A Fund may
invest in equity securities of companies with relatively
small market capitalization. Securities of such companies
may be more volatile than the securities of larger, more
established companies and the broad equity market indices.
See "Small Companies" below. A Fund's investments may
include securities traded "over-the-counter" as well as
those traded on a securities exchange. Some over-the-
counter securities may be more difficult to sell under some
market conditions.
A Fund may invest in convertible securities, including
corporate bonds, notes or preferred stocks that can be
converted into 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
increase or decrease as the values of the underlying equity
securities increase or decrease. The movements in the
prices of convertible securities, however, may be smaller
than the movements in the value of the underlying equity
securities. The value of convertible securities that pay
dividends or interest, like the value of other fixed-income
securities, generally fluctuates inversely with changes in
interest rates. Warrants have no voting rights, pay no
dividends and have no rights with respect to the assets of
the corporation issuing them. They do not represent
ownership of the securities for which they are exercisable,
but only the right to buy such securities at a particular
price.
[] FIXED-INCOME SECURITIES
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. (Generally, the value
of fixed-income securities falls when market rates of
interest are rising.) Some fixed-income securities also
involve prepayment or call risk. This is the risk that the
issuer will repay a Fund the principal on the security
before it is due, thus depriving the Fund of a favorable
stream of future interest or dividend payments.
Because interest rates vary, it is impossible to predict
the
income of a fund that invests in fixed-income securities
for
any particular period. Fluctuations in the value of a
Fund's investments in fixed-income securities will cause
the
Fund's net asset value to increase or decrease.
[] LOWER QUALITY FIXED-INCOME SECURITIES
Fixed-income securities rated BB or lower by S&P or Ba or
lower by Moody's (and comparable unrated securities) are of
below "investment grade" quality. Lower quality fixed-
income securities generally provide higher yields, but are
subject to greater credit and market risk than higher
quality fixed-income securities. Lower quality
fixed-income
securities are considered predominantly speculative with
respect to the ability of the issuer to meet principal and
interest payments. Achievement of the investment objective
of a mutual fund investing in lower quality fixed-income
securities may be more dependent on the fund's adviser's or
subadviser's own credit analysis than for a fund investing
in higher quality bonds. The market for lower quality
fixed-income securities may be more severely affected than
some other financial markets by economic recession or
substantial interest rate increases, by changing public
perceptions of this market or by legislation that limits
the
ability of certain categories of financial institutions to
invest in these securities. In addition, the secondary
market may be less liquid for lower rated fixed-income
securities. This lack of liquidity at certain times may
affect the valuation of these securities and may make the
valuation and sale of these securities more difficult.
Fixed-income securities of below investment grade are
commonly known as "junk bonds."
[] U.S. GOVERNMENT SECURITIES
U.S. Government securities include direct obligations
issued
by the United States Treasury, such as Treasury bills,
certificates of indebtedness, notes and bonds. U.S.
Government agencies and instrumentalities that issue or
guarantee securities include, but are not limited to, the
Federal Home Loan Banks, the Federal National Mortgage
Association ("FNMA") and the Student Loan Marketing
Association. Except for U.S. Treasury securities and GNMAs,
obligations of U.S. Government agencies and
instrumentalities may or may not be supported by the full
faith and credit of the United States. Some, such as those
of the Federal Home Loan Banks, are backed by the right of
the issuer to borrow from the Treasury, others by
discretionary authority of the U.S. Government to purchase
the agencies' obligations, while still others, such as the
Student Loan Marketing Association, are supported only by
the credit of the instrumentality. In the case of
securities not backed by the full faith and credit of the
United States, the investor must look principally to the
agency issuing or guaranteeing the obligation for ultimate
repayment and may not be able to assert a claim against the
United States itself in the event the agency or
instrumentality does not meet its commitment.
[] ASSET-BACKED SECURITIES
Asset-backed securities represent undivided fractional
interests in a special purpose entity with assets
consisting
of a pool of domestic loans such as motor vehicle retail
installment sales contracts or credit card receivables.
Asset-backed securities generally are issued by
governmental, government-related and private organizations.
Payments typically are made monthly, consisting of both
principal and interest payments. Asset-backed securities
may be prepaid prior to maturity, and hence the actual life
of the security cannot be accurately predicted. During
periods of falling interest rates, prepayments may
accelerate, which would require a Fund to reinvest the
proceeds at a lower interest rate. In addition, like other
debt securities, the value of asset-backed securities will
normally decline in periods of rising interest rates. It
is
possible that the securities could become illiquid or
experience losses if guarantors or insurers default.
[] MORTGAGE-RELATED SECURITIES
Mortgage-related securities are interests in a pool of
mortgage loans. Most mortgage-related securities are pass-
through securities, which means that investors receive
payments consisting of a pro rata share of both principal
and interest (less servicing and other fees), as well as
unscheduled prepayments, as mortgages in the underlying
mortgage pool are paid off by the borrowers. Prepayments
of
principal by mortgagors or mortgage foreclosures will
affect
the average life of the mortgage-related securities
remaining in a Fund's portfolio. Mortgage prepayments are
affected by the level of interest rates and by factors
including general economic conditions, the underlying
location and age of the mortgage and other social and
demographic conditions. In periods of rising interest
rates, the rate of prepayments tends to decrease, thereby
lengthening the average life of a pool of mortgage-related
securities. Conversely, in periods of falling interest
rates, the rate of prepayments tends to increase, thereby
shortening the average life of a pool of mortgages. Thus,
mortgage-related securities may have less potential for
capital appreciation in periods of falling interest rates
than other fixed-income securities of comparable duration,
although these securities may have a comparable risk of
decline in market value in periods of rising interest
rates.
Unscheduled prepayments, which are made at par, will result
in a loss equal to any unamortized premium.
The dominant issuers or guarantors of mortgage-related
securities today are the Government National Mortgage
Association ("GNMA"), FNMA and the Federal Home Loan
Mortgage Corporation ("FHLMC"). GNMA creates pass-through
securities from pools of U.S. government guaranteed or
insured (Federal Housing Authority or Veterans
Administration) mortgages originated by mortgage bankers,
commercial banks and savings associations. FNMA and FHLMC
issue pass-through securities from pools of conventional
and
federally insured and/or guaranteed residential mortgages
obtained from various entities, including savings
associations, savings banks, commercial banks, credit
unions
and mortgage bankers.
The principal and interest on GNMA pass-through securities
are guaranteed by GNMA and backed by the full faith and
credit of the U.S. Government. FNMA guarantees full and
timely payment of all interest and principal, while FHLMC
guarantees timely payment of interest and ultimate
collection of principal of its pass-through securities.
Securities from FNMA and FHLMC are not backed by the full
faith and credit of the U.S. Government; however, they are
generally considered to present minimal credit risks.
Adjustable rate mortgage securities ("ARMs") are a form of
pass-through securities representing interests in pools of
mortgage loans, the interest rates of which are adjusted
from time to time. The adjustments usually are determined
in accordance with a predetermined interest rate index and
may be subject to certain limits. The adjustment feature
of
ARMs tends to make their values less sensitive to interest
rate changes.
CMOs are debt obligations issued by finance subsidiaries or
trusts that are secured by mortgage-backed certificates,
including, in many cases, certificates issued by
government-
related guarantors, such as GNMA, FNMA and FHLMC, together
with certain funds and other collateral. Although payment
of the principal of and interest on the mortgage-backed
certificates pledged to secure the CMOs may be guaranteed
by
a U.S. Government agency or instrumentality, such as FHLMC,
the CMOs represent obligations solely of the CMO issuer and
are not insured or guaranteed by a U.S. Government agency
or
instrumentality. The issuers of CMOs typically have no
significant assets other than those pledged as collateral
for the obligations. Stripped mortgage securities, which
are a form of CMO, are usually structured with classes that
receive different proportions of the interest and principal
payments on a pool of mortgages. Sometimes, 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 any IO class or PO class is extremely sensitive
not only to changes in prevailing interest rates but also
to
the rate of principal payments and prepayments on the
related underlying mortgages and, in the most extreme
cases,
an IO class may become worthless.
Certain Funds may invest in mortgage-related securities
offered by private issuers, including pass-through
securities for pools of conventional residential mortgage
loans; mortgage pay-through obligations and mortgage-backed
bonds, which are considered to be obligations of the
institution issuing the bonds and are collateralized by
mortgage loans; and bonds and CMOs that are collateralized
by mortgage-related securities issued by GNMA, FNMA, FHLMC
or by pools of conventional mortgages.
Mortgage-related securities created by private issuers
generally offer a higher rate of interest (and greater
credit and interest rate risk) than U.S. Government and
agency mortgage-related securities because they offer no
direct or indirect governmental guarantees of payments.
However, many issuers or servicers of mortgage-related
securities guarantee, or provide insurance for, timely
payment of interest and principal on such securities.
The Funds may purchase some mortgage-related securities
through private placements without registration under the
Securities Act of 1933, as amended.
[] TAX EXEMPT SECURITIES
Issuers of tax exempt securities may make interest and
principal payments from money raised through a variety of
sources, including (1) the issuer's general taxing power,
(2) a specific type of tax, such a property tax, or (3) a
particular facility or project, such as a highway. The
ability of an issuer of tax exempt bonds to make these
payments could be affected by litigation, legislation or
other political events, or the bankruptcy of the issuer.
The interest on tax exempt securities issued after August
15, 1986 is retroactively taxable from the date of issuance
if the issuer does not comply with certain requirements
concerning the use of bond proceeds and the application of
earning on bond proceeds.
[] BORROWING
Certain Funds may borrow money from banks in an aggregate
amount not to exceed one-third of the value of the Fund's
total assets to meet temporary or emergency purposes, and
may pledge its assets in connection with such borrowings.
Certain Funds will not purchase any securities while any
such borrowings exceed a specified percentage of that
Fund's
total assets (including reverse repurchase agreements and
dollar roll transactions that are accounted for as
financings).
A Fund aggregates reverse repurchase agreements and dollar
roll transactions that are accounted for as financings with
its bank borrowings for purposes of limiting borrowings to
one-third of the value of the Fund's total assets.
[] LEVERAGE
Leveraging the Funds through various forms of borrowing
creates an opportunity for increased net income but, at the
same time, creates special risk considerations. For
example, leveraging may exaggerate changes in the net asset
value of a Fund's shares and in the yield on a Fund's
portfolio. Although the principal of such borrowings will
be fixed, a Fund's assets may change in value during the
time the borrowing is outstanding. Leveraging will create
interest expenses for a Fund that can exceed the income
from
the assets retained. To the extent the income derived from
securities purchased with borrowed funds exceeds the
interest a Fund will have to pay, that Fund's net income
will be greater than if leveraging were not used.
Conversely, if the income from the assets retained with
borrowed funds is not sufficient to cover the cost of
leveraging, the net income of a Fund will be less than if
leveraging were not used, and therefore the amount
available
for distribution to shareholders as dividends will be
reduced.
[] REPURCHASE AGREEMENTS
Under a repurchase agreement, a Fund buys securities from a
seller, usually a bank or brokerage firm, with the
understanding that the seller will repurchase the
securities
at a higher price at a later date. If the seller fails to
repurchase the securities, the Fund has the right to sell
the securities to third parties. Repurchase agreements can
be regarded as loans by the Fund to the seller,
collateralized by securities that are the subject of the
agreement. Repurchase agreements afford an opportunity for
the Fund to earn a return on available cash at relatively
low credit risk, although the Fund may be subject to
various
delays and risks of loss if the seller fails to meet its
obligation to repurchase. The staff of the SEC is
currently
of the view that repurchase agreements maturing in more
than
7 days are illiquid.
[] SHORT-TERM TRADING
A Fund may engage in portfolio trading in anticipation of,
or in response to, changing economic or market conditions
and trends. These policies may result in higher turnover
rates in the Fund's portfolio, which may produce higher
transaction costs and a higher level of taxable capital
gains. Portfolio turnover considerations will not limit
the
investment discretion of a Fund's adviser or subadviser, as
the case may be, in managing the Fund's assets.
[] SMALL COMPANIES
Certain Funds, in the discretion of its adviser or
subadviser, as the case may be, may invest without limit in
the securities of companies with smaller capitalization.
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 market averages in general. The
net asset value of Funds that invest in companies with
smaller capitalization therefore may fluctuate more widely
than market averages.
[] FOREIGN SECURITIES
Investments in foreign securities present risks not
typically associated with investments in comparable
securities of U.S. issuers.
Since most foreign securities are denominated in foreign
currencies or traded 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 Fund may be affected
favorably or unfavorably by changes in currency exchange
rates or exchange control regulations. Because a Fund may
purchase securities denominated in foreign currencies, a
change in the value of any such currency against the U.S.
dollar will result in a change in the U.S. dollar value of
the Fund's assets and the Fund's income available for
distribution.
In addition, although a Fund's income may be received or
realized in foreign currencies, the Fund 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 Fund's income has been earned in
that currency, translated into U.S. dollars and declared as
a dividend, but before payment of such dividend, the Fund
could be required to liquidate portfolio securities to pay
such dividend. Similarly, if the value of a currency
relative to the U.S. dollar declines between the time the
Fund incurs 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 in order to pay such
expenses
in U.S. dollars will be greater than the equivalent amount
in such currency of such expenses at the time they were
incurred.
There may be less information publicly available about a
foreign corporate or government 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 those in the
United States, and judgments against foreign entities may
be
more difficult to obtain and enforce. 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. The receipt of interest on foreign
government securities may depend on the availability of tax
or other revenues to satisfy the issuer's obligations.
A Fund's investments in foreign securities may include
investments in emerging or developing 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.
A Fund 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.
In addition, a Fund may invest in securities issued by
supranational agencies. Supranational agencies are those
agencies whose member nations determine to make capital
contributions to support the agencies' activities, and
include such entities as the International Bank for
Reconstruction and Development (the World Bank), the Asian
Development Bank, the European Coal and Steel Community and
the Inter-American Development Bank.
In determining whether to invest in securities of foreign
issuers, the adviser or subadviser, as the case may be, of
a
Fund will consider the likely effects of foreign taxes on
the net yield available to the Fund and its shareholders.
Compliance with foreign tax law may reduce a Fund's net
income available for distribution to shareholders.
[] FOREIGN CURRENCY
Most foreign securities in a Fund's portfolio will be
denominated in foreign currencies or traded in securities
markets in which settlements are made in foreign
currencies.
Similarly, any income on such securities is generally paid
to a Fund in foreign currencies. The value of these
foreign
currencies relative to the U.S. dollar varies continually,
causing changes in the dollar value of the Fund's portfolio
investments (even if the local market price of the
investments is unchanged) and changes in the dollar value
of
a Fund's income available for distribution to its
shareholders. The effect of changes in the dollar value of
a foreign currency on the dollar value of the Fund's assets
and on the net investment income available for distribution
may be favorable or unfavorable.
A Fund may incur costs in connection with conversions
between various currencies. In addition, a Fund may be
required to liquidate portfolio assets, or may incur
increased currency conversion costs, to compensate for a
decline in the dollar value of a foreign currency occurring
between the time when the Fund declares and pays a
dividend,
or between the time when the Fund accrues and pays an
operating expense in U.S. dollars.
[] PRIVATIZATION
In a number of countries around the world, governments have
undertaken to sell to investors interests in enterprises
that the government has historically owned or controlled.
These transactions are known as "privatizations" and may in
some cases represent opportunities for significant capital
appreciation. In some cases, the ability of U.S.
investors,
such as certain Funds, to participate in privatizations may
be limited by local law, or the terms of participation may
be less advantageous than for local investors. Also, there
is no assurance that privatized enterprises will be
successful, or that an investment in such an enterprise
will
retain its value or appreciate in value.
[] OPTIONS, FUTURES, SWAP CONTRACTS AND CURRENCY TRANSACTIONS
Certain Funds may buy, sell or write options on securities,
securities indexes, currencies or futures contracts. These
Funds may buy and sell futures contracts on securities,
securities indexes or currencies. These Funds may engage
in
these transactions either for purpose of enhancing
investment return, or to hedge against changes in the value
of other assets that the Fund owns or intends to acquire.
These Funds may also conduct foreign currency exchange
transactions on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market. These
Funds may enter into interest rate, currency and securities
index swaps. These Funds 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 an increase in
the price of securities the Fund anticipates purchasing at
a
later date.
A Fund may buy and sell futures contracts on a variety of
stock indexes. Options, futures and swap contracts fall
into the broad category of financial instruments known as
"derivatives" and involve special risks. Use of options,
futures or swaps for other than hedging purposes may be
considered a speculative activity, involving greater risks
than are involved in hedging.
Options can generally be classified as either "call" or
"put" options. There are two parties to a typical options
transaction: the "writer" and the "buyer." A call option
gives the buyer the right to buy a security or other asset
(such as an amount of currency or a futures contract) from,
and a put option the right to sell a security or other
asset
to, the option writer at a specified price, on or before a
specified date. The buyer of an option pays a premium when
purchasing the option, which reduces the return on the
underlying security or other asset if the option is
exercised, and results in a loss if the option expires
unexercised. The writer of an option receives a premium
from writing an option, which may increase its return if
the
option expires or is closed out at a profit. If a Fund as
the writer of an option is unable to close out an unexpired
option, it must continue to hold the underlying security or
other asset until the option expires to "cover" its
obligations under the option.
A futures contract creates an obligation by the seller to
deliver and the buyer to take delivery of the type of
instrument or cash at the time and in the amount specified
in the contract. Although many futures contracts call for
the delivery (or receipt) of the specified instrument,
futures are usually closed out before the settlement date
through the purchase (or sale) of a comparable contract.
If
the price of the sale of the futures contract by a Fund
exceeds (or is less than) the price of the offsetting
purchase, the Fund will realize a gain (or loss).
Transactions in futures and related options involve the
risks of (1) imperfect correlation between the price
movement of the contracts and the underlying securities,
(2)
significant price movement in one but not the other market
because of different hours, (3) the possible absence of a
liquid secondary market at any point in time, and the risk
that if the adviser's or subadviser's prediction on
interest
rates or other economic factors is inaccurate, the Fund may
be worse off than if it had not hedged. Futures
transactions involve potentially unlimited risk of loss.
Certain Funds may enter into interest rate, currency and
securities index swaps. The Funds 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 or to
protect against an increase in the price of securities a
Fund anticipates purchasing at a later date. Interest rate
swaps involve the exchange by a Fund with another party of
their respective commitments to pay or receive interest
(for
example, an exchange of floating rate payments for fixed
rate payments with respect to a notional amount of
principal). A currency swap is an agreement to exchange
cash flows on a notional amount based on changes in the
relative values of the specified currencies. An index swap
is an agreement to make or receive payments based on the
different returns that would be achieved if a notional
amount were invested in a specified basket of securities
(such as the S&P 500) or in some other investment (such as
U.S. Treasury securities.)
The value of options purchased by a Fund, futures contracts
held by a Fund's positions in swap contracts may fluctuate
up or down based on a variety of market and economic
factors. In some cases, the fluctuations may offset (or be
offset by) changes in the value of securities held in the
Fund's portfolio. All transactions in options, futures or
swaps involve costs and the possible risk of loss to the
Fund of all or a significant part of the value of its
investment. The Fund will be required, however, to set
aside with its custodian bank certain assets in amounts
sufficient at all times to satisfy its obligations under
options, futures and swap contracts.
The successful use of options, futures and swaps will
usually depend on the adviser's or subadviser's ability to
forecast stock market, currency or other financial market
movements correctly. A Fund's ability to hedge against
adverse changes in the value of securities held in its
portfolio through options, futures and swap transactions
also depends on the degree of correlation between the
changes in the value of futures, options or swap positions
and changes in the values of the portfolio securities. The
successful use of the futures and exchange-traded options
also depends on the availability of a liquid secondary
market to enable the Fund to close its positions on a
timely
basis. There can be no assurance that such a market will
exist at any particular time. In the case of swap
contracts
and options that are not traded on an exchange ("over-the-
counter" options), the Fund is at risk that the other party
to the transaction will default on its obligations, or will
not permit the Fund to terminate the transaction before its
scheduled maturity. As a result of these characteristics,
the Fund will treat most swap contracts and
over-the-counter
options (and the assets it segregates to cover its
obligations thereunder) as illiquid. Certain provisions of
the Code and certain regulatory requirements may limit a
Fund's ability to engage in futures, options and swap
transactions.
The options and futures markets of foreign countries are
small compared to those of the United States, and
consequently are characterized in most cases by less
liquidity than are the U.S. markets. In addition, foreign
markets may be subject to less detailed reporting
requirements and regulatory controls than U.S. markets.
Furthermore, investments by the Funds in options and
futures
in foreign markets are subject to many of the same risks as
are the Fund's other foreign investments. See "Foreign
Securities" above.
[] ZERO COUPON BONDS AND STRIPS
A Fund may invest in zero coupon bonds and in "strips."
Zero
coupon bonds do not make regular interest payments; rather,
they are sold at a discount from face value. Principal and
accrued discount (representing interest accrued but not
paid) are paid at maturity. "Strips" are debt securities
that are stripped of their interest after the securities
are
issued, but otherwise are comparable to zero coupon bonds.
The market values of "strips" and zero coupon bonds
generally fluctuate in response to changes in interest
rates
to a greater degree than do interest-paying securities of
comparable term and quality. Under many market conditions,
investments in such securities may be illiquid, making it
difficult for the Fund to dispose of them or determine
their
current value.
[] CORPORATE REORGANIZATIONS
Certain Funds may invest in securities for which a tender
or
exchange offer has been made or announced and in securities
of companies for which a merger, consolidation, liquidation
or similar reorganization proposal has been announced if,
in
the judgment of the Fund's adviser or subadviser, there is
a
reasonable prospect of capital appreciation significantly
greater than the added portfolio turnover expenses inherent
in the short term nature of such transactions. The
principal risk is that such offers or proposals may not be
consummated within the time and under the terms
contemplated
at the time of the investment, in which case, unless such
offers or proposals are replaced by equivalent or increased
offers or proposals which are consummated, the Fund may
sustain a loss.
[] SECURITIES LENDING
A Fund may lend its portfolio securities to broker-dealers
or other parties under contracts calling for the deposit by
the borrower with the Fund's custodian of cash collateral
equal to at least the market value of the securities
loaned,
marked to market on a daily basis. A Fund 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. Any
voting rights or rights to consent relating to the loaned
securities 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 Fund. A
Fund pays various fees in connection with such loans,
including shipping fees and reasonable custodial or
placement fees.
[] SHORT SALES
A Fund may engage in short sales. A short sale is a
transaction in which the Fund sells securities it does not
own (but has borrowed) in anticipation of a decline in the
market price of the securities. When the Fund makes a
short
sale, the proceeds it receives from the sale will be held
by
the broker on behalf of the Fund until the Fund replaces
the
borrowed securities. To deliver the securities to the
buyer, the Fund will need to arrange through the broker to
borrow the securities and, in doing so, the Fund will be
obligated to replace the securities borrowed at their
market
value at the time of replacement, whatever that price may
be. The Fund may have to pay a premium to borrow the
securities and must pay any dividends or interest payable
until the securities are replaced.
[] 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. Certain Funds may engage in short sales only if the
Fund 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 Fund against the risk of
losses in the value of its portfolio securities because any
losses with respect to such securities should be wholly or
partially offset by a corresponding gain in the short
position. However, any gains in such securities would 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 an adviser or
subadviser
does not want to sell the security.
[] NON-DIVERSIFIED STATUS OF CERTAIN FUNDS
Certain Funds are "non-diversified," and not limited under
the 1940 Act in the percentage of their assets that they
may
invest in any one issuer. However, the Funds intend to
comply with the diversification standards applicable to
regulated investment companies under the Code. In order to
meet those standards, among other requirements, at the
close
of each quarter of its taxable year (a) at least 50% of the
value of the Fund's total assets must be represented by one
or more of the following: (i) cash and cash items,
including
receivables; (ii) U.S. Government securities; (iii)
securities of other regulated investment companies and (iv)
securities (other than those in items (ii) and (iii) above)
of any one or more issuers as to which the Fund's
investment
in an issuer does not exceed 5% of the value of the Fund's
total assets or 10% of the issuer's outstanding voting
securities; and (b) not more than 25% of the value of the
Fund's total assets may be invested in the securities of
any
one issuer (other than U.S. Government securities or
securities of other regulated investment companies).
[] MISCELLANEOUS
A Fund will not invest more than 15% of its assets in
"illiquid securities" (10% in the case of a Fund that is a
money market fund), that is, securities which are not
readily resalable, which may include securities whose
disposition is restricted by federal securities laws.
A Fund may purchase Rule 144A securities. These are
privately offered securities that can be resold only to
certain qualified institutional buyers. Investing in Rule
144A securities could have the effect of increasing the
level of fund illiquidity to the extent that qualified
institutional buyers become, for a time, uninterested in
purchasing these securities. Rule 144A securities are
treated as illiquid, unless a Fund's adviser or subadviser,
as the case may be, has determined, under guidelines
established by the Board of Trustees/Directors of the Fund,
that the particular issue of Rule 144A securities is
liquid.
Investment in restricted or other illiquid securities
involves the risk that the Fund may be unable to sell such
a
security at the desired time. Also, the Fund may incur
expenses, losses or delays in the process of registering
restricted securities prior to resale.
A Fund may purchase securities on a "when-issued" or
"delayed-delivery" basis. This means that the Fund enters
into a commitment to buy the security before the security
has been issued, or, in the case of a security that has
already been issued, to accept delivery of the security on
a
date beyond the usual settlement period. If the value of a
security purchased on a "when-issued" or "delayed-delivery"
basis falls or market rates of interest increase between
the
time the Fund commits to buy the security and the delivery
date, the Fund may sustain a loss in value of or yield on
the security.
APPENDIX B
OTHER UNDERLYING FUNDS IN WHICH THE FUNDS MAY INVEST
EQUITY FUNDS
LOOMIS SAYLES WORLDWIDE FUND
Loomis Sayles Worldwide Fund's investment objective is high total
investment return through a combination of capital appreciation
and current income.
LOOMIS SAYLES CORE VALUE FUND
Loomis Sayles Core Value Fund's investment objective is long-term
growth of capital and income.
LOOMIS SAYLES GROWTH FUND
Loomis Sayles Growth Fund's investment objective is long-term
growth of capital.
LOOMIS SAYLES MID-CAP GROWTH FUND
Loomis Sayles Mid-Cap Growth Fund's investment objective is long-
term capital growth from investments in common stocks or their
equivalent.
LOOMIS SAYLES MID-CAP VALUE FUND
Loomis Sayles Mid-Cap Value Fund's objective is long-term capital
growth from investments in common stocks or their equivalent.
LOOMIS SAYLES SMALL CAP GROWTH FUND
Loomis Sayles Small Cap Growth Fund's objective is long-term
capital growth from investments in common stocks or their
equivalent.
LOOMIS SAYLES STRATEGIC VALUE FUND
Loomis Sayles Strategic Value Fund's investment objective is
long-term capital growth from investments in common stocks or
their equivalent.
THE OAKMARK BALANCED FUND
The Oakmark Balanced Fund seeks high current income and
preservation and growth of capital by investing in a diversified
portfolio of equity and fixed-income securities.
THE OAKMARK SMALL CAP FUND
The Oakmark Small Cap Fund seeks long-term capital appreciation
by investing primarily in equity securities.
THE OAKMARK INTERNATIONAL SMALL CAP FUND
The Oakmark International Small Cap Fund (formerly named The
Oakmark International Emerging Value Fund) seeks long-term
capital appreciation by investing primarily in equity securities
of non-U.S. issuers with small market capitalization.
JURIKA & VOYLES VALUE AND GROWTH FUND
Jurika & Voyles Value and Growth Fund seeks long-term capital
appreciation.
JURIKA & VOYLES BALANCED FUND
Jurika & Voyles Balanced Fund's objective is to provide investors
with a balance of long-term capital appreciation and current
income.
JURIKA & VOYLES SMALL CAP FUND
Jurika & Voyles Small Cap Fund seeks to maximize long-term
capital appreciation.
NEW ENGLAND CAPITAL GROWTH FUND
New England Capital Growth Fund seeks long-term growth of
capital.
NEW ENGLAND INTERNATIONAL EQUITY FUND
New England International Equity Fund seeks total return from
long-term growth of capital and dividend income.
NEW ENGLAND STAR SMALL CAP FUND
New England Star Small Cap Fund seeks capital appreciation.
NEW ENGLAND STAR ADVISERS FUND
New England Star Advisers Fund seeks long-term growth of capital.
NEW ENGLAND STAR WORLDWIDE FUND
New England Star Worldwide Fund seeks long-term growth of
capital.
NEW ENGLAND EQUITY INCOME FUND
New England Equity Income Fund seeks current income and capital
growth.
REICH & TANG EQUITY FUND, INC.
Reich & Tang Equity Fund's investment objective is to seek growth
of capital.
BOND FUNDS
LOOMIS SAYLES HIGH YIELD FUND
Loomis Sayles High Yield Fund's investment objective is high
total investment return through a combination of current income
and capital appreciation.
LOOMIS SAYLES INTERMEDIATE MATURITY BOND FUND
Loomis Sayles Intermediate Maturity Bond Fund's investment
objective is high total investment return through a combination
of current income and capital appreciation.
LOOMIS SAYLES INVESTMENT GRADE BOND FUND
Loomis Sayles Investment Grade Bond Fund's investment objective
is high total investment return through a combination of current
income and capital appreciation.
LOOMIS SAYLES MUNICIPAL BOND FUND
Loomis Sayles Municipal Bond Fund's investment objective is as
high a level of current income exempt from federal income tax as
is consistent with the preservation of capital.
LOOMIS SAYLES SHORT-TERM BOND FUND
Loomis Sayles Short-Term Bond Fund's investment objective is high
total investment return through a combination of current income
and capital appreciation with relatively low fluctuation in net
asset value.
LOOMIS SAYLES U.S. GOVERNMENT SECURITIES FUND
Loomis Sayles U.S. Government Securities Fund's investment
objective is high total investment return through a combination
of current income and capital appreciation.
NEW ENGLAND GOVERNMENT SECURITIES FUND
New England Government Securities Fund seeks a high level of
current income consistent with safety of principal by investing
in U.S. Government securities.
NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND
New England Adjustable Rate U.S. Government Fund seeks a high
level of current income consistent with low volatility of
principal.
NEW ENGLAND HIGH INCOME FUND
New England High Income Fund seeks high current income plus the
opportunity for capital appreciation to produce a high total
return.
NEW ENGLAND LIMITED TERM U.S. GOVERNMENT FUND
New England Limited Term U.S. Government Fund seeks a high
current return consistent with preservation of capital.
Information contained herein is subject to completion or
amendment. A registration statement relating to these securities
has been filed with the Securities and Exchange Commission.
These securities may not be sold nor may offers to buy be
accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any
sale of these securities in any state in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such state.
Subject to Completion
Preliminary Prospectus dated November 7, 1997
[sail logo]
NEW ENGLAND FUNDS(R)
Where the Best Minds Meet(R)
- ----------------------------------------------------------------
CLASS Y SHARES OF:
New England One Growth Fund
New England One Moderate Fund
New England One Conservative Fund
PROSPECTUS AND APPLICATION
March, 1998
New England One Growth Fund, New England One Moderate Fund and
New England One Conservative Fund (the "Funds" and each a "Fund")
are diversified series of New England Funds Trust IV (the
"Trust"), a registered open-end management investment company.
New England One Growth Fund's investment objective is long-term
growth of capital. New England One Moderate Fund's investment
objective is total return from growth of capital and,
secondarily, current income. New England One Conservative Fund's
investment objective is total return from a combination of
current income and growth of capital. Each Fund seeks to
accomplish its objective by investing primarily in a number of
other related mutual funds (the "Underlying Funds"). There can
be no assurance that a Fund will achieve its objective, which may
be changed without shareholder approval.
Each Fund offers four classes of shares: Class Y (for qualified
institutional investors) and Classes A, B and C (for other
investors). This prospectus sets forth information investors
should know before investing in Class Y shares. Please read it
carefully and keep it for future reference. A Statement of
Additional Information (the "Statement") about the Funds dated
March, 1998 has been filed with the Securities and Exchange
Commission (the "SEC") and is available free of charge. Write to
New England Funds, L.P. (the "Distributor"), SAI Fulfillment
Desk, 399 Boylston Street, Boston, Massachusetts 02116 or call
toll free at 800-225-5478. The Statement, which contains more
detailed information about the Funds and is incorporated into
this prospectus by reference, is also available along with other
related materials on the SEC's Internet Web site
(http://www.sec.gov). Class A, Class B and Class C shares of the
Funds are described in a separate prospectus. To obtain more
information about Class A, Class B and Class C shares, please
call the Distributor toll-free at 800-225-5478.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND INVOLVE RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
FUND EXPENSES
1
INVESTMENT STRATEGY
5
FUND MANAGEMENT
12
BUYING FUND SHARES
13
OWNING FUND SHARES
15
FUND DIVIDEND PAYMENTS
16
SELLING FUND SHARES
16
FUND DETAILS
18
INCOME TAX CONSIDERATIONS
19
THE FUNDS' EXPENSES
20
PERFORMANCE CRITERIA
21
ADDITIONAL FACTS ABOUT THE FUNDS
21
GLOSSARY OF TERMS
23
APPENDIX A
A-1
APPENDIX B
B-1
- ----------------------------------------------------------------
FUND EXPENSES
- ----------------------------------------------------------------
SCHEDULE OF FEES
New England One Growth Fund
New England One Moderate Fund
New England One Conservative Fund
Expenses are one of several factors to consider when you invest
in a Fund. The following table summarizes your maximum
transaction costs from investing in Class Y shares of a Fund and
estimated annual expenses for that Fund's Class Y shares. The
example shows the cumulative expenses attributable to a
hypothetical $1,000 investment in each Fund's Class Y shares for
the periods specified.
SHAREHOLDER TRANSACTION EXPENSES
CLASS Y
Maximum Initial Sales Charge Imposed None
on a Purchase
Maximum Contingent Deferred Sales None
Charge
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
CLASS Y
Management Fees 0.10%
12b-1 Fees None
Other Expenses* 0.00%
Total Fund Operating Expenses 0.10%
* The payment of each Fund's pro rata share of expenses is
subject to the Special Servicing Agreement. Please refer to "The
Funds' Expenses -- Special Servicing Agreement."
Each Fund's Class Y shares are expected to have a low expense
ratio. However, each Fund's shareholders will indirectly bear
that Fund's pro rata share of fees and expenses incurred by the
Underlying Funds in which the Fund is invested. The investment
returns of each Fund, therefore, will be net of that Fund's share
of the expenses of the Underlying Funds in which the Fund is
invested. The chart below shows the expense ratios of each
Underlying Fund after fee waiver or reimbursement, where
applicable, as of its most recent fiscal year end.
EXPENSE RATIOS OF THE UNDERLYING FUNDS IN WHICH THE FUNDS
INITIALLY WILL INVEST
EXPENSE
EXPENSE
UNDERLYING FUND RATIO UNDERLYING FUND
RATIO
EQUITY FUNDS BOND FUNDS
Loomis Sayles Bond
0.75%
Fund
Delafield Fund, Inc. 1.29%* Loomis Sayles Global
0.90%*
Bond Fund
Loomis Sayles 1.00%* New England Strategic
1.03%
International Equity Income Fund
Fund
Loomis Sayles Small 0.94% New England Bond
0.80%
Cap Value Fund Income Fund
New England Growth 0.93%
Fund
New England Growth 1.05% MONEY MARKET FUND
Opportunities
Fund
New England Value Fund 1.06% New England Cash
0.88%
Management
Trust - Money
Market Series
The Oakmark Fund 1.18%
The Oakmark 1.32%
International Fund
The Oakmark Select 1.41%
Fund
Jurika & Voyles Mini- 1.50%
Cap Fund
* Expense rates for these Underlying Funds were maintained by
certain of their service providers affiliated with New England
Funds, L.P. through fee waivers, reimbursements, fee reductions
or some similar method for their respective fiscal periods.
Absent such maintenance of expenses, each Underlying Fund's total
operating expenses would have been: Delafield Fund, Inc. -
1.49%; Loomis Sayles International Equity Fund - 1.17%; Jurika &
Voyles Mini-Cap Fund - 1.74%; and Loomis Sayles Global Bond Fund
- - 1.62%. If the relevant service providers had not maintained
the Underlying Funds' expenses, their total returns for the
period would have been lower.
The average weighted expense ratios borne by New England One
Conservative Fund, New England One Moderate Fund and New England
One Growth Fund are expected to be [ ]%, [ ]% and [ ]%,
respectively (see "Investment Strategy -- How the Funds Pursue
Their Investment Objectives" for a description of the initial
allocation of each Fund's assets among the Underlying Funds).
The Underlying Funds in which each of the Funds is invested will
vary and the proportion of the assets of the Funds invested in
each of the Underlying Funds will fluctuate. Therefore, the
average weighted expense ratios of the Funds may be greater or
less than the percentages listed above at any given time.
EXAMPLE
Using the ratios set forth above, the total pro rata expenses
relating to a $1,000 investment in each Fund's Class Y shares,
assuming a 5% annual return and, unless otherwise indicated,
redemption at the end of each period are listed below. Investors
do not pay the majority of these expenses directly; they are paid
by each Underlying Fund before it distributes its net investment
income to a Fund. The example for each Fund is based upon the
initial mix of Underlying Funds for that Fund set forth in the
table above. The Adviser may, in its discretion, alter the mix
of Underlying Funds in which a Fund is invested at any time.
NEW ENGLAND ONE CLASS Y
CONSERVATIVE FUND
1 Year $
3 Years $
NEW ENGLAND ONE CLASS Y
MODERATE FUND
1 Year $
3 Years $
NEW ENGLAND ONE CLASS Y
GROWTH FUND
1 Year $
3 Years $
See "The Funds' Expenses -- Special Servicing Agreement" for an
explanation of the Special Servicing Agreement. This example
assumes that each Fund reinvests all dividends and distributions
paid by the Underlying Funds. THIS EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES OF THE FUNDS AND UNDERLYING FUNDS MAY
VARY FROM YEAR TO YEAR AND MAY BE HIGHER OR LOWER THAN THOSE
SHOWN.
The purpose of this fee schedule is to assist you in
understanding the various costs and expenses that you will bear
directly or indirectly if you invest in the Funds. For additional
information about each Fund's fees and other expenses, please see
"Fund Management," "The Funds' Expenses" and "Additional Facts
About the Funds."
PERFORMANCE OF THE UNDERLYING FUNDS
Past investment performance of the Underlying Funds, as shown in
the table below, is provided to indicate the experience of the
various advisers in managing the Underlying Funds and may be
relevant to your consideration of the Funds. However, the past
investment performance of the Underlying Funds should not be
considered to be indicative of future performance of the
Underlying Funds or the Funds. Investors should consider that,
because each Fund will invest in varying combinations of
Underlying Funds, the performance of a Fund will reflect the
combined performance of the Underlying Funds in which it invests
and will be affected by the varying allocation of investments in
Underlying Funds. Moreover, in addition to the expenses borne by
each Underlying Fund, the Funds will incur investment advisory
fees and may incur some or all of their own direct expenses under
the Special Servicing Agreement (see "The Funds' Expenses --
Special Servicing Agreement" below). Accordingly, the investment
performance of the Funds will be less than the weighted average
of the returns of the Underlying Funds in which they invest.
The following chart shows the average annual total returns, if
available, as a percentage of net asset value for each of the
initial Underlying Funds for their most recent one-, five-, ten-
year or life of fund periods. Unless otherwise noted, total
return figures relate to each Underlying Fund's Class Y shares,
which impose no sales loads or Rule 12b-1 fees.
AVERAGE ANNUAL TOTAL
RETURNS(1)
INCEPTION ONE FIVE TEN
LIFE OF
DATE YEAR YEARS YEARS
FUND
EQUITY FUNDS
Delafield Fund, 11/19/93 n/a n/a n/a
n/a
Inc.(2)
Loomis Sayles 5/10/91 18.30% 10.69% --
10.11%
International
Equity Fund
Loomis Sayles Small 5/13/91 30.35% 17.38% --
20.85%
Cap Value Fund
New England Growth 11/27/68 20.88% 10.02% 14.58%
- --
Fund(3)
New England Growth 5/6/31 17.21% 13.53% 12.72%
- --
Opportunities
Fund(3)
New England Value 3/31/94 26.43% -- --
21.67%
Fund
The Oakmark Fund 8/5/91 18.1% 25.8% --
29.2%
The Oakmark 9/30/92 24.9% -- --
16.0%
International Fund
The Oakmark Select 11/1/96 n/a n/a n/a
n/a
Fund(2)
Jurika & Voyles 9/30/94 38.46% -- --
46.86%
Mini-Cap Fund(4)
BOND FUNDS
Loomis Sayles Bond 5/16/91 10.29% 14.29% --
14.32%
Fund
Loomis Sayles Global 5/10/91 15.02% 8.50% --
10.51%
Bond Fund
New England 5/1/95 14.52% -- --
15.00%
Strategic Income
Fund(3)
New England Bond 1/1/95 4.59% -- --
12.49%
Income Fund
MONEY MARKET FUND YIELD*
EFFECTIVE
YIELD*
New England Cash 7/10/78 4.46% 4.56%
Management
Trust - Money Market
Series
* Seven days ended June 30, 1996.
(1) As of each Underlying Fund's most recent fiscal reporting
period.
(2) Performance data not available.
(3) Although the Fund offers Class Y shares, it did not offer
Class Y shares prior to 1997. The inception date and
average annual total return provided are those of the
Fund's
Class A shares, which may have a higher expense ratio due
to
sales charges applicable to Class A shares but not Class Y
shares.
(4) The Fund does not offer Class Y shares. The inception date
and average annual total return provided are those of the
Fund's Class J shares, which impose no sales load.
All total return calculations assume that dividends and capital
gains distributions, if any, were reinvested.
PERFORMANCE FIGURES ARE HISTORICAL AND ARE NOT INTENDED TO
INDICATE FUTURE INVESTMENT PERFORMANCE.
- ----------------------------------------------------------------
INVESTMENT STRATEGY
- ----------------------------------------------------------------
INVESTMENT OBJECTIVES
NEW ENGLAND ONE GROWTH FUND (the "Growth Fund")
The Growth Fund seeks long-term growth of capital.
NEW ENGLAND ONE MODERATE FUND (the "Moderate Fund")
The Moderate Fund seeks total return from growth of capital and,
secondarily, from current income.
NEW ENGLAND ONE CONSERVATIVE FUND (the "Conservative Fund")
The Conservative Fund seeks total return from a combination of
current income and growth of capital.
HOW THE FUNDS PURSUE THEIR INVESTMENT OBJECTIVES
To achieve their investment objectives, the Funds invest
primarily in mutual funds offered by New England Funds, L.P. and
its affiliates, including certain funds comprising the New
England Funds (the "New England Funds"), the Oakmark Family of
Funds, the Loomis Sayles Funds, the Jurika & Voyles Fund Group,
Reich & Tang Equity Fund, Inc., and Delafield Fund, Inc. The
funds in which the Funds may invest are referred to as the
"Underlying Funds" (see the table below and Appendix B). The
investment adviser or subadviser of each of the Underlying Funds
is an affiliated investment management subsidiary of New England
Investment Companies, L.P. ("NEIC"). Certain of the Underlying
Funds are managed by sub-advisers that are unaffiliated with
NEIC. Some of the Underlying Funds are equity mutual funds
("Underlying Equity Funds"), which invest primarily in stocks to
achieve growth. Other Underlying Funds are bond mutual funds
("Underlying Bond Funds"), which invest for income and, in some
cases, appreciation as well.
Each Fund will invest its cash flows according to a fixed
allocation model, selected to generate a reasonable level of
total return while controlling for risk. Each Fund will
rebalance its portfolio no more than annually as a means of
maintaining the return and risk characteristics of a Fund. Under
normal market conditions, the Funds will invest according to the
following guidelines:
GROWTH FUND
The Growth Fund will invest in a selected mix of equity and bond
funds from among the Underlying Funds. Under normal market
conditions, the Growth Fund is expected to invest approximately
90% of its assets in equity funds and 10% of its assets in bond
funds. The equity funds are included in the mix primarily to
generate growth of capital while the bond funds are intended to
reduce volatility and contribute towards total return.
The investments of the Growth Fund will be allocated initially as
shown below, based on NEFM's allocations effective on the date of
this Prospectus:
New England Growth Opportunities Fund
Delafield Fund, Inc.
The Oakmark Fund
New England Growth Fund
The Oakmark International Fund
Loomis Sayles International Equity Fund
New England Strategic Income Fund
Loomis Sayles Small Cap Value Fund
The Oakmark Select Fund
NEFM may alter the allocation of investments for the Fund at any
time.
MODERATE FUND
The Moderate Fund will invest in a selected mix of equity and
bond funds from among the Underlying Funds. The equity funds are
included in the mix primarily to generate growth of capital while
the bond funds are intended to generate current income. Under
normal market conditions, the Moderate Fund is expected to invest
approximately 70% of its assets in equity funds and 30% of its
assets in bond funds.
The investments of the Moderate Fund will be allocated initially
as shown below, based on NEFM's allocations effective on the date
of this Prospectus:
New England Bond Income Fund
New England Growth Fund
New England Growth Opportunities Fund
New England Strategic Income Fund
Jurika & Voyles Mini-Cap Fund
The Oakmark Fund
Delafield Fund, Inc.
The Oakmark International Fund
Loomis Sayles International Equity Fund
Loomis Sayles Small Cap Value Fund
NEFM may alter the allocation of investments for the Fund at any
time.
CONSERVATIVE FUND
The Conservative Fund will invest in a selected mix of bond and
equity funds from among the Underlying Funds. Under normal
market conditions, the Conservative Fund is expected to invest
approximately 60% of its assets in bond funds and 40% of its
assets in equity funds. The bond funds are included in the mix
to generate current income primarily while the equity funds are
intended to generate growth of capital.
The investments of the Conservative Fund will be allocated
initially as shown below, based on NEFM's allocations effective
on the date of this Prospectus:
Loomis Sayles International Equity Fund
Loomis Sayles Bond Fund
New England Value Fund
Delafield Fund, Inc.
The Oakmark Fund
Loomis Sayles Global Bond Fund
New England Strategic Income Fund
New England Bond Income Fund
New England Growth Opportunities Fund
NEFM may alter the allocation of investments for the Fund at any
time.
RISK PROFILE: POTENTIAL RISK AND REWARD. The value of a Fund's
investments in Underlying Equity Funds will fluctuate with
changes in the stock market and changes in the economy. The
value of a Fund's investments in Underlying Bond Funds can be
expected to vary inversely to changes in prevailing interest
rates. While fixed-income securities with longer maturities tend
to produce higher yields, the prices of longer maturity
securities are also subject to greater market fluctuations as a
result of changes in interest rates. Certain Underlying Funds in
which a Fund invests may purchase high yield securities and
mortgage-backed securities. High yield securities usually entail
greater risk and may be more volatile and less liquid than other
fixed-income securities. Mortgage-backed securities are subject
to the same risks as fixed-income securities in general, but also
may react differently or less favorably to changes in interest
rates as a result of prepayment risk. In addition, investing in
Underlying Funds that invest internationally involves different
or increased risks. Foreign investment means that the
performance of a Fund will be affected by currency values, the
political and regulatory environment, greater volatility of
securities exchanges and overall political and economic factors
in the countries in which the Underlying Funds invest. Certain
Underlying Funds may invest in emerging market country
securities, which may increase these risks, but may offer
superior growth opportunities.
WHY INVEST IN THE FUNDS?
The Funds are designed for investors who prefer to have their
asset allocation decisions made by professional money managers,
appreciate the advantages of broad diversification in one
investment, or are looking for a core investment for their
retirement portfolio.
The primary advantages of the Funds for investors are
simplification, convenience and economy. Each Fund provides an
investor access to the Underlying Funds without the required
minimum investment for each. Through a single investment, they
will be able to achieve broad diversification in pursuit of one
of three distinct objectives.
The proliferation of mutual funds over the last several years
have left many investors in search of a simple means by which to
manage and understand their investments. With new investment
categories emerging each year and with each mutual fund reacting
differently to political, economic and business events, many
investors are forced to make complex investment decisions with
limited experience, time or personal resources. The Funds offer
broad diversification and ongoing professional asset allocation.
Each of the Funds invests in a select group of Underlying Funds
suited to the Fund's particular investment objective. The
allocation of assets within each Fund is determined by New
England Funds Management, L.P. ("NEFM" or the "Adviser")
according to fundamental and quantitative investment analysis.
The assets will be adjusted only periodically and only within
pre-determined ranges designed to ensure broad diversification.
There should not be any sudden large-scale changes in asset
allocation. New England Funds are not designed as market timing
vehicles but rather as cost-effective and simple modes of helping
investors meet retirement and other long-term goals.
THE UNDERLYING FUNDS
The Underlying Funds that initially will be considered for
investment by each Fund are described below. The Underlying
Funds in which the Funds intend to invest may change from time to
time and the Funds may invest in Underlying Funds in addition to
those described below at the discretion of NEFM without
shareholder approval. Other Underlying Funds in which the Funds
may invest are described in Appendix B.
The value of each Underlying Fund's investments and the income
they generate will vary from day-to-day and generally reflect
market conditions, interest rates, and other company, political,
or economic developments both in the United States and abroad.
When a Fund redeems shares of an Underlying Fund, they may be
worth more or less than their original cost. As with any mutual
fund, there is no assurance that an Underlying Fund will achieve
its objective.
The Underlying Funds spread investment risk in varying degrees by
limiting their holdings in any one company or industry.
Nevertheless, each Underlying Fund will experience price
volatility the extent of which will be affected by the types of
securities and techniques the particular Underlying Fund uses.
Each Underlying Fund may invest in securities and engage in
derivative transactions described in Appendix A to pursue
portfolio strategy. Derivatives involve certain risks that are
different from the risks associated with other securities.
Each Underlying Fund normally will be invested according to its
investment strategy. However, an Underlying Fund may also have
the ability to invest without limitation in high-quality money
market instruments or other investments for temporary, defensive
purposes.
The following is intended to summarize the investment objectives
and strategies of the Underlying Funds. These summaries do not
reflect all of the investment policies and strategies that are
disclosed in each Underlying Fund's prospectus, and are not an
offer of the Underlying Funds' shares.
EQUITY FUNDS
DELAFIELD FUND, INC.
The investment objectives of Delafield Fund, Inc. are to seek
long-term preservation of capital (sufficient growth to outpace
inflation over an extended period of time) and growth of capital.
The Fund will seek to achieve these objectives by investing
primarily in the equity securities of domestic companies which,
based on the research of the Fund's adviser are considered to be
undervalued or to represent special situations (i.e., companies
undergoing change that might cause their market value to grow at
a rate faster than the market generally). The Fund will under
normal circumstances have substantially all of its assets (i.e.,
more than 65%) invested in a diversified portfolio of equity
securities, including common stocks, securities convertible into
common stocks or rights or warrants to subscribe for or purchase
common stocks. The Fund at times may also invest less than 35%
of its total assets in debt securities and preferred stocks
offering a significant opportunity for price appreciation.
LOOMIS SAYLES SMALL CAP VALUE FUND
The investment objective of Loomis Sayles Small Cap Value Fund is
long-term capital growth from investments in common stocks or
their equivalent. The Fund seeks to achieve its objective by
investing primarily in equity securities of small capitalization
companies with good earnings growth potential that the Fund's
adviser believes are undervalued by the market. The Fund will
normally invest at least 65% of its total assets in companies
with market capitalization of less than $1 billion and may invest
up to 35% of its assets in large companies. The Fund's adviser
seeks to build a core small capitalization portfolio of stocks of
solid companies with reasonable growth prospects that are
attractively priced in relation to the companies' earnings with a
smaller emphasis on special situations and turnarounds (companies
that have experienced significant business problems but which the
Fund's adviser believes have favorable prospects for recovery),
as well as unrecognized stocks. Current income is not a
consideration in selecting the Fund's investments. The Fund may
invest up to 20% of its assets in securities of foreign issuers.
The Fund may also engage in foreign currency hedging transactions
and purchase Rule 144A securities.
THE OAKMARK FUND
The Oakmark Fund seeks long-term capital appreciation by
investing primarily in equity securities. Although income is
considered in the selection of securities, the Fund is not
designed for investors whose primary investment objective is
income.
The Fund invests principally in securities of U.S. issuers.
However, it may invest up to 25% of its total assets (valued at
the time of investment) in securities of non-U.S. issuers,
including foreign government obligations and foreign equity and
debt securities that are traded over-the-counter or on foreign
exchanges. There are no geographic limits on the Fund's foreign
investments, but the Fund does not expect to invest more than 5%
of its assets in securities of issuers based in emerging markets.
THE OAKMARK INTERNATIONAL FUND
The Oakmark International Fund seeks long-term capital
appreciation by investing primarily in equity securities of non-
U.S. issuers. Although income is considered in the selection of
securities, the Fund is not designed for investors whose primary
investment objective is income.
The Fund's adviser considers the relative political and economic
stability of the issuer's home country, the ownership structure
of the company and the company's accounting practices in
evaluating the potential rewards and risks of an investment
opportunity. The Fund may invest in securities traded in mature
markets (for example, Japan, Canada and the United Kingdom), in
less developed markets (for example, Mexico and Thailand) and in
selected emerging markets (such as Peru and India). Investments
in securities of non-U.S. issuers, especially those traded in
less developed or emerging markets, present additional risk.
There are no limits on the Fund's geographic asset distribution,
but, to provide adequate diversification, the Fund ordinarily
invests in the securities markets of at least five countries
outside the United States.
JURIKA & VOYLES MINI-CAP FUND
The Jurika & Voyles Mini-Cap Fund seeks to maximize long-term
capital appreciation. The Fund invests primarily in the common
stock of quality companies having small market capitalizations
that offer current value and significant future growth potential.
The Fund will invest at least 65% of its total assets in the
common stock of companies having market capitalizations at the
time of purchase of between $50 million and $500 million. The
Fund typically expects that at least 80% of its equity holdings
will fall within this capitalization range. The average and
median market capitalizations will fluctuate over time as a
result of market valuation levels and the availability of
specific investment opportunities.
LOOMIS SAYLES INTERNATIONAL EQUITY FUND
Loomis Sayles International Equity Fund's investment objective is
high total investment return through a combination of capital
appreciation and current income. The Fund seeks to achieve its
objective by investing primarily in equity securities of
companies organized or headquartered outside the United States.
Under normal conditions the Fund will invest at least 65% of its
total assets in equity securities of issuers from at least three
countries outside the United States. For temporary defensive
purposes, the Fund may invest as much as 100% of its assets in
issuers from one or two countries, which may include the United
States. The Fund may also engage in foreign currency hedging
transactions, options transactions, and Rule 144A securities.
NEW ENGLAND GROWTH FUND
The Fund seeks long-term growth of capital through investment in
equity securities of companies whose earnings are expected to
grow at a faster rate than the United States economy. Most of
the Growth Fund's investments are normally in common stocks,
although the Fund may invest in any type of equity securities.
The Fund does not consider current income as a factor in
selecting its investments. The Fund may invest in foreign
securities.
NEW ENGLAND VALUE FUND
New England Value Fund seeks a reasonable long-term investment
return from a combination of market appreciation and dividend
income from equity securities. Substantially all of the Fund's
investments are normally in equity securities. In selecting
investments for the Fund, the emphasis is ordinarily placed on
undervalued securities. Although long-term market appreciation
is ordinarily the basis for security selection, current income
may be a significant consideration when yields appear to be
favorable compared to overall opportunities for capital
appreciation. The Fund may invest in foreign securities.
NEW ENGLAND GROWTH OPPORTUNITIES FUND
New England Growth Opportunities Fund seeks opportunities for
long-term growth of capital and income. It is normally the
policy of the Fund to invest in a diversified portfolio of common
stocks considered by the Fund's subadviser to have possibilities
for long-term appreciation of capital and income. Emphasis will
be given to both undervalued securities and securities of
companies with growth potential. The Fund will ordinarily invest
substantially all of its assets in equity securities. The Fund
may invest in foreign securities that are traded in U.S. markets.
THE OAKMARK SELECT FUND
The Oakmark Select Fund seeks long-term capital appreciation by
investing primarily in a non-diversified portfolio of equity
securities. The Fund invests principally in securities of U.S.
issuers. However, it may invest up to 25% of its total assets
(valued at the time of investment) in securities of non-U.S.
issuers, including foreign government obligations and foreign
equity and debt securities that are traded over-the-counter or on
foreign exchanges. There are no geographic limits on the Fund's
foreign investments, but the Fund does not expect to invest more
than 5% of its assets in securities of issuers based in emerging
markets. As a "non-diversified" fund, the Fund is not limited
under the Investment Company Act of 1940 (the "1940 Act") in the
percentage of its assets that it may invest in any one issuer.
BOND FUNDS
LOOMIS SAYLES BOND FUND
Loomis Sayles Global Bond Fund's investment objective is high
total investment return through a combination of current income
and capital appreciation. The Fund seeks to achieve its
objective by normally investing substantially all of its assets
in fixed-income securities, although up to 20% of its assets may
be invested in preferred stocks. At least 65% of the Fund's
total assets will normally be invested in bonds. The Fund may
invest any portion of its assets in securities of Canadian
issuers, and up to 20% of its assets in securities of other
foreign issuers. The Fund may also invest up to 35% of its
assets in securities of below investment grade quality.
LOOMIS SAYLES GLOBAL BOND FUND
Loomis Sayles Global Bond Fund's investment objective is high
total investment return through a combination of high current
income and capital appreciation. The Fund seeks to achieve its
objective by investing primarily in investment grade fixed-income
securities denominated in various currencies, including U.S.
dollars, or in multicurrency units. Under normal conditions, the
Fund will invest at least 65% of its total assets in fixed-income
securities of issuers from at least three countries, which may
include the United States, and no more than 40% of its assets in
issuers headquartered in any one country. However, up to 100% of
the Fund's assets may be denominated in U.S. dollars. The Fund
may engage in options and futures transactions, repurchase
transactions, foreign currency hedging transactions and swap
transactions.
NEW ENGLAND BOND INCOME FUND
New England Bond Income Fund seeks a high level of current income
consistent with what the Fund considers reasonable risk. The
Fund invests primarily in corporate and U.S. Government bonds.
At least 80% of its total assets will be invested in bonds
carrying investment grade ratings from one of the recognized
rating services. The Fund may also purchase non-rated or lower-
rated bonds. The Fund may invest in debt instruments rated in
the rating categories of B (by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Ratings Group ("S&P")) or higher
and in instruments that are unrated. The Fund may invest in
securities of any maturity and in zero coupon securities. The
Fund may also invest in collateralized mortgage obligations
("CMOs"). The Fund may invest in convertible securities and in
Rule 144A securities. The Fund may invest in foreign securities
but will do so only when the Fund's subadviser believes the
associated risks are minimal as compared to similar securities of
domestic issuers. The Fund may engage in a variety of options
and futures transactions with respect to U.S. or foreign
government securities and corporate fixed-income securities.
NEW ENGLAND STRATEGIC INCOME FUND
New England Strategic Income Fund seeks high current income with
a secondary objective of capital growth. The Fund seeks to
achieve its investment objectives by investing at least 65% of
its total assets in debt instruments. The Fund may invest in
debt instruments issued by corporations based in the United
States or abroad and debt instruments that are convertible into
equity securities. The Fund may also invest in U.S. Government
securities and in securities issued or guaranteed by foreign
governments (including their political subdivisions, agencies,
authorities and/or instrumentalities) and securities issued by
supranational agencies. The Fund may invest in securities of
emerging markets. The Fund may invest in debt instruments in any
rating category, including debt instruments rated in the lower
rating categories and in instruments that are unrated.
MONEY MARKET FUND
NEW ENGLAND CASH MANAGEMENT TRUST - MONEY MARKET SERIES
Money Market Series seeks maximum current income consistent with
preservation of capital and liquidity. The Fund invests in a
variety of higher quality money market instruments. Money Market
Series invests in certificates of deposit, bankers' acceptances
and other dollar-denominated obligations of banks whose net
assets exceed $100 million. Up to 100% of the Fund's assets may
be invested in these kinds of obligations.
The Fund may invest in commercial paper and other corporate debt
obligations that satisfy the Fund's quality and maturity
standards. The Fund may also invest in U.S. Government
securities.
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FUND MANAGEMENT
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The Funds retain the investment management firm of New England
Funds Management, L.P., 399 Boylston Street, Boston,
Massachusetts 02116, to manage the Funds' daily investment and
business affairs subject to the policies established by the
Trust's Board of Trustees. NEFM provides executive and other
personnel for the management of the Trust. Determinations
concerning allocations of the Funds' assets among the Underlying
Funds is made by a team of experienced investment professionals
provided by NEFM. The Trustees have overall responsibility for
the management of the Trust under Massachusetts law.
Each Fund pays NEFM a management fee at the annual rate of 0.10%
of the Fund's average daily net assets.
The general partner of each of NEFM and the Distributor is a
special purpose corporation that is an indirect, wholly-owned
subsidiary of NEIC. NEIC's sole general partner, New England
Investment Companies, Inc., is an indirect wholly-owned
subsidiary of Metropolitan Life Insurance Company ("MetLife").
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BUYING FUND SHARES
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MINIMUM INVESTMENT/ELIGIBILITY
Class Y shares of the Funds may be purchased by endowments,
foundations, bank trust departments or trust companies. The
minimum initial investment is $1 million for these entities, and
$10,000 is the minimum for each subsequent investment. Class Y
shares may also be purchased by plan sponsors of 401(a), 401(k),
457 or 403(b) plans ("Retirement Plans") that have total
investment assets of at least $10 million, and by New England
Life Insurance Company ("NELICO") or MetLife and any other
insurance company affiliated with NELICO or MetLife or any of
their successor entities ("Insurance Company Accounts"). Plan
sponsors' investment assets in multiple Retirement Plans can be
aggregated for purposes of meeting this minimum. Class Y shares
may also be purchased by any separate account of NELICO or
MetLife, any other insurance company affiliated with NELICO or
MetLife ("Separate Accounts") and by bank common trusts, bank
collective trust funds and dedicated corporate or trusted funds,
such as nuclear decommissioning trusts and hospital depreciation
funds ("Special Accounts"). Class Y shares may also be purchased
by wrap fee programs of certain broker-dealers as to which no
service or marketing fees are paid to broker-dealers by the Fund,
NEFM or the Distributor ("Wrap Fee Programs"). There is no
minimum initial or subsequent investment amount for Retirement
Plans, Separate Accounts, Special Accounts, Insurance Company
Accounts or Wrap Fee Programs. Investments in the Funds may also
be made by certain individual retirement accounts if the amounts
invested represent rollover distributions from investments by any
of the Retirement Plans of amounts invested in the Funds. The
Distributor serves as the principal underwriter of each Fund's
shares. Shares may be purchased on any day when the New York
Stock Exchange (the "Exchange") is open for business (a "business
day"). Investors should contact the Distributor before attempting
to place an order for Fund shares. The Funds and the Distributor
reserve the right at any time to reject a purchase order.
Class Y shares of a Fund may, at the discretion of NELICO, be
purchased on behalf of agents, general agents, directors and
senior officers of NELICO and its insurance company subsidiaries
in connection with deferred compensation plans offered by NELICO
("NELICO Deferred Compensation Plan Accounts"). There is no
minimum initial or subsequent investment amount for NELICO
Deferred Compensation Plan Accounts.
Class Y shares of a Fund may be purchased through Wrap Fee
Programs offered by certain broker-dealers. Such Wrap Fee
Programs may be subject to additional or different conditions,
including a wrap account fee. Each broker-dealer that offers
Class Y shares through a Wrap Fee Program is responsible for
transmitting to its customers a schedule of fees and other
information regarding any conditions and restrictions which may
be imposed by the broker-dealer on a participant in its Wrap Fee
Program. Shareholders who are customers of broker-dealers should
contact their broker-dealer for information regarding the fees
associated with the Wrap Fee Program and the conditions and
restrictions which the broker-dealer may impose. In the event
that a participant who purchased Class Y shares of a Fund through
a Wrap Fee Program should terminate the wrap fee arrangement with
the broker-dealer, then the Class Y shares will, at the
discretion of the broker-dealer, automatically be converted to a
number of Class A shares of the same Fund having the same net
asset value as the shares converted, and the broker-dealer may
thereafter be entitled to receive from that Fund an annual
service fee of 0.25% of the value of the Class A shares owned by
that shareholder.
Class Y shares of a Fund may be purchased through an omnibus
account by investment advisers, financial planners, broker-
dealers or other intermediaries who have entered into a service
agreement with the Fund ("Service Accounts"). Shareholders who
purchase shares through a Service Account may be charged a fee if
they effect transactions through such parties and should contact
such parties for information regarding such fees. There is no
minimum initial or subsequent investment amount for Retirement
Plans, Separate Accounts, Special Accounts, Insurance Company
Accounts, Wrap Fee Programs or Service Accounts.
WAYS TO BUY FUND SHARES
A shareholder may purchase Class Y shares for cash on any
business day by the two methods described below:
[] BY WIRE TRANSFER:
Prior to an initial investment, obtain an account number and wire
transfer instructions by calling 800-225-5478 between 8:00 a.m.
and 7:00 p.m. (Eastern time) on a day when the Funds are open for
business. All funds should be transmitted to State Street Bank
and Trust Company, ABA #011000028, DDA #99011538, Credit [Fund
Name] Class Y shares, Shareholder Name, and Shareholder Account
Number.
[] BY MAIL:
For an initial investment, simply complete the attached
application and return it with a check payable to New England
Funds and mailed to New England Funds, P O. Box 8551, Boston, MA
02266-8551. All purchases made by check should be in U.S. dollars
and made payable to New England Funds, or, in the case of a
retirement account, the custodian or trustee. Third party checks
will generally not be accepted except under certain circumstances
approved by the Distributor. When purchases are made by check,
redemptions may not be allowed until the investment being
redeemed has been in the account for a minimum of ten calendar
days.
GENERAL
The purchase price of shares of each Fund is the net asset value
next determined after a purchase order is received in good order
by New England Funds. For purposes of calculating the purchase
price of Fund shares, a purchase order is considered received by
the Fund on the day that it is "in good order" unless it is
rejected by the Fund. For a purchase order to be in "good order"
on a particular day, Federal funds must be wired to the Fund
between 9:00 a.m. and 4:00 p.m. (Eastern time) or a check for the
purchase price of the shares, accompanied by a completed
application, must have been received by New England Funds before
4:00 p.m. (Eastern time) on that day. Orders received after 4:00
p.m. (Eastern time) will receive the next day's price.
Purchases will be made in full and fractional Class Y shares
calculated to three decimal places. The shareholder will receive
a statement of Fund shares owned following each transaction.
Investors will not receive certificates representing Class Y
shares. The Funds and the Distributor reserve the right at any
time to reject a purchase order.
The Distributor may, at its expense, provide additional
promotional incentives or payments to dealers who sell shares of
the Funds (including in some cases, exclusively to New England
Securities Corporation, a broker-dealer affiliate of the
Distributor, and MetLife). In some instances additional
compensation is provided to certain dealers who achieve sales
goals or who may sell significant amounts of shares.
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OWNING FUND SHARES
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EXCHANGING AMONG NEW ENGLAND FUNDS
You may exchange Class Y shares of the Funds for Class Y shares
of any other series of New England Funds Trust I, New England
Funds Trust II or New England Funds Trust III (collectively with
New England Funds Trust IV, the "Trusts") which offers Class Y
shares, or for Class A shares of New England Cash Management
Trust Money Market Series or U.S. Government Series or New
England Tax Exempt Money Market Trust (the "Money Market Funds").
Agents, general agents, directors and senior officers of NELICO
and its insurance company subsidiaries may, at the discretion of
NELICO, elect to exchange Class Y shares of any series of the
Trusts in a NELICO Deferred Compensation Plan Account for Class A
shares of any other series of the Trusts which do not offer Class
Y shares. Class A shares of any series of the Trusts in a NELICO
Deferred Compensation Plan Account may also be exchanged for
Class Y shares of any series of the Trusts. To obtain a
prospectus and more information about Class A shares, please call
the Distributor toll free at 800-225-5478.
TO MAKE AN EXCHANGE, please call 800-225-5478 between 8:00 a.m.
and 7:00 p.m. (Eastern time) on a day when the Funds are open for
business or write to New England Funds. Exchange requests after
4:00 p.m. (Eastern time), or after the Exchange closes if it
closes earlier than 4:00 p.m., will be processed at the net asset
value determined at the close of regular trading on the next day
that the Exchange is open. All exchanges are subject to the
eligibility requirements of the series into which you are
exchanging. In connection with any exchange, you must obtain and
carefully read a current prospectus of the series into which you
are exchanging. The exchange privilege may be exercised only in
those states where shares of such other series may be legally
sold.
You have the automatic privilege to exchange your Fund shares by
telephone. New England Funds, L.P. will employ reasonable
procedures to confirm that telephone instructions are genuine,
and, if it does not, it may be liable for any losses due to
unauthorized or fraudulent instructions. New England Funds, L.P.
will require a form of personal identification prior to acting
upon telephone instructions, will provide shareholders with
written confirmations of such transactions and will record your
instructions.
For federal tax purposes, an exchange of shares of one series of
the Trusts for shares of another series is considered to be a
redemption and purchase and, therefore, is considered to be a
taxable event on which you may recognize a gain or loss.
Except as otherwise permitted by SEC rule, shareholders will
receive at least 60 days' advance notice of any material change
to the exchange privilege.
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FUND DIVIDEND PAYMENTS
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Each Fund intends to pay dividends at least annually. Each Fund
pays as dividends substantially all net investment income (other
than long-term capital gains) each year and distributes annually
all net realized long- and short-term capital gains (after
applying any available capital loss carryovers). The trustees of
the Trust may adopt a different schedule as long as payments are
made at least annually. If you intend to purchase shares of a
Fund shortly before it declares an income or capital gain
distribution, you should be aware that a portion of the purchase
price may be returned to you as a taxable distribution.
You have the option to reinvest all distributions in additional
Class Y shares of the applicable Fund or in Class Y shares of
other series of the Trusts, to receive distributions from
dividends and interest in cash while reinvesting distributions
from capital gains in additional Class Y shares of the applicable
Fund or of other series of the Trusts, or to receive all
distributions in cash. Income distributions and capital gains
distributions will be reinvested in Class Y shares of the
applicable Fund at net asset value unless you select another
option. You may change your distribution option by notifying New
England Funds in writing or by calling 800-225-5478. If you elect
to receive your dividends in cash and the dividend checks sent to
you are returned "undeliverable" to the Fund or remain uncashed
for six months, your cash election will automatically be changed
and your future dividends will be reinvested.
DIVIDEND DIVERSIFICATION PROGRAM
You may also establish a dividend diversification program, which
allows you to have all dividends and any other distributions
automatically invested in Class Y shares of another New England
Fund, subject to the investor eligibility requirements of that
other fund and to state securities law requirements. Shares will
be purchased at the selected fund's net asset value on the
dividend record date. A dividend diversification account must be
in the same registration (shareholder name) as the distributing
fund account and, if a new account in the purchased fund is being
established, the purchased fund's minimum investment requirements
must be met. Before establishing a dividend diversification
program into any other New England Fund, you must obtain and
carefully read a copy of that fund's prospectus.
- ----------------------------------------------------------------
SELLING FUND SHARES
- ----------------------------------------------------------------
WAYS TO SELL FUND SHARES
You may sell Class Y shares of the Funds in the following ways:
[] BY TELEPHONE:
You may redeem (sell) shares by telephone for cash by the two
methods described below:
Wired to Your Bank Account -- If you have previously selected the
telephone redemption privilege on your account, shares may be
redeemed by calling 800-225-5478 between 8:00 a.m. and 7:00 p.m.
(Eastern time) on a day when the Funds are open for business. The
proceeds generally will be wired on the next business day to the
bank account previously chosen by you on your application. A wire
fee (currently $5.00) will be deducted from the proceeds.
Your bank must be a member of the Federal Reserve System or have
a correspondent bank that is a member. If your account is with a
savings bank, it must have only one correspondent bank that is a
member of the System.
Mailed to Your Address of Record -- Shares may be redeemed by
calling 800-225-5478 between 8:00 a.m. and 7:00 p.m. (Eastern
time) on a day when the Funds are open for business and
requesting that a check for the proceeds be mailed to the address
on your account, provided that the address has not changed over
the previous month and that the proceeds are for $100,000 or
less. Generally, the check will be mailed to your address of
record on the business day after your redemption request is
received.
Redemption requests accepted after 4:00 p.m. (Eastern time), or
after the Exchange closes if it closes before 4:00 p.m., will be
processed at the net asset value determined at the close of
regular trading on the next day that the Exchange is open.
[] BY MAIL:
You may redeem your shares at their net asset value next
determined after receipt of your request in good order by sending
a written request (including any necessary special documentation)
to New England Funds, P.O. Box 8551, Boston, MA 02266-8551.
The request must include the name of the Fund, your account
number, the exact name(s) in which your shares are registered,
the number of shares or the dollar amount to be redeemed and
whether you wish the proceeds mailed to your address of record or
wired to your bank account. All owners of the shares must sign
the request in the exact names in which the shares are registered
(this appears on your confirmation statement) and indicate any
special capacity in which they are signing (such as trustee,
custodian or under power of attorney or on behalf of a
partnership, corporation or other entity).
If you are redeeming shares worth less than $100,000 and the
proceeds check is made payable to the registered owner(s) and
mailed to the record address, no signature guarantee is required.
Otherwise, you generally must have your signature guaranteed by
an eligible guarantor institution in accordance with procedures
established by New England Funds, L.P. Signature guarantees by
notaries public are not acceptable.
Additional written information may be required for redemptions by
certain benefit plans and IRAs. Contact the Distributor or your
investment dealer for details.
GENERAL. Redemption requests will be effected at the net asset
value next determined after the redemption request is received in
proper form by State Street Bank and Trust Company ("State Street
Bank"). Redemption proceeds will normally be mailed to you within
seven days after State Street Bank or the Distributor receives
your request in good order. However, in those cases where you
have recently purchased your shares by check and you make a
redemption request within 10 days after such purchase or
transfer, the Fund may withhold redemption proceeds until the
Fund knows that the check has cleared.
During periods of substantial economic or market change,
telephone redemptions may be difficult to implement. If you are
unable to contact the Distributor by telephone, shares may be
redeemed by delivering the redemption request in person to the
Distributor or by mail as described above.
Requests are processed at the net asset value next determined
after the request is received.
Special rules apply with respect to redemptions under powers of
attorney. Please call the Distributor for more information.
Telephone redemptions are not available for tax qualified
retirement plans. See the instructions for redemption by mail
above.
The Funds may suspend the right of redemption and may postpone
payment for more than seven days when the Exchange is closed for
other than weekends or holidays, or if permitted by the rules of
the SEC when trading on the Exchange is restricted or during an
emergency which makes it impracticable for the Funds to dispose
of their securities or to determine fairly the value of their net
assets, or during any other period permitted by the SEC for the
protection of investors.
If NEFM determines, in its sole discretion, that it would be
detrimental to the best interests of the remaining shareholders
of a Fund to make payment wholly or partly in cash, the Fund may
pay the redemption price in whole or in part by a distribution in
kind of readily marketable securities held by the Fund in lieu of
cash. Securities used to redeem Fund shares in kind will be
valued in accordance with the Funds' procedures for valuation
described under "Fund Details -- How Fund Share Price Is
Determined." Securities distributed by a Fund in kind will be
selected by NEFM in light of the Fund's objective and will not
generally represent a pro rata distribution of each security held
in the Fund's portfolio. Investors may incur brokerage charges on
the sale of any such securities so received in payment of
redemptions.
- ----------------------------------------------------------------
FUND DETAILS
- ----------------------------------------------------------------
HOW FUND SHARE PRICE IS DETERMINED
The net asset value ("NAV") of each Fund is determined as of the
close of regular trading (normally, 4:00 p.m. (Eastern time)) on
the Exchange on each day the Exchange is open. Shares of the
Underlying Funds are valued at their reported NAVs. Although the
NAV will be calculated at the close of all regular trading days,
the NAV reported to The Nasdaq Stock Market for distribution to
news agencies will be delayed by one business day.
The net asset value per share of each class is determined by
dividing the value of the shares of the Underlying Funds held by
each class (determined as explained above) plus any cash and
other assets (including dividends and interest receivable but not
collected) less all liabilities (including accrued expenses), by
the number of shares of such class outstanding. The public
offering price of each Fund's Class Y shares is the net asset
value per share.
The price you pay for a share will be determined using the next
set of calculations made after your order is accepted by New
England Funds, L.P. In other words, if, on a Tuesday morning,
your properly completed application is received, your wire is
received or your dealer places your trade for you, the price you
pay will be determined by the calculations made as of the close
of regular trading on the Exchange on Tuesday. If you buy shares
through your investment dealer, the dealer must receive your
order by the close of regular trading on the Exchange and
transmit it to the Distributor by 5:00 p.m. (Eastern time) to
receive that day's public offering price.
CALCULATING THE PRICE OF SHARES
Total Market
Value of
Underlying Other Any
Funds + Assets - Liabilities
- ------------------------------------- = Net Asset Value (NAV)
Total Number of Outstanding
Shares in a Class
- ----------------------------------------------------------------
INCOME TAX CONSIDERATIONS
- ----------------------------------------------------------------
Each Fund intends to meet all requirements of the Code necessary
to qualify as a "regulated investment company" and thus generally
does not expect to pay any federal income tax on investment
income and capital gains distributed to shareholders in cash or
in additional shares. Unless you are a tax-exempt entity, your
distributions derived from a Fund's short-term capital gains and
ordinary income are taxable to you as ordinary income. (A portion
of these distributions may qualify for the dividends-received
deduction for corporations.) Distributions derived from a Fund's
long-term capital gains ("capital gains distributions"), if
designated as such by a Fund, are taxable to you as long-term
capital gains, regardless of how long you have owned shares in
the Fund. Both income distributions and capital gains
distributions are taxable whether you elect to receive them in
cash or additional shares.
Distributions received by a Fund from an Underlying Fund
generally will be ordinary income dividends, includible in the
Fund's ordinary income, if paid from the underlying Fund's
ordinary income or net short-term capital gains. Distributions
paid from an Underlying Fund's net long-term capital gains
generally will be treated by the Fund as long-term capital gains.
To avoid an excise tax, each Fund intends to distribute prior to
calendar year end virtually all of the Fund's ordinary income
earned during that calendar year, and virtually all of the
capital gain net income the Fund realized during the twelve
months ending October 31 but not previously distributed. If
declared in October, November or December to shareholders of
record in such a month, and paid the following January, these
distributions will be considered for federal income tax purposes
to have been received by shareholders on December 31.
Upon a sale or other disposition of shares in a Fund, you may
realize a gain or loss which will be a capital gain or loss if
you held your shares as a capital asset and, if so, may qualify
for reduced federal tax rates, depending upon your holding period
for your shares.
Each Fund is required to withhold 31% of all taxable
distributions, including redemption proceeds, it pays to you if
you do not provide a correct, certified taxpayer identification
number, if the Fund is notified that you have underreported
income in the past, or if you fail to certify to the Fund that
you are not subject to such withholding. If you are a tax-exempt
shareholder, a corporate shareholder or fall within another
category of shareholder that are exempt from these rules,
however, these back-up withholding rules generally will not apply
so long as you furnish the Fund with an appropriate
certification.
Annually, if you are not a corporate shareholder or otherwise
exempt from the information reporting rules, and you earn more
than $10 in taxable income from a Fund, you will receive a Form
1099 to assist you in reporting the prior calendar year's
distributions on your federal income tax return. You should
consult your tax adviser about any state or local taxes that may
apply to such distributions. Be sure to keep the Form 1099 as a
permanent record. A fee may be charged for any duplicate
information requested.
The foregoing is a summary of certain federal income tax
consequences of an investment in a Fund for shareholders who are
U.S. citizens or corporations. Shareholders should consult a
competent tax adviser as to the effect of an investment in a Fund
on their particular federal, state and local tax situations.
- ----------------------------------------------------------------
THE FUNDS' EXPENSES
- ----------------------------------------------------------------
In addition to the management fee paid to the Adviser, each Fund,
absent the Special Servicing Agreement would pay all expenses not
borne by the Adviser or the Distributor, including, but not
limited to, the charges and expenses of each Fund's custodian and
transfer agent, independent auditors and legal counsel for the
Fund and the Trust's independent trustees, all brokerage
commissions, if any, 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, preparing, printing and mailing
prospectuses and reports to shareholders and the compensation of
trustees who are not directors, officers or employees of The New
England or its affiliates, other than affiliated registered
investment companies. Certain expenses may be allocated
differently between each Fund's Class A, Class B and Class C
shares, on the one hand, and its Class Y shares, on the other
hand. (See "Additional Facts about the Funds" below.)
SPECIAL SERVICING AGREEMENT
All expenses of the Funds other than advisory fees and Rule 12b-1
fees will be paid for in accordance with a Special Servicing
Agreement (the "Agreement") among NEFM, the Trust on behalf of
the Funds, the Distributor, New England Funds Trust I, New
England Funds Trust II, New England Funds Trust III, New England
Cash Management Trust, Jurika & Voyles Fund Group, Loomis Sayles
Funds, Harris Associates Investment Trust, Reich & Tang Equity
Fund, Inc. and Delafield Fund, Inc. Under the Agreement, NEFM
will arrange for all of the services pertaining to the operation
of the Funds including the shareholder servicing and fund
accounting services provided by the Distributor. In addition,
the Agreement provides that, if the officers of any Underlying
Fund, at the direction of its Board of Directors/Trustees,
determine that the aggregate expenses of the Funds are less than
the estimated savings to the Underlying Fund from the operation
of the Funds, the Underlying Fund will bear those expenses in
proportion to the average daily value of its shares owned by each
Fund. Consequently, no Underlying Fund will be expected to carry
expenses that are in excess of the estimated savings to it. The
estimated savings are expected to result primarily from the
elimination of numerous separate shareholder accounts which
either currently are or have the potential to be invested
directly in the Underlying Funds. The estimated savings produced
by the operation of a Fund will most likely suffice to offset
most, if not all, the expenses incurred by that Fund other than
management or Rule 12b-1 fees.
In the event that the aggregate financial benefits to the
Underlying Funds do not exceed the costs of a Fund, that Fund
will pay the portion of the costs determined to be greater than
the benefits. These costs include accounting, custody, auditing,
legal, blue sky and trustees' fees, as well as organizational,
prospectus, shareholder reporting, proxy, general administrative
and miscellaneous expenses.
All expenses of the Funds, excluding certain non-recurring and
extraordinary expenses, will be paid for in accordance with the
Agreement, including fees and expenses incurred in connection
with membership in investment company organizations;
organizational, legal, auditing and accounting expenses; taxes
and governmental fees; the fees and expenses of the transfer
agent; the expenses of and the fees for registering or qualifying
securities for sale; the fees and expenses of the trustees of the
Trust who are not affiliated with NEFM; the cost of printing and
distributing reports and notices to shareholders; and the fees
and disbursements of custodians.
- ----------------------------------------------------------------
PERFORMANCE CRITERIA
- ----------------------------------------------------------------
Each Fund may include total return information for each class of
shares in advertisements or other written sales material. Each
Fund may show each class's average annual total return for the
one-, five- and ten-year periods (or the life of the class, if
shorter) through the end of the most recent calendar quarter.
Total return is measured by comparing the value of a hypothetical
$1,000 investment in a class at the beginning of the relevant
period to the value of the investment at the end of the period
(assuming deduction of the current maximum sales charge on Class
A shares, automatic reinvestment of all dividends and capital
gains distributions and, in the case of Class B shares,
imposition of the CDSC relevant to the period quoted). Total
return may be quoted with or without giving effect to any
voluntary expense limitations in effect for the class in question
during the relevant period. The class may also show total return
over other periods, on an aggregate basis for the period
presented, or without deduction of a sales charge. If a sales
charge is not deducted in calculating total return, the class's
total return will be higher.
Each Fund may also include the yield of each class of its shares,
accompanied by the total return, in advertising and other written
material. Yield will be computed in accordance with the SEC's
standardized formula by dividing the adjusted net investment
income per share earned during a recent thirty-day period by the
maximum offering price of a share of the relevant class (reduced
by any earned income expected to be declared shortly as a
dividend) on the last day of the period. Yield calculations will
reflect any voluntary expense limitations in effect for the Fund
during the relevant period.
Each Fund may also present one or more distribution rates for
each class in its sales literature. These rates will be
determined by annualizing the class's distributions from net
investment income and net short-term capital gain over a recent
12-month, 3-month or 30-day period and dividing that amount by
the maximum offering price or the net asset value on the last day
of such period. If the net asset value, rather than the maximum
offering price, is used to calculate the distribution rate, the
rate will be higher.
As a result of lower operating expenses, Class Y shares of each
Fund can be expected to achieve a higher investment return than
the Fund's Class A, Class B or Class C shares.
All performance information is based on past results and is not
an indication of likely future performance.
- ----------------------------------------------------------------
ADDITIONAL FACTS ABOUT THE FUNDS
- ----------------------------------------------------------------
[] New England Funds Trust IV, an open-end management
investment company, was organized in 1997 as a
Massachusetts
business trust and is authorized to issue an unlimited
number of full and fractional shares in multiple series and
classes thereof.
[] When you invest in a Fund, you acquire freely transferable
shares of beneficial interest that entitle you to receive
annual dividends as determined by the Trust's trustees and
to cast a vote for each share you own at shareholder
meetings. Shares of each Fund vote separately from shares
of
other series of the Trust, except as otherwise required by
law. Shares of all classes of a Fund vote together, except
as to matters relating to a class's Rule 12b-1 plan, on
which only shares of that class are entitled to vote. No
Rule 12b-1 plan applies to the Class Y shares of any Fund.
[] Class A, Class B and Class C shares are identical to Class
Y
shares, except that Class A and Class B shares are subject
to a sales load or contingent deferred sales charge, Class
A, Class B and Class C shares bear a service fee at the
annual rate of 0.25% of average net assets (and in the case
of Class B and Class C shares, a 0.75% distribution fee),
which charges may affect performance, and have separate
voting rights in certain circumstances. Absent the Special
Serving Agreement, Class Y may bear its own transfer agency
and prospectus printing costs. The minimum initial
investment in Class A, Class B and Class C shares is
generally $2,500 (but lower minimums apply to purchases
under certain special programs).
[] Except for matters that are explicitly identified as
"fundamental" in this prospectus or the Statement, the
investment policies of each Fund may be changed by the
Trust's trustees without shareholder approval or, in most
cases, prior notice. The investment objectives of the
Funds
are not fundamental. If there is a change in the
objectives
of the Funds, shareholders should consider whether these
Funds remain appropriate investments in light of their
current financial position and needs.
[] The Trust does not generally hold regular shareholder
meetings and will do so only when required by law.
Shareholders of the Trust may remove the trustees of the
Trust from office by votes cast at a shareholder meeting or
by written consent.
[] The Funds' distributor, New England Funds, L.P., an
affiliate of NEFM, is located at 399 Boylston Street,
Boston, MA 02116.
[] The transfer and dividend paying agent for the Fund is New
England Funds, L.P., 399 Boylston Street, Boston, MA 02116.
New England Funds, L.P. has subcontracted certain of its
obligations as such to State Street Bank, 225 Franklin
Street, Boston, MA 02110.
[] New England Funds, L.P. also performs certain accounting
and
administrative services for the Funds. Each Fund
reimburses
New England Funds, L.P., subject to the Special Servicing
Agreement described above, for all or part of its expenses
for providing such administrative services.
[] No series of the Trust is liable for the obligations of any
other series of the Trust. However, because the Prospectus
pertains to more than one Fund, it is possible that one of
the Funds to which the Prospectus pertains might become
liable for any misstatement, inaccuracy, or incomplete
disclosure in the Prospectus concerning any other Fund to
which the Prospectus pertains. The trustees of the Trust
have considered this possible liability and approved the
use
of this combined prospectus for the Funds.
[] Each Fund's annual report contains additional performance
information and is available upon request and without
charge. Each Fund will send a single copy of its annual
and
semi-annual reports to an address at which more than one
shareholder of record with the same last name has indicated
that mail is to be delivered. Shareholders may request
additional copies of any annual or semi-annual report in
writing or by telephone.
[] The Class A, Class B, Class C and Class Y structure could
be
terminated should certain IRS rulings be rescinded.
[] The Distributor has entered into a selling agreement with
investment dealers, including a broker-dealer that is an
affiliate of the Distributor, for the sale of the Funds'
Class Y Shares. The Distributor may at its expense pay an
amount not to exceed 0.50% of the amount invested to
dealers
who have selling agreements with the Distributor.
Registered
representatives of the affiliated broker-dealer are also
employees of New England Investment Associates, Inc.
("NEIA"), an indirect, wholly owned subsidiary of NEIC.
NEIA may receive compensation with respect to certain sales
of each Fund's Class Y shares from the Fund's Adviser.
[] The Trust's trustees have the authority without shareholder
approval to issue other classes of shares of a Fund that
represent interests in the Fund's investment portfolio but
that have different sales load and fee arrangements.
[] Class Y Shares of the Funds may be purchased through
certain
broker-dealers and/or financial services organizations.
Such organizations may receive compensation, in an amount
of
up to 0.25% annually of the value of the Fund shares held
by
their clients. The compensation may be paid by New England
Funds Management, L.P. out of its own assets, or may be
paid
by the Fund in the form of accounting, servicing,
distribution or transfer agent fees.
[] With regard to the voting of all proxies in connection with
its investments in the Underlying Funds, each Fund intends
to vote the shares of an Underlying Fund held by it in the
same proportion as the vote of all other holders of such
Fund's shares. The effect of such "mirror" voting is to
neutralize the Funds' influence on corporate matters
regarding the Underlying Funds in which the Funds invest.
[] Shareholder inquiries should be directed to the Distributor
by calling 800-225-5478 or writing to New England Funds,
L.P., 399 Boylston Street, Boston, MA 02116.
- ----------------------------------------------------------------
GLOSSARY OF TERMS
- ----------------------------------------------------------------
CAPITAL GAIN DISTRIBUTIONS - Properly designated payments to
shareholders of net long-term capital gains in excess of net
short-term capital losses earned from selling securities in a
fund's portfolio. Capital gain distributions are usually paid
once a year.
CONTINGENT DEFERRED SALES CHARGE (CDSC) -- A fee that may be
charged when a shareholder sells fund shares.
DISTRIBUTION FEE -- An annual asset-based sales charge that is
used to pay for sales-related expenses.
INCOME DISTRIBUTIONS -- Payments to shareholders resulting from
interest or dividend income or from net short-term capital gains
in excess of net long-term capital losses earned by the fund's
portfolio.
MUTUAL FUND -- The pooled assets of a group of investors,
professionally managed in pursuit of a specific objective.
NET ASSET VALUE (NAV) -- The market value of one share of a
mutual fund on any given day without sales charge or CDSC.
Determined by dividing the fund's total net assets by the number
of fund shares outstanding.
OPEN END MANAGEMENT INVESTMENT COMPANY -- A mutual fund that
allows investors to redeem fund shares directly from the fund
company on any business day.
PUBLIC OFFERING PRICE -- The price of one share of a mutual fund,
including its initial sales charge, if there is one.
RECORD DATE -- The date on which mutual fund investors must own a
fund's shares to be eligible to receive specific income or
capital gain distributions.
SERVICE FEE -- Payments by a fund to a fund's distributor or a
financial representative for personal services to investors
and/or for maintenance of shareholder accounts.
TOTAL RETURN -- The change in value of an investment in the fund
over a specific time period, assuming all earnings are reinvested
in additional shares of the fund. Expressed as a percentage.
YIELD -- The rate at which a fund earns income, expressed as a
percentage. Yield calculations are standardized among mutual
funds, based on a formula developed by the SEC.
12B-1 FEES -- Fees paid by a mutual fund under a plan adopted
under 1940 Act Rule 12b-1. Can include both distribution fees and
service fees.
APPENDIX A
DESCRIPTIONS OF CERTAIN RISKS RELATED TO VARIOUS SECURITIES
INVESTED IN, AND INVESTMENT TECHNIQUES EMPLOYED BY, THE
UNDERLYING FUNDS IN WHICH THE FUNDS MAY INVEST
The following pages contain more detailed information about types
of instruments in which the Underlying Funds (for purposes of
this Appendix A only, the "Funds") may invest and strategies an
adviser or subadviser may employ in pursuit of an Underlying
Fund's investment objective.
[] EQUITY SECURITIES
Equity securities are securities that represent an
ownership
interest (or the right to acquire such an interest) in a
company, and include common and preferred stocks and
securities exercisable for or convertible into common or
preferred stocks (such as warrants, convertible debt
securities and convertible preferred stock). While offering
greater potential for long-term growth, equity securities
are more volatile and more risky than some other forms of
investment. Therefore, the value of an investment in a
Fund
may sometimes decrease instead of increase. A Fund may
invest in equity securities of companies with relatively
small market capitalization. Securities of such companies
may be more volatile than the securities of larger, more
established companies and the broad equity market indices.
See "Small Companies" below. A Fund's investments may
include securities traded "over-the-counter" as well as
those traded on a securities exchange. Some over-the-
counter securities may be more difficult to sell under some
market conditions.
A Fund may invest in convertible securities, including
corporate bonds, notes or preferred stocks that can be
converted into 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
increase or decrease as the values of the underlying equity
securities increase or decrease. The movements in the
prices of convertible securities, however, may be smaller
than the movements in the value of the underlying equity
securities. The value of convertible securities that pay
dividends or interest, like the value of other fixed-income
securities, generally fluctuates inversely with changes in
interest rates. Warrants have no voting rights, pay no
dividends and have no rights with respect to the assets of
the corporation issuing them. They do not represent
ownership of the securities for which they are exercisable,
but only the right to buy such securities at a particular
price.
[] FIXED-INCOME SECURITIES
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. (Generally, the value
of fixed-income securities falls when market rates of
interest are rising.) Some fixed-income securities also
involve prepayment or call risk. This is the risk that the
issuer will repay a Fund the principal on the security
before it is due, thus depriving the Fund of a favorable
stream of future interest or dividend payments.
Because interest rates vary, it is impossible to predict
the
income of a fund that invests in fixed-income securities
for
any particular period. Fluctuations in the value of a
Fund's investments in fixed-income securities will cause
the
Fund's net asset value to increase or decrease.
[] LOWER QUALITY FIXED-INCOME SECURITIES
Fixed-income securities rated BB or lower by S&P or Ba or
lower by Moody's (and comparable unrated securities) are of
below "investment grade" quality. Lower quality fixed-
income securities generally provide higher yields, but are
subject to greater credit and market risk than higher
quality fixed-income securities. Lower quality
fixed-income
securities are considered predominantly speculative with
respect to the ability of the issuer to meet principal and
interest payments. Achievement of the investment objective
of a mutual fund investing in lower quality fixed-income
securities may be more dependent on the fund's adviser's or
subadviser's own credit analysis than for a fund investing
in higher quality bonds. The market for lower quality
fixed-income securities may be more severely affected than
some other financial markets by economic recession or
substantial interest rate increases, by changing public
perceptions of this market or by legislation that limits
the
ability of certain categories of financial institutions to
invest in these securities. In addition, the secondary
market may be less liquid for lower rated fixed-income
securities. This lack of liquidity at certain times may
affect the valuation of these securities and may make the
valuation and sale of these securities more difficult.
Fixed-income securities of below investment grade are
commonly known as "junk bonds."
[] U.S. GOVERNMENT SECURITIES
U.S. Government securities include direct obligations
issued
by the United States Treasury, such as Treasury bills,
certificates of indebtedness, notes and bonds. U.S.
Government agencies and instrumentalities that issue or
guarantee securities include, but are not limited to, the
Federal Home Loan Banks, the Federal National Mortgage
Association ("FNMA") and the Student Loan Marketing
Association. Except for U.S. Treasury securities and GNMAs,
obligations of U.S. Government agencies and
instrumentalities may or may not be supported by the full
faith and credit of the United States. Some, such as those
of the Federal Home Loan Banks, are backed by the right of
the issuer to borrow from the Treasury, others by
discretionary authority of the U.S. Government to purchase
the agencies' obligations, while still others, such as the
Student Loan Marketing Association, are supported only by
the credit of the instrumentality. In the case of
securities not backed by the full faith and credit of the
United States, the investor must look principally to the
agency issuing or guaranteeing the obligation for ultimate
repayment and may not be able to assert a claim against the
United States itself in the event the agency or
instrumentality does not meet its commitment.
[] ASSET-BACKED SECURITIES
Asset-backed securities represent undivided fractional
interests in a special purpose entity with assets
consisting
of a pool of domestic loans such as motor vehicle retail
installment sales contracts or credit card receivables.
Asset-backed securities generally are issued by
governmental, government-related and private organizations.
Payments typically are made monthly, consisting of both
principal and interest payments. Asset-backed securities
may be prepaid prior to maturity, and hence the actual life
of the security cannot be accurately predicted. During
periods of falling interest rates, prepayments may
accelerate, which would require a Fund to reinvest the
proceeds at a lower interest rate. In addition, like other
debt securities, the value of asset-backed securities will
normally decline in periods of rising interest rates. It
is
possible that the securities could become illiquid or
experience losses if guarantors or insurers default.
[] MORTGAGE-RELATED SECURITIES
Mortgage-related securities are interests in a pool of
mortgage loans. Most mortgage-related securities are pass-
through securities, which means that investors receive
payments consisting of a pro rata share of both principal
and interest (less servicing and other fees), as well as
unscheduled prepayments, as mortgages in the underlying
mortgage pool are paid off by the borrowers. Prepayments
of
principal by mortgagors or mortgage foreclosures will
affect
the average life of the mortgage-related securities
remaining in a Fund's portfolio. Mortgage prepayments are
affected by the level of interest rates and by factors
including general economic conditions, the underlying
location and age of the mortgage and other social and
demographic conditions. In periods of rising interest
rates, the rate of prepayments tends to decrease, thereby
lengthening the average life of a pool of mortgage-related
securities. Conversely, in periods of falling interest
rates, the rate of prepayments tends to increase, thereby
shortening the average life of a pool of mortgages. Thus,
mortgage-related securities may have less potential for
capital appreciation in periods of falling interest rates
than other fixed-income securities of comparable duration,
although these securities may have a comparable risk of
decline in market value in periods of rising interest
rates.
Unscheduled prepayments, which are made at par, will result
in a loss equal to any unamortized premium.
The dominant issuers or guarantors of mortgage-related
securities today are the Government National Mortgage
Association ("GNMA"), FNMA and the Federal Home Loan
Mortgage Corporation ("FHLMC"). GNMA creates pass-through
securities from pools of U.S. government guaranteed or
insured (Federal Housing Authority or Veterans
Administration) mortgages originated by mortgage bankers,
commercial banks and savings associations. FNMA and FHLMC
issue pass-through securities from pools of conventional
and
federally insured and/or guaranteed residential mortgages
obtained from various entities, including savings
associations, savings banks, commercial banks, credit
unions
and mortgage bankers.
The principal and interest on GNMA pass-through securities
are guaranteed by GNMA and backed by the full faith and
credit of the U.S. Government. FNMA guarantees full and
timely payment of all interest and principal, while FHLMC
guarantees timely payment of interest and ultimate
collection of principal of its pass-through securities.
Securities from FNMA and FHLMC are not backed by the full
faith and credit of the U.S. Government; however, they are
generally considered to present minimal credit risks.
Adjustable rate mortgage securities ("ARMs") are a form of
pass-through securities representing interests in pools of
mortgage loans, the interest rates of which are adjusted
from time to time. The adjustments usually are determined
in accordance with a predetermined interest rate index and
may be subject to certain limits. The adjustment feature
of
ARMs tends to make their values less sensitive to interest
rate changes.
CMOs are debt obligations issued by finance subsidiaries or
trusts that are secured by mortgage-backed certificates,
including, in many cases, certificates issued by
government-
related guarantors, such as GNMA, FNMA and FHLMC, together
with certain funds and other collateral. Although payment
of the principal of and interest on the mortgage-backed
certificates pledged to secure the CMOs may be guaranteed
by
a U.S. Government agency or instrumentality, such as FHLMC,
the CMOs represent obligations solely of the CMO issuer and
are not insured or guaranteed by a U.S. Government agency
or
instrumentality. The issuers of CMOs typically have no
significant assets other than those pledged as collateral
for the obligations. Stripped mortgage securities, which
are a form of CMO, are usually structured with classes that
receive different proportions of the interest and principal
payments on a pool of mortgages. Sometimes, 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 any IO class or PO class is extremely sensitive
not only to changes in prevailing interest rates but also
to
the rate of principal payments and prepayments on the
related underlying mortgages and, in the most extreme
cases,
an IO class may become worthless.
Certain Funds may invest in mortgage-related securities
offered by private issuers, including pass-through
securities for pools of conventional residential mortgage
loans; mortgage pay-through obligations and mortgage-backed
bonds, which are considered to be obligations of the
institution issuing the bonds and are collateralized by
mortgage loans; and bonds and CMOs that are collateralized
by mortgage-related securities issued by GNMA, FNMA, FHLMC
or by pools of conventional mortgages.
Mortgage-related securities created by private issuers
generally offer a higher rate of interest (and greater
credit and interest rate risk) than U.S. Government and
agency mortgage-related securities because they offer no
direct or indirect governmental guarantees of payments.
However, many issuers or servicers of mortgage-related
securities guarantee, or provide insurance for, timely
payment of interest and principal on such securities.
The Funds may purchase some mortgage-related securities
through private placements without registration under the
Securities Act of 1933, as amended.
[] TAX EXEMPT SECURITIES
Issuers of tax exempt securities may make interest and
principal payments from money raised through a variety of
sources, including (1) the issuer's general taxing power,
(2) a specific type of tax, such a property tax, or (3) a
particular facility or project, such as a highway. The
ability of an issuer of tax exempt bonds to make these
payments could be affected by litigation, legislation or
other political events, or the bankruptcy of the issuer.
The interest on tax exempt securities issued after August
15, 1986 is retroactively taxable from the date of issuance
if the issuer does not comply with certain requirements
concerning the use of bond proceeds and the application of
earning on bond proceeds.
[] BORROWING
Certain Funds may borrow money from banks in an aggregate
amount not to exceed one-third of the value of the Fund's
total assets to meet temporary or emergency purposes, and
may pledge its assets in connection with such borrowings.
Certain Funds will not purchase any securities while any
such borrowings exceed a specified percentage of that
Fund's
total assets (including reverse repurchase agreements and
dollar roll transactions that are accounted for as
financings).
A Fund aggregates reverse repurchase agreements and dollar
roll transactions that are accounted for as financings with
its bank borrowings for purposes of limiting borrowings to
one-third of the value of the Fund's total assets.
[] LEVERAGE
Leveraging the Funds through various forms of borrowing
creates an opportunity for increased net income but, at the
same time, creates special risk considerations. For
example, leveraging may exaggerate changes in the net asset
value of a Fund's shares and in the yield on a Fund's
portfolio. Although the principal of such borrowings will
be fixed, a Fund's assets may change in value during the
time the borrowing is outstanding. Leveraging will create
interest expenses for a Fund that can exceed the income
from
the assets retained. To the extent the income derived from
securities purchased with borrowed funds exceeds the
interest a Fund will have to pay, that Fund's net income
will be greater than if leveraging were not used.
Conversely, if the income from the assets retained with
borrowed funds is not sufficient to cover the cost of
leveraging, the net income of a Fund will be less than if
leveraging were not used, and therefore the amount
available
for distribution to shareholders as dividends will be
reduced.
[] REPURCHASE AGREEMENTS
Under a repurchase agreement, a Fund buys securities from a
seller, usually a bank or brokerage firm, with the
understanding that the seller will repurchase the
securities
at a higher price at a later date. If the seller fails to
repurchase the securities, the Fund has the right to sell
the securities to third parties. Repurchase agreements can
be regarded as loans by the Fund to the seller,
collateralized by securities that are the subject of the
agreement. Repurchase agreements afford an opportunity for
the Fund to earn a return on available cash at relatively
low credit risk, although the Fund may be subject to
various
delays and risks of loss if the seller fails to meet its
obligation to repurchase. The staff of the SEC is
currently
of the view that repurchase agreements maturing in more
than
7 days are illiquid.
[] SHORT-TERM TRADING
A Fund may engage in portfolio trading in anticipation of,
or in response to, changing economic or market conditions
and trends. These policies may result in higher turnover
rates in the Fund's portfolio, which may produce higher
transaction costs and a higher level of taxable capital
gains. Portfolio turnover considerations will not limit
the
investment discretion of a Fund's adviser or subadviser, as
the case may be, in managing the Fund's assets.
[] SMALL COMPANIES
Certain Funds, in the discretion of its adviser or
subadviser, as the case may be, may invest without limit in
the securities of companies with smaller capitalization.
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 market averages in general. The
net asset value of Funds that invest in companies with
smaller capitalization therefore may fluctuate more widely
than market averages.
[] FOREIGN SECURITIES
Investments in foreign securities present risks not
typically associated with investments in comparable
securities of U.S. issuers.
Since most foreign securities are denominated in foreign
currencies or traded 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 Fund may be affected
favorably or unfavorably by changes in currency exchange
rates or exchange control regulations. Because a Fund may
purchase securities denominated in foreign currencies, a
change in the value of any such currency against the U.S.
dollar will result in a change in the U.S. dollar value of
the Fund's assets and the Fund's income available for
distribution.
In addition, although a Fund's income may be received or
realized in foreign currencies, the Fund 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 Fund's income has been earned in
that currency, translated into U.S. dollars and declared as
a dividend, but before payment of such dividend, the Fund
could be required to liquidate portfolio securities to pay
such dividend. Similarly, if the value of a currency
relative to the U.S. dollar declines between the time the
Fund incurs 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 in order to pay such
expenses
in U.S. dollars will be greater than the equivalent amount
in such currency of such expenses at the time they were
incurred.
There may be less information publicly available about a
foreign corporate or government 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 those in the
United States, and judgments against foreign entities may
be
more difficult to obtain and enforce. 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. The receipt of interest on foreign
government securities may depend on the availability of tax
or other revenues to satisfy the issuer's obligations.
A Fund's investments in foreign securities may include
investments in emerging or developing 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.
A Fund 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.
In addition, a Fund may invest in securities issued by
supranational agencies. Supranational agencies are those
agencies whose member nations determine to make capital
contributions to support the agencies' activities, and
include such entities as the International Bank for
Reconstruction and Development (the World Bank), the Asian
Development Bank, the European Coal and Steel Community and
the Inter-American Development Bank.
In determining whether to invest in securities of foreign
issuers, the adviser or subadviser, as the case may be, of
a
Fund will consider the likely effects of foreign taxes on
the net yield available to the Fund and its shareholders.
Compliance with foreign tax law may reduce a Fund's net
income available for distribution to shareholders.
[] FOREIGN CURRENCY
Most foreign securities in a Fund's portfolio will be
denominated in foreign currencies or traded in securities
markets in which settlements are made in foreign
currencies.
Similarly, any income on such securities is generally paid
to a Fund in foreign currencies. The value of these
foreign
currencies relative to the U.S. dollar varies continually,
causing changes in the dollar value of the Fund's portfolio
investments (even if the local market price of the
investments is unchanged) and changes in the dollar value
of
a Fund's income available for distribution to its
shareholders. The effect of changes in the dollar value of
a foreign currency on the dollar value of the Fund's assets
and on the net investment income available for distribution
may be favorable or unfavorable.
A Fund may incur costs in connection with conversions
between various currencies. In addition, a Fund may be
required to liquidate portfolio assets, or may incur
increased currency conversion costs, to compensate for a
decline in the dollar value of a foreign currency occurring
between the time when the Fund declares and pays a
dividend,
or between the time when the Fund accrues and pays an
operating expense in U.S. dollars.
[] PRIVATIZATION
In a number of countries around the world, governments have
undertaken to sell to investors interests in enterprises
that the government has historically owned or controlled.
These transactions are known as "privatizations" and may in
some cases represent opportunities for significant capital
appreciation. In some cases, the ability of U.S.
investors,
such as certain Funds, to participate in privatizations may
be limited by local law, or the terms of participation may
be less advantageous than for local investors. Also, there
is no assurance that privatized enterprises will be
successful, or that an investment in such an enterprise
will
retain its value or appreciate in value.
[] OPTIONS, FUTURES, SWAP CONTRACTS AND CURRENCY TRANSACTIONS
Certain Funds may buy, sell or write options on securities,
securities indexes, currencies or futures contracts. These
Funds may buy and sell futures contracts on securities,
securities indexes or currencies. These Funds may engage
in
these transactions either for purpose of enhancing
investment return, or to hedge against changes in the value
of other assets that the Fund owns or intends to acquire.
These Funds may also conduct foreign currency exchange
transactions on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market. These
Funds may enter into interest rate, currency and securities
index swaps. These Funds 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 an increase in
the price of securities the Fund anticipates purchasing at
a
later date.
A Fund may buy and sell futures contracts on a variety of
stock indexes. Options, futures and swap contracts fall
into the broad category of financial instruments known as
"derivatives" and involve special risks. Use of options,
futures or swaps for other than hedging purposes may be
considered a speculative activity, involving greater risks
than are involved in hedging.
Options can generally be classified as either "call" or
"put" options. There are two parties to a typical options
transaction: the "writer" and the "buyer." A call option
gives the buyer the right to buy a security or other asset
(such as an amount of currency or a futures contract) from,
and a put option the right to sell a security or other
asset
to, the option writer at a specified price, on or before a
specified date. The buyer of an option pays a premium when
purchasing the option, which reduces the return on the
underlying security or other asset if the option is
exercised, and results in a loss if the option expires
unexercised. The writer of an option receives a premium
from writing an option, which may increase its return if
the
option expires or is closed out at a profit. If a Fund as
the writer of an option is unable to close out an unexpired
option, it must continue to hold the underlying security or
other asset until the option expires to "cover" its
obligations under the option.
A futures contract creates an obligation by the seller to
deliver and the buyer to take delivery of the type of
instrument or cash at the time and in the amount specified
in the contract. Although many futures contracts call for
the delivery (or receipt) of the specified instrument,
futures are usually closed out before the settlement date
through the purchase (or sale) of a comparable contract.
If
the price of the sale of the futures contract by a Fund
exceeds (or is less than) the price of the offsetting
purchase, the Fund will realize a gain (or loss).
Transactions in futures and related options involve the
risks of (1) imperfect correlation between the price
movement of the contracts and the underlying securities,
(2)
significant price movement in one but not the other market
because of different hours, (3) the possible absence of a
liquid secondary market at any point in time, and the risk
that if the adviser's or subadviser's prediction on
interest
rates or other economic factors is inaccurate, the Fund may
be worse off than if it had not hedged. Futures
transactions involve potentially unlimited risk of loss.
Certain Funds may enter into interest rate, currency and
securities index swaps. The Funds 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 or to
protect against an increase in the price of securities a
Fund anticipates purchasing at a later date. Interest rate
swaps involve the exchange by a Fund with another party of
their respective commitments to pay or receive interest
(for
example, an exchange of floating rate payments for fixed
rate payments with respect to a notional amount of
principal). A currency swap is an agreement to exchange
cash flows on a notional amount based on changes in the
relative values of the specified currencies. An index swap
is an agreement to make or receive payments based on the
different returns that would be achieved if a notional
amount were invested in a specified basket of securities
(such as the S&P 500) or in some other investment (such as
U.S. Treasury securities.)
The value of options purchased by a Fund, futures contracts
held by a Fund's positions in swap contracts may fluctuate
up or down based on a variety of market and economic
factors. In some cases, the fluctuations may offset (or be
offset by) changes in the value of securities held in the
Fund's portfolio. All transactions in options, futures or
swaps involve costs and the possible risk of loss to the
Fund of all or a significant part of the value of its
investment. The Fund will be required, however, to set
aside with its custodian bank certain assets in amounts
sufficient at all times to satisfy its obligations under
options, futures and swap contracts.
The successful use of options, futures and swaps will
usually depend on the adviser's or subadviser's ability to
forecast stock market, currency or other financial market
movements correctly. A Fund's ability to hedge against
adverse changes in the value of securities held in its
portfolio through options, futures and swap transactions
also depends on the degree of correlation between the
changes in the value of futures, options or swap positions
and changes in the values of the portfolio securities. The
successful use of the futures and exchange-traded options
also depends on the availability of a liquid secondary
market to enable the Fund to close its positions on a
timely
basis. There can be no assurance that such a market will
exist at any particular time. In the case of swap
contracts
and options that are not traded on an exchange ("over-the-
counter" options), the Fund is at risk that the other party
to the transaction will default on its obligations, or will
not permit the Fund to terminate the transaction before its
scheduled maturity. As a result of these characteristics,
the Fund will treat most swap contracts and
over-the-counter
options (and the assets it segregates to cover its
obligations thereunder) as illiquid. Certain provisions of
the Code and certain regulatory requirements may limit a
Fund's ability to engage in futures, options and swap
transactions.
The options and futures markets of foreign countries are
small compared to those of the United States, and
consequently are characterized in most cases by less
liquidity than are the U.S. markets. In addition, foreign
markets may be subject to less detailed reporting
requirements and regulatory controls than U.S. markets.
Furthermore, investments by the Funds in options and
futures
in foreign markets are subject to many of the same risks as
are the Fund's other foreign investments. See "Foreign
Securities" above.
[] ZERO COUPON BONDS AND STRIPS
A Fund may invest in zero coupon bonds and in "strips."
Zero
coupon bonds do not make regular interest payments; rather,
they are sold at a discount from face value. Principal and
accrued discount (representing interest accrued but not
paid) are paid at maturity. "Strips" are debt securities
that are stripped of their interest after the securities
are
issued, but otherwise are comparable to zero coupon bonds.
The market values of "strips" and zero coupon bonds
generally fluctuate in response to changes in interest
rates
to a greater degree than do interest-paying securities of
comparable term and quality. Under many market conditions,
investments in such securities may be illiquid, making it
difficult for the Fund to dispose of them or determine
their
current value.
[] CORPORATE REORGANIZATIONS
Certain Funds may invest in securities for which a tender
or
exchange offer has been made or announced and in securities
of companies for which a merger, consolidation, liquidation
or similar reorganization proposal has been announced if,
in
the judgment of the Fund's adviser or subadviser, there is
a
reasonable prospect of capital appreciation significantly
greater than the added portfolio turnover expenses inherent
in the short term nature of such transactions. The
principal risk is that such offers or proposals may not be
consummated within the time and under the terms
contemplated
at the time of the investment, in which case, unless such
offers or proposals are replaced by equivalent or increased
offers or proposals which are consummated, the Fund may
sustain a loss.
[] SECURITIES LENDING
A Fund may lend its portfolio securities to broker-dealers
or other parties under contracts calling for the deposit by
the borrower with the Fund's custodian of cash collateral
equal to at least the market value of the securities
loaned,
marked to market on a daily basis. A Fund 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. Any
voting rights or rights to consent relating to the loaned
securities 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 Fund. A
Fund pays various fees in connection with such loans,
including shipping fees and reasonable custodial or
placement fees.
[] SHORT SALES
A Fund may engage in short sales. A short sale is a
transaction in which the Fund sells securities it does not
own (but has borrowed) in anticipation of a decline in the
market price of the securities. When the Fund makes a
short
sale, the proceeds it receives from the sale will be held
by
the broker on behalf of the Fund until the Fund replaces
the
borrowed securities. To deliver the securities to the
buyer, the Fund will need to arrange through the broker to
borrow the securities and, in doing so, the Fund will be
obligated to replace the securities borrowed at their
market
value at the time of replacement, whatever that price may
be. The Fund may have to pay a premium to borrow the
securities and must pay any dividends or interest payable
until the securities are replaced.
[] 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. Certain Funds may engage in short sales only if the
Fund 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 Fund against the risk of
losses in the value of its portfolio securities because any
losses with respect to such securities should be wholly or
partially offset by a corresponding gain in the short
position. However, any gains in such securities would 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 an adviser or
subadviser
does not want to sell the security.
[] NON-DIVERSIFIED STATUS OF CERTAIN FUNDS
Certain Funds are "non-diversified," and not limited under
the 1940 Act in the percentage of their assets that they
may
invest in any one issuer. However, the Funds intend to
comply with the diversification standards applicable to
regulated investment companies under the Code. In order to
meet those standards, among other requirements, at the
close
of each quarter of its taxable year (a) at least 50% of the
value of the Fund's total assets must be represented by one
or more of the following: (i) cash and cash items,
including
receivables; (ii) U.S. Government securities; (iii)
securities of other regulated investment companies and (iv)
securities (other than those in items (ii) and (iii) above)
of any one or more issuers as to which the Fund's
investment
in an issuer does not exceed 5% of the value of the Fund's
total assets or 10% of the issuer's outstanding voting
securities; and (b) not more than 25% of the value of the
Fund's total assets may be invested in the securities of
any
one issuer (other than U.S. Government securities or
securities of other regulated investment companies).
[] MISCELLANEOUS
A Fund will not invest more than 15% of its assets in
"illiquid securities" (10% in the case of a Fund that is a
money market fund), that is, securities which are not
readily resalable, which may include securities whose
disposition is restricted by federal securities laws.
A Fund may purchase Rule 144A securities. These are
privately offered securities that can be resold only to
certain qualified institutional buyers. Investing in Rule
144A securities could have the effect of increasing the
level of fund illiquidity to the extent that qualified
institutional buyers become, for a time, uninterested in
purchasing these securities. Rule 144A securities are
treated as illiquid, unless a Fund's adviser or subadviser,
as the case may be, has determined, under guidelines
established by the Board of Trustees/Directors of the Fund,
that the particular issue of Rule 144A securities is
liquid.
Investment in restricted or other illiquid securities
involves the risk that the Fund may be unable to sell such
a
security at the desired time. Also, the Fund may incur
expenses, losses or delays in the process of registering
restricted securities prior to resale.
A Fund may purchase securities on a "when-issued" or
"delayed-delivery" basis. This means that the Fund enters
into a commitment to buy the security before the security
has been issued, or, in the case of a security that has
already been issued, to accept delivery of the security on
a
date beyond the usual settlement period. If the value of a
security purchased on a "when-issued" or "delayed-delivery"
basis falls or market rates of interest increase between
the
time the Fund commits to buy the security and the delivery
date, the Fund may sustain a loss in value of or yield on
the security.
APPENDIX B
OTHER UNDERLYING FUNDS IN WHICH THE FUNDS MAY INVEST
EQUITY FUNDS
LOOMIS SAYLES WORLDWIDE FUND
Loomis Sayles Worldwide Fund's investment objective is high total
investment return through a combination of capital appreciation
and current income.
LOOMIS SAYLES CORE VALUE FUND
Loomis Sayles Core Value Fund's investment objective is long-term
growth of capital and income.
LOOMIS SAYLES GROWTH FUND
Loomis Sayles Growth Fund's investment objective is long-term
growth of capital.
LOOMIS SAYLES MID-CAP GROWTH FUND
Loomis Sayles Mid-Cap Growth Fund's investment objective is long-
term capital growth from investments in common stocks or their
equivalent.
LOOMIS SAYLES MID-CAP VALUE FUND
Loomis Sayles Mid-Cap Value Fund's objective is long-term capital
growth from investments in common stocks or their equivalent.
LOOMIS SAYLES SMALL CAP GROWTH FUND
Loomis Sayles Small Cap Growth Fund's objective is long-term
capital growth from investments in common stocks or their
equivalent.
LOOMIS SAYLES STRATEGIC VALUE FUND
Loomis Sayles Strategic Value Fund's investment objective is
long-term capital growth from investments in common stocks or
their equivalent.
THE OAKMARK BALANCED FUND
The Oakmark Balanced Fund seeks high current income and
preservation and growth of capital by investing in a diversified
portfolio of equity and fixed-income securities.
THE OAKMARK SMALL CAP FUND
The Oakmark Small Cap Fund seeks long-term capital appreciation
by investing primarily in equity securities.
THE OAKMARK INTERNATIONAL SMALL CAP FUND
The Oakmark International Small Cap Fund (formerly named The
Oakmark International Emerging Value Fund) seeks long-term
capital appreciation by investing primarily in equity securities
of non-U.S. issuers with small market capitalization.
JURIKA & VOYLES VALUE AND GROWTH FUND
Jurika & Voyles Value and Growth Fund seeks long-term capital
appreciation.
JURIKA & VOYLES BALANCED FUND
Jurika & Voyles Balanced Fund's objective is to provide investors
with a balance of long-term capital appreciation and current
income.
JURIKA & VOYLES SMALL CAP FUND
Jurika & Voyles Small Cap Fund seeks to maximize long-term
capital appreciation.
NEW ENGLAND CAPITAL GROWTH FUND
New England Capital Growth Fund seeks long-term growth of
capital.
NEW ENGLAND INTERNATIONAL EQUITY FUND
New England International Equity Fund seeks total return from
long-term growth of capital and dividend income.
NEW ENGLAND STAR SMALL CAP FUND
New England Star Small Cap Fund seeks capital appreciation.
NEW ENGLAND STAR ADVISERS FUND
New England Star Advisers Fund seeks long-term growth of capital.
NEW ENGLAND STAR WORLDWIDE FUND
New England Star Worldwide Fund seeks long-term growth of
capital.
NEW ENGLAND EQUITY INCOME FUND
New England Equity Income Fund seeks current income and capital
growth.
REICH & TANG EQUITY FUND, INC.
Reich & Tang Equity Fund's investment objective is to seek growth
of capital.
BOND FUNDS
LOOMIS SAYLES HIGH YIELD FUND
Loomis Sayles High Yield Fund's investment objective is high
total investment return through a combination of current income
and capital appreciation.
LOOMIS SAYLES INTERMEDIATE MATURITY BOND FUND
Loomis Sayles Intermediate Maturity Bond Fund's investment
objective is high total investment return through a combination
of current income and capital appreciation.
LOOMIS SAYLES INVESTMENT GRADE BOND FUND
Loomis Sayles Investment Grade Bond Fund's investment objective
is high total investment return through a combination of current
income and capital appreciation.
LOOMIS SAYLES MUNICIPAL BOND FUND
Loomis Sayles Municipal Bond Fund's investment objective is as
high a level of current income exempt from federal income tax as
is consistent with the preservation of capital.
LOOMIS SAYLES SHORT-TERM BOND FUND
Loomis Sayles Short-Term Bond Fund's investment objective is high
total investment return through a combination of current income
and capital appreciation with relatively low fluctuation in net
asset value.
LOOMIS SAYLES U.S. GOVERNMENT SECURITIES FUND
Loomis Sayles U.S. Government Securities Fund's investment
objective is high total investment return through a combination
of current income and capital appreciation.
NEW ENGLAND GOVERNMENT SECURITIES FUND
New England Government Securities Fund seeks a high level of
current income consistent with safety of principal by investing
in U.S. Government securities.
NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND
New England Adjustable Rate U.S. Government Fund seeks a high
level of current income consistent with low volatility of
principal.
NEW ENGLAND HIGH INCOME FUND
New England High Income Fund seeks high current income plus the
opportunity for capital appreciation to produce a high total
return.
NEW ENGLAND LIMITED TERM U.S. GOVERNMENT FUND
New England Limited Term U.S. Government Fund seeks a high
current return consistent with preservation of capital.
Information contained herein is subject to completion or
amendment. A registration statement relating to these securities
has been filed with the Securities and Exchange Commission.
These securities may not be sold nor may offers to buy be
accepted prior to the time the registration statement becomes
effective. This Statement of Additional Information does not
constitute a prospectus.
Subject to Completion
Preliminary Statement of Additional Information dated November
7,
1997
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
- ----------------------------------------------------------------
New England One Growth Fund
New England One Moderate Fund
New England One Conservative Fund
STATEMENT OF ADDITIONAL INFORMATION
March, 1998
This Statement of Additional Information (the "Statement")
contains information which may be useful to investors but which
is not included in the Prospectus of the New England Funds listed
above (the "Funds" and each a "Fund"). This Statement is not a
prospectus and is only authorized for distribution when
accompanied or preceded by the Prospectus of the Funds dated [
], 1998 for Class A, Class B or Class C shares, or the Prospectus
of the Funds dated [ ], 1998 for Class Y shares (the
"Prospectus" or "Prospectuses"). The Statement should be read
together with the Prospectus. Investors may obtain a free copy
of the Prospectus from New England Funds, L.P., Prospectus
Fulfillment Desk, 399 Boylston Street, Boston, Massachusetts
02116.
New England One Growth Fund, New England One Moderate Fund and
New England One Conservative Fund are diversified series of New
England Funds Trust IV, a registered open-end management
investment company (the "Trust"). Capitalized terms not
otherwise defined herein have the same meaning as in the
Prospectus.
TABLE OF CONTENTS
INVESTMENT OBJECTIVES AND POLICIES
2
MANAGEMENT OF THE TRUST
28
PORTFOLIO TRANSACTIONS
35
DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES
35
HOW TO BUY SHARES
39
NET ASSET VALUE AND PUBLIC OFFERING PRICE
39
REDUCED SALES CHARGES
40
SHAREHOLDER SERVICES
42
REDEMPTIONS
48
STANDARD PERFORMANCE MEASURES
51
INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS
57
FINANCIAL STATEMENTS
60
GLOSSARY
60
APPENDIX A
79
APPENDIX B
83
APPENDIX C
85
- ----------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
- ----------------------------------------------------------------
GENERAL INVESTMENT OBJECTIVES AND POLICIES
The Trust is composed of three separate, diversified portfolios.
To achieve their investment objectives, the Funds invest
primarily in mutual funds offered by New England Funds, L.P. and
its affiliates, including certain funds comprising the New
England Funds, the Loomis Sayles Funds, the Jurika & Voyles Fund
Group, the Oakmark Family of Funds, Reich & Tang Equity Fund,
Inc., and Delafield Fund, Inc. The funds in which the Funds may
invest are referred to as the "Underlying Funds". The primary
investment adviser of each of the Underlying Funds is an
affiliated investment management subsidiary of New England
Investment Companies, Inc. ("NEIC"). Certain of the Underlying
Funds are managed by sub-advisers that are unaffiliated with
NEIC. Each Fund offers a professionally managed, long-term
investment program that can serve as a complete investment
program or as a core part of a larger portfolio. Achievement of
each Fund's objective cannot be assured.
Each Fund is designed for investors seeking a distinct investment
style: a conservative investment approach (New England One
Conservative Fund), a balance of growth and income (New England
One Moderate Fund), growth of capital (New England One Growth
Fund). The Funds have been created in response to increasing
demand by mutual fund investors for a simple and effective means
of structuring a diversified mutual fund investment program
suited to their general needs. As has been well documented in
the financial press, the proliferation of mutual funds over the
last several years has left many investors confused and in search
of a simpler means to manage their investments. Many mutual fund
investors realize the value of diversifying their investments in
a number of mutual funds (e.g., a money market fund for liquidity
and price stability, a growth fund for long-term appreciation, an
income fund for current income and relative safety of principal,
an international fund for greater diversification), but need
professional management to decide such questions as which mutual
funds to select, how much of their assets to commit to each fund
and when to allocate their selections. The Funds will allow
investors to rely on the Funds' investment adviser, New England
Funds Management, L.P. (the "Adviser" or "NEFM") to determine
(within clearly explained parameters) the amount to invest in
each of several Underlying Funds and the timing of such
investments.
The investment objectives of the three Funds are as follows:
NEW ENGLAND ONE CONSERVATIVE FUND (THE "CONSERVATIVE FUND")
The Conservative Fund seeks total return from a combination of
current income and growth of capital.
NEW ENGLAND ONE MODERATE FUND (THE "MODERATE FUND")
The Moderate Fund seeks total return from growth of capital and,
secondarily, from current income.
NEW ENGLAND ONE GROWTH FUND (THE "GROWTH FUND")
The Growth Fund seeks long-term growth of capital.
THE UNDERLYING FUNDS
Each Fund will purchase or sell securities to: (a) accommodate
purchases and sales of each Fund's shares, (b) change the
percentages of each Fund's assets invested in each of the
Underlying Funds in response to changing market conditions, and
(c) maintain or modify the allocation of each Fund's assets in
accordance with the investment mixes described below.
The portfolio management team will allocate Fund assets among the
Underlying Funds in accordance with predetermined percentage
distributions, based on the Adviser's outlook for the financial
markets, the world's economies and the relative performance
potential of the Underlying Funds. The Underlying Funds have
been selected to represent a broad spectrum of investment options
for the Funds, subject to the following investment allocations:
(Conservative Fund) 60% bond mutual funds, 40% equity mutual
funds; (Moderate Fund) 70% equity mutual funds, 30% bond mutual
funds; (Growth Fund) 90% equity mutual funds, 10% bond mutual
funds.
UNDERLYING FUNDS IN WHICH THE FUNDS INITIALLY WILL INVEST
CONSERVATIVE FUND
UNDERLYING FUNDS
EQUITY FUNDS
Delafield Fund, Inc.
The Oakmark Fund
Loomis Sayles
International
Equity Fund
New England Growth
Opportunities Fund
New England Value
Fund
BOND FUNDS
Loomis Sayles Bond
Fund
Loomis Sayles Global
Bond Fund
New England Strategic
Income Fund
New England Bond
Income Fund
MONEY MARKET FUND
New England Cash
Management Trust -
Money Market Series
MODERATE FUND
UNDERLYING FUNDS
EQUITY FUNDS
Delafield Fund, Inc.
Jurika & Voyles Mini-
Cap Fund
Loomis Sayles
International
Equity Fund
Loomis Sayles Small
Cap Value Fund
The Oakmark Fund
The Oakmark
International Fund
New England Growth
Fund
New England Growth
Opportunities Fund
BOND FUNDS
New England Bond
Income Fund
New England Strategic
Income Fund
MONEY MARKET FUND
New England Cash
Management Trust -
Money Market Series
GROWTH FUND
UNDERLYING FUNDS
EQUITY FUNDS
Delafield Fund, Inc.
Loomis Sayles
International
Equity Fund
Loomis Sayles Small
Cap Value Fund
New England Growth
Fund
New England Growth
Opportunities Fund
The Oakmark Fund
The Oakmark
International Fund
The Oakmark Select
Fund
BOND FUND
New England
Strategic Income
Fund
MONEY MARKET FUND
New England Cash
Management Trust -
Money Market
Series
MONEY MARKET FUND
NEW ENGLAND CASH MANAGEMENT TRUST - MONEY MARKET SERIES
Money Market Series seeks maximum current income consistent with
preservation of capital and liquidity. The Fund invests in a
variety of higher quality money market instruments. Money Market
Series invests in certificates of deposit, bankers' acceptances
and other dollar-denominated obligations of banks whose net
assets exceed $100 million. Up to 100% of the Fund's assets may
be invested in these kinds of obligations. These obligations may
be issued by U.S. banks or their foreign branches, or foreign
banks (including their U.S. branches), subject to certain
conditions.
The Fund may invest in commercial paper and other corporate debt
obligations that satisfy the Fund's quality and maturity
standards.
The Fund may also invest in "U.S. Government securities," which
term includes all securities issued or guaranteed by the U.S.
Government or its agencies, authorities or instrumentalities.
Some U.S. Government securities are backed by the full faith and
credit of the United States, some are supported by the
discretionary authority of the U.S. Government to purchase the
issuer's obligations (e.g., obligations of the Federal National
Mortgage Association), some by the right of the issuer to borrow
from the U.S. Government (e.g., obligations of Federal Home Loan
Banks), while still others are supported only by the credit of
the issuer itself (e.g., obligations of the Student Loan
Marketing Association).
The Fund may also invest in repurchase agreements of domestic
banks or broker-dealers relating to any of the above. In
repurchase agreements, the Fund buys a security from a seller,
usually a bank or brokerage firm, with the understanding that the
seller will repurchase the security from the Fund at a higher
price at a later date.
All of the Fund's investments at the time of purchase (other than
U.S. Government securities and repurchase agreements relating
thereto) will be rated in the highest rating category by a major
rating agency or, if unrated, will be of comparable quality as
determined by the Fund's subadviser under guidelines approved by
its Trust's trustees.
EQUITY FUNDS
DELAFIELD FUND, INC.
The investment objectives of Delafield Fund, Inc. are to seek
long-term preservation of capital (sufficient growth to outpace
inflation over an extended period of time) and growth of capital.
The Fund will seek to achieve these objectives by investing
primarily in the equity securities of domestic companies which,
based on the research of the Fund's adviser are considered to be
undervalued or to represent special situations (i.e., companies
undergoing change that might cause their market value to grow at
a rate faster than the market generally).
The Fund will under normal circumstances have substantially all
of its assets (i.e., more than 65%) invested in a diversified
portfolio of equity securities, including common stocks,
securities convertible into common stocks or rights or warrants
to subscribe for or purchase common stocks.
The Fund at times may also invest less than 35% of its total
assets in debt securities and preferred stocks offering a
significant opportunity for price appreciation.
The Fund may take a defensive position when the Fund's adviser
has determined that adverse business or financial conditions
warrant such a defensive position and invest temporarily without
limit in rated or unrated debt securities or preferred stocks or
in money market instruments.
LOOMIS SAYLES SMALL CAP VALUE FUND
The investment objective of Loomis Sayles Small Cap Value Fund is
long-term capital growth from investments in common stocks or
their equivalent. The Fund seeks to achieve its objective by
investing primarily in equity securities of small capitalization
companies with good earnings growth potential that Loomis Sayles
believes are undervalued by the market. The Fund will normally
invest at least 65% of its total assets in companies with market
capitalization of less than $1 billion and may invest up to 35%
of its assets in large companies. The Fund's adviser seeks to
build a core small capitalization portfolio of stocks of solid
companies with reasonable growth prospects and that are
attractively priced in relation to the companies' earnings with a
smaller emphasis on special situations and turnarounds (companies
that have experienced significant business problems but which the
adviser believes have favorable prospects for recovery), as well
as unrecognized stocks. Current income is not a consideration in
selecting the Fund's investments. The Fund may invest up to 20%
of its assets in securities of foreign issuers. The Fund may
also engage in foreign currency hedging transactions and purchase
Rule 144A securities.
THE OAKMARK FUND
The Oakmark Fund seeks long-term capital appreciation by
investing primarily in equity securities. Although income is
considered in the selection of securities, the Fund is not
designed for investors whose primary investment objective is
income.
The Fund invests principally in securities of U.S. issuers.
However, it may invest up to 25% of its total assets (valued at
the time of investment) in securities of non-U.S. issuers,
including foreign government obligations and foreign equity and
debt securities that are traded over-the-counter or on foreign
exchanges. There are no geographic limits on the Fund's foreign
investments, but the Fund does not expect to invest more than 5%
of its assets in securities of issuers based in emerging markets.
THE OAKMARK INTERNATIONAL FUND
The Oakmark International Fund seeks long-term capital
appreciation by investing primarily in equity securities of non-
U.S. issuers. Although income is considered in the selection of
securities, the Fund is not designed for investors whose primary
investment objective is income.
The Fund's adviser considers the relative political and economic
stability of the issuer's home country, the ownership structure
of the company, and the company's accounting practices in
evaluating the potential rewards and risks of an investment
opportunity. The Fund may invest in securities traded in mature
markets (for example, Japan, Canada and the United Kingdom), in
less developed markets (for example, Mexico and Thailand), and in
selected emerging markets (such as Peru and India). Investments
in securities of non-U.S. issuers, especially those traded in
less developed or emerging markets, present additional risk.
There are no limits on the Fund's geographic asset distribution,
but, to provide adequate diversification, the Fund ordinarily
invests in the securities markets of at least five countries
outside the United States.
Some foreign governments have been engaged in programs of selling
part or all of their stakes in government owned or controlled
enterprises ("privatizations"). The Fund's adviser believes that
privatizations may offer opportunities for significant capital
appreciation, and intends to invest assets of the Fund in
privatizations in appropriate circumstances. In certain of those
markets, the ability of foreign entities such as the Fund to
participate in privatizations may be limited by local law and/or
the terms on which the Fund may be permitted to participate may
be less advantageous than those afforded local investors. There
can be no assurance that governments will continue to sell
companies currently owned or controlled by them or that
privatization programs will be successful.
The equity securities in which the Fund may invest include common
and preferred stocks and warrants or other similar rights and
convertible securities. The Fund may purchase securities of non-
U.S. issuers directly or in the form of American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDRs"), or
other securities representing underlying shares of non-U.S.
issuers. Under normal market conditions, the Fund invests at
least 65% of its total assets, valued at the time of investment,
in securities of non-U.S. issuers.
JURIKA & VOYLES MINI-CAP FUND
Jurika & Voyles Mini-Cap Fund seeks to maximize long-term capital
appreciation. The Fund invests primarily in the common stock of
quality companies having small market capitalizations that offer
current value and significant future growth potential.
The Fund will invest at least 65% of its total assets in the
common stock of companies having market capitalizations at the
time of purchase of between $50 million and $500 million. The
Fund typically expects that at least 80% of its equity holding
will fall within this capitalization range. The average and
median market capitalizations will fluctuate over time as a
result of market valuation levels and the availability of
specific investment opportunities.
The Fund seeks value in quality companies selling at lower price
to earnings ("P/E") multiples relative to their growth rates and
lower P/E multiples than the Standard & Poor's 500 Composite
Price Index (the "S&P 500") and/or Russell 2000 Small Stock
Index. Quality companies possess some or all of the following
characteristics: significant potential for future growth in
earnings; a strong competitive advantage; a clearly defined
business focus; strong financial health; and management
ownership.
The securities of smaller-sized companies may present greater
opportunities for capital appreciation, but may also involve
greater risks.
The Fund may continue to hold its investment in a company whose
capitalization subsequently grows above $500 million if the
company continues to satisfy the other investment policies of the
Fund.
The Fund invests primarily in common stocks, but also may invest
in other equity securities including convertible debt securities
and warrants. In addition, the Fund may invest up to 25% of its
total assets in foreign securities such as U.S. dollar-
denominated securities of foreign issuers and ADRs, but will
limit its investments in any one foreign country to 5% of its
total assets. As part of this, the Fund may invest up to 5% of
its net assets in securities denominated in foreign currencies.
Although the Fund does not anticipate maintaining a large non-
equity position, the Fund may invest up to 35% of its total
assets in debt securities, including up to 25% of its total
assets in debt securities (and convertible debt securities) rated
below investment grade. Debt securities may include bonds,
notes, convertible bonds, mortgage-backed securities (including
collateralized mortgage obligations ("CMOs") and REMICs) and
other types.
LOOMIS SAYLES INTERNATIONAL EQUITY FUND
Loomis Sayles International Equity Fund's investment objective is
high total investment return through a combination of capital
appreciation and current income. The Fund seeks to achieve its
objective by investing primarily in equity securities of
companies organized or headquartered outside the United States.
Under normal conditions the Fund will invest at least 65% of its
total assets in equity securities of issuers from at least three
countries outside the United States. For temporary defensive
purposes, the Fund may invest as much as 100% of its assets in
issuers from one or two countries, which may include the United
States. The Fund may also engage in foreign currency hedging
transactions and options transactions, and purchase Rule 144A
securities.
NEW ENGLAND GROWTH FUND
The Fund seeks long-term growth of capital through investment in
equity securities of companies whose earnings are expected to
grow at a faster rate than the United States economy. Most of
the Growth Fund's investments are normally in common stocks,
although the Fund may invest in any type of equity securities.
The Fund does not consider current income as a factor in
selecting its investments. The Fund may invest in foreign
securities.
NEW ENGLAND VALUE FUND
New England Value Fund seeks a reasonable long-term investment
return from a combination of market appreciation and dividend
income from equity securities. Substantially all of the Fund's
investments are normally in equity securities. In selecting
investments for the Fund, the emphasis is ordinarily placed on
undervalued securities. Although long-term market appreciation
is ordinarily the basis for security selection, current income
may be a significant consideration when yields appear to be
favorable compared to overall opportunities for capital
appreciation. The Fund may invest in foreign securities.
NEW ENGLAND GROWTH OPPORTUNITIES FUND
New England Growth Opportunities Fund seeks opportunities for
long-term growth of capital and income. It is normally the
policy of the Fund to invest in a diversified portfolio of common
stocks considered by the Fund's subadviser to have possibilities
for long-term appreciation of capital and income. Emphasis will
be given to both undervalued securities and securities of
companies with growth potential. The Fund will ordinarily invest
substantially all of its assets in equity securities. The Fund
may invest in foreign securities that are traded in U.S. markets.
THE OAKMARK SELECT FUND
The Oakmark Select Fund seeks long-term capital appreciation by
investing primarily in a non-diversified portfolio of equity
securities. The Fund invests principally in securities of U.S.
issuers. However, it may invest up to 25% of its total assets
(valued at the time of investment) in securities of non-U.S.
issuers, including foreign government obligations and foreign
equity and debt securities that are traded over-the-counter or on
foreign exchanges. There are no geographic limits on the Fund's
foreign investments, but the Fund does not expect to invest more
than 5% of its assets in securities of issuers based in emerging
markets.
As a "non-diversified" fund, the Fund is not limited under the
Investment Company Act of 1940 (the "1940 Act") in the percentage
of its assets that it may invest in any one issuer.
BOND FUNDS
LOOMIS SAYLES BOND FUND
Loomis Sayles Bond Fund's investment objective is high total
investment return through a combination of current income and
capital appreciation.
The Fund seeks to achieve its objective by normally investing
substantially all of its assets in fixed-income securities,
although up to 20% of its assets may be invested in preferred
stocks. At least 65% of the Fund's total assets will normally be
invested in bonds. The fixed-income securities in which the Fund
may invest include corporate securities, U.S. Government
securities, commercial paper, zero coupon securities, mortgage-
backed securities, CMOs, asset-backed securities, when-issued
securities, Rule 144A securities, repurchase agreements and
convertible securities. The Fund may engage in options and
futures transactions, repurchase transactions, foreign currency
hedging transactions and swap transactions.
The Fund may invest any portion of its assets in securities of
Canadian issuers, and up to 20% of its assets in securities of
other foreign issuers. The Fund may also invest up to 35% of its
assets in securities of below investment grade quality.
Securities of below investment grade quality are securities rated
below the top four rating categories by each major rating agency
that has rated the security, including securities in the lowest
rating categories, and unrated securities that its manager
determines to be of comparable quality.
LOOMIS SAYLES GLOBAL BOND FUND
Loomis Sayles Global Bond Fund's investment objective is high
total investment return through a combination of high current
income and capital appreciation. The Fund seeks to achieve its
objective by investing primarily in investment grade fixed-income
securities denominated in various currencies, including U.S.
dollars, or in multicurrency units. Under normal conditions, the
Fund will invest at least 65% of its total assets in fixed-income
securities of issuers from at least three countries, which may
include the United States, and no more than 40% of its assets in
issuers headquartered in any one country. However, up to 100% of
the Fund's assets may be denominated in U.S. dollars. The fixed-
income securities in which the Fund may invest include corporate
securities, U.S. Government securities, commercial paper, zero
coupon securities, mortgage-backed securities, CMOs, asset-backed
securities, when-issued securities, Rule 144A securities,
repurchase agreements and convertible securities. The Fund may
engage in options and futures transactions, repurchase
transactions, foreign currency hedging transactions and swap
transactions.
NEW ENGLAND STRATEGIC INCOME FUND
New England Strategic Income Fund seeks high current income with
a secondary objective of capital growth. The Fund seeks to
achieve its investment objectives by investing at least 65% of
its total assets in debt instruments. The Fund may invest in
debt instruments issued by corporations based in the United
States or abroad and debt instruments that are convertible into
equity securities. The Fund may also invest in U.S. Government
securities and in securities issued or guaranteed by foreign
governments (including their political subdivisions, agencies,
authorities and/or instrumentalities) and securities issued by
supranational agencies. The Fund may invest in securities of
emerging markets. The Fund may invest in debt instruments in any
rating category, including debt instruments rated in the lower
rating categories (C by Moody's Investors Service, Inc.
("Moody's") and D by Standard & Poor's Ratings Group ("S&P")) and
in instruments that are unrated.
NEW ENGLAND BOND INCOME FUND
New England Bond Income Fund seeks a high level of current income
consistent with what the Fund considers reasonable risk. The
Fund invests primarily in corporate and U.S. Government bonds.
At least 80% of its total assets will be invested in bonds
carrying investment grade ratings from one of the recognized
rating services. The Fund may also purchase non-rated or lower-
rated bonds. Bonds rated BBB by S&P or Baa by Moody's (the
lowest ratings that are considered investment grade) have some
speculative characteristics, and unfavorable changes in economic
conditions or other circumstances are more likely to lead to a
weakened capacity of issuers of these bonds to make principal and
interest payments than is the case with higher grade bonds. If
an investment rated BBB or Baa is downgraded by a major rating
agency, the Fund's subadviser will consider whether the
investment remains appropriate for the Fund. The Fund may invest
in debt instruments rated in the rating categories of B (by
Moody's or S&P) or higher and in instruments that are unrated.
The Fund may invest in securities of any maturity and in zero
coupon securities. The Fund may also invest in CMOs. The Fund
will normally maintain an average dollar-weighted portfolio
maturity of less than ten years. The Fund may invest in
convertible securities and in Rule 144A securities. The Fund may
invest in foreign securities but will do so only when the Fund's
subadviser believes the associated risks are minimal as compared
to similar securities of domestic issuers. The Fund may engage
in a variety of options and futures transactions with respect to
U.S. or foreign government securities and corporate fixed-income
securities.
OTHER UNDERLYING FUNDS IN WHICH THE FUNDS MAY INVEST
EQUITY FUNDS
REICH & TANG EQUITY FUND, INC.
The investment objective of Reich & Tang Equity Fund, Inc. is to
seek growth of capital, and investments will be made based upon
their potential for capital appreciation. Therefore, current
income will be secondary to the objective of capital growth. The
Fund's investment objective of capital growth is fundamental and
may not be changed without stockholder approval. The Fund will
invest in both listed and unlisted securities and in foreign as
well as domestic securities.
The Fund will under normal circumstances have substantially all
of its assets (i.e., more than 65%) invested in a diversified
portfolio of equity securities (common stocks or securities
convertible into common stocks or rights or warrants to subscribe
for or purchase common stocks). The Fund at times may also
invest not more than 35% of its total assets in debt securities
and preferred stocks offering a significant opportunity for price
appreciation. When its manager determines that adverse
conditions warrant, the Fund may take a defensive position and
invest temporarily without limit in investment grade debt
securities or preferred stocks or in money market instruments.
The Fund will invest in both listed and unlisted securities and
in foreign as well as domestic securities. While the Fund has no
present intention of investing any significant portion of its
assets in foreign securities, it reserves the right to invest in
foreign securities if purchase thereof at the time of purchase
would not cause more than 15% of the value of the Fund's total
assets to be invested in foreign securities. Investments in
foreign securities involve certain risk considerations which are
not typically associated with investments in domestic securities.
LOOMIS SAYLES GROWTH FUND
The investment objective of Loomis Sayles Growth Fund is long-
term growth of capital. The Fund seeks to achieve its objective
by investing substantially all of its assets in common stocks or
their equivalent. Investments are selected based on their growth
potential; current income is not a consideration. The Fund may
invest in companies with relatively small market capitalization,
as well as in larger companies. The Fund may invest up to 20% of
its assets in securities of foreign issuers. The Fund may also
engage in foreign currency hedging transactions and purchase Rule
144A securities.
LOOMIS SAYLES WORLDWIDE FUND
Loomis Sayles Worldwide Fund's investment objective is high total
investment return through a combination of capital appreciation
and current income. The Fund seeks to achieve its objective by
investing in U.S. and foreign equity and debt securities. The
allocation of the Fund's assets among the four sectors of
domestic equities, international equities, domestic bonds and
international bonds will be made by the Fund's advisers. The
Fund will normally invest its assets in securities of issuers
from at least three countries, one of which may be the United
States. The Fund may also invest in CMOs, zero coupon
securities, when-issued securities and Rule 144A securities. The
Fund may engage in foreign currency hedging transactions and
options and forward contract transactions.
LOOMIS SAYLES CORE VALUE FUND
Loomis Sayles Core Value Fund's investment objective is long-term
growth of capital and income. The Fund seeks to achieve its
objective by investing substantially all of its assets in common
stocks or their equivalent that its manager considers to be
undervalued in relation to the issuer's earnings, dividends,
assets and growth prospects. The Fund may invest up to 20% of
its assets in securities of foreign issuers. The Fund may also
engage in foreign currency hedging transactions and purchase Rule
144A securities.
LOOMIS SAYLES MID-CAP GROWTH FUND
Loomis Sayles Mid-Cap Growth Fund's investment objective is long-
term capital growth from investments in common stocks or their
equivalent. The Fund seeks to achieve its objective by
investing, under normal market conditions, at least 65% of its
total assets in equity securities of companies with a market that
falls within the capitalization range of companies included in
the Standard & Poor's Mid-Cap 400 Index. Current income is not a
consideration in selecting the Fund's investments. The Fund may
invest any portion of its assets in securities of Canadian
issuers and up to 20% of its assets in the securities of issuers
headquartered outside the United States or Canada. The Fund may
also engage in foreign currency hedging transactions, options and
futures transactions and securities lending, and purchase Rule
144A securities.
LOOMIS SAYLES MID-CAP VALUE FUND
Loomis Sayles Mid-Cap Value Fund's objective is long-term capital
growth from investments in common stocks or their equivalent.
The Fund seeks to achieve its objective by investing, under
normal market conditions, at least 65% of its total assets in
equity securities of companies with a market that falls within
the capitalization range of companies included in the Standard &
Poor's Mid-Cap 400 Index. The Fund's manager seeks to build a
core portfolio of equity securities that it believes to be
undervalued by the market in relation to the issuers' earnings,
dividends, assets and growth prospects and that has a smaller
emphasis on special situations and turnarounds (companies that
have experienced significant business problems but that the
manager believes have favorable prospects for recovery). Current
income is not a consideration in selecting the Fund's
investments. The Fund may invest any portion of its assets in
securities of Canadian issuers and up to 20% of its assets in the
securities of issuers headquartered outside the United States or
Canada. The Fund may also engage in foreign currency hedging
transactions, options and futures transactions and securities
lending, and purchase Rule 144A securities.
LOOMIS SAYLES SMALL CAP GROWTH FUND
Loomis Sayles Small Cap Growth Fund's objective is long-term
capital growth from investments in common stocks or their
equivalent. The Fund seeks to achieve its objective by investing
primarily in equity securities of small, rapidly growing
companies that its manager believes have the potential for
accelerating earnings growth and rising profit margins. The Fund
will normally invest at least 65% of its total assets in equity
securities of companies with market capitalization of less than
$1 billion and may invest up to 35% of its total assets in larger
companies. The manager seeks companies that have distinctive
products, technologies, or services; dynamic earnings growth;
prospects for a high level of profitability; and outstanding
management. Current income is not a consideration in selecting
the Fund's investments. The Fund may invest any portion of its
assets in securities of Canadian issuers and up to 20% of its
assets in the securities of issuers headquartered outside the
United States or Canada. The Fund may also engage in foreign
currency hedging transactions, options and futures transactions
and securities lending, and purchase Rule 144A securities.
LOOMIS SAYLES STRATEGIC VALUE FUND
Loomis Sayles Strategic Value Fund's investment objective is
long-term capital growth from investments in common stocks or
their equivalent. The Fund seeks to achieve its objective by
investing substantially all of its assets in equity securities
that its manager considers to be undervalued by the markets.
Stocks are selected based on a combination of quantitative
factors including historical, relative price-earnings ratios;
price-earnings ratios relative to growth rates; relative
fundamentals and price momentum; and qualitative factors
including the quality of management, position in the industry,
debt and balance sheet restructuring and product cycles. The
Fund's strategy is to have a relatively concentrated portfolio
normally consisting of approximately 35-40 securities that the
manager considers best positioned to perform in the current and
future environments. The Fund may invest any portion of its
assets in the securities of Canadian issuers and up to 20% of its
assets in securities of issuers heardquartered outside the United
States or Canada. The Fund may also engage in foreign currency
hedging transactions, options and futures transactions and
securities lending, and purchase Rule 144A securities.
THE OAKMARK BALANCED FUND
The Oakmark Balanced Fund seeks high current income and
preservation and growth of capital by investing in a diversified
portfolio of equity and fixed-income securities. The Fund is
intended to present a balanced investment program between growth
and income. It generally invests approximately 50-65% of its
total assets in equity securities, including securities
convertible into equity securities, 25-50% of its assets in U.S.
Government securities and debt securities rated at time of
purchase within the two highest grades assigned by Moody's (Aaa
or Aa) or by S&P (AAA or AA), and up to 20% in unrated or lower
rated debt securities (measured at market value at the time of
investment).
The Fund invests principally in securities of U.S. issuers.
However, it may invest up to 10% of its total assets (valued at
the time of investment) in securities of non-U.S. issuers,
including foreign government obligations and foreign equity and
debt securities that are traded over-the-counter or on foreign
exchanges. The Fund has no geographic limits on its foreign
investments, but the Fund does not expect to invest more than 5%
of its assets in securities of issuers based in emerging markets.
THE OAKMARK SMALL CAP FUND
The Oakmark Small Cap Fund seeks long-term capital appreciation
by investing primarily in equity securities. Under normal market
conditions, the Fund invests at least 65% of its total assets,
valued at the time of investment, in "small cap companies."
Although income is considered in the selection of securities, the
Fund is not designed for investors whose primary investment
objective is income.
The Fund invests principally in securities of U.S. issuers.
However, it may invest up to 25% of its total assets (valued at
the time of investment) in securities of non-U.S. issuers,
including foreign government obligations and foreign equity and
debt securities that are traded over-the-counter or on foreign
exchanges. There are no geographic limits on the Fund's foreign
investments, but the Fund does not expect to invest more than 5%
of its assets in securities of issuers based in emerging markets.
THE OAKMARK INTERNATIONAL SMALL CAP FUND
The Oakmark International Small Cap Fund (formerly named The
Oakmark International Emerging Value Fund) seeks long-term
capital appreciation by investing primarily in equity securities
of non-U.S. issuers with small market capitalization. Under
normal market conditions, the Fund invests at least 65% of its
total assets, valued at the time of investment, in "small cap
companies". Although income is considered in the selection of
securities, the Fund is not designed for investors whose primary
investment objective is income.
The Fund's adviser considers the relative political and economic
stability of the issuer's home country, the ownership structure
of the company, and the company's accounting practices in
evaluating the potential rewards and risks of an investment
opportunity. The Fund invests in securities traded in both
developed and emerging markets. Investments in securities of
non-U.S. issuers, especially those traded in less developed or
emerging markets, present additional risks. There are no limits
on the Fund's geographic asset distribution, but, to provide
adequate diversification, the Fund ordinarily invests in the
securities markets of at least five countries outside the United
States.
Some foreign governments have been engaged in privatizations.
The Fund's adviser believes that privatizations may offer
opportunities for significant capital appreciation, and intends
to invest assets of the Fund in privatizations in appropriate
circumstances.
The equity securities in which the Fund may invest include common
and preferred stocks and warrants or other similar rights and
convertible securities. The Fund may purchase securities of non-
U.S. issuers directly or in the form of ADRs, EDRs, Global
Depositary Receipts ("GDRs"), or other securities representing
underlying shares of non-U.S. issuers.
JURIKA & VOYLES VALUE AND GROWTH FUND
Jurika & Voyles Value and Growth Fund seeks long-term capital
appreciation. The Fund invests primarily in the common stock of
quality companies of all market capitalizations that offer
current value total and significant future growth potential.
The Fund will invest at least 65% of its total assets in the
common stock of companies having market capitalizations at the
time of purchase of $500 million and over. The Fund typically
expects that at least 80% of its equity holdings will fall within
this capitalization range. The average and median market
capitalizations will fluctuate over time as a result of market
valuation levels and the availability of specific investment
opportunities.
The Fund seeks value in quality companies selling at lower P/E
multiples relative to their growth rates and lower P/E multiples
than the S&P 500. Quality companies possess some or all of the
following characteristics: significant potential of future
growth in earnings; a strong competitive advantage; a clearly
defined business focus; strong financial health; and management
ownership. The Fund may hold equity securities of companies with
smaller market capitalizations.
The Fund invests primarily in common stocks, but also may invest
in other equity securities including convertible preferred
stocks, convertible debt securities and warrants. In addition,
the Fund may invest up to 25% of its total assets in foreign
securities such as U.S. dollar-denominated securities of foreign
issuers and ADRs, but will limit its investments in any one
foreign country to 5% of its total assets. As part of this, the
Fund may invest up to 5% of its net assets in securities
denominated in foreign currencies.
Although the Fund does not anticipate maintaining a large non-
equity position, the Fund may invest up to 35% of its total
assets in debt securities, including up to 25% of its total
assets in debt securities (and convertible debt securities) rated
below investment grade. Debt securities may include bonds,
notes, convertible bonds, mortgage-backed and asset-backed
securities (including CMOs and REMICs) and other types.
JURIKA & VOYLES BALANCED FUND
Jurika & Voyles Balanced Fund's objective is to provide investors
with a balance of long-term capital appreciation and current
income. The Fund seeks to achieve this objective with less
volatility and risk than that of the broad stock market by
investing primarily in a diversified portfolio that combines
stocks, bonds and cash-equivalent securities.
Equity securities normally will constitute from 40% to 70% of the
Fund's total assets. The Fund will invest at least 25% of its
total assets in fixed-income debt securities. Cash-equivalent
securities normally will constitute from 0% to 35% of the Fund's
total assets. The Fund's adviser will shift the balance between
equity, debt and cash-equivalent securities based on economic
conditions, the current interest rate environment and the
availability of specific investment opportunities consistent with
the Fund's objective.
The Fund's equity investments will emphasize equity securities of
companies having market capitalizations at the time of purchase
of $500 million and over. The Fund typically expects that at
least 80% of its equity holdings will fall within this
capitalization range. The average and median market
capitalizations will fluctuate over time as a result of market
valuation levels and the availability of specific investment
opportunities.
The Fund seeks quality companies selling at lower P/E multiples
relative to their growth rates and P/E multiples than the S&P
500. Quality companies which possess some or all of the
following characteristics: significant potential for future
growth in earnings; a strong competitive advantage; a clearly
defined business focus; strong financial health; and management
ownership.
The Fund may hold securities of companies with smaller market
capitalizations.
The Fund invests primarily in common stocks and senior debt
securities, but also may invest in convertible preferred stocks,
convertible debt securities and warrants. In addition, the Fund
may invest up to 25% of its total assets in foreign securities
such as U.S. dollar-denominated securities of foreign issuers and
ADRs, but will limit its investments in any one foreign country
to 5% of its net assets. As part of this, the Fund may invest up
to 5% of its total asset in securities denominated in foreign
currencies.
The Fund may invest up to 25% of its total assets in debt
securities (and convertible debt securities) rated below
investment grade. Debt securities may include bonds, notes
convertible bonds, mortgage-backed and asset-backed securities
(including CMOs and REMICs) and other types.
JURIKA & VOYLES SMALL CAP FUND
Jurika & Voyles Small Cap Fund seeks to maximize long-term
capital appreciation. The Fund invests primarily in the common
stock of quality companies with small market capitalizations that
offer current value and significant future growth potential.
The Fund will invest at least 65% of its total assets in the
common stock of companies having market capitalizations at the
time of purchase of between $300 million and $1.3 billion. The
Fund typically expects that at least 80% of its equity holding
will fall within this capitalization range. The average and
median market capitalizations will fluctuate over time as a
result of market valuation levels and the availability of
specific investment opportunities.
The Fund invests in quality companies offering an attractive
combination of value and growth characteristics. Companies will
typically sell at lower P/E multiples and offer higher earnings
growth rates than the S&P 500 market average. In addition, the
Fund emphasizes companies that possess some or all of the
following characteristics: significant potential for future
growth in earnings; a strong competitive advantage; a clearly
defined business focus; strong financial health; and a skilled
management group.
The securities of smaller-sized companies may present greater
opportunities for capital appreciation, but may also involve
greater risks.
The Fund may continue to hold its investment in a company whose
capitalization subsequently grows above $1.3 billion if the
company continues to satisfy the other investment policies of the
Fund.
The Fund invests primarily in common stocks, but also may invest
in other equity securities, including convertible preferred
stocks, convertible debt securities and warrants. In addition
the Fund may invest up to 25% of its total assets in foreign
securities such as U.S. dollar-denominated securities of foreign
issuers and ADRs, but will limit its investments in any one
foreign country to 5% of its total assets. As part of this, the
Fund may invest up to 5% of its net assets in securities
denominated in foreign currencies.
Although the Fund does not anticipate maintaining a large non-
equity position, the Fund may invest up to 35% of its total
assets in debt securities, including up to 25% of its total
assets in debt securities (and convertible debt securities) rated
below investment grade. Debt securities may include bonds, notes
convertible bonds, mortgage-backed and asset-backed securities
(including CMOs and REMICs) and other types.
NEW ENGLAND CAPITAL GROWTH FUND
New England Capital Growth Fund seeks long-term growth of
capital. The Fund seeks to attain its objective by investing
substantially all of its assets in equity securities.
Investments are selected based on their growth potential; current
income is not a consideration. The Fund normally will invest
primarily in equity securities of companies with medium or large
market capitalization (capitalization of $1 billion to $5 billion
and over $5 billion, respectively), but will also invest a
portion of its assets in equity securities of companies with
relatively small market capitalization (under $1 billion).
The Fund's subadviser selects investments based upon fundamental
research and analysis of individual companies and industries.
The subadviser selects investments for the Fund based on
qualitative and quantitative criteria including, among others,
industry dominance and competitive position, consistent earnings
growth, a history of high profitability, the subadviser's
expectation of continued high profitability and overall financial
strength, although not every investment will have all of these
characteristics. The Fund may invest in foreign securities.
NEW ENGLAND INTERNATIONAL EQUITY FUND
New England International Equity Fund seeks total return from
long-term growth of capital and dividend income, primarily
through investment in international equity securities. The Fund
seeks to achieve its objective by investing primarily in common
stocks, although the Fund may invest in any type of equity
securities. Normally the Fund will invest at least 65% of its
total assets in equity securities of issuers headquartered
outside the United States or that derive a substantial part of
their revenues or profits from countries outside the United
States. Under normal conditions the Fund's portfolio will
contain equity securities of issuers from at least three
countries outside the United States. The Fund may also invest in
closed-end investment companies domiciled in the United States
that invest primarily in securities issued by foreign companies.
In addition, the Fund may invest up to 20% of its assets in bonds
issued or guaranteed by foreign governments (including their
political subdivisions, agencies, authorities and/or
instrumentalities), supranational agencies or foreign companies,
including but not limited to convertible debt and below
investment grade or unrated debt. The Fund may also engage in
certain options and futures transactions.
NEW ENGLAND STAR SMALL CAP FUND
New England Star Small Cap Fund seeks to attain its objective of
capital appreciation by investing primarily in equity securities
of small capitalization companies, which the Fund currently
considers to be companies having total market capitalization
(shares outstanding times market price per share), at the time of
purchase, of under $1 billion ("Small Cap Companies"). Under
normal market conditions, at least 65% of the Fund's net assets
will be invested in Small Cap Companies. The Fund may also
invest its assets in companies having larger market
capitalization and in other securities, including foreign and
fixed-income securities. Foreign securities, including equity
securities that are traded over-the-counter or on foreign
exchanges, may constitute up to 25% of the Fund's net assets.
There are no geographic limits on the Fund's foreign investments.
NEW ENGLAND STAR ADVISERS FUND
New England Star Advisers Fund seeks long-term growth of capital.
The Fund seeks to attain its objective by investing primarily in
equity securities. The Fund may also invest in other securities.
Under normal market conditions, however, at least 65% of the
Fund's assets will be invested in equity securities. Capital
invested in the Fund will be allocated on an equal basis among
four different subadvisers. Each subadviser will manage its
segment of the Fund's assets in accordance with that subadviser's
own investment style and strategy. The Fund, in the discretion
of each subadviser, may invest without limit in securities of
companies with smaller capitalization. The Fund may in the
discretion of each of its subadvisers invest without limit in
securities of foreign issuers (including issuers in emerging
markets) as well as in securities of U.S. issuers.
NEW ENGLAND STAR WORLDWIDE FUND
New England Star Worldwide Fund seeks long-term growth of capital
by investing primarily in equity securities both within the
United States and around the world. The Fund is a global fund,
which means it will seek to invest in equity securities traded on
foreign stock markets as well as the stock markets of the United
States. Foreign markets represent two-thirds of the value of all
stocks traded in the world, and offer many opportunities for
investment in addition to those found in the United States.
Foreign markets may be located in large, developed countries such
as Great Britain or in smaller, developing markets like
Singapore. The Fund may also invest in other securities. Under
normal market conditions, however, at least 65% of each segment
of the Fund's portfolio, and at least 65% of the Fund's total
assets, will be invested in equity securities. The Fund may in
the discretion of each of its subadvisers invest without limit in
securities of foreign issuers (including issuers in emerging
markets) as well as in securities of U.S. issuers. Under normal
market conditions, the Fund will invest in securities of issuers
in at least three different countries, one of which will be the
United States. As a temporary, defensive measure, however, the
Fund may invest without limit in securities of U.S. issuers,
including corporate and government debt obligations, or in cash
or cash equivalents.
Capital invested in the Fund will be allocated equally among five
different segments of the portfolio, managed by four different
subadvisers. Each subadviser will manage its segment or segments
of the Fund's assets in accordance with that subadviser's own
investment style and strategy.
NEW ENGLAND EQUITY INCOME FUND
New England Equity Income Fund seeks current income and capital
growth. Under normal market conditions, the Fund will invest at
least 80% of its assets in dividend-paying common or preferred
stocks. The Fund's portfolio will be selected to seek a current
dividend yield which is comparable to the published composite
yield of the S&P 500 and long-term capital appreciation. The
Fund may also invest in non dividend-paying stocks, other equity
securities, fixed-income securities, Rule 144A securities, zero
coupon bonds and strips, foreign securities and repurchase
agreements.
BOND FUNDS
LOOMIS SAYLES HIGH YIELD FUND
Loomis Sayles High Yield Fund's investment objective is high
total investment return through a combination of current income
and capital appreciation.
The Fund seeks to achieve its objective by normally investing
substantially all of its assets in fixed-income securities,
although up to 20% of its assets may be invested in preferred
stocks and up to 10% of its assets may be invested in common
stocks. The fixed-income securities in which the Fund may invest
include corporate securities, U.S. Government securities,
commercial paper, zero coupon securities, mortgage-backed
securities, CMOs, asset-backed securities, when-issued
securities, Rule 144A securities, repurchase agreements and
convertible securities. The Fund may engage in options and
futures transactions, repurchase transactions, foreign currency
hedging transactions and swap transactions. The Fund may invest
any portion of its assets in securities of Canadian issuers and
up to 50% of its assets in the securities of other foreign
issuers.
The Fund will normally invest at least 65% of its assets in
fixed-income securities of below investment grade quality.
LOOMIS SAYLES INTERMEDIATE MATURITY BOND FUND
Loomis Sayles Intermediate Maturity Bond Fund's investment
objective is high total investment return through a combination
of current income and capital appreciation.
The Fund seeks to achieve its objective by normally investing at
least 90% of its assets in fixed-income securities of investment
grade quality and to maintain an average dollar weighted maturity
of between three and ten years. For purposes of the 90% test, a
security will be treated as being of investment grade quality if
it is rated by at least one major rating agency in one of its top
four rating categories at the time of purchase or, if unrated, is
determined by the manager to be of comparable quality. The Fund
may also invest up to 10% of its assets in fixed-income
securities of below investment grade quality. The fixed-income
securities in which the Fund may invest include corporate
securities, U.S. Government securities, commercial paper, zero
coupon securities, mortgage-backed securities, CMOs, asset-backed
securities, when-issued securities, Rule 144A securities,
repurchase agreements and convertible securities. The Fund may
engage in options and futures transactions, repurchase
transactions, foreign currency hedging transactions, swap
transactions, and securities lending. The Fund may invest any
portion of its assets in securities of other foreign issuers.
LOOMIS SAYLES INVESTMENT GRADE BOND FUND
Loomis Sayles Investment Grade Bond Fund's investment objective
is high total investment return through a combination of current
income and capital appreciation.
The Fund seeks to achieve its objective by normally investing at
least 65% of its assets in fixed-income securities of investment
grade quality. Up to 20% of the Fund's assets may be invested in
preferred stocks. The Fund may also invest up to 10% of its
assets in fixed-income securities of below investment grade
quality. The fixed-income securities in which the Fund may
invest include corporate securities, U.S. Government securities,
commercial paper, zero coupon securities, mortgage-backed
securities, CMOs, asset-backed securities, when-issued
securities, Rule 144A securities, repurchase agreements and
convertible securities. The Fund may engage in options and
futures transactions, repurchase transactions, foreign currency
hedging transactions, swap transactions and securities lending.
The Fund may invest any portion of its assets in securities of
Canadian issuers and up to 20% of its assets in the securities of
other foreign issuers.
LOOMIS SAYLES MUNICIPAL BOND FUND
Loomis Sayles Municipal Bond Fund's investment objective is as
high a level of current income exempt from federal income tax as
is consistent with the preservation of capital.
The Fund seeks to achieve its objective by normally investing
substantially all of its assets in securities the income from
which is, in the opinion of issuer's counsel at the time of
issuance, exempt from federal income tax ("tax exempt
securities"). It is a fundamental policy of the Fund that,
during periods of normal market conditions, at least 80% of its
net assets will be invested in tax exempt securities. Normally,
substantially all of its assets will be invested in fixed-income
securities of investment grade quality or in unrated securities
determined by the manager to be of comparable quality, and at
least 65% of the Fund's assets will be invested in bonds. The
Fund may engage in options and futures transactions.
The Fund may invest in "private activity bonds," which pay
interest that, although exempt from ordinary federal income
taxes, may be subject to federal or state alternative minimum
taxes. The Fund's investments in private activity bonds normally
will not exceed 20% of its net assets.
LOOMIS SAYLES SHORT-TERM BOND FUND
Loomis Sayles Short-Term Bond Fund's investment objective is high
total investment return through a combination of current income
and capital appreciation with relatively low fluctuation in net
asset value.
The Fund seeks to achieve its objective by normally investing
substantially all of its assets in fixed-income securities,
although up to 20% of its assets may be invested in non-
convertible preferred stock. At least 65% of the Fund's total
assets will normally be invested in bonds with a remaining
maturity of 5 years or less. The fixed-income securities in
which the Fund may invest include corporate securities, U.S.
Government securities, commercial paper, zero coupon securities,
mortgage-backed securities, CMOs, asset-backed securities, when-
issued securities, Rule 144A securities, repurchase agreements
and convertible securities. The Fund may engage in options and
futures transactions and swap transactions, foreign currency
hedging transactions and swap transactions. The Fund may invest
up to 20% of its asset in securities of foreign issuers.
In an effort to minimize fluctuations in market value, the Fund
is expected to maintain an average dollar-weighted maturity of
between one and three years.
LOOMIS SAYLES U.S. GOVERNMENT SECURITIES FUND
Loomis Sayles U.S. Government Securities Fund's investment
objective is high total investment return through a combination
of current income and capital appreciation. The Fund seeks to
achieve its objective by investing substantially all of its
assets in U.S. Government securities, including CMOs, and in
certificates representing undivided interests in the interest or
principal of U.S. Treasury securities. At least 65% of the
Fund's total assets will normally be invested in U.S. Government
securities.
NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND
New England Adjustable Rate U.S. Government Fund seeks a high
level of current income consistent with low volatility of
principal. The Fund intends to pursue its objective by investing
only in securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities. The Fund will invest, under
normal market conditions, at least 65% of its total assets in
adjustable rate mortgage securities ("ARMs") or other securities
collateralized by or representing interests in mortgages, which
have interest rates that are reset at periodic intervals and
which are issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. The Fund also may invest in CMOs
issued by instrumentalities of the U.S. Government, but will not
invest in privately issued CMOs. Other securities purchased by
the Fund will be limited to securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities but will
not include any stripped securities (such as interest only or
principal only obligations) or zero coupon obligations. When
maintaining a temporary defensive position, the Fund may invest
its assets, without limit, in U.S. Government securities of any
type.
NEW ENGLAND GOVERNMENT SECURITIES FUND
New England Government Securities Fund seeks a high level of
current income consistent with safety of principal by investing
in U.S. Government securities.
The Fund expects that it will invest primarily in U.S. Government
securities, including U.S. Treasury bills (maturity of one year
or less), U.S. Treasury notes (maturity of one to ten years), and
U.S. Treasury bonds (generally maturities greater than ten
years), and mortgage-backed securities issued or guaranteed by
U.S. Government agencies, including but not limited to the
Government National Mortgage Association ("GNMA"), Federal
National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"). Under normal market conditions,
the Fund intends to maintain a dollar-weighted average duration
of between seven and eight years. The Fund may hold individual
securities with duration longer or short than seven or eight
years (e.g., a security with a duration of seven years will
typically have a maturity of approximately 10 years, given the
current interest rate environment) as long as the average
duration remains within these limits.
The Fund may invest in securities of any maturity and in zero
coupon securities. In addition to investing directly in U.S.
Government securities, the Fund may purchase "stripped"
securities.
For hedging purposes, the Fund may also purchase and sell
interest rate futures contracts on U.S. Government securities and
may write and purchase options on such futures and options on
U.S. Government securities. Transactions involving futures and
options on futures may help to reduce the volatility of the
Fund's net asset value, but this result cannot be assured.
Options and futures are not backed by the U.S. Government.
It is a fundamental policy of the Fund that under normal market
conditions it will invest at least 65% of its total assets in
"U.S. Government securities," which term includes all securities
issued or guaranteed by the U.S. Government or its agencies,
authorities or instrumentalities.
NEW ENGLAND HIGH INCOME FUND
New England High Income Fund seeks high current income plus the
opportunity for capital appreciation to produce a high total
return. The Fund invests primarily in long-term corporate fixed-
income securities, the majority of which are rated BBB or lower
by S&P or Baa or lower by Moody's or are unrated. The Fund may
invest in debt instruments in any rating category, including debt
instruments rated in the lowest rating categories (C by Moody's
and D by S&P) and instruments that are unrated. A diversified
portfolio of these securities normally provides a current yield
or yield to maturity that is significantly higher than yields of
higher-rated fixed-income securities. In addition to high
current income, the Fund seeks capital appreciation through
market price appreciation in periods of declining interest rates
and improvement in the credit standing of issuers.
NEW ENGLAND LIMITED TERM U.S. GOVERNMENT FUND
New England Limited Term U.S. Government Fund seeks a high
current return consistent with preservation of capital. The Fund
seeks to achieve its objective by investing in U.S. Government
securities. Under normal market conditions, 65% or more of the
Fund's total assets will be invested in U.S. Government
securities (including zero coupon bonds) and CMOs. The Fund
limits its investments in CMOs to those issued by
instrumentalities of the U.S. Government. The Fund may also
invest in asset-backed securities rated Aaa by Moody's or AAA by
S&P or unrated but determined by the Fund's subadviser to be of
comparable quality to securities in those rating categories. For
hedging purposes, the Fund may purchase and sell financial
futures contracts and options. The Fund may also engage in
securities lending.
The Fund's subadviser provides a continuous investment program
designed to maximize current return while minimizing fluctuations
in the value of the Fund's portfolio, thus stabilizing the net
asset value of the Fund's shares. Because the market value of
fixed-income securities fluctuates in response to changes in
interest rates, there is a risk of a decline in the value of the
Fund's portfolio (and a corresponding decrease in the value of
the Fund's shares) if interest rates increase. To reduce this
risk, the Fund will ordinarily seek to maintain an average
dollar-weighted maturity of three to seven years. The Fund may
hold individual securities with maturities of more than seven
years as long as its average maturity remains within this limit.
RISK FACTORS OF UNDERLYING FUNDS
In pursuing its investment objective, each of the Underlying
Funds is permitted to engage in a wide range of investment
policies. The Underlying Funds' risks are determined by the
nature of the securities held and the portfolio management
strategies used by their respective advisers and subadvisers.
Certain of these policies are described in the "Glossary" and
further information about the Underlying Funds is contained in
the statement of additional information as well as the
prospectuses of such funds. Because each Portfolio invests in
certain of the Underlying Funds, shareholders of each Portfolio
will be affected by these investment policies in direct
proportion to the amount of assets each Portfolio allocates to
the Underlying Funds pursuing such policies.
INVESTMENT RESTRICTIONS OF THE FUNDS
The policies set forth below are fundamental policies of each
Fund and may not be changed with respect to each of the Funds
without the approval of a majority of such Funds' outstanding
shares. As used in this combined Statement of Additional
Information, a "majority of the outstanding voting securities of
such Fund" means the lesser of (1) 67% or more of the voting
securities present at such meeting, if the holders of more than
50% of the outstanding voting securities of such Fund are present
or represented by proxy; or (2) more than 50% of the outstanding
voting securities of such Fund. Each Fund may not:
(1) borrow money, except as permitted under the Investment
Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction,
from time to time;
(2) issue senior securities, except as permitted under the
Investment Company Act of 1940, as amended, and as
interpreted or modified by regulatory authority having
jurisdiction, from time to time;
(3) engage in business of underwriting securities issued
by
others, except to the extent that the Fund may be
deemed to be an underwriter in connection with the
disposition of portfolio securities;
(4) purchase or sell real estate, which term does not
include securities of companies which deal in real
estate or mortgages or investments secured by real
estate or interests therein, except that the Fund
reserves freedom of action to hold and to sell real
estate acquired as a result of the Fund's ownership of
securities;
(5) purchase physical commodities or contracts relating to
physical commodities; or
(6) make loans to other persons, except (i) loans of
portfolio securities, and (ii) to the extent that
entry
into repurchase agreements and the purchase of debt
instruments or interests in indebtedness in accordance
with the Fund's investment objective and policies may
be deemed to be loans.
Each Fund may not as a matter of nonfundamental policy:
(1) borrow money in an amount greater than 5% of its total
assets, except for temporary or emergency purposes; or
(2) invest in companies for the purpose of exercising
management or control.
The Funds will not invest in reverse repurchase agreements
(except that an Underlying Fund may invest in reverse repurchase
agreements).
Because of their investment objectives and policies, the Funds
will each concentrate more than 25% of their assets in the mutual
fund industry. In accordance with the Funds' investment programs
set forth in the prospectus, each Fund may invest more than 25%
of its assets in certain of the Underlying Funds.
Any investment restrictions herein which involve a maximum
percentage of securities or assets shall not be considered to be
violated unless an excess over the percentage occurs immediately
after, and is caused by, an acquisition or encumbrance of
securities or assets of, or borrowings by, the Funds.
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MANAGEMENT OF THE TRUST
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TRUSTEE
The Trustee of the Trust and his age (in parentheses), address
and principal occupation during the past five years are as
follows:
HENRY L.P. SCHMELZER -- Trustee and President (53);
President, Chief Executive Officer and Director, NEF
Corporation; President and Chief Executive Officer,
New
England Funds, L.P.; President and Chief Executive
Officer, New England Funds Management, L.P.; Director,
Back Bay Advisors, Inc. ("BBAI"); Director, Maine
Bank & Trust Company; formerly, Director, New England
Securities Corporation ("New England Securities").
OFFICER
The Officer of the Trust, in addition to Mr. Schmelzer, and his
age (in parentheses) and principal occupation during the past
five years are as follows:
FRANK NESVET -- Treasurer (53); Senior Vice President and
Chief Financial Officer, NEF Corporation; Senior Vice
President and Chief Financial Officer, New England
Funds, L.P.; Senior Vice President and Chief
Financial
Officer, NEFM; formerly, Executive Vice President,
SuperShare Services Corporation (mutual fund and unit
investment trust sponsor).
Previous positions during the past five years with NELICO or
Metropolitan Life Insurance Company ("MetLife"), New England
Funds, L.P. or NEFM are omitted, if not materially different from
a trustee's or officer's current position with such entity. The
Trust's trustee is also a trustee of certain other investment
companies for which New England Funds, L.P. acts as principal
underwriter. Except as indicated above, the address of each
trustee and officer of the Trust is 399 Boylston Street, Boston,
Massachusetts 02116.
TRUSTEE FEES
The Trust pays no compensation to their officers or to their
trustees who are interested persons thereof.
[Trustee compensation information to be provided by amendment.]
As of November 5, 1997, there were no shares of any Fund
outstanding.
ADVISORY AGREEMENTS
Under each Fund's advisory agreement between the Trust and NEFM,
on behalf of the Fund, NEFM will furnish or pay the expenses of
the applicable Fund for office space, facilities and equipment,
services of executive and other personnel of the Trust and
certain administrative services. NEFM is responsible for
obtaining and evaluating such economic, statistical and financial
data and information and performing such additional investment
research as is necessary to manage the Funds' assets in
accordance with their investment objectives and policies.
Accordingly, NEFM will place orders for the purchase and sale of
portfolio securities. Pursuant to the advisory agreements, each
Fund pays NEFM a management fee at the annual rate of 0.10% of
the Fund's average daily net assets.
Each Fund's advisory agreement provides that it will continue in
effect for two years from its date of execution and thereafter
from year to year if its continuance is approved at least
annually (i) by the board of trustees of the Trust or by vote of
a majority of the outstanding voting securities of the relevant
Fund and (ii) by vote of a majority of the trustees who are not
"interested persons" of the Trust, as that term is defined in the
1940 Act, cast in person at a meeting called for the purpose of
voting on such approval. Any amendment to an advisory agreement
must be approved by vote of a majority of the outstanding voting
securities of the relevant Fund and by vote of a majority of the
trustees of the Trust who are not such interested persons, cast
in person at a meeting called for the purpose of voting on such
approval. Each advisory agreement may be terminated without
penalty by vote of the board of trustees of the Trust or by vote
of a majority of the outstanding voting securities of the
relevant Fund, upon 60 days' written notice, or by the Fund's
adviser upon 90 days' written notice, and each terminates
automatically in the event of its assignment. In addition, each
advisory agreement will automatically terminate if the Trust or
the Fund shall at any time be required by the Distributor to
eliminate all reference to the words "New England" or the letters
"TNE" in the name of the Trust or the relevant Fund, unless the
continuance of the agreement after such change of name is
approved by a majority of the outstanding voting securities of
the relevant Fund and by a majority of the trustees who are not
interested persons of the Trust or the Fund's adviser.
Each advisory agreement provides that the adviser 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.
NEFM, formed in 1995, is a limited partnership whose sole general
partner, NEF Corporation, is a wholly-owned subsidiary of NEIC
Holdings, Inc. ("NEIC Holdings"), which is a wholly-owned
subsidiary of NEIC. NEF Corporation is also the sole general
partner of New England Funds, L.P., the distributor of the Funds.
NEIC owns the entire limited partnership interest in each of NEFM
and New England Funds, L.P.
NEIC's sole general partner, NEIC, Inc, is a wholly-owned
subsidiary of MetLife New England Holdings, Inc., which in turn
is a wholly-owned subsidiary of MetLife. MetLife owns a majority
limited partnership interest in NEIC. NEIC and its 13 subsidiary
or affiliated asset management firms, collectively, have more
than $100 billion of assets under management or administration.
SPECIAL SERVICING AGREEMENT
The Special Servicing Agreement (the "Service Agreement") is to
be entered into among the Adviser, the Trust on behalf of the
Funds, the Underlying Funds, the Distributor, New England Funds
Trust I, New England Funds Trust II, New England Funds Trust III,
New England Cash Management Trust, Jurika & Voyles Fund Group,
Loomis Sayles Funds, Harris Associates Investment Trust, Reich &
Tang Equity Fund, Inc., and Delafield Fund, Inc. Under the
Service Agreement, the Adviser will arrange for all services
pertaining to the operation of the Trust including shareholder
servicing and fund accounting services provided by the
Distributor. In addition, the Service Agreement will provide
that, if the officers of any Underlying Fund, at the direction of
the Board of Directors/Trustees, determine that the aggregate
expenses of a Fund are less than the estimated savings to the
Underlying Fund from the operation of that Fund, the Underlying
Fund will bear those expenses in proportion to the average daily
value of its shares owned by that Fund. No Underlying Fund will
bear such expenses in excess of the estimated savings to it.
Such savings are expected to result primarily from the
elimination of numerous separate shareholder accounts which are
or would have been invested directly in the Underlying Funds and
the resulting reduction in shareholder servicing costs. In this
regard, the shareholder servicing costs to any Underlying Fund
for servicing one account registered to the Trust would be
significantly less than the cost to that same Underlying Fund of
servicing the same pool of assets contributed in the typical
fashion by a large group of individual shareholders owning small
accounts in each Underlying Fund.
Based on actual expense data from the Underlying Funds and
certain very conservative assumptions with respect to the Trust,
the Adviser, the Underlying Funds and the Funds anticipate that
the aggregate financial benefits to the Underlying Funds from
these arrangements will exceed the costs of operating the Funds.
If such turns out to be the case, there will be no charge to the
Trust for the services under the Service Agreement. Rather, in
accordance with the Service Agreement, such expenses will be
passed through to the Underlying Funds in proportion to the value
of each Underlying Fund's shares held by each Fund.
In the event that the aggregate financial benefits to the
Underlying Funds do not exceed the costs of a Fund, the Fund will
pay that portion of the costs, as set forth herein, determined to
be greater than the benefits. The determination of whether and
the extent to which the benefits to the Underlying Funds from the
organization of the Trust will exceed the costs to such funds
will be made based upon the analysis criteria set forth in the
Exemptive Order obtained from the SEC. This cost-benefit
analysis was initially reviewed by the Directors/Trustees of the
Underlying Funds before participating in the Service Agreement.
For future years, there will be an annual review of the Service
Agreement to determine its continued appropriateness for each
Underlying Fund.
Certain non-recurring and extraordinary expenses will not be paid
in accordance with the Service Agreement including: the fees and
costs of actions, suits or proceedings and any penalties or
damages in connection therewith, to which the a Fund may incur
directly, or may incur as a result of its legal obligation to
provide indemnification to its officers, directors and agents;
the fees and costs of any governmental investigation and any
fines or penalties in connection therewith; and any federal,
state or local tax, or related interest penalties or additions to
tax, incurred, for example, as a result of the Funds' failure to
distribute all of its earnings, failure to qualify under
Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), or failure to timely file any required tax returns
or other filings. Under unusual circumstances, the parties to
the Service Agreement may agree to exclude certain other
expenses.
DISTRIBUTION AGREEMENT AND RULE 12B-1 PLANS. Under an agreement
with the Trust, New England Funds, L.P. serves as the general
distributor of each class of shares of the Funds. Under this
agreement, New England Funds, L.P. is not obligated to sell a
specific number of shares. New England Funds, L.P. bears the
cost of making information about the Funds available through
advertising and other means and the cost of printing and mailing
Prospectuses to persons other than shareholders.
New England Funds, L.P. is compensated under the agreement
through receipt of the sales charges on Class A shares described
below under "Net Asset Value and Public Offering Price" and is
paid by the Funds, or the Underlying Funds under the Service
Agreement, the service and distribution fees described in the
Prospectus.
As described in the Prospectuses, each Fund has adopted Rule 12b-
1 plans (the "Plans") for its Class A, Class B and Class C shares
which, among other things, permit it to pay the Fund's
distributor (currently New England Funds, L.P.) monthly fees out
of its net assets. Pursuant to Rule 12b-1 under the 1940 Act,
the Plan was approved by the shareholders of each Fund, and
(together with the related Distribution Agreement) by the board
of trustees, including a majority of the trustees who are not
interested persons of the Trust (as defined in the 1940 Act) and
who have no direct or indirect financial interest in the
operation of the Plans or the Distribution Agreement (the
"Independent Trustees").
The Plans may be terminated by vote of a majority of the
Independent Trustees, or by vote of a majority of the outstanding
voting securities of the relevant class of shares of the relevant
Fund. The Plans may be amended by vote of the trustees,
including a majority of the Independent Trustees, cast in person
at a meeting called for that purpose. Any change in a Plan that
would materially increase the fees payable thereunder by the
relevant class of shares of the relevant Fund requires approval
by vote of the holders of a majority of such shares outstanding.
The Trust's trustees review quarterly a written report of such
costs and the purposes for which such costs have been incurred.
For so long as the Plans are in effect, selection and nomination
of those trustees who are not interested persons of the Trust
shall be committed to the discretion of such disinterested
persons.
New England Funds, L.P. has entered into selling agreements with
investment dealers, including New England Securities, an
affiliate of New England Funds, L.P., for the sale of the Funds'
shares. New England Securities is registered as a broker-dealer
under the Securities Exchange Act of 1934, as amended. New
England Funds, L.P. may at its expense pay an amount not to
exceed 0.50% of the amount invested to dealers who have selling
agreements with the Distributor. Class Y shares of the Funds may
be offered by registered representatives of New England
Securities who are also employees of New England Investment
Associates, Inc. ("NEIA"), an indirect, wholly-owned subsidiary
of NEIC. NEIA may receive compensation from the Funds' adviser
with respect to sales of Class Y shares.
The Distribution Agreement for the Funds may be terminated at any
time on 60 days' written notice without payment of any penalty by
New England Funds, L.P. or by vote of a majority of the
outstanding voting securities of the relevant Fund or by vote of
a majority of the Independent Trustees.
The Distribution Agreements and the Plans will continue in effect
for successive one-year periods, provided that each such
continuance is specifically approved (i) by the vote of a
majority of the Independent Trustees and (ii) by the vote of a
majority of the entire board of trustees cast in person at a
meeting called for that purpose or by a vote of a majority of the
outstanding securities of a Fund (or the relevant class, in the
case of the Plans).
With the exception of New England Funds, L.P., New England
Securities and their direct and indirect corporate parents (NEIC
and MetLife), no interested person of the Trust nor any trustee
of the Trust has any direct or indirect financial interest in the
operation of the Plans or any related agreement.
Benefits to the Funds and their shareholders resulting from the
Plans are believed to include (1) enhanced shareholder service,
(2) asset retention, (3) enhanced bargaining position with third
party service providers and economies of scale arising from
having higher asset levels and (4) portfolio management
opportunities arising from having an enhanced positive cash flow.
New England Funds, L.P. controls the words "New England" in the
names of the Trust and the Funds and if it should cease to be the
distributor, New England Funds Trust IV may be required to change
their names and delete these words or letters. New England
Funds, L.P. also acts as general distributor for New England
Funds Trust I, New England Funds Trust II, New England Funds
Trust III, New England Cash Management Trust and New England Tax
Exempt Money Market Trust.
Proceeds from the CDSC on Class A shares are paid to New England
Funds, L.P. and are used by New England Funds, L.P. to defray the
expenses for services New England Funds, L.P. provides the
Trust. Proceeds from the CDSC on Class B shares are paid to New
England Funds, L.P. and are remitted to FEP Capital, L.P. to
compensate FEP Capital, L.P. for financing the sale of Class B
shares pursuant to certain Class B financing and servicing
agreements between New England Funds, L.P. and FEP Capital, L.P.
CUSTODIAL ARRANGEMENTS. State Street Bank and Trust Company
("State Street Bank"), 225 Franklin Street, Boston, Massachusetts
02110, is the Trust's custodian. As such, State Street Bank
holds in safekeeping certificated securities and cash belonging
to each Fund and, in such capacity, is the registered owner of
securities in book-entry form belonging to each Fund. Upon
instruction, State Street Bank receives and delivers cash and
securities of each Funds in connection with Fund transactions and
collects all dividends and other distributions made with respect
to portfolio securities. State Street Bank also maintains
certain accounts and records of the Trust and calculates the
total net asset value, total net income and net asset value per
share of each Fund on a daily basis.
INDEPENDENT ACCOUNTANTS. The Trust's independent accountants are
[ ]. The independent accountants of the Trust
conduct an annual audit of that Trust's financial statements,
assist in the preparation of federal and state income tax returns
and consult with the Trust as to matters of accounting and
federal and state income taxation.
OTHER ARRANGEMENTS
Pursuant to a contract between the Funds and New England Funds,
L.P., New England Funds, L.P. acts as shareholder servicing and
transfer agent for the Funds and is responsible for services in
connection with the establishment, maintenance and recording of
shareholder accounts, including all related tax and other
reporting requirements and the implementation of investment and
redemption arrangements offered in connection with the sale of
the Funds' shares. The Funds pay an annual per-account fee to
New England Funds, L.P. for these services in the amount of
$[ ], which fees are anticipated to be assumed by the
Underlying Funds pursuant to the Service Agreement. New England
Funds, L.P. has subcontracted with State Street Bank for it to
provide, through its subsidiary, Boston Financial Data Services,
Inc. ("BFDS"), transaction processing, mail and other services.
For these services, New England Funds, L.P. pays BFDS a monthly
per account fee of $[ ].
In addition, New England Funds, L.P. performs certain accounting
and administrative services for the Funds. Each Fund reimburses,
subject to the Service Agreement, New England Funds for all or
part of New England Funds' expenses of providing these services
which include the following: (i) expenses for personnel
performing bookkeeping, accounting, internal auditing and
financial reporting functions and clerical functions relating to
the Fund, (ii) expenses for services required in connection with
the preparation of registration statements and prospectuses,
shareholder reports and notices, proxy solicitation material
furnished to shareholders of the Fund or regulatory authorities
and reports and questionnaires for SEC compliance, and (iii)
registration, filing and other fees in connection with
requirements of regulatory authorities.
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PORTFOLIO TRANSACTIONS
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PORTFOLIO TURNOVER
Each Fund's average annual portfolio turnover rate is the ratio
of the lesser of sales or purchases to the monthly average value
of the portfolio securities owned during the year, excluding all
securities with maturities or expiration dates at the time of
acquisition of one year or less. Purchases and sales are made
for each Fund whenever necessary, in management's opinion, to
meet that Fund's objective. Each Fund expects to have an annual
portfolio turnover rate not exceeding 20% for its initial fiscal
year.
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DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES
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New England Funds Trust IV is organized as a Massachusetts
business trust under the laws of Massachusetts by an Agreement
and Declaration of Trust (the "Declaration of Trust") dated
October 30, 1997, and is a "series" company as described in
Section 18(f)(2) of the 1940 Act. The Trust has three separate
portfolios. Each Fund currently offers four classes of shares.
The Declaration of Trust of New England Funds Trust IV currently
permits the Trust's trustees to issue an unlimited number of full
and fractional shares of each series. Each Fund is represented
by a particular series of shares. The Declaration of Trust
further permits the Trust's trustees to divide the shares of each
series into any number of separate classes, each having such
rights and preferences relative to other classes of the same
series as the trustees may determine. The shares of each Fund do
not have any preemptive rights. Upon termination of any Fund,
whether pursuant to liquidation of the Trust or otherwise,
shareholders of each class of the Fund are entitled to share pro
rata in the net assets attributable to that class of shares of
the Fund 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 shares of all the Funds are divided into four classes, Class
A, Class B, Class C and Class Y. Each Fund offers such classes
of shares as set forth in such Fund's Prospectus. Class Y shares
are available for purchase only by certain eligible institutional
investors and have higher minimum purchase requirements than
Classes A, B and C. Absent the Service Agreement, all expenses
of each Fund (excluding transfer agency fees and expenses of
printing and mailing Prospectuses to shareholders ("Other
Expenses")) would be borne by its Class A, B, C and Y shares on a
pro rata basis, except for 12b-1 fees, which would be borne only
by Classes A, B and C and may be charged at a separate rate to
each such class. Other Expenses of Classes A, B and C would be
borne by such classes on a pro rata basis, but Other Expenses
relating to the Class Y shares may be allocated separately to the
Class Y shares.
The assets received by each class of a Fund for the issue or sale
of its shares and all income, earnings, profits, losses and
proceeds therefrom, subject only to the rights of the creditors,
are allocated to, and constitute the underlying assets of, that
class of a Fund. The underlying assets of each class of a Fund
are segregated and are charged, absent the Service Agreement,
with the expenses with respect to that class of a Fund and with a
share of the general expenses of the Trust. Any general expenses
of the Trust that are not readily identifiable as belonging to a
particular class of a Fund 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
Trust are allocated to the separate books of account of each
Fund, certain expenses may be legally chargeable against the
assets of all of the Funds in the Trust.
The Declaration of Trust also permits the trustees, without
shareholder approval, to subdivide any series or class of shares
into various sub-series or sub-classes 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 series or classes or merge two or more
existing series or classes.
The Declaration of Trust provides for the perpetual existence of
the Trust. The Trust or any Fund, however, may be terminated at
any time by vote of at least two-thirds of the outstanding shares
of each Fund affected. Similarly, any class within a Fund may be
terminated by vote of at least two-thirds of the outstanding
shares of such class. While the Declaration of Trust further
provides that the board of trustees may also terminate the Trust
upon written notice to its shareholders, the 1940 Act requires
that the Trust receive the authorization of a majority of its
outstanding shares in order to change the nature of its business
so as to cease to be an investment company.
VOTING RIGHTS
As summarized in the Prospectuses, shareholders are entitled to
one vote for each full share held (with fractional votes for each
fractional share held) and may vote (to the extent provided
therein) in the election of trustees and the termination of the
Trust and on other matters submitted to the vote of shareholders.
The Declaration of Trust provides that on any matter submitted to
a vote of all shareholders of the Trust, all Trust shares
entitled to vote shall be voted together irrespective of series
or class unless the rights of a particular series or class would
be adversely affected by the vote, in which case a separate vote
of that series or class shall also be required to decide the
question. Also, a separate vote shall be held whenever required
by the 1940 Act or any rule thereunder. Rule 18f-2 under 1940
Act provides in effect that a series or class shall be deemed to
be affected by a matter unless it is clear that the interests of
each series or class in the matter are substantially identical or
that the matter does not affect any interest of such series or
class. On matters affecting an individual series or class, only
shareholders of that series or class are entitled to vote.
Consistent with the current position of the SEC, shareholders of
all series and classes vote together, irrespective of series or
class, on the election of trustees and the selection of the
Trust's independent accountants, but shareholders of each series
vote separately on other matters requiring shareholder approval,
such as certain changes in investment policies of that series or
the approval of the investment advisory and subadvisory agreement
relating to that series, and shareholders of each class within a
series vote separately as to the Rule 12b-1 plan (if any)
relating to that class.
There will normally be no meetings of shareholders for the
purpose of electing trustees except that, in accordance with the
1940 Act, (i) the Trust will hold a shareholders' meeting for the
election of trustees at such time as less than a majority of the
trustees holding office have been elected by shareholders, and
(ii) if, as a result of a vacancy on the board of trustees, less
than two-thirds of the trustees holding office have been elected
by the shareholders, that vacancy may be filled only 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 and filed with the Trust's custodian or
by a vote of the holders of two-thirds of the outstanding shares
at a meeting duly called for that 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 of at least $25,000 or at least 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 Trust 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. Shareholder voting
rights are not cumulative.
No amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the outstanding shares of the
Trust except (i) to change the Trust's or a Fund's name or to
cure technical problems in the Declaration of Trust, (ii) to
establish and designate new series or classes of Trust shares and
(iii) to establish, designate or modify new and existing series
or classes of Trust shares or other provisions relating to Trust
shares in response to applicable laws or regulations.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of
the Trust. However, the Declaration of Trust disclaims
shareholder liability for acts or obligations of the Trust and
require that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by
the Trust or the trustees. The Declaration of Trust provides for
indemnification out of each Fund's property for all loss and
expense of any shareholder held personally liable for the
obligations of the Fund by reason of owning shares of such Fund.
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 Fund itself would be unable to meet its obligations.
The Declaration of Trust further provides that the board of
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
Trust provide for indemnification by the Trust of trustees and
officers of the Trust, 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 Trust. Such persons may not be indemnified
against any liability to the Trust or the Trust'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.
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HOW TO BUY SHARES
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The procedures for purchasing shares of the Funds are summarized
in the Prospectus. Banks may charge a fee for transmitting funds
by wire. With respect to shares purchased by federal funds,
shareholders should bear in mind that wire transfers may take two
or more hours to complete.
For purchase of Fund shares by mail, the settlement date is the
first business day after receipt of the check by the transfer
agent so long as it is received by the close of regular trading
of the New York Stock Exchange (the "Exchange") on a day when the
Exchange is open; otherwise the settlement date is the following
business day. For telephone orders, the settlement date is the
third business day after the order is made.
Shares may also be purchased either in writing, by phone or, in
the case of Class A, B and C shares, by electronic funds transfer
using Automated Clearing House ("ACH"), or by exchange as
described in the Prospectuses through firms that are members of
the National Association of Securities Dealers, Inc. and that
have selling agreements with New England Funds, L.P.
New England Funds, L.P. may at its discretion accept a telephone
order for the purchase of $5,000 or more of a Fund's Class A, B
and C shares. Payment must be received by New England Funds,
L.P. within three business days following the transaction date or
the order will be subject to cancellation. Telephone orders must
be placed through New England Funds, L.P. or your investment
dealer.
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NET ASSET VALUE AND PUBLIC OFFERING PRICE
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The method for determining the public offering price and net
asset value per share is summarized in the Prospectus.
The net asset value of Fund shares is computed as of the close of
regular trading on the Exchange on each day the Exchange is open
for trading. The Exchange is scheduled to be closed on the
following holidays: New Year's Day, Martin Luther King Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving and Christmas. Net asset value per share
is determined by dividing the value of the total assets of a
Fund, less all liabilities, by the total number of shares
outstanding.
The net asset value of each Underlying Fund is determined based
upon the nature of the securities as set forth in the prospectus
and statement of additional information of such Underlying Fund.
Shares of each Underlying Fund in which a Fund may invest are
valued at the net asset value per share of each Underlying Fund
as of the close of regular trading on the Exchange on each day
the Exchange is open for trading. The net asset value per share
of the Underlying Funds will be calculated and reported to a Fund
by each Underlying Fund's accounting agent.
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REDUCED SALES CHARGES
CLASS A SHARES ONLY
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Special purchase plans are enumerated in the text of the
Prospectus.
CUMULATIVE PURCHASE DISCOUNT. A Fund shareholder making an
additional purchase of Class A shares may be entitled to a
discount on the sales charge payable on that purchase. This
discount will be available if the shareholder's "total
investment" in the Fund reaches the breakpoint for a reduced
sales charge in the table under "Buying Fund Shares -- Sales
Charges" in the Prospectus. The total investment is determined
by adding the amount of the additional purchase, including sales
charge, to the current public offering price of all series and
classes of shares of the New England Trusts held by the
shareholder in one or more accounts. If the total investment
exceeds the breakpoint, the lower sales charge applies to the
entire additional investment even though some portion of that
additional investment is below the breakpoint to which a reduced
sales charge applies. For example, if a shareholder who already
owns shares of one or more Funds or New England Funds with a
value at the current public offering price of $30,000 makes an
additional purchase of $20,000 of Class A shares of another Fund
or New England Fund, the reduced sales charge of 4.5% of the
public offering price will apply to the entire amount of the
additional investment.
COMBINING PURCHASES. Purchases of all series and classes of the
New England Funds by or for an investor, the investor's spouse,
parents, children, siblings, grandparents or grandchildren and
any other account of the investor, including sole
proprietorships, in any Trust may be treated as purchases by a
single individual for purposes of determining the availability of
a reduced sales charge. Purchases for a single trust estate or a
single fiduciary account may also be treated as purchases by a
single individual for this purpose, as may purchases on behalf of
a participant in a tax-qualified retirement plan and other
employee benefit plans, provided that the investor is the sole
participant in the plan.
COMBINING WITH OTHER SERIES AND CLASSES OF THE NEW ENGLAND FUNDS.
A shareholder's total investment for purposes of the cumulative
purchase discount includes the value at the current public
offering price of any shares of series and classes of the Trusts
that the shareholder owns (which includes shares of New England
Cash Management Trust and New England Tax Exempt Money Market
Trust (the "Money Market Funds") unless such shares were
purchased by exchanging shares of any of the Trusts). Shares
owned by persons described in the preceding paragraph may also be
included.
UNIT HOLDERS OF UNIT INVESTMENT TRUSTS. Unit investment trust
distributions may be invested in Class A shares of any Fund at a
reduced sales charge of 1.50% of the public offering price (or
1.52% of the net amount invested); for large purchases on which a
sales charge of less than 1.50% would ordinarily apply, such
lower charge also applies to investments of unit investment trust
distributions.
CLIENTS OF ADVISERS OR SUBADVISERS. No sales charge or
contingent deferred sales charge applies to investments of
$100,000 or more in Class A shares of the Funds by (1) clients of
an adviser or subadviser to any series of the Trusts; any
director, officer or partner of a client of an adviser or
subadviser to any series of the Trusts; and the spouse, parents,
children, siblings, grandparents or grandchildren of the
foregoing; (2) any individual who is a participant in a Keogh or
IRA Plan under a prototype of an adviser or subadviser to any
series of the Trusts if at least one participant in the plan
qualifies under category (1) above; and (3) an individual who
invests through an IRA and is a participant in an employee
benefit plan that is a client of an adviser or subadviser to any
series of the Trusts. Any investor eligible for this arrangement
should so indicate in writing at the time of the purchase.
OFFERING TO EMPLOYEES OF METLIFE AND ASSOCIATED ENTITIES. There
is no sales charge, CDSC or initial investment minimum related to
investments in Class A shares of the Funds by any of the Trusts'
advisers or subadvisers, New England Funds, L.P. or any other
company affiliated with NELICO or MetLife; current and former
directors and trustees of the Trusts; agents and general agents
of NELICO or MetLife and their insurance company subsidiaries;
current and retired employees of such agents and general agents;
registered representatives of broker-dealers that have selling
arrangements with New England Funds, L.P.; the spouse, parents,
children, siblings, grandparents or grandchildren of the persons
listed above and any trust, pension, profit sharing or other
benefit plans for any of the foregoing persons and any separate
account of NELICO or MetLife or any other company affiliated with
NELICO or MetLife.
ELIGIBLE GOVERNMENTAL AUTHORITIES. There is no sales charge or
contingent deferred sales charge related to investments in Class
A shares of any Fund by any state, county or city or any
instrumentality, department, authority or agency thereof that has
determined that a Fund is a legally permissible investment and
that is prohibited by applicable investment laws from paying a
sales charge or commission in connection with the purchase of
shares of any registered investment company.
INVESTMENT ADVISORY ACCOUNTS. Shares of any Fund may be
purchased at net asset value by investment advisers, financial
planners or other intermediaries who place trades for their own
accounts or the accounts of their clients and who charge a
management, consulting or other fee for their services; clients
of such investment advisers, financial planners or other
intermediaries who place trades for their own accounts if the
accounts are linked to the master account of such investment
adviser, financial planner or other intermediary on the books and
records of the broker or agent; and retirement and deferred
compensation plans and trusts used to fund those plans,
including, but not limited to, those defined in Sections 401(a),
403(b), 401(k) and 457 of the Code and "rabbi trusts." Investors
may be charged a fee if they effect transactions through a broker
or agent.
CERTAIN BROKER-DEALERS AND FINANCIAL SERVICES ORGANIZATIONS.
Shares of any Fund also may be purchased at net asset value
through certain broker-dealers and/or financial services
organizations without any transaction fee. Such organizations
may receive compensation, in an amount of up to 0.35% annually of
the average value of the Fund shares held by their customers.
This compensation may be paid by NEFM and/or the Fund's adviser
out of its own assets, or may be paid indirectly by the Fund in
the form of servicing, distribution or transfer agent fees.
SHAREHOLDERS OF REICH AND TANG GOVERNMENT SECURITIES TRUST.
Shareholders of Reich and Tang Government Securities Trust may
exchange their shares of that fund for Class A shares of the
Funds at net asset value and without imposition of a sales
charge.
The reduction or elimination of the sales charge in connection
with sales described above reflects the absence or reduction of
sales expenses associated with such sales.
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SHAREHOLDER SERVICES
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OPEN ACCOUNTS
A shareholder's investment is automatically credited to an open
account maintained for the shareholder by State Street Bank.
Following each transaction in the account, a shareholder will
receive a confirmation statement disclosing the current balance
of shares owned and the details of recent transactions in the
account. After the close of each calendar year, State Street
Bank will send each shareholder a statement providing federal tax
information on dividends and distributions paid to the
shareholder during the year. This statement should be retained
as a permanent record. New England Funds, L.P. may charge a fee
for providing duplicate information.
The open account system provides for full and fractional shares
expressed to three decimal places and, by making the issuance and
delivery of stock certificates unnecessary, eliminates problems
of handling and safekeeping, and the cost and inconvenience of
replacing lost, stolen, mutilated or destroyed certificates.
The costs of maintaining the open account system are paid by the
Underlying Funds under the Service Agreement and no direct
charges are made to shareholders. Although the Funds have no
present intention of making such direct charges to shareholders,
they each reserve the right to do so. Shareholders will receive
prior notice before any such charges are made.
AUTOMATIC INVESTMENT PLANS (CLASS A, B AND C SHARES)
Subject to each Fund's investor eligibility requirements,
investors may automatically invest in additional shares of a Fund
on a monthly basis by authorizing New England Funds, L.P. to
draw checks on an investor's bank account. The checks are drawn
under the Investment Builder Program, a program designed to
facilitate such periodic payments, and are forwarded to New
England Funds, L.P. for investment in the Fund. A plan may be
opened with an initial investment of $100 or more and thereafter
regular monthly checks of $100 or more will be drawn on the
investor's account. The reduced minimum initial investment
pursuant to an automatic investment plan is referred to in the
Prospectus. An Investment Builder application must be completed
to open an automatic investment plan. An application may be
found in the Prospectus or may be obtained by calling New England
Funds, L.P. at 800-225-5478 or your investment dealer.
This program is voluntary and may be terminated at any time by
New England Funds, L.P. upon notice to existing plan
participants.
The Investment Builder Program plan may be discontinued at any
time by the investor by written notice to New England Funds,
L.P., which must be received at least five business days prior to
any payment date. The plan may be discontinued by State Street
Bank at any time without prior notice if any check is not paid
upon presentation; or by written notice to you at least thirty
days prior to any payment date. State Street Bank is under no
obligation to notify shareholders as to the nonpayment of any
check.
RETIREMENT PLANS OFFERING TAX BENEFITS (CLASS A, B AND C SHARES)
The federal tax laws provide for a variety of retirement plans
offering tax benefits. These plans may be funded with shares of
the Funds or with certain other investments. The plans include
H.R. 10 (Keogh) plans for self-employed individuals and
partnerships, individual retirement accounts (IRAs), corporate
pension trust and profit sharing plans, including 401(k) plans,
and retirement plans for public school systems and certain tax
exempt organizations, i.e., 403(b) plans.
The reduced minimum initial investment available to retirement
plans offering tax benefits is referred to in the Prospectus.
For these plans, initial investments in a Fund must be at least
$250 for each participant in corporate pension and profit sharing
plans and Keogh plans, and $100 for subsequent investments.
There is a special initial and subsequent investment minimum of
$25 for payroll deduction investment programs for 401(k), SARSEP,
SEP, SIMPLE Plans, 403(b) and certain other retirement plans.
Income dividends and capital gain distributions must be
reinvested (unless the investor is over age 59 1/2 or disabled).
Plan documents and further information can be obtained from New
England Funds, L.P.
An investor should consult a competent tax or other adviser as to
the suitability of a Fund's shares as a vehicle for funding a
plan, in whole or in part, under the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") and as to the
eligibility requirements for a specific plan and its state as
well as federal tax aspects.
Certain retirement plans may also be eligible to purchase Class Y
shares. See the Prospectus relating to Class Y shares.
SYSTEMATIC WITHDRAWAL PLANS (CLASS A, B AND C SHARES)
An investor owning a Fund's shares having a value of $5,000 or
more at the current public offering price may establish a
Systematic Withdrawal Plan providing for periodic payments of a
fixed or variable amount. An investor may terminate the plan at
any time. A form for use in establishing such a plan is
available from the servicing agent or your investment dealer.
Withdrawals may be paid to a person other than the shareholder if
a signature guarantee is provided. Please consult your
investment dealer or New England Funds, L.P.
A shareholder under a Systematic Withdrawal Plan may elect to
receive payments monthly, quarterly, semiannually or annually for
a fixed amount of not less than $50 or a variable amount based on
(1) the market value of a stated number of shares, (2) a
specified percentage of the account's market value or (3) a
specified number of years for liquidating the account (e.g., a
20-year program of 240 monthly payments would be liquidated at a
monthly rate of 1/240, 1/239, 1/238, etc.). The initial payment
under a variable payment option may be $50 or more.
In the case of shares subject to a CDSC, the amount or percentage
you specify may not, on an annualized basis, exceed 10% of the
value, as of the time you make the election, of your account with
the Fund with respect to which you are electing the Plan.
Withdrawals of Class B shares of a Fund under the Plan will be
treated as redemptions of shares purchased through the
reinvestment of Fund distributions, or, to the extent such shares
in your account are insufficient to cover Plan payments, as
redemptions from the earliest purchased shares of such Fund in
your account. No CDSC applies to a redemption pursuant to the
Plan.
All shares under the Plan must be held in an open
(uncertificated) account. Income dividends and capital gain
distributions will be reinvested (without a sales charge in the
case of Class A shares) at net asset value determined on the
record date.
Since withdrawal payments represent proceeds from the liquidation
of shares, withdrawals may reduce and possibly exhaust the value
of the account, particularly in the event of a decline in net
asset value. Accordingly, a shareholder should consider whether
a Systematic Withdrawal Plan and the specified amounts to be
withdrawn are appropriate in the circumstances. The Funds and
New England Funds, L.P. make no recommendations or
representations in this regard. It may be appropriate for a
shareholder to consult a tax adviser before establishing such a
plan.
It may be disadvantageous for a shareholder to purchase on a
regular basis additional Fund shares with a sales charge while
redeeming shares under a Systematic Withdrawal Plan.
Accordingly, the Funds and New England Funds, L.P. do not
recommend additional investments in Class A shares by a
shareholder who has a withdrawal plan in effect and who would be
subject to a sales load on such additional investments.
Because of statutory restrictions, this plan is not available to
pension or profit-sharing plans, IRAs or 403(b) plans that have
State Street Bank as trustee.
EXCHANGE PRIVILEGE
A shareholder may exchange the shares of any Fund for shares of
the same class of any other New England Fund (subject to the
investor eligibility requirements, if any, of the fund into which
the exchange is being made) on the basis of relative net asset
values at the time of the exchange without any sales charge.
When an exchange is made from the Class B shares of one Fund to
the Class B shares of another New England Fund, the shares
received in exchange will have the same age characteristics as
the shares exchanged. The age of the shares determines the
expiration of the CDSC and the conversion date. If you own Class
A or Class B shares, you may also elect to exchange your shares
of any Fund for shares of the same class of the Money Market
Funds. Class C shares may also be exchanged for Class A shares
of the Money Market Funds. On all exchanges of Class A shares
subject to a CDSC and Class B shares into the Money Market Funds,
the exchange stops the aging period relating to the CDSC and, for
Class B shares only, conversion to Class A shares. The aging
resumes only when an exchange is made back into Class B shares of
a New England Fund. If you own Class Y shares, you may exchange
those shares for Class Y shares of other New England Funds or for
Class A shares of the Money Market Funds. These options are
summarized in the Prospectus. An exchange may be effected,
provided that neither the registered name nor address of the
accounts are different and provided that a certificate
representing the shares being exchanged has not been issued to
the shareholder, by (1) a telephone request to New England Funds,
L.P. at 800-225-5478 or (2) a written exchange request to New
England Funds, P.O. Box 8551, Boston, MA 02266-8551. You must
acknowledge receipt of a current Prospectus for a New England
Fund before an exchange for that Fund can be effected.
The investment objectives of the New England Funds and the Money
Market Funds are as follows:
STOCK FUNDS:
NEW ENGLAND GROWTH FUND seeks long-term growth of capital through
investments in equity securities of companies whose earnings are
expected to grow at a faster rate than the United States economy.
NEW ENGLAND CAPITAL GROWTH FUND seeks long-term growth of
capital.
NEW ENGLAND VALUE FUND seeks a reasonable long-term investment
return from a combination of market appreciation and dividend
income from equity securities.
NEW ENGLAND BALANCED FUND seeks a reasonable long-term investment
return from a combination of long-term capital appreciation and
moderate current income.
NEW ENGLAND GROWTH OPPORTUNITIES FUND seeks opportunities for
long-term growth of capital and income.
NEW ENGLAND INTERNATIONAL EQUITY FUND seeks total return from
long-term growth of capital and dividend income primarily through
investment in a diversified portfolio of marketable international
equity securities.
NEW ENGLAND STAR ADVISERS FUND seeks long-term growth of capital.
NEW ENGLAND STAR WORLDWIDE FUND seeks long-term growth of
capital.
NEW ENGLAND STAR SMALL CAP FUND seeks capital appreciation.
NEW ENGLAND EQUITY INCOME FUND seeks current income and capital
growth.
BOND FUNDS:
NEW ENGLAND GOVERNMENT SECURITIES FUND seeks a high level of
current income consistent with safety of principal by investing
in U.S. Government securities and engaging in transactions
involving related options, futures and options on futures.
NEW ENGLAND LIMITED TERM U.S. GOVERNMENT FUND seeks a high
current return consistent with preservation of capital.
NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND seeks a high
level of current income consistent with low volatility of
principal.
NEW ENGLAND STRATEGIC INCOME FUND seeks high current income with
a secondary objective of capital growth.
NEW ENGLAND BOND INCOME FUND seeks a high level of current income
consistent with what the Fund considers reasonable risk. The
Bond Income Fund invests primarily in corporate and U.S.
Government bonds.
NEW ENGLAND HIGH INCOME FUND seeks high current income plus the
opportunity for capital appreciation to produce a high total
return.
NEW ENGLAND MUNICIPAL INCOME FUND seeks as high a level of
current income exempt from federal income taxes as is consistent
with reasonable risk and protection of shareholders' capital.
The Municipal Income Fund invests primarily in debt securities of
municipal issuers, the interest of which is exempt from federal
income tax but may be subject to the federal alternative minimum
tax, and may engage in transactions in financial futures
contracts and options on futures.
NEW ENGLAND MASSACHUSETTS TAX FREE INCOME FUND seeks as high a
level of current income exempt from federal income tax and
Massachusetts personal income taxes as Back Bay Advisors, the
Fund's subadviser, believes is consistent with preservation of
capital.
NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA seeks
as high a level of current income exempt from federal income tax
and its state personal income tax as is consistent with
preservation of capital.
NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF NEW YORK seeks as
high a level of current income exempt from federal income tax and
its state personal income tax and New York City personal income
tax as is consistent with preservation of capital.
MONEY MARKET FUNDS:
NEW ENGLAND CASH MANAGEMENT TRUST -
Money Market Series -- maximum current income consistent with
preservation of capital and liquidity.
U.S. Government Series -- highest current income consistent with
preservation of capital and liquidity.
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST -- current income
exempt from federal income taxes consistent with preservation of
capital and liquidity.
An exchange constitutes a sale of shares for federal income tax
purposes in which the investor may realize a long- or short-term
capital gain or loss.
AUTOMATIC EXCHANGE PLAN (CLASS A, B AND C SHARES)
As described in the Prospectus following the caption "Owning Fund
Shares," a shareholder may establish an Automatic Exchange Plan
under which shares of a Fund are automatically exchanged each
month for shares of the same class of one or more of the other
New England Funds. Registration on all accounts must be
identical. The exchanges are made on the 15th of each month or
the first business day thereafter if the 15th is not a business
day until the account is exhausted or until New England Funds,
L.P. is notified in writing to terminate the plan. Exchanges may
be made in amounts of $100 or over. The Service Options Form is
available from New England Funds, L.P. or your financial
representative to establish an Automatic Exchange Plan.
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REDEMPTIONS
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The procedures for redemption of shares of a Fund are summarized
in the Prospectus. As described in the Prospectus, a CDSC may be
imposed on certain purchases of Class A shares and on purchases
of Class B shares. For purposes of the CDSC, an exchange of
shares from one Fund to another New England Fund is not
considered a redemption or a purchase. For federal tax purposes,
however, such an exchange is considered a sale and a purchase
and, therefore, would be considered a taxable event on which you
may recognize a gain or loss. In determining whether a CDSC is
applicable to a redemption of Class B shares, the calculation
will be determined in the manner that results in the lowest rate
being charged. Therefore, it will be assumed that the redemption
is first of any Class A shares in the shareholder's Fund account,
second of shares held for over six years, third of shares issued
in connection with dividend reinvestment and fourth of shares
held longest during the six-year period. The charge will not be
applied to dollar amounts representing an increase in the net
asset value of shares since the time of purchase or reinvested
distributions associated with such shares. Unless you request
otherwise at the time of redemption, the CDSC is deducted from
the redemption, not the amount remaining in the account.
To illustrate, assume an investor purchased 100 shares at $10 per
share (at a cost of $1,000) and in the second year after
purchase, the net asset value per share is $12 and, during such
time, the investor has acquired 10 additional shares under
dividend reinvestment. If at such time the investor makes his or
her first redemption of 50 shares (proceeds of $600), 10 shares
will not be subject to the CDSC because of dividend reinvestment.
With respect to the remaining 40 shares, the CDSC is applied only
to the original cost of $10 per share and not to the increase in
the net asset value of $2 per share. Therefore, $400 of the $600
redemption proceeds will be charged at a rate of 4% (the
applicable rate in the second year after purchase).
Signatures on redemption requests must be guaranteed by an
"Eligible Guarantor Institution," as defined in Rule 17Ad-15
under the Securities Exchange Act of 1934, as amended (the "1934
Act"). However, a signature guarantee will not be required if
the proceeds of the redemption do not exceed $100,000 and the
proceeds check is made payable to the registered owner(s) and
mailed to the record address.
If you select the telephone redemption service in the manner
described in the next paragraph, shares of a Fund may be redeemed
by calling toll free 800-225-5478. A wire fee, currently $5.00,
will be deducted from the proceeds. Telephone redemption
requests must be received by the close of regular trading on the
Exchange. Requests made after that time or on a day when the
Exchange is not open for business cannot be accepted and a new
request on a later day will be necessary. The proceeds of a
telephone withdrawal will normally be sent on the first business
day following receipt of a proper redemption request.
In order to redeem shares by telephone, a shareholder must either
select this service when completing the Fund application or must
do so subsequently on the Service Options Form, available from
your investment dealer. When selecting the service, a
shareholder must designate a bank account to which the redemption
proceeds should be sent. Any change in the bank account so
designated may be made by furnishing to your investment dealer a
completed Service Options Form with a signature guarantee.
Whenever the Service Options Form is used, the shareholder's
signature must be guaranteed as described above. Telephone
redemptions may only be made if the designated bank is a member
of the Federal Reserve System or has a correspondent bank that is
a member of the System. If the account is with a savings bank,
it must have only one correspondent bank that is a member of the
System.
The redemption price will be the net asset value per share (less
any applicable CDSC) next determined after the redemption request
and any necessary special documentation are received by State
Street Bank or your investment dealer in proper form. Payment
normally will be made by State Street Bank on behalf of the Fund
within seven days thereafter. However, in the event of a request
to redeem shares for which the Fund has not yet received good
payment, the Funds reserve the right to withhold payments of
redemption proceeds if the purchase of shares was made by a check
which was deposited less than fifteen days prior to the
redemption request (unless the Fund is aware that the check has
cleared).
The CDSC may be waived on redemptions made from IRA accounts due
to attainment of age 59 1/2 for IRA shareholders who established
accounts prior to January 3, 1995. The CDSC may also be waived
on redemptions made from IRA accounts due to death, disability,
return of excess contribution, required minimum distributions at
age 70 1/2 (waivers apply only to amounts necessary to meet the
required minimum amount), certain withdrawals pursuant to a
systematic withdrawal plan, not be exceed 10% annually of the
value of the account, and redemptions made from the account to
pay custodial fees.
The CDSC may be waived on redemptions made from 403(b)(7)
custodial accounts due to attainment of age 59 1/2 for
shareholders who established custodial accounts prior to
January 3, 1995.
The CDSC may also by waived on redemptions necessary to pay plan
participants or beneficiaries from qualified retirement plans
under Section 401 of the Code, including profit sharing plans,
money purchase plans, 401(k) and custodial accounts under Section
403(b)(7) of the Code. Distributions necessary to pay plan
participants and beneficiaries include payment made due to death,
disability, separation from service, normal or early retirement
as defined in the plan document, loans from the plan and hardship
withdrawals, return of excess contributions, required minimum
distributions at age 70 1/2 (waivers only apply to amounts
necessary to meet the required minimum amount), certain
withdrawals pursuant to a systematic withdrawal plan, not to
exceed 10% annually of the value of your account, and redemptions
made from qualified retirement accounts or Section 403(b)(7)
custodial accounts necessary to pay custodial fees.
A CDSC will apply in the event of plan level transfers, including
transfers due to changes in investment where assets are
transferred outside of New England Funds, including IRA and
403(b)(7) participant-directed transfers of assets to other
custodians (except for the reasons given above) or qualified
transfers of assets due to trustee-directed movement of plan
assets due to merger, acquisition or addition of additional funds
to the plan.
The Funds will normally redeem shares for cash; however, the
Funds reserve the right to pay the redemption price wholly or
partly in kind if the Trust's board of trustees determines it to
be advisable and in the interest of the remaining shareholders of
a Fund. If portfolio securities are distributed in lieu of cash,
the shareholder may incur fees upon subsequent disposition of any
such securities. The Funds do not currently intend to impose any
redemption charge (other than the CDSC imposed by the Funds'
distributor), although they reserve the right to charge a fee not
exceeding 1% of the redemption price. A redemption constitutes a
sale of shares for federal income tax purposes on which the
investor may realize a long- or short-term capital gain or loss.
See also "Income Dividends, Capital Gain Distributions and Tax
Status," below.
REINSTATEMENT PRIVILEGE (CLASS A SHARES ONLY)
The Prospectus describes redeeming shareholders' reinstatement
privileges for Class A shares. Written notice and the investment
check from persons wishing to exercise this reinstatement
privilege must be received by your investment dealer within 120
days after the date of the redemption. The reinstatement or
exchange will be made at net asset value next determined after
receipt of the notice and the investment check and will be
limited to the amount of the redemption proceeds or to the
nearest full share if fractional shares are not purchased.
Even though an account is reinstated, the redemption will
constitute a sale for federal income tax purposes. Investors who
reinstate their accounts by purchasing shares of the Funds should
consult with their tax advisers with respect to the effect of the
"wash sale" rule if a loss is realized at the time of the
redemption.
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STANDARD PERFORMANCE MEASURES
- ----------------------------------------------------------------
CALCULATIONS OF YIELD. Each Fund may advertise the yield of its
Class A, Class B, Class C and Class Y shares. Yield for each
class will be computed by annualizing net investment income per
share for a recent 30-day period and dividing that amount by the
maximum offering price per share of the relevant class (reduced
by any undeclared earned income expected to be paid 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. Each Fund's yield will vary from
time to time depending upon market conditions, the composition of
its portfolio and operating expenses of the Trust allocated to
each Fund. These factors, possible differences in the methods
used in calculating yield and the tax exempt status of
distributions should be considered when comparing a Fund's yield
to yields published for other investment companies and other
investment vehicles. Yield should also be considered relative to
changes in the value of the Fund's shares and to the relative
risks associated with the investment objectives and policies of
the Fund. Yields do not take into account any applicable sales
charges or CDSC. Yield may be stated with or without giving
effect to any expense limitations in effect for a Fund.
At any time in the future, yields and total return may be higher
or lower than past yields and there can be no assurance that any
historical results will continue.
Investors in the Funds are specifically advised that share
prices, expressed as the net asset values per share, will vary
just as yield will vary. An investor's focus on the yield of a
Fund to the exclusion of the consideration of the share price of
that Fund may result in the investor's misunderstanding the total
return he or she may derive from the Fund.
CALCULATION OF TOTAL RETURN. Total return is a measure of the
change in value of an investment in a Fund over the period
covered, which assumes that any dividends or capital gains
distributions are automatically reinvested in shares of the same
class of that Fund rather than paid to the investor in cash. The
formula for total return used by the Funds is prescribed by the
SEC and includes three steps: (1) adding to the total number of
shares of the particular class that would be purchased by a
hypothetical $1,000 investment in the Fund (with or without
giving effect to the deduction of sales charge or CDSC, if
applicable) 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 of shares owned at the end of the
period by the net asset value per share of the relevant class on
the last trading day of the period; (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 may be stated with or without giving
effect to any expense limitations in effect for a Fund.
PERFORMANCE COMPARISONS
YIELD AND TOTAL RETURN. Yields and total returns will generally
be higher for Class A shares than for Class B and Class C shares
of the same Fund, because of the higher levels of expenses borne
by the Class B and Class C shares. Because of its lower
operating expenses, Class Y shares of each Fund can be expected
to achieve a higher yield and total return than the same Fund's
Class A, Class B and Class C shares. The Funds may from time to
time include their yield and total return in advertisements or in
information furnished to present or prospective shareholders.
The Funds may from time to time include in advertisements its
total return and the ranking of those performance figures
relative to such figures for groups of mutual funds categorized
by Lipper Analytical Services as having similar investment
objectives.
Total return may also be used to compare the performance of the
Fund against certain widely acknowledged standards or indices for
stock and bond market performance or against the U.S. Bureau of
Labor Statistics' Consumer Price Index.
The S&P 500 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 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
400 industrial, 60 transportation and 40 financial services
concerns. The S&P 500 represents about 80% of the market value
of all issues traded on the New York Stock Exchange.
The Salomon Brothers World Government Bond Index includes a broad
range of institutionally-traded fixed-rate government securities
issued by the national governments of the nine countries whose
securities are most actively traded. The index generally
excludes floating- or variable-rate bonds, securities aimed
principally at non-institutional investors (such as U.S. Savings
Bonds) and private-placement type securities.
The Shearson Lehman Government Bond Index (the "SL Government
Index") is a measure of the market value of all public
obligations of the U.S. Treasury; all publicly issued debt of
all agencies of the U.S. Government and all quasi-federal
corporations; and all corporate debt guaranteed by the U.S.
Government. Mortgage backed securities, flower bonds and foreign
targeted issues are not included in the SL Government Index.
The Shearson Lehman Government/Corporate Bond Index (the "SL
Government/Corporate 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 SL Government/Corporate
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 rated
agency.
The Lehman Brothers Municipal Bond Index is a composite measure
of the total return performance of the municipal bond market.
This index is computed from prices on approximate 1800 bonds.
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.
The Merrill Lynch High Yield Index includes over 750 issues and
represents public debt greater than $10 million (original
issuance rated BBB/BB and below), and the First Boston High Yield
Index includes over 350 issues and represents all public debt
greater than $100 million (original issuance and rated BBB/BB and
below).
The Salomon Brothers Broad Investment Grade Bond Index is a price
composite of a broad range of institutionally based U.S.
Government mortgage-backed and corporate debt securities of
investment outstanding of at least $1 million and with a
remaining period to maturity of at least one year.
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.
Lipper Analytical Services, Inc. is an independent service that
monitors the performance of over 1,300 mutual funds, and
calculates total return for the funds grouped by investment
objective. Lipper's Mutual Fund Performance Analysis, Small Cap
Company Analysis and Mutual Fund Indices measure total return and
average current yield for the mutual fund industry. Rankings of
individual mutual fund performance over specified time periods
assume reinvestment of all distributions, exclusive of sales
charges.
The Russell 2000 Index represents the top 2,000 stocks traded on
the New York Stock Exchange, American Stock Exchange and The
Nasdaq Stock Market, by market capitalizations.
The Morgan Stanley Capital International Europe, Australia and
Far East (Gross Domestic Product) Index (the "EAFE Index") is a
market-value weighted and unmanaged index of common stocks traded
outside the U.S. The stocks in the index are selected with
reference to national and industry representation and weighted in
the EAFE Index according to their relative market value (market
price per share times the number of shares outstanding).
The Morgan Stanley Capital International Europe, Australasia and
Far East Index (the "EAFE (GDP) Index") is a market-value
weighted and unmanaged index of common stocks traded outside the
U.S. The stocks in the index are selected with reference to
national and industry representation and weighted in the EAFE
(GDP) Index according to their relative market values. The
relative market value of each country is further weighted with
reference to the country's relative gross domestic product.
Articles and releases, developed by the Funds and other parties,
about the Funds regarding performance, rankings, statistics and
analyses of the individual Funds' and the fund group's asset
levels and sales volumes, numbers of shareholders by Fund or in
the aggregate for New England Funds, statistics and analyses of
industry sales volumes and asset levels, and other
characteristics may appear in advertising, promotional
literature, publications, including, but not limited to, those
publications listed in Appendix B to this Statement, and on
various computer networks, for example, the Internet. In
particular, some or all of these publications may publish their
own rankings or performance reviews of mutual funds, including,
but not limited to, Lipper Analytical Services and Morningstar.
References to these rankings or reviews or reprints of such
articles may be used in the Funds' advertising and promotional
literature. Such advertising and promotional material may refer
to NEIC, its structure, goals and objectives and the advisory
subsidiaries of NEIC, including their portfolio management
responsibilities, portfolio managers and their categories and
background; their tenure, styles and strategies and their shared
commitment to fundamental investment principles and may identify
specific clients, as well as discuss the types of institutional
investors who have selected the advisers to manage their
investment portfolios and the reasons for that selection. The
references may discuss the independent, entrepreneurial nature of
each advisory organization and allude to or include excerpts from
articles appearing in the media regarding NEIC, its advisory
subsidiaries and their personnel. For additional information
about the Funds' advertising and promotional literature, see
Appendix C.
The Funds may use the accumulation charts below in their
advertisements to demonstrate the benefits of monthly savings at
an 8% and 10% rate of return, respectively.
INVESTMENTS AT 8% RATE OF RETURN
5 YRS. 10 15 20 25 30
------ ------- ------- ------- ------- ------
$ 50 3,698 9,208 17,417 29,647 47,868 75,015
75 5,548 13,812 26,126 44,471 71,802 112,522
100 7,396 18,417 34,835 59,295 95,737 150,029
150 11,095 27,625 52,252 88,942 143,605 225,044
200 14,793 36,833 69,669 118,589 191,473 300,059
500 36,983 92,083 174,173 296,474 478,683 750,148
INVESTMENTS AT 10% RATE OF RETURN
5 YRS. 10 15 20 25
30
------- ------- ------- ------- -------
- ------
$ 50 3,904 10,328 20,896 38,285 66,895
113,966
75 5,856 15,491 31,344 57,427 100,342
170,949
100 7,808 20,655 41,792 76,570 133,789
227,933
150 11,712 30,983 62,689 114,855 200,684
341,899
200 15,616 41,310 83,585 153,139 267,578
455,865
500 39,041 103,276 208,962 382,848 668,945
1,139,663
The Funds' advertising and sales literature may refer to
historical, current and prospective political, social, economic
and financial trends and developments that affect domestic and
international investment as it relates to any of the New England
Funds. The Funds' advertising and sales literature may include
historical and current performance and total returns of
investment alternatives to the New England Funds. Articles,
releases, advertising and literature may discuss the range of
services offered by the Trust and New England Funds, L.P., as
distributor and transfer agent of the Funds, with respect to
investing in shares of the Funds and customer service. Such
materials may discuss the multiple classes of shares available
through the Trust and their features and benefits, including the
details of the pricing structure.
New England Funds, L.P. will make reference in its advertising
and sales literature to awards, citations and honors bestowed on
it by industry organizations and other observers and rates
including, but not limited to Dalbar's Quality Tested Service
Seal and Key Honors Award. Such reference may explain the
criteria for the award, indicate the nature and significance of
the honor and provide statistical and other information about the
award and New England Funds, L.P.'s selection including, but not
limited to, the scores and categories in which New England Funds,
L.P. excelled, the names of funds and fund companies that have
previously won the award and comparative information and data
about those against whom New England Funds, L.P. competed for
the award, honor or citation.
New England Funds, L.P. may publish, allude to or incorporate in
its advertising and sales literature testimonials from
shareholders, clients, brokers who sell or own shares, broker-
dealers, industry organizations and officials and other members
of the public, including, but not limited to, fund performance,
features and attributes, or service and assistance provided by
departments within the organization, employees or associates of
New England Funds, L.P.
Advertising and sales literature may also refer to the beta
coefficient of the New England Funds. A beta coefficient is a
measure of systematic or undiversifiable risk of a stock. A beta
coefficient of more than 1 means that the company's stock has
shown more volatility than the market index (e.g., the S&P 500)
to which it is being related. If the beta is less than 1, it is
less volatile than the market average to which it is being
compared. If it equals 1, its risk is the same as the market
index. High variability in stock price may indicate greater
business risk, instability in operations and low quality of
earnings. The beta coefficients of the New England Funds may be
compared to the beta coefficients of other funds.
The Funds may enter into arrangements with banks exempted from
broker-dealer registration under the 1934 Act. Advertising and
sales literature developed to publicize such arrangements will
explain the relationship of the bank to the New England Funds and
New England Funds, L.P. as well as the services provided by the
bank relative to the Funds. The material may identify the bank
by name and discuss the history of the bank including, but not
limited to, the type of bank, its asset size, the nature of its
business and services and its status and standing in the
industry.
In addition, sales literature may be published concerning topics
of general investor interest for the benefit of registered
representatives and the Funds' prospective shareholders. These
materials may include, but are not limited to, discussions of
college planning, retirement planning, reasons for investing and
historical examples of the investment performance of various
classes of securities, securities markets and indices.
- -----------------------------------------------------------------
INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS
- ----------------------------------------------------------------
As described in the Prospectus, it is the policy of each Fund to
pay its shareholders, as dividends, substantially all net
investment income and net short-term capital gains and to
distribute annually all net realized long-term capital gains, if
any, after offsetting any capital loss carryovers.
Income dividends and capital gain distributions are payable in
full and fractional shares of the relevant class of the
particular Fund based upon the net asset value determined as of
the close of business on the Exchange on the record date for each
dividend or distribution. Shareholders, however, may elect to
receive their income dividends or capital gain distributions, or
both, in cash. The election may be made at any time by
submitting a written request directly to New England Funds, L.P.
In order for a change to be in effect for any dividend or
distribution, it must be received by New England Funds, L.P. on
or before the record date for such dividend or distribution.
As required by federal law, detailed federal tax information will
be furnished to each shareholder for each calendar year on or
before January 31 of the succeeding year.
Each Fund intends to qualify each year as a regulated investment
company under Subchapter M of the Code. In order to qualify,
each Fund must, among other things, (i) derive at least 90% of
its gross income from dividends, interest, payments with respect
to certain securities loans, gains from the sale of securities or
foreign currencies, or other income (including, but not limited
to, gains from options, futures or forward contracts) derived
with respect to its business of investing in such stock,
securities or currencies; (ii) distribute at least 90% of its
dividend, interest and certain other taxable income each year;
and (iii) diversify its holdings so that at the end of each
fiscal quarter, (a) at least 50% of the value of its total assets
consists of cash and cash items, including receivables, U.S.
Government securities, securities of other regulated investment
companies, and other securities limited generally, with respect
to any one issuer, to no more than 5% of the value of the Fund's
total assets and 10% of the outstanding voting securities of such
issuer, and (b) not more than 25% of the value of its assets is
invested in the securities (other than those of the U.S.
Government or other regulated investment companies) of any one
issuer or of two or more issuers which the Fund controls and
which are engaged in the same, similar or related trades or
businesses. So long as it qualifies for treatment as a regulated
investment company, a Fund generally will not be subject to
federal income tax on income paid to its shareholders in the form
of dividends or capital gains distributions.
An excise tax at the rate of 4% will be imposed on the excess, if
any, of each Fund's "required distribution" over its actual
distributions in any calendar year. Generally, the "required
distribution" is 98% of the Fund's ordinary income for the
calendar year plus 98% of its capital gain net income recognized
during the one-year period ending on October 31 (or December 31,
if the Fund so elects) plus undistributed amounts from prior
years. Each Fund intends to make distributions sufficient to
avoid imposition of the excise tax. Distributions declared by a
Fund during October, November or December to shareholders of
record on a date in any such month and paid by the Fund during
the following January will be treated for federal tax purposes as
paid by the Fund and received by shareholders on December 31 of
the year in which declared.
Shareholders of each Fund will be subject to federal income taxes
on distributions made by the Fund whether received in cash or
additional shares of the Fund. Distributions by each Fund of net
income and short-term capital gains, if any, will be taxable to
shareholders as ordinary income. If an Underlying Fund derives
dividends from domestic corporations, a portion of the dividends
paid by a Fund that invests in the Underlying Fund may qualify
for the deduction for dividends received by corporations.
Properly designated distributions of long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains,
without regard to how long a shareholder has held shares of the
Fund. A loss on the sale of shares held for six months or less
will be treated as a long-term capital loss to the extent of any
long-term capital gain dividends paid to the shareholder with
respect to such shares.
Income received by an Underlying Fund from sources within a
foreign country may be subject to withholding and other taxes
imposed by that country. If more than 50% of the value of an
Underlying Fund's total assets at the close of its taxable year
consists of stock or securities of foreign corporations, the
Underlying Fund will be eligible and may elect to "pass-through"
to its shareholders, including a Fund, the amount of foreign
income and similar taxes paid by the Underlying Fund. Pursuant
to this election, the Fund would be required to include in gross
income (in addition to taxable dividends actually received) its
pro rata share of the foreign income and similar taxes paid by
the Underlying Fund, and would be entitled either to deduct its
pro rata share of foreign income and similar taxes in computing
its taxable income or to use it as a foreign tax credit against
its U.S. federal income taxes, subject to limitations. The Fund
would not, however, be eligible to elect to "pass-through" to its
shareholders the ability to claim a deduction or credit with
respect to foreign income and similar taxes paid by the
Underlying Fund.
Dividends and distributions on Fund shares received shortly after
their purchase, although in effect a return of capital, are
subject to federal income taxes.
Redemptions and exchanges of each Fund's shares are taxable
events and, accordingly, shareholders may realize gains and
losses on these transactions. Currently, if shares have been
held for more than one year, gain or loss realized will be
eligible for reduced mid-term federal tax rates or, if the shares
are held for more than 18 months, for reduced long-term federal
tax rates, provided the shareholder holds the shares as a capital
asset. Furthermore, no loss will be allowed on the sale of Fund
shares to the extent the shareholder acquired other shares of the
same Fund within 30 days prior to the sale of the loss shares or
30 days after such sale. In some cases, shareholders will not be
permitted to take sales charges into account for purposes of
determining the amount of gain or loss realized on the
disposition of their Fund shares. This prohibition generally
applies where (1) the shareholder incurs a sales charge in
acquiring the shares, (2) the shares are disposed of before the
91st day after the date on which they were acquired, and (3) the
shareholder subsequently acquires shares of the same or another
Fund or fund and the otherwise applicable sales charge is reduced
under a "reinvestment right" received upon the initial purchase
of shares. The term "reinvestment right" means any right to
acquire stock of one or more funds (including a Fund) without the
payment of a sales charge or with the payment of a reduced sales
charge. Sales charges affected by this rule are treated as if
they were incurred with respect to the shares acquired under the
reinvestment right. This provision may be applied to successive
acquisitions of Fund shares.
Each Fund may be required to withhold U.S. federal income tax at
the rate of 31% of all taxable distributions payable to
shareholders who fail to provide the Fund with their correct
taxpayer identification number or to make required
certifications, or who have been notified by the IRS that they
are subject to backup withholding. Corporate shareholders and
certain other shareholders specified in the Code generally are
exempt from such backup withholding. Backup withholding is not an
additional tax. Any amounts withheld may be credited against the
shareholder's U.S. federal income tax liability.
The foregoing is a general and abbreviated summary of the
applicable provisions of the Code and related regulations
currently in effect. For the complete provisions, reference
should be made to the pertinent Code sections and regulations.
The Code and regulations are subject to change by legislative or
administrative actions.
Dividends and distributions also may be subject to state and
local taxes. Shareholders are urged to consult their tax
advisers regarding specific questions as to federal, state or
local taxes.
The foregoing discussion relates solely to U.S. federal income
tax law. Non-U.S. investors should consult their tax advisers
concerning the tax consequences of ownership of shares of a Fund,
including the possibility that distributions may be subject to a
30% United States withholding tax (or a reduced rate of
withholding provided by treaty).
Each Underlying Fund intends to qualify annually and elects to be
treated as a regulated investment company under the Code. In any
year in which an Underlying Fund qualifies as a regulated
investment company and timely distributes all of its taxable
income, the Underlying Fund generally will not pay any federal
income or excise tax.
Distributions of an Underlying Fund's ordinary income and net
short-term capital gains are treated as ordinary income by a Fund
that invests in the Underlying Fund. Properly designated
distributions of an Underlying Fund's net long-term capital gains
are treated as long-term capital gain by a Fund that invests in
the Underlying Fund, regardless of how long the Fund held the
Underlying Fund's shares. Upon a sale or other disposition by a
Fund of shares of an Underlying Fund, the Fund generally will
realize a capital gain or loss which may be eligible for reduced
federal tax rates, depending on the Fund's holding period for the
shares.
- ----------------------------------------------------------------
FINANCIAL STATEMENTS
- ----------------------------------------------------------------
[To be filed by amendment.]
- ----------------------------------------------------------------
GLOSSARY
- ----------------------------------------------------------------
MISCELLANEOUS INVESTMENT PRACTICES OF UNDERLYING FUNDS
The following information relates to certain investment practices
in which certain Underlying Funds (for purposes of this Glossary
only, the "Funds") may engage.
LOANS OF PORTFOLIO SECURITIES. A Fund 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 the market on a daily basis. The Fund 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 of the Fund listed in its statement of additional
information. 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 its Fund. A
Fund pays various fees in connection with such loans, including
shipping fees and reasonable custodian and placement fees
approved by the board or persons acting pursuant to the direction
of the board.
These transactions must be fully collateralized at all times, but
involve some credit risk to the Fund if the other party should
default on its obligation and the Fund is delayed in or prevented
from recovering the collateral.
U.S. GOVERNMENT SECURITIES. A Fund may invest in some or all of
the following U.S. Government securities:
- - U.S. Treasury Bills - Direct obligations of the United
States Treasury which are issued in maturities of one year
or less. No interest is paid on Treasury bills; instead,
they are issued at a discount and repaid at full face value
when they mature. They are backed by the full faith and
credit of the United States Government.
- - U.S. Treasury Notes and Bonds - Direct obligations of the
United States Treasury issued in maturities that vary
between one and 40 years, with interest normally payable
every six months. These obligations are backed by the full
faith and credit of the United States Government.
- - "Ginnie Maes" - Debt securities issued by a mortgage banker
or other mortgagee which represent an interest in a pool of
mortgages insured by the Federal Housing Administration or
the Farmer's Home Administration or guaranteed by the
Veterans Administration. The Government National Mortgage
Association 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. An assistant attorney general of
the United States has rendered an opinion that the
guarantee
by GNMA is a general obligation of the United States backed
by its full faith and credit. 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 a
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 a Fund,
which reinvests any prepayments) of Ginnie Maes along with
regular monthly payments of principal and interest.
- - "Fannie Maes" - The Federal National Mortgage Association
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
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 generally do not involve the credit
risks associated with investments in other types of fixed-income
securities, although, as a result, the yields available from U.S.
Government securities are generally lower than the yields
available from corporate fixed-income securities. Like other
fixed-income securities, however, the values of U.S. Government
securities change as interest rates fluctuate. Fluctuations in
the value of portfolio securities will not affect interest income
on existing portfolio securities but will be reflected in a
Fund's net asset value. Since the magnitude of these
fluctuations will generally be greater at times when the Fund's
average maturity is longer, under certain market conditions a
Fund may, for temporary defensive purposes, accept lower current
income from short-term investments rather than investing in
higher yielding long-term securities.
WHEN-ISSUED SECURITIES. A Fund may enter into agreements with
banks or broker-dealers for the purchase or sale of securities at
an agreed-upon price on a specified future date. Such agreements
might be entered into, for example, when the Fund anticipates a
decline in interest rates and is able to obtain a more
advantageous yield by committing currently to purchase securities
to be issued later. When a Fund purchases securities in this
manner (i.e., on a when-issued or delayed-delivery basis), it is
required to set aside with its custodian cash or liquid
securities eligible for purchase by the Fund in an amount equal
to or greater than, on a daily basis, the amount of the Fund's
when-issued or delayed-delivery commitments. A Fund will make
commitments to purchase on a when-issued or delayed-delivery
basis only securities meeting the Fund's investment criteria.
The Fund may take delivery of these securities or, if it is
deemed advisable as a matter of investment strategy, the Fund may
sell these securities before the settlement date. When the time
comes to pay for when-issued or delayed-delivery securities, a
Fund will meet its obligations from the then available cash flow
or the sale of securities, or from the sale of the when-issued or
delayed-delivery securities themselves (which may have a value
greater or less than the Fund's payment obligation).
REPURCHASE AGREEMENTS. A Fund may enter into repurchase
agreements, by which the Fund purchases a security and obtains a
simultaneous commitment from the seller 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 Fund the opportunity to
earn a return on temporarily available cash at relatively low
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 United States
Government and there is a risk that the seller may fail to
repurchase the underlying security. In such event, the Fund
would attempt to exercise rights with respect to the underlying
security, including possible disposition in the market. However,
the Fund 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 Fund 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 the attempted enforcement.
ZERO COUPON SECURITIES. Zero coupon securities are debt
obligations that do not entitle the holder to any periodic
payments of interest either for the entire life of the obligation
or for an initial period after the issuance of the obligations.
Such securities are issued and traded at a discount from their
face amounts. The amount of the discount varies depending on
such factors as the time remaining until maturity of the
securities, prevailing interest rates, the liquidity of the
security and the perceived credit quality of the issuer. The
market prices of zero coupon securities generally are more
volatile than the market prices of securities that pay interest
periodically and are likely to respond to changes in interest
rates to a greater degree than do non-zero coupon securities
having similar maturities and credit quality. In order to
satisfy a requirement for qualification as a "regulated
investment company" under the Code, a Fund must distribute each
year at least 90% of its net investment income, including the
original issue discount accrued on zero coupon securities.
Because a Fund will not on a current basis receive cash payments
from the issuer of a zero coupon security in respect of accrued
original issue discount, in some years the Fund may have to
distribute cash obtained from other sources in order to satisfy
the 90% distribution requirement under the Code. Such cash might
be obtained from selling other portfolio holdings of the Fund.
In some circumstances, such sales might be necessary in order to
satisfy cash distribution requirements even though investment
considerations might otherwise make it undesirable for the Fund
to sell such securities at such time.
CONVERTIBLE SECURITIES. A Fund 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.
TAX EXEMPT BONDS. A Fund may invest in tax exempt bonds. Tax
exempt bonds include debt obligations issued to obtain funds for
various public purposes, including the construction of a wide
range of public facilities such as bridges, highways, hospitals,
housing, mass transportation, schools, streets, and water and
sewer works. Other public purposes for which tax exempt bonds
may be issued include the refunding of outstanding obligations,
obtaining funds for general operating expenses, and obtaining
funds to lend to other public institutions and facilities. In
addition, prior to the Tax Reform Act of 1986, certain debt
obligations known as industrial development bonds could be issued
by or on behalf of public authorities to obtain funds to provide
privately operated housing facilities, sports facilities,
convention or trade show facilities, airport, mass transit, port
or parking facilities, air or water pollution control facilities
and certain local facilities for water supply, gas, electricity,
or sewage or solid waste disposal. Such obligations are included
within the term "tax exempt bonds" if the interest paid thereon
is, in the opinion of bond counsel, exempt from federal income
tax. Interest on certain industrial development bonds used to
fund the construction, equipment, repair or improvement of
privately operated industrial or commercial facilities may also
be exempt from federal income tax. The Tax Reform Act of 1986
eliminated some types of tax exempt industrial revenues bonds but
retains others under the general category of "private activity
bonds." The interest on so-called "private activity bonds" is
exempt from ordinary federal income taxation but is treated as a
tax preference item in computing a shareholder's alternative
minimum tax liability, as noted in the Prospectus.
The two principal classifications of tax exempt bonds are general
obligation bonds and limited obligation (or revenue) bonds.
General obligation bonds are obligations involving the credit of
an issuer possessing taxing power and are payable from the
issuer's general unrestricted revenues and not from any
particular fund or source. The characteristics and method of
enforcement of general obligation bonds vary according to the law
applicable to the particular issuer, and payment may be dependent
upon an appropriation by the issuer's legislative body. Limited
obligation bonds are payable only from the revenues derived from
a particular facility or class of facilities, or in some cases
from the proceeds of a special excise or other specific revenue
source such as the user of the facility. Tax exempt industrial
development bonds and private activity bonds are in most cases
revenue bonds and generally are not payable from the unrestricted
revenues of the issuer. The credit and quality of such bonds is
usually directly related to the credit standing of the corporate
user of the facilities. Principal and interest on such bonds is
the responsibility of the corporate user (and any guarantor).
Prices and yields on tax exempt bonds are dependent on a variety
of factors, including general money market conditions, the
financial condition of the issuer, general conditions of the tax
exempt bond market, the size of a particular offering, the
maturity of the obligation and the rating of the issue. A number
of these factors, including the ratings of particular issues, are
subject to change from time to time. Information about the
financial condition of an issuer of tax exempt bonds may not be
as extensive as that made available by corporations whose
securities are publicly traded.
The ratings of Moody's and S&P represent their opinions and are
not absolute standards of quality. Tax exempt bonds with the
same maturity, interest rate and rating may have different yields
while tax exempt bonds of the same maturity and interest rate
with different ratings may have the same yield.
Obligations of issuers of tax exempt bonds are subject to the
provisions of bankruptcy, insolvency and other laws, such as the
Bankruptcy Reform Act of 1978, affecting the rights and remedies
of creditors. Congress or state legislatures may seek to extend
the time for payment of principal or interest, or both, or to
impose other constraints upon enforcement of such obligations.
There is also the possibility that, as a result of litigation or
other conditions, the power or ability of issuers to meet their
obligations for the payment of interest and principal on their
tax exempt bonds may be materially affected, or their obligations
may be found to be invalid or unenforceable. Such litigation or
conditions may from time to time have the effect of introducing
uncertainties in the market for tax exempt bonds or certain
segments thereof, or materially affecting the credit risk with
respect to particular bonds. Adverse economic, business, legal
or political developments might affect all or a substantial
portion of a Fund's tax exempt bonds in the same manner.
From time to time, proposals have been introduced before Congress
for the purpose of restricting or eliminating the federal income
tax exemption for interest on debt obligations issued by states
and their political subdivisions and similar proposals may well
be introduced in the future. If such a proposal were enacted,
the availability of tax exempt securities for investment by a
Fund and the value of the Fund's portfolio could be materially
affected, in which event the Fund would reevaluate its investment
objective and policies and consider changes in the structure of
the Fund or dissolution.
All debt securities, including tax exempt bonds, are subject to
credit and market risk. Generally, for any given change in the
level of interest rates, prices for longer maturity issues tend
to fluctuate more than prices for shorter maturity issues. The
ability of certain Funds to invest in securities other than tax
exempt bonds is limited by a requirement of the Code that at
least 50% of the Fund's total assets be invested in tax exempt
bonds at the end of each calendar quarter.
STATE TAX EXEMPT SECURITIES. Certain Funds may invest in "State
Tax Exempt Securities" which term refers to debt securities the
interest from which is, in the opinion of bond counsel, exempt
from federal income tax and State personal income taxes (other
than the possible incidence of any alternative minimum taxes).
State Tax Exempt Securities consist primarily of bonds of a
Fund's named state, their political subdivisions (for example,
counties, cities, towns, villages and school districts) and
authorities issued to obtain funds for various public purposes,
including the construction of a wide range of public facilities
such as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works.
Other public purposes for which certain State Tax Exempt
Securities may be issued include the refunding of outstanding
obligations, obtaining funds for general operating expenses, or
obtaining funds to lend to public or private institutions for the
construction of facilities such as educational, hospital and
housing facilities. In addition, certain types of industrial
development bonds and private activity bonds have been or may be
issued by public authorities or on behalf of state or local
governmental units to finance privately operated housing
facilities, sports facilities, convention or trade facilities,
air or water pollution control facilities and certain local
facilities for water supply, gas, electricity or sewage or solid
waste disposal. Other types of industrial development and
private activity bonds are used to finance the construction,
equipment, repair or improvement of privately operated industrial
or commercial facilities. Industrial development bonds and
private activity bonds are included within the term "State Tax
Exempt Securities" if the interest paid thereon is, in the
opinion of bond counsel, exempt from federal income tax and State
personal income taxes (other than the possible incidence of any
alternative minimum taxes).
In addition, the term "State Tax Exempt Securities" includes debt
obligations issued by other governmental entities (for example,
U.S. territories) if such debt obligations generate interest
income which is exempt from federal income tax and State personal
income taxes (other than any alternative minimum taxes).
There are, of course, variations in the quality of State Tax
Exempt Securities, both within a particular classification and
between classifications, depending on numerous factors (see
Appendix A).
The yields on State Tax Exempt Securities are dependent on a
variety of factors, including general money market conditions,
the financial condition of the issuer, general conditions of the
State Tax Exempt Securities market, the size of a particular
offering, the maturity of the obligation and the rating of the
issue. The ratings of Moody's and S&P represent their opinions
as to the quality of the State Tax Exempt Securities which they
undertake to rate. It should be emphasized, however, that
ratings are general and are not absolute standards of quality.
Consequently, State Tax Exempt Securities with the same maturity,
interest rate and rating may have different yields while State
Tax Exempt Securities of the same maturity and interest rates
with different ratings may have the same yield. Subsequent to
its purchase by a Fund, an issue of State Tax Exempt Securities
or other investments may cease to be rated or the rating may be
reduced below the minimum rating required for purchase by the
Fund. Neither event will require the elimination of an
investment from a Fund's portfolio, but the Fund's adviser or
subadviser will consider such an event as part of its normal,
ongoing review of all the Fund's portfolio securities.
Securities in which a Fund may invest, including State Tax Exempt
Securities, are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of
creditors, such as the federal Bankruptcy Code, and laws, if any,
which may be enacted by Congress or the State legislature
extending the time for payment of principal or interest, or both,
or imposing other constraints upon enforcement of such
obligations. There is also the possibility that as a result of
litigation or other conditions the power or ability of issuers to
meet their obligations for the payment of interest and principal
on their State Tax Exempt Securities may be materially affected
or that their obligations may be found to be invalid and
unenforceable.
Some states and certain of their cities and towns and public
bodies have from time to time encountered financial difficulties
which have adversely affected their respective credit standings
and borrowing abilities. Such difficulties could, of course,
affect outstanding obligations of such entities, including
obligations held by a Fund.
SHORT SALES. Certain Funds may engage in short sales of
securities; however some Funds may only engage in short sales if
they own (or have the right to acquire without further
consideration) the security they have sold, a practice known as
selling short "against the box." Each of these Funds may engage
in short sales of securities in order to profit from an
anticipated decline in the value of a security, or may also
engage in short sales to attempt to limit its exposure to a
decline in the value of its portfolio securities. In a short
sale, the Fund does not deliver from its portfolio the securities
sold and does not receive immediately the proceeds from the short
sale. Instead, the Fund borrows the securities sold short from a
broker-dealer through which the short sale is executed, and the
broker-dealer delivers such securities, on behalf of the Fund, to
the purchaser of such securities. The Fund is then obligated to
replace the security borrowed by delivering such security to the
broker-dealer. Until the security is replaced, the Fund is
required to pay to the lender any accrued interest or dividends
paid on the security sold short and may also be required to pay a
premium to the broker-dealer. The broker-dealer is entitled to
retain the proceeds from the short sale until the Fund delivers
to the broker-dealer the securities sold short. To secure its
obligation to deliver to such broker-dealer the securities sold
short, the Fund must deposit and continuously maintain in a
separate account with the Fund's custodian an equivalent amount
of (a) the securities sold short, (b) securities convertible into
or exchangeable for such securities without the payment of
additional consideration or (c) cash or certain liquid assets.
The Fund is said to have a short position in the securities sold
until it delivers to the broker-dealer the securities sold, at
which time the Fund receives the proceeds of the sale. The Fund
may close out a short position by purchasing, on the open market,
and delivering to the broker-dealer an equal amount of the
securities sold short, or, if such securities are owned by the
Fund, by delivering from its portfolio an equal amount of the
securities sold short.
Short sale transactions involve certain risks. If the price of
the security sold short increases between the time of the short
sale and the time a Fund replaces the borrowed security, the Fund
will incur a loss, and there can be no assurance that the Fund
will be able to close out the position at any particular time or
at an acceptable price. If the price declines during this
period, the Fund will realize a short-term capital gain. Any
realized short-term capital gain will be decreased, and any
incurred loss increased, by the amount of transaction costs and
any premium, dividend or interest which the Fund may have to pay
in connection with such short sale. The Fund will also incur
transaction costs in connection with short sales. Certain
provisions of the Code may limit the degree to which the Fund is
able to enter into short sales, or may require a Fund to
recognize gain upon entering into a short sale, as though a
constructive sale had occurred.
FUTURES, OPTIONS AND SWAP CONTRACTS
FUTURES CONTRACTS. A futures contract is an agreement between
two parties to buy and sell a particular commodity (e.g., an
interest-bearing security) 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, and Standard & Poor's 500 Index
futures trade in contracts equal to $500 multiplied by the
Standard & Poor's 500 Index.
When a trader, such as a Fund, 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 or high-quality tax
exempt bonds acceptable to the broker) equal to approximately 2%
to 5% 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 and decline is received
and paid respectively by and to the holders of these positions.
The amount received or paid is known as "variation margin." If a
Fund has a long position in a futures contract it will establish
a segregated account with the Fund's custodian containing cash or
liquid securities eligible for purchase by the Fund equal to the
purchase price of the contract (less any margin on deposit). For
short positions in futures contracts, a Fund will establish a
segregated account with the custodian with cash or liquid
securities eligible for purchase by the Fund 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 require actual delivery
and acceptance of securities (or cash in the case of index
futures), in most cases the contracts are closed out before
settlement. A futures sale is closed 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 closed
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.
OPTIONS. An option on a futures contract obligates the writer,
in return for the premium received, to assume a position in a
futures contract (a short position if the option is a call and a
long position if the option is a put), at a specified exercise
price at any time during the period of the option. Upon exercise
of the option, the delivery of the futures position by the writer
of the option to the holder of the option generally will be
accompanied by delivery of the accumulated balance in the
writer's futures margin account, which represents the amount by
which the market price of the futures contract, at exercise,
exceeds, in the case of a call, or is less than, in the case of a
put, the exercise price of the option. The premium paid by the
purchaser of an option will reflect, among other things, the
relationship of the exercise price to the market price and
volatility of the underlying contract, the remaining term of the
option, supply and demand and interest rates. Options on futures
contracts traded in the United States may only be traded on a
United States board of trade licensed by the Commodity Futures
Trading Commission (the "CFTC").
An option on a security entitles the holder to receive (in the
case of a call option) or to sell (in the case of a put option) a
particular security at a specified exercise price. An "American
style" option allows exercise of the option at any time during
the term of the option. A "European style" option allows an
option to be exercised only at the end of its term. Options on
securities may be traded on or off a national securities
exchange.
A call option on a futures contract written by a Fund is
considered by the Fund to be covered if the Fund 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 Fund is considered to be
covered if the Fund owns a security deliverable under the option.
A written call option is also covered if the Fund 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 Fund in cash or liquid securities eligible for
purchase by the Fund in a segregated account with its custodian.
A put option on a futures contract written by the Fund, or a put
option on a security written by a Fund, is covered if the Fund
maintains cash or liquid securities eligible for purchase by the
Fund with a value equal to the exercise price in a segregated
account with the Fund's 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 a Fund to write another
call option on the portfolio securities used to cover the closed
call option. Closing a written put option will permit a Fund to
write another put option secured by the segregated 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 Fund investments. If a Fund 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.
A Fund 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 Fund 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, a Fund will have a net gain from the options transaction,
and the Fund's 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 Fund when the put options are closed.
As an alternative to purchasing call and put options on index
futures, a Fund may purchase or sell call or put options on the
underlying indices themselves. Such options would be used in a
manner identical to the use of options on index futures.
A Fund may purchase put warrants and call warrants whose values
vary depending on the change in the value of one or more
specified securities indices ("index warrants"). Index warrants
are generally issued by banks or other financial institutions and
give the holder the right, at any time during the term of the
warrant, to receive upon exercise of the warrant a cash payment
from the issuer based on the value of the underlying index at the
time of exercise. In general, if the value of the underlying
index rises above the exercise price of the index warrant, the
holder of a call warrant will be entitled to receive a cash
payment from the issuer upon exercise based on the difference
between the value of the index and the exercise price of the
warrant; if the value of the underlying index falls, the holder
of a put warrant will be entitled to receive a cash payment from
the issuer upon exercise based on the difference between the
exercise price of the warrant and the value of the index. The
holder of a warrant would not be entitled to any payments from
the issuer at a time when, in the case of a call warrant, the
exercise price is less than the value of the underlying index, or
in the case of a put warrant, the exercise price is less than the
value of the underlying index. If a Fund were not to exercise an
index warrant prior to its expiration, then the Fund would lose
the amount of the purchase price paid by it for the warrant.
A Fund will normally use index warrants in a manner similar to
its use of options on securities indices. The risks of a Fund's
use of index warrants are generally similar to those relating to
its use of index options. Unlike most index options, however,
index warrants are issued in limited amounts and are not
obligations of a regulated clearing agency, but are backed only
by the credit of the bank or other institution which issues the
warrant. Also, index warrants generally have longer terms than
index options. Although a Fund will normally invest only in
exchange-listed warrants, index warrants are not likely to be as
liquid as certain index options backed by a recognized clearing
agency. In addition, the terms of index warrants may limit a
Fund's ability to exercise the warrants at such time, or in such
quantities, as the Fund would otherwise wish to do.
A Fund may buy and write options on foreign currencies in a
manner similar to that in which futures or forward contracts on
foreign currencies will be utilized. For example, a decline in
the U.S. dollar value of a foreign currency in which portfolio
securities are denominated will reduce the U.S. dollar value of
such securities, even if their value in the foreign currency
remains constant. In order to protect against such diminutions
in the value of the portfolio securities, a Fund may buy put
options on the foreign currency. If the value of the currency
declines, a Fund will have the right to sell such currency for a
fixed amount in U.S. dollars, thereby offsetting, in whole or in
part, the adverse effect on its portfolio.
Conversely, when a rise in the U.S. dollar value of a currency in
which securities to be acquired are denominated is projected,
thereby increasing the cost of such securities, a Fund may buy
call options on the foreign currency. The purchase of such
options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to a Fund from purchases
of foreign currency options will be reduced by the amount of the
premium and related transactions costs. In addition, if currency
exchange rates do not move in the direction or to the extent
desired, a Fund could sustain losses on transactions in foreign
currency options that would require the Fund to forego a portion
or all of the benefits of advantageous changes in those rates.
A Fund may also write options on foreign currencies. For
example, to hedge against a potential decline in the U.S. dollar
value of foreign currency denominated securities due to adverse
fluctuations in exchange rates, a Fund could, instead of
purchasing a put option, write a call option on the relevant
currency. If the expected decline occurs, the option will most
likely not be exercised and the diminution in value of portfolio
securities be offset at least in part by the amount of the
premium received.
Similarly, instead of purchasing a call option to hedge against a
potential increase in the U.S. dollar cost of securities to be
acquired, a Fund could write a put option on the relevant
currency which, if rates move in the manner projected, will
expire unexercised and allow the Fund to hedge the increased cost
up to the amount of the premium. If exchange rates do not move
in the expected direction, the option may be exercised and the
Fund would be required to buy or sell the underlying currency at
a loss, which may not be fully offset by the amount of the
premium. Through the writing of options on foreign currencies, a
Fund also may lose all or a portion of the benefits which might
otherwise have been obtained from favorable movements in exchange
rates.
All call options written by a Fund on foreign currencies will be
"covered." A call option written on a foreign currency by a Fund
is "covered" if the Fund owns the foreign currency underlying the
call or has an absolute and immediate right to acquire that
foreign currency without additional cash consideration (or for
additional cash consideration held in a segregated account by its
custodian) upon conversion or exchange of other foreign
currencies held in its portfolio. A call option is also covered
if a Fund has a call on the same foreign currency in the same
principal amount as the call written if the exercise price of the
call held (i) is equal to or less than the exercise price of the
call written or (ii) is greater than the exercise price of the
call written, if the difference is maintained by the Fund in cash
or liquid securities eligible to be purchased by the Fund in a
segregated account with the Fund's custodian. For this purpose,
a call option is also considered covered if a Fund owns
securities denominated in (or which trade principally in markets
where settlement occurs in) the same currency, which securities
are readily marketable, and the Fund maintains in a segregated
account with its custodian cash or liquid securities eligible to
be purchased by the Fund in an amount that at all times at least
equals the excess of (x) the amount of the Fund's obligation
under the call option over (y) the value of such securities.
SWAP CONTRACTS. Interest rate swaps involve the exchange by a
Fund with another party of their respective commitments to pay or
receive interest (for example, an exchange of floating rate
payments for fixed rate payments with respect to a notional
amount of principal). A currency swap is an agreement to
exchange cash flows on a notional amount based on changes in the
relative values of the specified currencies. An index swap is an
agreement to make or receive payments based on the different
returns that would be achieved if a notional amount were invested
in a specified basket of securities (such as the S&P 500) or in
some other investment (such as U.S. Treasury securities). A Fund
will maintain at all times in a segregated account with its
custodian cash or liquid securities eligible to be purchased by
the Fund in amounts sufficient to satisfy its obligations under
swap contracts.
RISKS. The use of futures contracts, options and swap contracts
involves risks. One risk arises because of the imperfect
correlation between movements in the price of futures contracts
and movements in the price of the securities that are the subject
of the hedge. A Fund's hedging strategies will not be fully
effective unless the Fund can compensate for such imperfect
correlation. There is no assurance that a Fund will be able to
effect such compensation.
The correlation between the price movement of the futures
contract and the hedged security may be distorted due to
differences in the nature of the markets. For example, to the
extent that a Fund enters into futures contracts on securities
other than tax exempt bonds, the value of such futures may not
vary in direct proportion to the value of tax exempt bonds that
the Fund owns or intends to acquire, because of an imperfect
correlation between the movement of taxable securities and tax
exempt bonds. If the price of the futures contract moves more
than the price of the hedged security, the relevant Fund would
experience either a loss or a gain on the future that is not
completely offset by movements in the price of the hedged
securities. In an attempt to compensate for imperfect price
movement correlations, a Fund may purchase or sell futures
contracts in a greater dollar amount than the hedged securities
if the price movement volatility of the hedged securities is
historically greater than the volatility of the futures contract.
Conversely, a Fund may purchase or sell fewer contracts if the
volatility of the price of hedged securities is historically less
than that of the futures contracts.
The price of index futures may not correlate perfectly with
movement in the relevant index due to certain market distortions.
First, 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 foreign stock index futures may not correspond
perfectly to hours of trading on the foreign exchange to which a
particular foreign stock index future relates. This may result
in a disparity between the price of index futures and the value
of the relevant index due to the lack of continuous arbitrage
between the index futures price and the value of the underlying
index. Finally, hedging transactions using stock indices involve
the risk that movements in the price of the index may not
correlate with price movements of the particular portfolio
securities being hedged.
Price movement correlation also may be distorted by the
illiquidity of the futures and 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 instances, 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 enhances its liquidity. Nonetheless,
speculators trading spreads between futures markets may create
temporary price distortions unrelated to the market in the
underlying securities.
Positions in futures contracts and options on futures contracts
may be established or closed out only on an exchange or board of
trade. 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 and options on futures contracts may be adversely
affected by "daily price fluctuation limits" established by
commodity exchanges which limit the amount of fluctuation in a
futures or options 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 or options 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 or options
position at such time, and, in the event of adverse price
movements, a Fund would continue to be required to make daily
cash payments of variation margin. However, if futures or
options are used to hedge portfolio securities, an increase in
the price of the securities, if any, may partially or completely
offset losses on the futures contract.
An exchange-traded option may be closed out only on a national
securities or commodities exchange which generally provides a
liquid secondary market for an option of the same series. If a
liquid secondary market for an exchange-traded option does not
exist, it might not be possible to effect a closing transaction
with respect to a particular option with the result that a Fund
would have to exercise the option in order to realize any profit.
If the Fund is unable to effect a closing purchase transaction in
a secondary market, it will be 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 stock index
futures on futures exchanges are still under development,
additional or different margin requirements as well as settlement
procedures may be applicable to foreign stock index futures at
the time a Fund purchases foreign stock index futures.
The successful use of transactions in futures and options depends
in part on the ability of a Fund's adviser or subadviser(s) to
forecast correctly the direction and extent of interest rate
movements within a given time frame. To the extent interest
rates move in a direction opposite to that anticipated, a Fund
may realize a loss on the hedging transaction that is not fully
or partially offset by an increase in the value of portfolio
securities. In addition, whether or not interest rates move
during the period that a Fund holds futures or options positions,
the Fund will pay the cost of taking those positions (i.e.,
brokerage costs). As a result of these factors, a Fund's total
return for such period may be less than if it had not engaged in
the hedging transaction.
Options trading involves price movement correlation risks similar
to those inherent in futures trading. Additionally, price
movements in options on futures may not correlate with price
movements in the futures underlying the options. Like futures,
options positions may become less liquid because of adverse
economic circumstances. The securities covering written option
positions are expected to offset adverse price movements if those
options positions cannot be closed out in a timely manner, but
there is no assurance that such offset will occur. Also, an
option writer may not effect a closing purchase transaction after
it has been notified of the exercise of an option.
OVER-THE-COUNTER OPTIONS. 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 Fund 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 Fund, there can be no
assurance that the Fund will be able to liquidate an over-the-
counter option at a favorable price at any time prior to its
expiration. Accordingly, the Fund 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 a Fund 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
organizations.
The staff of 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 for
purposes of the investment restrictions prohibiting, for example,
a Fund from investing more than 15% of its net assets in 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 Fund, and the Fund 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 Fund only needs to treat as illiquid that amount
of the "cover" assets equal to the amount at 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").
ECONOMIC EFFECTS AND LIMITATIONS. Income earned by a Fund from
its hedging activities will be treated as capital gain and, if
not offset by net recognized capital losses incurred by the Fund,
will be distributed to shareholders in taxable distributions.
Although gain from futures and options transactions may hedge
against a decline in the value of a Fund's portfolio securities,
that gain, to the extent not offset by losses, will be
distributed in light of certain tax considerations and will
constitute a distribution of that portion of the value preserved
against decline. The hedging transactions entered into by the
Funds may have special tax consequences. For example, these
transactions may cause a Fund to recognize gain from a
constructive sale of an appreciated asset or otherwise accelerate
recognition of taxable income, may cause losses to be deferred,
may reduce or eliminate the holding period of an asset, may
change the character of a gain or loss, or may limit deductions.
The Funds intend to comply with guidelines of eligibility for
exclusion from the definition of the term "commodity pool
operator" adopted by the CFTC and the National Futures
Association, which regulate trading in the futures markets. The
Fund will use futures contracts and related options primarily for
bona fide hedging purposes within the meaning of CFTC
regulations. To the extent that the Fund holds positions in
futures contracts and related options that do not fall within the
definition of bona fide hedging transactions, the aggregate
initial margin and premiums required to establish such positions
will not exceed 5% of the fair market value of the Fund's net
assets, after taking into account unrealized profits and
unrealized losses on any such contracts it has entered into.
FUTURE DEVELOPMENTS. The above discussion relates to a Fund's
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 Funds may also use
additional types of futures contracts or options and other
investment techniques for the purposes set forth above.
FOREIGN CURRENCY HEDGING TRANSACTIONS. To protect against a
change in the foreign currency exchange rate between the date on
which the Fund contracts to purchase or sell a security and the
settlement date for the purchase or sale, or to "lock in" the
equivalent of a dividend or interest payment in another currency,
a Fund might purchase or sell a foreign currency on a spot (or
cash) basis at the prevailing spot rate. If conditions warrant,
a Fund may also enter into contracts with banks or broker-dealers
to purchase or sell foreign currencies at a future date ("forward
contracts"). A Fund will maintain cash or liquid securities
eligible for purchase by the Fund in a segregated account with
the custodian in an amount at least equal to (i) the difference
between the current value of the Fund's liquid holdings that
settle in the relevant currency and the Fund's outstanding
obligations under currency forward contracts, 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. A Fund's
use of currency hedging transactions may be limited by tax
considerations. A Fund 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, Options and
Swap Contracts" above.
APPENDIX A
DESCRIPTION OF BOND RATINGS
STANDARD & POOR'S RATINGS GROUP
AAA -- This is the highest rating assigned by Standard & Poor's
to a debt obligation and indicates an extremely strong capacity
to pay interest and repay principal.
AA -- Bonds rated AA also qualify as high quality debt
obligations. Capacity to pay interest and repay principal is
very strong, and in the majority of instances they differ from
AAA issues only in small degree.
A -- Bonds rated A have a strong capacity to pay interest and
repay principal, although they are somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions.
BBB -- Bonds rated BBB are regarded as having an adequate
capacity to pay interest and repay principal. Whereas they
normally exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to repay principal and pay interest for bonds
in this category than for bonds in higher rated categories.
BB, B, CCC, CC, C -- Bonds rated BB, B, CCC, CC and C 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 C the highest degree of speculation. While
such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
CI -- The rating CI is reserved for income bonds on which no
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.
MOODY'S INVESTORS SERVICE, INC.
Aaa -- Bonds that 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 that are rated Aa are judged to be 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 fluctuation of protective elements
may be of greater amplitude or there may be other elements
present that make the long-term risks appear somewhat larger than
in Aaa securities.
A -- Bonds that 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 that suggest
a susceptibility to impairment sometime in the future.
Baa -- Bonds that 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, if fact, have speculative characteristics as
well.
Ba -- Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such
issues may be in default of 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.
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.
Suspension or withdrawal may occur if new and material
circumstances arise, the effects of which preclude satisfactory
analysis; if there is not longer available reasonable up-to-date
data to permit a judgment to be formed; if a bond is called for
redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which
Moody's believes possess the strongest investment
attributes are designated by the symbols Aa1, A1,
Baa1,
and B1.
FITCH INVESTOR SERVICES, INC.
AAA -- This is the highest rating assigned by Standard & Poor's
to a debt obligation and indicates an extremely strong capacity
to pay interest and repay principal.
AA -- Bonds rated AA also qualify as high quality debt
obligations. Capacity to pay interest and repay principal is
very strong, and in the majority of instances they differ from
AAA issues only in small degree.
A -- Bonds rated A have a strong capacity to pay interest and
repay principal, although they are somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions.
BBB -- Bonds rated BBB are regarded as having an adequate
capacity to pay interest and repay principal. Whereas they
normally exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to repay principal and pay interest for bonds
in this category than for bonds in higher rated categories.
BB, B, CCC, CC, C -- Bonds rated BB, B, CCC, CC and C 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 C the highest degree of speculation. While
such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
CI -- The rating CI is reserved for income bonds on which no
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.
APPENDIX B
PUBLICATIONS THAT MAY CONTAIN FUND INFORMATION
ABC and affiliates Fortune
Adam Smith's Money World Fox Network and affiliates
America On Line Fund Action
Anchorage Daily News Fund Decoder
Atlanta Constitution Global Finance
Atlanta Journal (the) Guarantor
Arizona Republic Hartford Courant
Austin American Statesman Houston Chronicle
Baltimore Sun INC
Bank Investment Marketing Indianapolis Star
Barron's Individual Investor
Bergen County Record (NJ) Institutional Investor
Bloomberg Business News International Herald Tribune
Bnai Brith Jewish Monthly Internet
Bond Buyer Investment Advisor
Boston Business Journal Investment Company Institute
Boston Globe Investment Dealers Digest
Boston Herald Investment Profiles
Broker World Investment Vision
Business Radio Network Investor's Daily
Business Week IRA Reporter
CBS and affiliates Journal of Commerce
CFO Kansas City Star
Changing Times KCMO (Kansas City)
Chicago Sun Times KOA-AM (Denver)
Chicago Tribune LA Times
Christian Science Monitor Leckey, Andrew (syndicated
column)
Christian Science Monitor Lears
News Service
Cincinnati Enquirer Life Association News
Cincinnati Post Lifetime Channel
CNBC Miami Herald
CNN Milwaukee Sentinel
Columbus Dispatch Money
CompuServe Money Maker
Dallas Morning News Money Management Letter
Dallas Times-Herald Morningstar
Denver Post Mutual Fund Market News
Des Moines Register Mutual Funds Magazine
Detroit Free Press National Public Radio
Donoghues Money Fund Report National Underwriter
Dorfman, Dan (syndicated NBC and affiliates
column)
Dow Jones News Service New England Business
Economist New England Cable News
FACS of the Week New Orleans Times-Picayune
Fee Adviser New York Daily News
Financial News Network New York Times
Financial Planning Newark Star Ledger
Financial Planning on Wall Newsday
Street
Financial Research Corp. Newsweek
Financial Services Week Nightly Business Report
Financial World Orange County Register
Fitch Insights Orlando Sentinel
Forbes Palm Beach Post
Fort Worth Star-Telegram Pension World
Pensions and Investments Standard & Poor's Stock Guide
Personal Investor Stanger's Investment Advisorx
Philadelphia Inquirer Stockbrokers Register
Porter, Sylvia (syndicated Strategic Insight
column)
Portland Oregonian Tampa Tribune
Prodigy Time
Public Broadcasting Service Tobias, Andrew (syndicated
column)
Quinn, Jane Bryant Toledo Blade
(syndicated column)
Registered Representative UPI
Research Magazine US News and World Report
Resource USA Today
Reuters USA TV Network
Rocky Mountain News Value Line
Rukeyser's Business Wall St. Journal
(syndicated column)
Sacramento Bee Wall Street Letter
San Diego Tribune Wall Street Week
San Francisco Chronicle Washington Post
San Francisco Examiner WBZ
San Jose Mercury WBZ-TV
Seattle Post-Intelligencer WCVB-TV
Seattle Times WEEI
Securities Industry WHDH
Management
Smart Money Worcester Telegram
St. Louis Post Dispatch World Wide Web
St. Petersburg Times Worth Magazine
Standard & Poor's Outlook WRKO
APPENDIX C
ADVERTISING AND PROMOTIONAL LITERATURE
References may be included in New England Funds' advertising and
promotional literature to NEIC and its affiliates that perform
advisory and subadvisory functions for New England Funds also
including, but not limited to: Back Bay Advisors, L.P. ("Back Bay
Advisors") Harris Associates L.P., Loomis, Sayles & Company, L.P.
("Loomis Sayles"), Capital Growth Management Limited Partnership
("CGM") and Westpeak Investment Advisors, L.P. ("Westpeak").
Reference also may be made to the Funds of their respective fund
groups, namely, Loomis Sayles Funds and the Oakmark Funds.
References may be included in New England Funds' advertising and
promotional literature to other NEIC affiliates including, but
not limited to, New England Investment Associates, L.P., AEW
Capital Management, L.P., Marlborough Capital Advisors, L.P.,
Reich & Tang Capital Management, Reich and Tang Mutual Funds
Group and Jurika & Voyles and their fund group.
References to subadvisers unaffiliated with NEIC that perform
subadvisory functions on behalf of New England Funds and their
respective fund groups may be contained in New England Funds'
advertising and promotional literature including, but not limited
to, Berger Associates, Inc. ("Berger"), Janus Capital Corporation
("Janus Capital"), Founders Asset Management, Inc. ("Founders"),
Montgomery Asset Management, L.P. ("Montgomery") and Robertson,
Stephens & Company Investment Management, L.P. ("Robertson
Stephens").
New England Funds' advertising and promotional material will
include, but is not limited to, discussions of the following
information about both affiliated and unaffiliated entities:
- - Specific and general assessments and forecasts regarding
U.S., world economies, the economics of specific nations
and
their impact on the New England Funds
- - 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 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
- - Current and historical statistics about:
- total dollar amount of assets managed
- New England Funds' assets managed in total and by Fund
- 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 New England Funds 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
New England Funds, and those families of funds, other than
New England Funds. Any such references will indicate that
New England Funds and the other funds of the managers
differ
as to performance, objectives, investment restrictions and
limitations, portfolio composition, asset size and other
characteristics, including fees and expenses. References
may also be made to industry rankings and ratings of the
Funds and other funds managed by the Funds' 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 New
England Funds will make reference to the following information
about NEIC and its affiliates:
NEIC is one of the largest publicly traded managers in the U.S.
listed on the New York Stock Exchange. NEIC maintains over $100
billion in assets under management. In addition, promotional
materials may include:
- - Specific and general references to New England Funds multi-
manager approach through NEIC affiliates and outside firms
including, but not limited to, the following:
- - that each adviser/manager operates independently on a day-
to-day basis and maintains an image and identity separate
from NEIC and the other investment managers
- - other fund companies are limited to a "one size fits all"
approach but New England Funds draws upon the talents of
multiple managers whose expertise best matches the fund
objective
- - in this and other contexts reference may be made to New
England Funds slogan "Where The Best Minds Meet"(R) and
that
New England Funds ability to match the talent to the task
is
one more reason it is becoming known as "Where The Best
Minds Meet."
Financial Adviser Services ("FAS"), a division of NEIC, may be
referenced in Fund advertising and promotional literature
concerning the marketing services it provides to NEIC-affiliated
fund groups including: New England Funds, Loomis Sayles Funds,
Oakmark Funds and Reich & Tang Funds.
FAS will provide marketing support to NEIC affiliated fund groups
targeting financial advisers, financial intermediaries and
institutional clients who may transact purchases and other fund-
related business directly with these fund groups. Communications
will contain information including, but not limited to:
descriptions of clients and the marketplaces to which it directs
its efforts; the mission and goals of FAS and the types of
services it provides which may include: seminars; its 800 number,
web site, Internet or other electronic facilities; qualitative
information about the funds' investment methodologies;
information about specific strategies and management techniques;
performance data and features of the funds; institutional
oriented research and portfolio manager insight and commentary.
Additional information contained in advertising and promotional
literature may include: rankings and ratings of the funds
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 may be included in New England Funds' advertising and
promotional literature about its 401(k) and retirement plans.
The information may include, but is not limited to:
- - Specific and general references to industry statistics
regarding 401(k) and retirement plans including historical
information and industry trends and forecasts regarding the
growth of assets, numbers of plans, funding vehicles,
participants, sponsors and other demographic data relating
to plans, participants and sponsors, third party and other
administrators, benefits consultants and firms including,
but not limited to, DC Xchange, William Mercer and other
organizations involved in 401(k) and retirement programs
with whom New England Funds 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 New England Funds 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
New
England Funds 401(k) and retirement plans, to the
participant and plan sponsor, including explanations,
statistics and other data, about:
- increased employee retention
- reinforcement or creation of morale
- deductibility of contributions for participants
- deductibility of expenses for employers
- tax deferred growth, including illustrations and
charts
- loan features and exchanges among accounts
- educational services materials and efforts, including,
but not limited to, videos, slides, presentation
materials, brochures, an investment calculator,
payroll
stuffers, quarterly publications, releases and
information on a periodic basis and the availability
of
wholesalers and other personnel.
- - Specific and general reference to the benefits of investing
in mutual funds for 401(k) and retirement plans, and, in
particular, New England Funds and investing in its 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. (TCI),
including, but not limited to, sales support, plan
record keeping, document service support, plan sponsor
support, compliance testing and Form 5500 preparation.
- - Specific and general reference to the role of the
investment
dealer and the benefits and features of working with a
financial professional including:
- access to expertise on investments
- assistance in interpreting past, present and future
market trends and economic events
- providing information to clients including
participants
during enrollment and on an ongoing basis after
participation
- promoting and understanding the benefits of investing,
including mutual fund diversification and professional
management.
Registration Nos. 33-
811-
NEW ENGLAND FUNDS TRUST IV
PART C OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
Included in Part A of this Registration Statement:
None
Included in Part A of this Registration Statement:
Statement of Assets and Liabilities as of ____________
(to be filed by amendment)
Statements, schedules and historical information other
than those listed above have been omitted since they
are either not applicable or are not required.
(a) Not applicable.
(b) Exhibits:
1. Agreement and Declaration of Trust of the Registrant
are filed herein.
2. By-Laws of the Registrant are filed herein.
3. Not applicable.
4. Not applicable.
5. Form of Advisory Agreement between the Registrant, on
behalf of New England One Growth Fund, New England One
Moderate Fund, and New England One Conservative Fund,
and New England Funds Management, L.P. ("NEFM") will
be
filed by amendment.
6. Form of Distribution Agreement between the Registrant,
on behalf of New England One Growth Fund, New England
One Moderate Fund, and New England One Conservative
Fund, and New England Funds, L.P. will be filed by
amendment.
7. Not applicable.
8. Custodian Agreement between the Registrant and State
Street Bank and Trust Company will be filed by
amendment.
9. (a) Form of Special Servicing Agreement will be filed
by amendment.
(b) Form of Shareholder Servicing and Transfer Agent
Agreement between the Registrant and New England
Funds, L.P. will be filed by amendment.
(c) Form of Dealer Agreement of New England Funds,
L.P., the Registrant's principal underwriter,
will
be filed by amendment.
10. Opinion and consent of counsel with respect to the
Registrant's New England One Growth Fund, New England
One Moderate Fund, and New England One Conservative
Fund will be filed by amendment.
11. Consent of Independent Public Accountants will be
filed
by amendment.
12. Not applicable.
13. Agreement between the Registrant and the Purchaser of
the Initial Shares will be filed by amendment.
14. Model retirement plans will be filed by amendment.
15. Forms of Rule 12b-1 Plans relating to Class A, B and C
shares of the Registrant's New England One Growth
Fund,
New England One Moderate Fund, and New England One
Conservative Fund will be filed by amendment.
16. Schedule for Computation of Performance Quotations
will
be filed by amendment.
17. Not applicable.
18. Plan pursuant to Rule 18f-3 under the Investment
Company Act of 1940, as amended, will be filed by
amendment.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
The following table sets forth the number of record holders of
each class of securities of the Registrant as of November 6,
1997.
Number of Record Holders
TITLE OF SERIES CLASS A CLASS B CLASS C
CLASS Y
New England One Growth Fund 0 0 0
0
New England One Moderate Fund 0 0 0
0
New England One Conservative 0 0 0
0
Fund
ITEM 27. INDEMNIFICATION
See Article 4 of the Trust's By-Laws, filed as Exhibit 2 herein.
In addition, New England Investment Companies, L.P. ("NEIC"), the
parent company of the Registrant's adviser and distributor,
maintains a directors and officers liability insurance policy
with maximum coverage of $15 million, under which the trustees
and officers of the Registrant are named insureds.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
(c) NEFM, a registered investment adviser that is wholly owned
by NEIC, serves as investment adviser to each of the series
of the Registrant. NEFM, organized in 1995, also serves as
investment adviser to most of the series of New England
Funds Trust I and to New England Funds Trust II, New
England
Cash Management Trust, New England Tax Exempt Money Market
Trust and New England Equity Income Fund. NEFM's general
partner, directors and officers have been engaged during
the
past two fiscal years in the following businesses,
professions, vocations or employments of a substantial
nature (former affiliations are marked with an asterisk):
NAME AND ADDRESS(#)
NAME AND OFFICE OF OTHER NATURE OF
WITH NEFM AFFILIATIONS CONNECTION
NEF Corporation New England Funds, General Partner
General Partner L.P. (Registered
broker-dealer)
Henry L.P. Schmelzer, New England Funds, Managing
Director,
President and Chief L.P. President and
Chief
Executive Officer Executive Officer
NEF Corporation President, Chief
(Registered Executive Officer
investment adviser) and Director
Back Bay Advisors, Director
Inc. (Registered
investment adviser)
New England Director
Securities
Corporation*
(Transfer agent, in
process of
registration)
Frank Nesvet, New England Funds, Managing
Director,
Senior Vice L.P. Senior Vice
President, Chief President and
Financial Officer Chief Financial
and Treasurer Officer
NEF Corporation Senior Vice
President, Chief
Financial Officer
and Treasurer
Bruce R. Speca, NEF Corporation Executive Vice
Executive Vice President
President
New England Funds, Managing Director
L.P. and Executive
Vice
President
Peter H. Duffy, NEF Corporation Vice President
Vice President
New England Funds, Vice President
L.P.
Martin G. Dyer, NEF Corporation Vice President
Vice President and and Assistant
Assistant Secretary Secretary
New England Funds, Vice President
L.P. and Assistant
Secretary
Ralph M. Greggs, NEF Corporation Vice President
Vice President
New England Funds, Vice President
L.P.
# The principal business address of each entity listed is 399
Boylston Street, Boston, MA 02116.
ITEM 29. PRINCIPAL UNDERWRITER
(a) New England Funds, L.P., the Registrant's principal
underwriter, also serves as principal underwriter for:
New England Funds Trust I
New England Funds Trust II
New England Funds Trust III
New England Tax Exempt Money Market Trust
New England Cash Management Trust
(b) The general partner and officers of the Registrant's
principal underwriter, New England Funds, L.P., and their
address are as follows:
NAME AND POSITIONS AND
PRINCIPAL OFFICES WITH POSITIONS AND
BUSINESS PRINCIPAL OFFICES WITH
ADDRESS(#) UNDERWRITER REGISTRANT
NEF Corporation General Partner None
Henry L.P. Schmelzer Managing Director, President and
President and Chief Trustee
Executive Officer
Bruce R. Speca Managing Director Executive Vice
and Executive Vice President
President
Frank Nesvet Managing Director, Treasurer
Senior Vice
President and
Chief Financial
Officer
James H. Davis Managing Director None
and Senior Vice
President
Caren I. Leedom Managing Director None
and Senior Vice
President
Elizabeth P. Burns Vice President None
Peter H. Duffy Vice President None
Martin G. Dyer Vice President and None
Assistant Secretary
Tracy A. Fagan Vice President None
Raymond K. Girouard Senior Vice None
President, Treasurer
and Controller
Ralph M. Greggs Vice President None
Lynne H. Johnson Vice President None
Marie G. McKenzie Vice President None
Robert E. O'Hare Vice President, None
Senior Counsel,
Assistant Secretary
and Assistant Clerk
Kristine E. Swanson Vice President None
Beatriz A. Pina-Smith Vice President and None
Assistant Controller
Sharon Wratchford Vice President None
# The principal business address of each person listed is 399
Boylston Street, Boston, MA 02116.
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The following companies maintain possession of the documents
required by the specified rules:
(a) Registrant
Rule 31a-1(b)(4)
Rule 31a-2(d)
(b) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Rule 31a-1(a)
Rule 31a(b)(1), (2), (3), (5), (6), (7), (8)
Rule 31a-2(d)
(c) New England Funds Management, L.P.
399 Boylston Street
Boston, Massachusetts 02116
Rule 31a-1(a); Rule 31a-1(b)(9), (10), (11);
Rule 31a-1(f); Rule 31a-2(d), (e)
(d) New England Funds, L.P.
399 Boylston Street
Boston, Massachusetts 02116
Rule 31a-1(d)
Rule 31a-2(c)
ITEM 31. MANAGEMENT SERVICES
None.
ITEM 32. UNDERTAKINGS
The Registrant undertakes to file a post-effective amendment
within four to six months from the effective date of the
Registrant's registration statement.
The Registrant undertakes to provide the annual report of any of
its series to any person who receives a prospectus for such
series and who requests the annual report without charge.
NEW ENGLAND FUNDS TRUST IV
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant certifies
that it has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereto duly authorized, in the
City of Boston, in the Commonwealth of Massachusetts on the 7th
day of November, 1997.
New England Funds Trust IV
By: HENRY L.P. SCHMELZER
Henry L.P. Schmelzer
President
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE
Sole Trustee
(Principal Executive
Officer)
HENRY L.P. SCHMELZER
Henry L.P. Schmelzer November 7, 1997
Treasurer (Principal
Financial and Accounting
Officer)
FRANK NESVET
Frank Nesvet November 7, 1997
NEW ENGLAND FUNDS TRUST IV
EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT
1 Agreement and Declaration of Trust
2 By-Laws
: NEW ENGLAND FUNDS TRUST IV
AGREEMENT AND DECLARATION OF TRUST
THIS AGREEMENT AND DECLARATION OF TRUST made at Boston,
Massachusetts this 30th day of October, 1997 by the Trustees
hereunder and the holders of shares of beneficial interest issued
hereunder and to be issued hereunder as hereinafter provided:
WITNESSETH that
WHEREAS, this Trust has been formed to carry on the business
of an investment company; and
WHEREAS, the Trustees have agreed to manage all property
coming into their hands as trustees of a Massachusetts voluntary
association with transferable shares in accordance with the
provisions hereinafter set forth;
NOW, THEREFORE, the Trustees hereby declare that they will
hold all cash, securities and other assets, which they may from
time to time acquire in any manner as Trustee hereunder, IN TRUST
to manage and dispose of the same upon the following terms and
conditions for the benefit of the holders from time to time of
shares in this Trust as hereinafter set forth.
ARTICLE I
Name and Definitions
SECTION 1. This Trust shall be known as "New England Funds
Trust IV" and the Trustees shall conduct the business of the
Trust under that name or any other name as they may from time to
time determine.
SECTION 2. DEFINITIONS. Whenever used herein, unless
otherwise required by the context or specifically provided:
(a) "Trust" refers to the Massachusetts business trust
established by this Agreement and Declaration of Trust, as
amended from time to time;
(b) "Trustees" refers to the Trustees of the Trust named in
Article IV hereof or elected in accordance with such Article;
(c) "Shares" means the equal proportionate units of
interest into which the beneficial interest in the Trust or in
the Trust property belonging to any Series of the Trust or in any
class of Shares of the Trust (as the context may require) shall
be divided from time to time;
(d) "Shareholder" means a record owner of Shares;
(e) "1940 Act" refers to the Investment Company Act of 1940
and the Rules and Regulations thereunder, all as amended from
time to time;
(f) The terms "Commission" and "principal underwriter"
shall have the meanings given them in the 1940 Act;
(g) "Declaration of Trust" or "Declaration" shall mean this
Agreement and Declaration of Trust, as amended or restated from
time to time;
(h) "By-Laws" shall mean the By-Laws of the Trust, as
amended from time to time;
(i) "Series Company" refers to the form of registered open-
end investment company described in Section 18(f)(2) of the 1940
Act or in any successor statutory provision;
(j) "Series" refers to Series of Shares established and
designated under or in accordance with the provisions of
Article III;
(k) "Multi-Class Series" refers to Series of Shares
established and designated as Multi-Class Series under or in
accordance with the provisions of Article III, Section 6; and
(l) The terms "class" and "class of Shares" refer to
the division of Shares representing any Multi-Class Series into
two or more classes in accordance with the provisions of
Article III.
ARTICLE II
Purpose of Trust
The purpose of the Trust is to provide investors a managed
investment primarily in securities (including options), debt
instruments, commodities, commodity contracts and options
thereon.
ARTICLE III
Shares
SECTION 1. DIVISION OF BENEFICIAL INTEREST. The beneficial
interest in the Trust shall at all times be divided into an
unlimited number of Shares, without par value. Subject to the
provisions of Section 6 of this Article III, each Share shall
have voting rights as provided in Article V hereof, and holders
of the Shares of any Series or class shall be entitled to receive
dividends, when and as declared with respect thereto in the
manner provided in Article VI, Section 1 hereof. Except as
otherwise provided in Section 6 of this Article III with respect
to Shares of Multi-Class Series, no Share shall have any priority
or preference over any other Share of the same Series with
respect to dividends or distributions upon termination of the
Trust or of such Series made pursuant to Article VIII, Section 4
hereof. Except as otherwise provided in Section 6 of this
Article III with respect to Shares of Multi-Class Series, all
dividends and distributions shall be made ratably among all
Shareholders of a particular Series from the assets belonging to
such Series according to the number of Shares of such Series held
of record by such Shareholders on the record date for any
dividend or distribution or on the date of termination, as the
case may be. Shareholders shall have no preemptive or other
right to subscribe to any additional Shares or other securities
issued by the Trust. The Trustees may from time to time divide
or combine the Shares of any particular Series or class into a
greater or lesser number of Shares of that Series or class
without thereby changing the proportionate beneficial interest of
the Shares of that Series or class in the assets belonging to
that Series or attributable to that class or in any way affecting
the rights of Shares of any other Series or class.
SECTION 2. OWNERSHIP OF SHARES. The ownership of Shares
shall be recorded on the books of the Trust or a transfer or
similar agent for the Trust, which books shall be maintained
separately for the Shares of each Series and class. No
certificates certifying the ownership of Shares shall be issued
except as the Trustees may otherwise determine from time to time.
The Trustees may make such rules as they consider appropriate for
the transfer of Shares of each Series and class and similar
matters. The record books of the Trust as kept by the Trust or
any transfer or similar agent, as the case may be, shall be
conclusive as to who are the Shareholders of each Series and
class and as to the number of Shares of each Series and class
held from time to time by each.
SECTION 3. INVESTMENTS IN THE TRUST. The Trustees shall
accept investments in the Trust from such persons and on such
terms and for such consideration as they from time to time
authorize.
SECTION 4. STATUS OF SHARES AND LIMITATION OF PERSONAL
LIABILITY. Shares shall be deemed to be personal property giving
only the rights provided in this instrument. Every Shareholder
by virtue of having become a Shareholder shall be held to have
expressly assented and agreed to the terms hereof and to have
become a party hereto. The death of a Shareholder during the
continuance of the Trust shall not operate to terminate the same
nor entitle the representative of any deceased Shareholder to an
accounting or to take any action in court or elsewhere against
the Trust or the Trustees, but entitles such representative only
to the rights of said deceased Shareholder under this Trust.
Ownership of Shares shall not entitle the Shareholder to any
title in or to the whole or any part of the Trust property or
right to call for a partition or division of the same or for an
accounting, nor shall the ownership of Shares constitute the
Shareholders partners. Neither the Trust nor the Trustees, nor
any officer, employee or agent of the Trust, shall have any power
to bind personally any Shareholders, nor except as specifically
provided herein to call upon any Shareholder for the payment of
any sum of money or assessment whatsoever other than such as the
Shareholder may at any time personally agree to pay.
SECTION 5. POWER OF TRUSTEES TO CHANGE PROVISIONS RELATING
TO SHARES. Notwithstanding any other provisions of this
Declaration of Trust and without limiting the power of the
Trustees to amend the Declaration of Trust as provided elsewhere
herein, the Trustees shall have the power to amend this
Declaration of Trust, at any time and from time to time, in such
manner as the Trustees may determine in their sole discretion,
without the need for Shareholder action, so as to add to, delete,
replace or otherwise modify any provisions relating to the Shares
contained in this Declaration of Trust for the purpose of
(i) responding to or complying with any regulations, orders,
rulings or interpretations of any governmental agency or any
laws, now or hereafter applicable to the Trust, or
(ii) designating and establishing Series or classes in addition
to those established in Section 6 of this Article III; provided
that before adopting any such amendment without Shareholder
approval the Trustees shall determine that it is consistent with
the fair and equitable treatment of all Shareholders. The
establishment and designation of any Series or classes of Shares
in addition to the Series established and designated in Section 6
of this Article III shall be effective upon the execution by a
majority of the then Trustees of an amendment to this Declaration
of Trust, taking the form of a complete restatement or otherwise,
setting forth such establishment and designation and the relative
rights and preferences of such Series, or as otherwise provided
in such instrument. The establishment and designation of any
class of Shares shall be effective upon either the execution by a
majority of the then Trustees of an amendment to this Declaration
of Trust or the adoption by vote or written consent of a majority
of the then Trustees of a resolution setting forth such
establishment and designation and the relative rights and
preferences of such class and such eligibility requirements for
investment therein as the Trustees may determine, or as otherwise
provided in such amendment or resolution.
Without limiting the generality of the foregoing, the
Trustees may, for the above-stated purposes, amend the
Declaration of Trust to:
(a) create one or more Series or classes of Shares (in
addition to any Series or classes already existing or otherwise)
with such rights and preferences and such eligibility
requirements for investment therein as the Trustees shall
determine and reclassify any or all outstanding Shares as shares
of particular Series or classes in accordance with such
eligibility requirements;
(b) amend any of the provisions set forth in paragraphs (a)
through (j) of Section 6 of this Article III;
(c) combine one or more Series or classes of Shares into a
single Series or class on such terms and conditions as the
Trustees shall determine;
(d) change or eliminate any eligibility requirements for
investment in Shares of any Series or class, including without
limitation the power to provide for the issue of Shares of any
Series or class in connection with any merger or consolidation of
the Trust with another trust or company or any acquisition by the
Trust of part or all of the assets of another trust or company;
(e) change the designation of any Series or class of
Shares;
(f) change the method of allocating dividends among the
various Series and classes of Shares;
(g) allocate any specific assets or liabilities of the
Trust or any specific items of income or expense of the Trust to
one or more Series or classes of Shares; and
(h) specifically allocate assets to any or all Series of
Shares or create one or more additional Series of Shares which
are preferred over all other Series of Shares in respect of
assets specifically allocated thereto or any dividends paid by
the Trust with respect to any net income, however determined,
earned from the investment and reinvestment of any assets so
allocated or otherwise and provide for any special voting or
other rights with respect to such Series or any classes of Shares
thereof.
SECTION 6. ESTABLISHMENT AND DESIGNATION OF SERIES AND
CLASSES. Without limiting the authority of the Trustees set
forth in Section 5, INTER ALIA, to establish and designate any
further Series or classes or to modify the rights and preferences
of any Series or class, the following Series shall be, and are
hereby, established and designated as Multi-Class Series: (1) New
England One Growth Fund, (2) New England One Moderate Fund and
(3) New England One Conservative Fund.
Shares of each Series established in this Section 6 shall
have the following rights and preferences relative to Shares of
each other Series, and Shares of each class of a Multi-Class
Series shall have such rights and preferences relative to other
classes of the same Series as are set forth below, together with
such other rights and preferences relative to such other classes
as are set forth in any resolution of the Trustees establishing
and designating such class of Shares:
(a) ASSETS BELONGING TO SERIES. Subject to the provisions
of paragraph (c) of this Section 6:
All consideration received by the Trust for the issue or
sale of Shares of a particular Series, together with all assets
in which such consideration is invested or reinvested, all
income, earnings, profits and proceeds thereof from whatever
source derived, including, without limitation, any proceeds
derived from the sale, exchange or liquidation of such assets,
and any funds or payments derived from any reinvestment of such
proceeds in whatever form the same may be, shall irrevocably
belong to that Series for all purposes, subject only to the
rights of creditors, and shall be so recorded upon the books of
account of the Trust. Such consideration, assets, income,
earnings, profits and proceeds thereof, from whatever source
derived, including, without limitation, any proceeds derived from
the sale, exchange or liquidation of such assets, and any funds
or payments derived from any reinvestment of such proceeds, in
whatever form the same may be, are herein referred to as "assets
belonging to" that Series. In the event that there are any
assets, income, earnings, profits and proceeds thereof, funds or
payments which are not readily identifiable as belonging to any
particular Series (collectively "General Assets"), the Trustees
shall allocate such General Assets to, between or among any one
or more of the Series established and designated from time to
time in such manner and on such basis as they, in their sole
discretion, deem fair and equitable, and any General Asset so
allocated to a particular Series shall belong to that Series.
Each such allocation by the Trustees shall be conclusive and
binding upon the Shareholders of all Series for all purposes.
(b) LIABILITIES BELONGING TO SERIES. Subject to the
provisions of paragraph (c) of this Section 6:
The assets belonging to each particular Series shall be
charged solely with the liabilities of the Trust in respect to
that Series, the expenses, costs, charges and reserves
attributable to that Series, and any general liabilities of the
Trust which are not readily identifiable as belonging to any
particular Series but which are allocated and charged by the
Trustees to and among any one or more of the Series established
and designated from time to time in a manner and on such basis as
the Trustees in their sole discretion deem fair and equitable.
The liabilities, expenses, costs, charges and reserves so charged
to a Series are herein referred to as "liabilities belonging to"
that Series. Each allocation of liabilities, expenses, costs,
charges and reserves by the Trustees shall be conclusive and
binding upon the Shareholders of all Series for all purposes.
(c) APPORTIONMENT OF ASSETS ETC. IN CASE OF MULTI-CLASS
SERIES. In the case of any Multi-Class Series, to the extent
necessary or appropriate to give effect to the relative rights
and preferences of any classes of Shares of such Series, (i) any
assets, income, earnings, profits, proceeds, liabilities,
expenses, charges, costs and reserves belonging or attributable
to that Series may be allocated or attributed to a particular
class of Shares of that Series or apportioned among two or more
classes of Shares of that Series; and (ii) Shares of any class of
such Series may have priority or preference over shares of other
classes of such Series with respect to dividends or distributions
upon termination of the Trust or of such Series or class or
otherwise, provided that no Share shall have any priority or
preference over any other Shares of the same class and that all
dividends and distributions to Shareholders of a particular class
shall be made ratably among all Shareholders of such class
according to the number of Shares of such class held of record by
such Shareholders on the record date for any dividend or
distribution or on the date of termination, as the case may be.
(d) DIVIDENDS, DISTRIBUTIONS, REDEMPTIONS AND REPURCHASES.
Notwithstanding any other provisions of this Declaration,
including, without limitation, Article VI, no dividend or
distribution (including, without limitation, any distribution
paid upon termination of the Trust or of any Series or class)
with respect to, nor any redemption or repurchase of, the Shares
of any Series or class shall be effected by the Trust other than
from the assets belonging to such Series or attributable to such
class, nor shall any Shareholder of any particular Series or
class otherwise have any right or claim against the assets
belonging to any other Series or attributable to any other class
except to the extent that such Shareholder has such a right or
claim hereunder as a Shareholder of such other Series or class.
(e) VOTING. Notwithstanding any of the other provisions of
this Declaration, including, without limitation, Section 1 of
Article V, the Shareholders of any particular Series or class
shall not be entitled to vote on any matters as to which such
Series or class is not affected. On any matter submitted to a
vote of Shareholders, all Shares of the Trust then entitled to
vote shall, except as otherwise provided in the By-Laws, be voted
in the aggregate as a single class without regard to Series or
classes of Shares, except that (1) when required by the 1940 Act
or when the Trustees shall have determined that the matter
affects one or more Series or classes of Shares materially
differently, Shares shall be voted by individual Series or class
and (2) when the matter affects only the interests of one or more
Series or classes, only Shareholders of such Series or classes
shall be entitled to vote thereon.
(f) EQUALITY. Except to the extent necessary or
appropriate to give effect to the relative rights and preferences
of any classes of Shares of a Multi-Class Series, all the Shares
of each particular Series shall represent an equal proportionate
interest in the assets belonging to that Series (subject to the
liabilities belonging to that Series), and each Share of any
particular Series shall be equal to each other Share of that
Series. All the Shares of each particular class of Shares within
a Multi-Class Series shall represent an equal proportionate
interest in the assets belonging to such Series that are
attributable to such class (subject to the liabilities
attributable to such class), and each Share of any particular
class within a Multi-Class Series shall be equal to each other
Share of such class.
(g) FRACTIONS. Any fractional Share of a Series or class
shall carry proportionately all the rights and obligations of a
whole Share of that Series or class, including rights with
respect to voting, receipt of dividends and distributions,
redemption of Shares and termination of the Trust.
(h) EXCHANGE PRIVILEGE. The Trustees shall have the
authority to provide that the holders of Shares of any Series or
class shall have the right to exchange said Shares for Shares of
one or more other Series or classes of Shares in accordance with
such requirements and procedures as may be established by the
Trustees.
(i) COMBINATION OF SERIES OR CLASSES. The Trustees shall
have the authority, without the approval of the Shareholders of
any Series unless otherwise required by applicable law, to
combine the assets and liabilities belonging to any two or more
Series or attributable to any class into assets and liabilities
belonging to a single Series or attributable to a single class.
(j) ELIMINATION OF SERIES OR CLASS. At any time that there
are no Shares outstanding of any particular Series previously
established and designated, the Trustees may amend this
Declaration of Trust to abolish that Series and to rescind the
establishment and designation thereof, such amendment to be
effected in the manner provided in Section 5 of this Article III.
At any time that there are no Shares outstanding of any
particular class previously established and designated of a
Multi-Series Class, the Trustees may abolish that class and
rescind the establishment and designation thereof, either by
amending this Declaration of Trust in the manner provided in
Section 5 of this Article III (if such class was established and
designated by an amendment to this Declaration of Trust), or by
vote or written consent of a majority of the then Trustees (if
such class was established and designated by Trustee vote or
written consent).
SECTION 7. INDEMNIFICATION OF SHAREHOLDERS. In case any
Shareholder or former Shareholder shall be held to be personally
liable solely by reason of his or her being or having been a
Shareholder of the Trust or of a particular Series or class and
not because of his or her acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his or her
heirs, executors, administrators or other legal representatives
or, in the case of a corporation or other entity, its corporate
or other general successor) shall be entitled out of the assets
of the Series (or attributable to the class) of which he or she
is a Shareholder or former Shareholder to be held harmless from
and indemnified against all loss and expense arising from such
liability.
SECTION 8. NO PREEMPTIVE RIGHTS. Shareholders shall have
no preemptive or other right to subscribe to any additional
Shares or other securities issued by the Trust.
SECTION 9. DERIVATIVE CLAIMS. No Shareholder shall have
the right to bring or maintain any court action, proceeding or
claim on behalf of the Trust or any Series without first making
demand on the Trustees requesting the Trustees to bring or
maintain such action, proceeding or claim. Such demand shall be
excused only when the plaintiff makes a specific showing that
irreparable injury to the Trust or Series would otherwise result.
Such demand shall be mailed to the Clerk of the Trust at the
Trust's principal office and shall set forth in reasonable detail
the nature of the proposed court action, proceeding or claim and
the essential facts relied upon by the Shareholder to support the
allegations made in the demand. The Trustees shall consider such
demand within 45 days of its receipt by the Trust. In their sole
discretion, the Trustees may submit the matter to a vote of
Shareholders of the Trust or Series, as appropriate. Any
decision by the Trustees to bring, maintain or settle (or not to
bring, maintain or settle) such court action, proceeding or
claim, or to submit the matter to a vote of Shareholders shall be
made by the Trustees in their business judgment and shall be
binding upon the Shareholders. Any decision by the Trustees to
bring or maintain a court action, proceeding or suit on behalf of
the Trust or a Series shall be subject to the right of the
Shareholders under Article V, Section 1 hereof to vote on whether
or not such court action, proceeding or suit should or should not
be brought or maintained.
ARTICLE IV
The Trustees
SECTION 1. ELECTION AND TENURE. The initial Trustee shall
be Henry L.P. Schmelzer. The Trustees may fix the number of
Trustees, fill vacancies in the Trustees, including vacancies
arising from an increase in the number of Trustees, or remove
Trustees with or without cause. Each Trustee shall serve during
the continued lifetime of the Trust until he or she dies, resigns
or is removed, or, if sooner, until the next meeting of
Shareholders called for the purpose of electing Trustees and
until the election and qualification of his or her successor.
Any Trustee may resign at any time by written instrument signed
by him or her and delivered to any officer of the Trust or to a
meeting of the Trustees. Such resignation shall be effective
upon receipt unless specified to be effective at some other time.
Except to the extent expressly provided in a written agreement
with the Trust, no Trustee resigning and no Trustee removed shall
have any right to any compensation for any period following his
or her resignation or removal, or any right to damages on account
of such removal. The Shareholders may fix the number of Trustees
and elect Trustees at any meeting of Shareholders called by the
Trustees for that purpose and to the extent required by
applicable law, including paragraphs (a) and (b) of Section 16 of
the 1940 Act.
SECTION 2. EFFECT OF DEATH, RESIGNATION, ETC. OF A TRUSTEE.
The death, declination, resignation, retirement, removal or
incapacity of the Trustees, or any of them, shall not operate to
annul the Trust or to revoke any existing agency created pursuant
to the terms of this Declaration of Trust.
SECTION 3. POWERS. Subject to the provisions of this
Declaration of Trust, the business of the Trust shall be managed
by the Trustees, and they shall have all powers necessary or
convenient to carry out that responsibility including the power
to engage in securities transactions of all kinds on behalf of
the Trust. Without limiting the foregoing, the Trustees may
adopt By-Laws not inconsistent with this Declaration of Trust
providing for the regulation and management of the affairs of the
Trust and may amend and repeal them to the extent that such By-
Laws do not reserve that right to the Shareholders; they may
elect and remove such officers and appoint and terminate such
agents as they consider appropriate; they may appoint from their
own number and terminate one or more committees consisting of two
or more Trustees which may exercise the powers and authority of
the Trustees to the extent that the Trustees determine; they may
employ one or more custodians of the assets of the Trust and may
authorize such custodians to employ subcustodians and to deposit
all or any part of such assets in a system or systems for the
central handling of securities or with a Federal Reserve Bank,
retain a transfer agent or a shareholder servicing agent, or
both, provide for the distribution of Shares by the Trust,
through one or more principal underwriters or otherwise, set
record dates for the determination of Shareholders with respect
to various matters, and in general delegate such authority as
they consider desirable to any officer of the Trust, to any
committee of the Trustees and to any agent or employee of the
Trust or to any such custodian or underwriter.
Without limiting the foregoing, the Trustees shall have
power and authority:
(a) To invest and reinvest cash, and to hold cash
uninvested;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate,
lease, write options with respect to or otherwise deal in any
property rights relating to any or all of the assets of the
Trust;
(c) To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities or property;
and to execute and deliver proxies or powers of attorney to such
person or persons as the Trustees shall deem proper, granting to
such person or persons such power and discretion with relation to
securities or property as the Trustees shall deem proper;
(d) To exercise powers and rights of subscription or
otherwise which in any manner arise out of ownership of
securities;
(e) To hold any security or property in a form not
indicating any trust, whether in bearer, unregistered or other
negotiable form, or in its own name or in the name of a custodian
or subcustodian or a nominee or nominees or otherwise;
(f) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or
issuer of any security which is held in the Trust; to consent to
any contract, lease, mortgage, purchase or sale of property by
such corporation or issuer; and to pay calls or subscriptions
with respect to any security held in the Trust;
(g) To join with other security holders in acting through a
committee, depositary, voting trustee or otherwise, and in that
connection to deposit any security with, or transfer any security
to, any such committee, depositary or trustee, and to delegate to
them such power and authority with relation to any security
(whether or not so deposited or transferred) as the Trustees
shall deem proper, and to agree to pay, and to pay, such portion
of the expenses and compensation of such committee, depositary or
trustee as the Trustees shall deem proper;
(h) To compromise, arbitrate or otherwise adjust claims in
favor of or against the Trust or any matter in controversy,
including but not limited to claims for taxes;
(i) To enter into joint ventures, general or limited
partnerships and any other combinations or associations;
(j) To borrow funds or other property;
(k) To endorse or guarantee the payment of any notes or
other obligations of any person; and to make contracts of
guaranty or suretyship, or otherwise assume liability for payment
of such notes or other obligations;
(l) To purchase and pay for entirely out of Trust property
such insurance as they may deem necessary or appropriate for the
conduct of the business of the Trust, including, without
limitation, insurance policies insuring the assets of the Trust
and payment of distributions and principal on its portfolio
investments, and insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, investment advisers,
principal underwriters or independent contractors of the Trust
individually against all claims and liabilities of every nature
arising by reason of holding, being or having held any such
office or position, or by reason of any action alleged to have
been taken or omitted by any such person as Trustee, officer,
employee, agent, investment adviser, principal underwriter or
independent contractor, including any action taken or omitted
that may be determined to constitute negligence, whether or not
the Trust would have the power to indemnify such person against
liability; and
(m) To pay pensions as deemed appropriate by the Trustees
and to adopt, establish and carry out pension, profit-sharing,
share bonus, share purchase, savings, thrift and other
retirement, incentive and benefit plans, trusts and provisions,
including the purchasing of life insurance and annuity contracts
as a means of providing such retirement and other benefits, for
any or all of the Trustees, officers, employees and agents of the
Trust.
The Trustees shall not in any way be bound or limited by any
present or future law or custom in regard to investments by
Trustees. The Trustees shall not be required to obtain any court
order to deal with any assets of the Trust or take any other
action hereunder.
SECTION 4. PAYMENT OF EXPENSES BY THE TRUST. The Trustees
are authorized to pay or cause to be paid out of the principal or
income of the Trust, or partly out of principal and partly out of
income, as they deem fair, all expenses, fees, charges, taxes and
liabilities incurred or arising in connection with the Trust, or
in connection with the management thereof, including, but not
limited to, the Trustees' compensation and such expenses and
charges for the services of the Trust's officers, employees,
investment advisers or managers, principal underwriter, auditor,
counsel, custodian, transfer agent, shareholder servicing agent,
and such other agents or independent contractors and such other
expenses and charges as the Trustees may deem necessary or proper
to incur.
SECTION 5. PAYMENT OF EXPENSES BY SHAREHOLDERS. The
Trustees shall have the power, as frequently as they may
determine, to cause each Shareholder, or each Shareholder of any
particular Series or class, to pay directly, in advance or
arrears, for charges of the Trust's custodian or transfer,
shareholder servicing or similar agent, an amount fixed from time
to time by the Trustees, by setting off such charges due from
such Shareholder from declared but unpaid dividends owed such
Shareholder and/or by reducing the number of Shares in the
account of such Shareholder by that number of full and/or
fractional Shares which represents the outstanding amount of such
charges due from such Shareholder.
SECTION6. OWNERSHIP OF ASSETS OF THE TRUST. Title to all
of the assets of the Trust shall at all times be considered as
vested in the Trustees.
SECTION 7. ADVISORY, MANAGEMENT AND DISTRIBUTION CONTRACTS.
Subject to such requirements and restrictions as may be set forth
in the By-Laws, the Trustees may, at any time and from time to
time, contract for exclusive or nonexclusive advisory and/or
management services for the Trust or for any Series or class with
New England Funds Management, L.P. or any other corporation,
trust, association or other organization (the "Manager"); and any
such contract may contain such other terms as the Trustees may
determine, including without limitation, authority for a Manager
to determine from time to time without prior consultation with
the Trustees what investments shall be purchased, held, sold or
exchanged and what portion, if any, of the assets of the Trust
shall be held uninvested and to make changes in the Trust's
investments. The Trustees may also, at any time and from time to
time, contract with New England Funds, L.P., the Manager or any
other corporation, trust, association or other organization,
appointing it exclusive or nonexclusive distributor or principal
underwriter for the Shares, every such contract to comply with
such requirements and restrictions as may be set forth in the By-
Laws; and any such contract may contain such other terms as the
Trustees may determine.
The fact that:
(i) any of the Shareholders, Trustees or officers of
the Trust is a shareholder, director, officer, partner,
trustee, employee, manager, adviser, principal underwriter,
distributor or affiliate or agent of or for any corporation,
trust, association or other organization, or of or for any
parent or affiliate of any organization, with which an
advisory or management contract, or principal underwriter's
or distributor's contract, or transfer, shareholder
servicing or other agency contract may have been or may
hereafter be made, or that any such organization, or any
parent or affiliate thereof, is a Shareholder or has an
interest in the Trust, or that
(ii) any corporation, trust, association or other
organization with which an advisory or management contract,
principal underwriter's or distributor's contract, or
transfer, shareholder servicing or other agency contract may
have been or may hereafter be made also has an advisory or
management contract, principal underwriter's or
distributor's contract, or transfer, shareholder servicing
or other agency contract with one or more other
corporations, trusts, associations or other organizations,
or has other business or interests
shall not affect the validity of any such contract or disqualify
any Shareholder, Trustee or officer of the Trust from voting upon
or executing the same or create any liability or accountability
to the Trust or its Shareholders.
ARTICLE V
Shareholders' Voting Powers and Meetings
SECTION 1. VOTING POWERS. The Shareholders shall have
power to vote only (i) for the election of Trustees as provided
in Article IV, Section 1, (ii) with respect to any amendment of
this Declaration of Trust to the extent and as provided in
Article VIII, Section 8, (iii) to the same extent as the
stockholders of a Massachusetts business corporation as to
whether or not a court action, proceeding or claim should or
should not be brought or maintained derivatively or as a class
action on behalf of the Trust or the Shareholders, (iv) with
respect to the termination of the Trust or any Series or class to
the extent and as provided in Article VIII, Section 4, (v) to
remove Trustees from office to the extent and as provided in
Article V, Section 7 and (vi) with respect to such additional
matters relating to the Trust as may be required by this
Declaration of Trust, the By-Laws or any registration of the
Trust with the Commission (or any successor agency) or any state,
or as the Trustees may consider necessary or desirable. Each
whole Share shall be entitled to one vote as to any matter on
which it is entitled to vote and each fractional Share shall be
entitled to a proportionate fractional vote. There shall be no
cumulative voting in the election of Trustees. Shares may be
voted in person or by proxy. A proxy with respect to Shares held
in the name of two or more persons shall be valid if executed by
any one of them unless at or prior to exercise of the proxy the
Trust receives a specific written notice to the contrary from any
one of them. A proxy purporting to be executed by or on behalf
of a Shareholder shall be deemed valid unless challenged at or
prior to its exercise and the burden of proving invalidity shall
rest on the challenger. At any time when no Shares of a Series
or class are outstanding the Trustees may exercise all rights of
Shareholders of that Series or class with respect to matters
affecting that Series or class and may with respect to that
Series or class take any action required by law, this Declaration
of Trust or the By-Laws to be taken by the Shareholders thereof.
SECTION 2. VOTING POWER AND MEETINGS. Meetings of the
Shareholders may be called by the Trustees for the purpose of
electing Trustees as provided in Article IV, Section 1 and for
such other purposes as may be prescribed by law, by this
Declaration of Trust or by the By-Laws. Meetings of the
Shareholders may also be called by the Trustees from time to time
for the purpose of taking action upon any other matter deemed by
the Trustees to be necessary or desirable. A meeting of
Shareholders may be held at any place designated by the Trustees.
Written notice of any meeting of Shareholders shall be given or
caused to be given by the Trustees by mailing such notice at
least seven days before such meeting, postage prepaid, stating
the time and place of the meeting, to each Shareholder at the
Shareholder's address as it appears on the records of the Trust.
Whenever notice of a meeting is required to be given to a
Shareholder under this Declaration of Trust or the By-Laws, a
written waiver thereof, executed before or after the meeting by
such Shareholder or his attorney thereunto authorized and filed
with the records of the meeting, shall be deemed equivalent to
such notice.
SECTION 3. QUORUM AND REQUIRED VOTE. Except when a larger
quorum is required by law, by the By-Laws or by this Declaration
of Trust, 40% of the Shares entitled to vote shall constitute a
quorum at a Shareholders' meeting. When any Series or class is
to vote separately from any other Shares which are to vote on the
same matters, 40% of the Shares of such Series or class entitled
to vote shall constitute a quorum at a Shareholders' meeting of
that Series or class. Any meeting of Shareholders may be
adjourned from time to time by a majority of the votes properly
cast upon the question, whether or not a quorum is present, and
the meeting may be held as adjourned within a reasonable time
after the date set for the original meeting without further
notice. When a quorum is present at any meeting, a majority of
the Shares voted shall decide any questions and a plurality shall
elect a Trustee, except when a larger vote is required by any
provision of this Declaration of Trust or the By-Laws or by law.
If any question on which the Shareholders are entitled to vote
would adversely affect the rights of any Series or class of
Shares, the vote of a majority (or such larger vote as is
required as aforesaid) of the Shares of such Series or class
which are entitled to vote, voting separately, shall also be
required to decide such question.
SECTION 4. ACTION BY WRITTEN CONSENT. Any action taken by
Shareholders may be taken without a meeting if Shareholders
holding a majority of the Shares entitled to vote on the matter
(or such larger proportion thereof as shall be required by any
express provision of this Declaration of Trust or by the By-Laws)
and holding a majority (or such larger proportion as aforesaid)
of the Shares of any Series or class entitled to vote separately
on the matter consent to the action in writing and such written
consents are filed with the records of the meetings of
Shareholders. Such consent shall be treated for all purposes as
a vote taken at a meeting of Shareholders.
SECTION 5. RECORD DATES. For the purpose of determining
the Shareholders of any Series or class who are entitled to vote
or act at any meeting or any adjournment thereof, the Trustees
may from time to time fix a time, which shall be not more than 90
days before the date of any meeting of Shareholders, as the
record date for determining the Shareholders of such Series or
class having the right to notice of and to vote at such meeting
and any adjournment thereof, and in such case only Shareholders
of record on such record date shall have such right,
notwithstanding any transfer of Shares on the books of the Trust
after the record date. For the purpose of determining the
Shareholders of any Series or class who are entitled to receive
payment of any dividend or of any other distribution, the
Trustees may from time to time fix a date, which shall be before
the date for the payment of such dividend or such other payment,
as the record date for determining the Shareholders of such
Series or class having the right to receive such dividend or
distribution. Without fixing a record date the Trustees may for
voting and/or distribution purposes close the register or
transfer books for one or more Series or classes for all or any
part of the period prior to a meeting of Shareholders or the
payment of a distribution. Nothing in this Section shall be
construed as precluding the Trustees from setting different
record dates for different Series or classes.
SECTION 6. ADDITIONAL PROVISIONS. The By-Laws may include
further provisions for Shareholders' votes and meetings and
related matters.
SECTION 7. REMOVAL OF TRUSTEES. No natural person shall
serve as Trustee after the holders of record of not less than
two-thirds of the outstanding Shares have declared that such
Trustee be removed from that office either by declaration in
writing filed with the Trust's custodian or by votes cast in
person or by proxy at a meeting called for the purpose. The
Trustees shall promptly call a meeting of Shareholders for the
purpose of voting upon the question of removal of any Trustee
when requested in writing so to do by the record holders of not
less than 10 per centum of the outstanding Shares.
Whenever ten or more Shareholders of record who have been
such for at least six months preceding the date of application,
and who hold in the aggregate Shares having a net asset value of
at least 1 per centum of the outstanding Shares, shall apply to
the Trustees in writing, stating that they wish to communicate
with other Shareholders with a view to obtaining signatures to a
request for a meeting pursuant to this Section and accompanied by
a form of communication and request which they wish to transmit,
the Trustees shall within five business days after receipt of
such application either (a) afford to such applicants access to a
list of the names and addresses of all Shareholders as recorded
on the books of the Trust; or (b) inform such applicants as to
the approximate number of Shareholders of record, and the
approximate cost of mailing to them the proposed communication
and form of request. If the Trustees elect to follow the course
specified in clause (b), the Trustees, upon the written request
of such applicants, accompanied by a tender of the material to be
mailed and of the reasonable expenses of mailing, shall, with
reasonable promptness, mail such material to all Shareholders of
record at their addresses as recorded on the books of the Trust,
unless within five business days after such tender the Trustees
shall mail to such applicants and file with the Commission,
together with a copy of the material proposed to be mailed, a
written statement signed by at least a majority of the Trustees
to the effect that in their opinion either such material contains
untrue statements of fact or omits to state facts necessary to
make the statements contained therein not misleading, or would be
in violation of applicable law, and specifying the basis of such
opinion. If the Commission shall enter an order refusing to
sustain any of the objections specified in the written statement
so filed, or if, after the entry of an order sustaining one or
more of such objections, the Commission shall find, after notice
and opportunity for hearing, that all objections so sustained
have been met, and shall enter an order so declaring, the
Trustees shall mail copies of such material to all Shareholders
with reasonable promptness after the entry of such order and the
renewal of such tender.
ARTICLE VI
Net Income, Distributions, and Redemptions and Repurchases
SECTION 1. DISTRIBUTIONS OF NET INCOME. The Trustees shall
each year, or more frequently if they so determine in their sole
discretion, distribute to the Shareholders of each Series, in
Shares of that Series, cash or otherwise, an amount approximately
equal to the net income attributable to the assets belonging to
such Series and may from time to time distribute to the
Shareholders of each Series, in Shares of that Series, cash or
otherwise, such additional amounts, but only from the assets
belonging to such Series, as they may authorize. Except as
otherwise permitted by paragraph (c) of Section 6 of Article III
in the case of Multi-Class Series, all dividends and
distributions on Shares of a particular Series shall be
distributed pro rata to the holders of that Series in proportion
to the number of Shares of that Series held by such holders and
recorded on the books of the Trust at the date and time of record
established for the payment of such dividend or distributions.
The manner of determining net income, income, asset values,
capital gains, expenses, liabilities and reserves of any Series
or class may from time to time be altered as necessary or
desirable in the judgment of the Trustees to conform such manner
of determination to any other method prescribed or permitted by
applicable law. Net income shall be determined by the Trustees
or by such person as they may authorize at the times and in the
manner provided in the By-Laws. Determinations of net income of
any Series or class and determinations of income, asset value,
capital gains, expenses, and liabilities made by the Trustees, or
by such person as they may authorize, in good faith, shall be
binding on all parties concerned. The foregoing sentence shall
not be construed to protect any Trustee, officer or agent of the
Trust against any liability to the Trust or its security holders
to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office.
If, for any reason, the net income of any Series or class
determined at any time is a negative amount, the pro rata share
of such negative amount allocable to each Shareholder of such
Series or class shall constitute a liability of such Shareholder
to that Series or class which shall be paid out of such
Shareholder's account at such times and in such manner as the
Trustees may from time to time determine (x) out of the accrued
dividend account of such Shareholder, (y) by reducing the number
of Shares of that Series or class in the account of such
Shareholder, or (z) otherwise.
SECTION 2. REDEMPTIONS AND REPURCHASES. The Trust shall
purchase such Shares as are offered by any Shareholder for
redemption, upon the presentation of a proper instrument of
transfer together with a request directed to the Trust or a
person designated by the Trust that the Trust purchase such
Shares or in accordance with such other procedures for redemption
as the Trustees may from time to time authorize; and the Trust
will pay therefor the net asset value thereof, as determined in
accordance with the By-Laws, next determined. Payment for said
Shares shall be made by the Trust to the Shareholder within seven
days after the date on which the request is made. The obligation
set forth in this Section 2 is subject to the provision that in
the event that any time the New York Stock Exchange is closed for
other than weekends or holidays, or if permitted by the rules of
the Commission during periods when trading on the New York Stock
Exchange is restricted or during any emergency which makes it
impracticable for the Trust to dispose of the investments of the
applicable Series or to determine fairly the value of the net
assets belonging to such Series or attributable to any class
thereof or during any other period permitted by order of the
Commission for the protection of investors, such obligations may
be suspended or postponed by the Trustees. The Trust may also
purchase or repurchase Shares at a price not exceeding the net
asset value of such Shares in effect when the purchase or
repurchase or any contract to purchase or repurchase is made.
The redemption price may in any case or cases be paid wholly
or partly in kind if the Trustees determine that such payment is
advisable in the interest of the remaining Shareholders of the
Series the Shares of which are being redeemed. In making any
such payment wholly or partly in kind, the Trust shall, so far as
may be practicable, deliver assets which approximate the
diversification of all of the assets belonging at the time to the
Series the Shares of which are being redeemed. Subject to the
foregoing, the fair value, selection and quantity of securities
or other property so paid or delivered as all or part of the
redemption price may be determined by or under authority of the
Trustees. In no case shall the Trust be liable for any delay of
any corporation or other person in transferring securities
selected for delivery as all or part of any payment in kind.
SECTION 3. REDEMPTIONS AT THE OPTION OF THE TRUST. The
Trust shall have the right at its option and at any time to
redeem Shares of any Shareholder at the net asset value thereof
as described in Section 1 of this Article VI: (i) if at such time
such Shareholder owns Shares of any Series or class having an
aggregate net asset value of less than an amount determined from
time to time by the Trustees; or (ii) to the extent that such
Shareholder owns Shares equal to or in excess of a percentage
determined from time to time by the Trustees of the outstanding
Shares of the Trust or of any Series or class.
ARTICLE VII
Compensation and Limitation of Liability of Trustees
SECTION 1. COMPENSATION. The Trustees as such shall be
entitled to reasonable compensation from the Trust; they may fix
the amount of their compensation. Nothing herein shall in any
way prevent the employment of any Trustee for advisory,
management, legal, accounting, investment banking or other
services and payment for the same by the Trust.
SECTION 2. LIMITATION OF LIABILITY. The Trustees shall not
be responsible or liable in any event for any neglect or wrong-
doing of any officer, agent, employee, Manager or principal
underwriter of the Trust, nor shall any Trustee be responsible
for the act or omission of any other Trustee, but nothing herein
contained shall protect any Trustee against any liability 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.
Every note, bond, contract, instrument, certificate or
undertaking and every other act or thing whatsoever issued,
executed or done by or on behalf of the Trust or the Trustees or
any of them in connection with the Trust shall be conclusively
deemed to have been issued, executed or done only in or with
respect to their or his or her capacity as Trustees or Trustee,
and such Trustees or Trustee shall not be personally liable
thereon.
ARTICLE VIII
Miscellaneous
SECTION 1. TRUSTEES, SHAREHOLDERS, ETC. NOT PERSONALLY
LIABLE; NOTICE. All persons extending credit to, contracting
with or having any claim against the Trust or any Series or class
shall look only to the assets of the Trust, or, to the extent
that the liability of the Trust may have been expressly limited
by contract to the assets of a particular Series or attributable
to a particular class, only to the assets belonging to the
relevant Series or attributable to the relevant class, for
payment under such credit, contract or claim; and neither the
Shareholders nor the Trustees, nor any of the Trust's officers,
employees or agents, whether past, present or future, shall be
personally liable therefor. Nothing in this Declaration of Trust
shall protect any Trustee against any liability to which such
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 the office of Trustee.
Every note, bond, contract, instrument, certificate or
undertaking made or issued on behalf of the Trust by the
Trustees, by any officers or officer or otherwise shall give
notice that this Declaration of Trust is on file with the
Secretary of the Commonwealth of Massachusetts and shall recite
that the same was executed or made by or on behalf of the Trust
or by them as Trustee or Trustees or as officers or officer or
otherwise and not individually and that the obligations of such
instrument are not binding upon any of them or the Shareholders
individually but are binding only upon the assets and property of
the Trust or upon the assets belonging to the Series or
attributable to the class for the benefit of which the Trustees
have caused the note, bond, contract, instrument, certificate or
undertaking to be made or issued, and may contain such further
recital as he or she or they may deem appropriate, but the
omission of any such recital shall not operate to bind any
Trustee or Trustees or officers or officer or Shareholders or any
other person individually.
SECTION 2. TRUSTEE'S GOOD FAITH ACTION, EXPERT ADVICE, NO
BOND OR SURETY. The exercise by the Trustees of their powers and
discretions hereunder shall be binding upon everyone interested.
A Trustee shall be liable for his or her own willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee, and for nothing
else, and shall not be liable for errors of judgment or mistakes
of fact or law. The Trustees may take advice of counsel or other
experts with respect to the meaning and operation of this
Declaration of Trust, and shall be under no liability for any act
or omission in accordance with such advice or for failing to
follow such advice. The Trustees shall not be required to give
any bond as such, nor any surety if a bond is required.
SECTION 3. LIABILITY OF THIRD PERSONS DEALING WITH
TRUSTEES. No person dealing with the Trustees shall be bound to
make any inquiry concerning the validity of any transaction made
or to be made by the Trustees or to see to the application of any
payments made or property transferred to the Trust or upon its
order.
SECTION 4. TERMINATION OF TRUST, SERIES OR CLASS. Unless
terminated as provided herein, the Trust shall continue without
limitation of time. The Trust may be terminated at any time by
vote of at least 66-2/3% of the Shares of each Series entitled to
vote and voting separately by Series or by the Trustees by
written notice to the Shareholders. Any Series or class may be
terminated at any time by vote of at least 66-2/3% of the Shares
of that Series or class or by the Trustees by written notice to
the Shareholders of that Series or class.
Upon termination of the Trust (or any Series or class, as
the case may be), after paying or otherwise providing for all
charges, taxes, expenses and liabilities belonging, severally, to
each Series (or the applicable Series or attributable to the
particular class, as the case may be), whether due or accrued or
anticipated as may be determined by the Trustees, the Trust shall
in accordance with such procedures as the Trustees consider
appropriate reduce the remaining assets belonging, severally, to
each Series (or the applicable Series or attributable to the
particular class, as the case may be), to distributable form in
cash or shares or other securities, or any combination thereof,
and distribute the proceeds belonging to each Series (or the
applicable Series or attributable to the particular class, as the
case may be), to the Shareholders of that Series (or class, as
the case may be), as a Series (or class, as the case may be),
ratably according to the number of Shares of that Series (or
class, as the case may be) held by the several Shareholders on
the date of termination.
SECTION 5. MERGER AND CONSOLIDATION. The Trustees may
cause the Trust to be merged into or consolidated with another
trust or company or its shares exchanged under or pursuant to any
state or federal statute, if any, or otherwise to the extent
permitted by law, if such merger or consolidation or share
exchange has been authorized by vote of a majority of the
outstanding Shares; provided that in all respects not governed by
statute or applicable law, the Trustees shall have power to
prescribe the procedure necessary or appropriate to accomplish a
sale of assets, merger or consolidation.
SECTION 6. FILING OF COPIES, REFERENCE, HEADINGS. The
original or a copy of this instrument and of each amendment
hereto shall be kept at the office of the Trust where it may be
inspected by any Shareholder. A copy of this instrument and of
each amendment hereto shall be filed by the Trust with the
Secretary of the Commonwealth of Massachusetts and with any other
governmental office where such filing may from time to time be
required. Anyone dealing with the Trust may rely on a
certificate by an officer of the Trust as to whether or not any
such amendments have been made and as to any matters in
connection with the Trust hereunder; and, with the same effect as
if it were the original, may rely on a copy certified by an
officer of the Trust to be a copy of this instrument or of any
such amendments. In this instrument and in any such amendment,
references to this instrument, and all expressions like "herein,"
"hereof" and "hereunder," shall be deemed to refer to this
instrument as amended or affected by any such amendments.
Headings are placed herein for convenience of reference only and
shall not be taken as a part hereof or to control or affect the
meaning, construction or effect of this instrument. This
instrument may be executed in any number of counterparts each of
which shall be deemed an original.
SECTION 7. APPLICABLE LAW. This Declaration of Trust is
made in the Commonwealth of Massachusetts, and it is created
under and is to be governed by and construed and administered
according to the laws of said Commonwealth. The Trust shall be
of the type commonly called a Massachusetts business trust, and,
without limiting the provisions hereof, the Trust may exercise
all powers which are ordinarily exercised by such a trust.
SECTION 8. AMENDMENTS. This Declaration of Trust may be
amended at any time by an instrument in writing signed by a
majority of the then Trustees when authorized so to do by vote of
a majority of the Shares entitled to vote with respect to such
amendment, except that amendments described in Article III,
Section 5 hereof or having the purpose of changing the name of
the Trust or of supplying any omission, curing any ambiguity or
curing, correcting or supplementing any defective or inconsistent
provision contained herein shall not require authorization by
Shareholder vote.
SECTION 9. ADDRESSES. The address of the Trust is 399
Boylston Street, Boston, Massachusetts 02116. The address of the
initial Trustee is c/o New England Funds, L.P., 399 Boylston
Street, Boston, Massachusetts 02116.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand and seal for himself and for his successors and assigns this
30th day of October, 1997.
HENRY L.P. SCHMELZER
Henry L.P. Schmelzer
Initial Trustee
THE COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss. Boston, October 30, 1997
Then personally appeared the above named Henry L.P.
Schmelzer, and acknowledged the foregoing instrument to be his
free act and deed, before me.
KATHLEEN F. BREEN
Notary Public
New England Funds Trust I, New England Funds Trust II and
New England Funds Trust III hereby consents to the use of the
name "New England Funds Trust IV" by the Massachusetts business
trust of that name organized under the Agreement and Declaration
of Trust dated October 30, 1997.
New England Funds Trust I
New England Funds Trust II
New England Funds Trust III
By: HENRY L. P. SCHMELZER
Henry L. P. Schmelzer,
President
Dated: October 30, 1997
BY-LAWS
OF
NEW ENGLAND FUNDS TRUST IV
ARTICLE 1
Agreement and Declaration
of Trust and Principal Office
1.1 AGREEMENT AND DECLARATION OF TRUST. These By-Laws shall be
subject to the Agreement and Declaration of Trust, as from time
to time in effect (the "Declaration of Trust"), of New England
Funds Trust IV (the "Trust"), the Massachusetts business trust
established by the Declaration of Trust.
1.2 PRINCIPAL OFFICE OF THE TRUST. The principal office of the
Trust shall be located in Boston, Massachusetts.
ARTICLE 2
Meetings of Trustees
2.1 REGULAR MEETINGS. Regular meetings of the Trustees may be
held without call or notice at such places and at such times as
the Trustees may from time to time determine, provided that
notice of the first regular meeting following any such
determination shall be given to absent Trustees.
2.2 SPECIAL MEETINGS. Special meetings of the Trustees may be
held, at any time and at any place designated in the call of the
meeting, when called by the Chairman of the Board, if any, the
President or the Treasurer or by two or more Trustees, sufficient
notice thereof being given to each Trustee by the Clerk or an
Assistant Clerk or by the officer or the Trustees calling the
meeting.
2.3 NOTICE. It shall be sufficient notice to a Trustee of a
special meeting to send notice by mail at least forty-eight hours
or by telegram at least twenty-four hours before the meeting
addressed to the Trustee at his usual or last known business or
residence address or to give notice to him in person or by
telephone at least twenty-four hours before the meeting. Notice
of a meeting need not be given to any Trustee if a written waiver
of notice, executed by him before or after the meeting, is filed
with the records of the meeting, or to any Trustee who attends
the meeting without protesting prior thereto or at its
commencement the lack of notice to him. Neither notice of a
meeting nor a waiver of a notice need specify the purposes of the
meeting.
2.4 QUORUM. At any meeting of the Trustees a majority of the
Trustees then in office shall constitute a quorum. Any meeting
may be adjourned from time to time by a majority of the votes
cast upon the question, whether or not a quorum is present, and
the meeting may be held as adjourned without further notice to
any Trustee who was present at the time of such adjournment;
notice of the time and place of any adjourned session of such
meeting shall, however, be given in the manner provided in
Section 2.3 of these By-Laws to each Trustee who was not present
at the time of such adjournment.
2.5 ACTION BY VOTE. When a quorum is present at any meeting, a
majority of Trustees present may take any action, except when a
larger vote is expressly required by law, by the Declaration of
Trust or by these By-Laws.
2.6 ACTION BY WRITING. Except as required by law, any action
required or permitted to be taken at any meeting of the Trustees
may be taken without a meeting if a majority of the Trustees (or
such larger proportion thereof as shall be required by any
express provision of the Declaration of Trust or these By-Laws)
consent to the action in writing and such written consents are
filed with the records of the meetings of the Trustees. Such
consent shall be treated for all purposes as a vote taken at a
meeting of Trustees.
2.7 PRESENCE THROUGH COMMUNICATIONS EQUIPMENT. Except as
required by law, the Trustees may participate in a meeting of
Trustees by means of a conference telephone or similar
communications equipment by means of which all persons
participating in the meeting can hear each other at the same time
and participation by such means shall constitute presence in
person at a meeting.
ARTICLE 3
Officers
3.1 ENUMERATION; QUALIFICATION. The officers of the Trust shall
be a President, a Treasurer, a Clerk, and such other officers, if
any, as the Trustees from time to time may in their discretion
elect. The Trust may also have such agents as the Trustees from
time to time may in their discretion appoint. If a Chairman of
the Board is elected, he shall be a Trustee and may but need not
be a Shareholder; and any other officer may be but none need be a
Trustee or Shareholder. Any two or more offices may be held by
the same person.
3.2 ELECTION AND TENURE. The President, the Treasurer, the
Clerk and such other officers as the Trustees may in their
discretion from time to time elect shall each be elected by the
Trustees to serve until his successor is elected or qualified, or
until he sooner dies, resigns, is removed or becomes
disqualified. Each officer shall hold office and each agent
shall retain authority at the pleasure of the Trustees.
3.3 POWERS. Subject to the other provisions of these By-Laws,
each officer shall have, in addition to the duties and powers
herein and in the Declaration of Trust set forth, such duties and
powers as are commonly incident to the office occupied by him or
her as if the Trust were organized as a Massachusetts business
corporation and such other duties and powers as the Trustees may
from time to time designate.
3.4 PRESIDENT AND VICE PRESIDENTS. The President shall have the
duties and powers specified in these By-Laws and shall have such
other duties and powers as may be determined by the Trustees.
Any Vice Presidents shall have such duties and powers as shall be
designated from time to time by the Trustees.
3.5 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the
Trust shall be the Chairman of the Board, the President or such
other officer as is designated by the Trustees and shall, subject
to the control of the Trustees, have general charge and
supervision of the business of the Trust and, except as the
Trustees shall otherwise determine, preside at all meetings of
the Shareholders and of the Trustees. If no such designation is
made, the President shall be the Chief Executive Officer.
3.6 CHAIRMAN OF THE BOARD. If a Chairman of the Board of
Trustees is elected, he shall have the duties and powers
specified in these By-Laws and shall have such other duties and
powers as may be determined by the Trustees.
3.7 TREASURER. The Treasurer shall be the chief financial and
accounting officer of the Trust, and shall, subject to the
provisions of the Declaration of Trust and to any arrangement
made by the Trustees with a custodian, investment adviser or
manager or transfer, shareholder servicing or similar agent, be
in charge of the valuable papers, books of account and accounting
records of the Trust, and shall have such other duties and powers
as may be designated from time to time by the Trustees or by the
President.
3.8 CLERK. The Clerk shall record all proceedings of the
Shareholders and the Trustees in books to be kept therefor, which
books or a copy thereof shall be kept at the principal office of
the Trust. In the absence of the Clerk from any meeting of the
Shareholders or Trustees, an assistant Clerk, or if there be none
or if he is absent, a temporary clerk chosen at such meeting
shall record the proceedings thereof in the aforesaid books.
3.9 RESIGNATIONS AND REMOVALS. Any officer may resign at any
time by written instrument signed by him and delivered to the
President or the Clerk or to a meeting of the Trustees. Such
resignation shall be effective upon receipt unless specified to
be effective at some other time. The Trustees may remove any
officer with or without cause. Except to the extent expressly
provided in a written agreement with the Trust, no officer
resigning and no officer removed shall have any right to any
compensation for any period following his resignation or removal,
or any right to damages on account of such removal.
ARTICLE 4
Indemnification
4.1 TRUSTEES, OFFICERS, ETC. The Trust shall indemnify each of
its Trustees and officers (including persons who serve at the
Trust's request as directors, officers or trustees of another
organization in which the Trust has any interest as a
shareholder, creditor or otherwise) (hereinafter referred to as a
"Covered Person") against all liabilities and expenses, including
but not limited to amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and counsel fees reasonably
incurred by any Covered Person in connection with the defense or
disposition of any action, suit or other proceeding, whether
civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may have
been involved as a party or otherwise or with which such Covered
Person may be or may have been threatened, while in office or
thereafter, by reason of any alleged act or omission as a Trustee
or officer or by reason of his being or having been such a
Trustee or officer, except with respect to any matter as to which
such Covered Person shall have been finally adjudicated in any
such action, suit or other proceeding not to have acted in good
faith in the reasonable belief that such Covered Person's action
was in the best interest of the Trust and except that no Covered
Person shall be indemnified against any liability to the Trust or
its Shareholders to which such Covered Person would otherwise be
subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office. Expenses, including
counsel fees so incurred by any such Covered Person, may be paid
from time to time by the Trust in advance of the final
disposition of any such action, suit or proceeding on the
condition that the amounts so paid shall be repaid to the Trust
if it is ultimately determined that indemnification of such
expenses is not authorized under this Article.
4.2 COMPROMISE PAYMENT. As to any matter disposed of by a
compromise payment by any such Covered Person referred to in
Section 4.1 above, pursuant to a consent decree or otherwise, no
such indemnification either for said payment or for any other
expenses shall be provided unless such compromise shall be
approved as in the best interests of the Trust, after notice that
it involved such indemnification, (a) by a disinterested majority
of the Trustees then in office; or (b) by a majority of the
disinterested Trustees then in office; or (c) by any
disinterested person or persons to whom the question may be
referred by the Trustees, provided that in the case of approval
pursuant to clause (b) or (c) there has been obtained an opinion
in writing of independent legal counsel to the effect that such
Covered Person appears to have acted in good faith in the
reasonable belief that his or her action was in the best
interests of the Trust and that such indemnification would not
protect such person against any liability to the Trust or its
Shareholders to which such person would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of
office; or (d) by vote of Shareholders holding a majority of the
Shares entitled to vote thereon, exclusive of any Shares
beneficially owned by any interested Covered Person. Approval by
the Trustees pursuant to clause (a) or (b) or by any
disinterested person or persons pursuant to clause (c) of this
Section shall not prevent the recovery from any Covered Person of
any amount paid to such Covered Person in accordance with any of
such clauses as indemnification if such Covered Person is
subsequently adjudicated by a court of competent jurisdiction not
to have acted in good faith in the reasonable belief that such
Covered Person's action was in the best interests of the Trust or
to have been liable to the Trust or its Shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such Covered
Person's office.
4.3 INDEMNIFICATION NOT EXCLUSIVE. The right of indemnification
hereby provided shall not be exclusive of or affect any other
rights to which any such Covered Person may be entitled. As used
in this Article 4, the term "Covered Person" shall include such
person's heirs, executors and administrators; an "interested
Covered Person" is one against whom the action, suit or other
proceeding in question or another action, suit or other
proceeding on the same or similar grounds is then or has been
pending; and a "disinterested Trustee" or "disinterested person"
is a Trustee or a person against whom none of such actions, suits
or other proceedings or another action, suit or other proceeding
on the same or similar grounds is then or has been pending.
Nothing contained in this Article shall affect any rights to
indemnification to which personnel of the Trust, other than
Trustees and officers, and other persons may be entitled by
contract or otherwise under law, nor the power of the Trust to
purchase and maintain liability insurance on behalf of any such
person.
ARTICLE 5
Reports
5.1 GENERAL. The Trustees and officers shall render reports at
the time and in the manner required by the Declaration of Trust
or any applicable law. Officers shall render such additional
reports as they may deem desirable or as may from time to time be
required by the Trustees.
ARTICLE 6
Fiscal Year
6.1 GENERAL. Except as from time to time otherwise provided by
the Trustees, the fiscal year of the Trust shall end on December
31 in each year.
ARTICLE 7
Seal
7.1 GENERAL. The seal of the Trust shall consist of a flat-
faced die with the word "Massachusetts," together with the name
of the Trust and the year of its organization cut or engraved
thereon, but, unless otherwise required by the Trustees, the seal
shall not be necessary to be placed on, and its absence shall not
impair the validity of, any document, instrument or other paper
executed and delivered by or on behalf of the Trust.
ARTICLE 8
Execution of Papers
8.1 GENERAL. Except as the Trustees may generally or in
particular cases authorize the execution thereof in some other
manner, all checks, notes, drafts and other obligations and all
registration statements and amendments thereto and all
applications and amendments thereto to the Securities and
Exchange Commission shall be signed by the Chairman, if any, the
President, any Vice President or the Treasurer or any of such
other officers or agents as shall be designated for that purpose
by a vote of the Trustees.
ARTICLE 9
Provisions Relating to the
Conduct of the Trust's Business
9.1 SECURITIES AND CASH OF THE TRUST TO BE HELD BY CUSTODIAN
SUBJECT TO CERTAIN TERMS AND CONDITIONS.
(a) All securities and cash owned by the Trust shall, as
hereinafter provided, be held by or deposited with one or more
banks or trust companies having (according to its last published
report) not less than $2,000,000 aggregate capital, surplus and
undivided profits (any such bank or trust company being hereby
designated as "Custodian"), provided such a Custodian can be
found ready and willing to act. The Trust may, or may permit any
Custodian to, deposit all or any part of the securities owned by
any class or series of Shares of the Trust in a system for the
central handling of securities established by a national
securities exchange or national securities association registered
with the Securities and Exchange Commission under the Securities
Exchange Act of 1934, or such other person as may be permitted by
said Commission, including, without limitation, a clearing agency
registered under Section 17A of said Securities Exchange Act of
1934, pursuant to which system all securities of any particular
class or series of any issue deposited within the system are
treated as fungible and may be transferred or pledged by
bookkeeping entry, without physical delivery of such securities.
(b) The Trust shall enter into a written contact with each
Custodian regarding the powers, duties and compensation of such
Custodian with respect to the cash and securities of the Trust
held by such Custodian. Said contract and all amendments thereto
shall be approved by the Trustees.
(c) The Trust shall upon the resignation or inability to serve
of any Custodian or upon change of any Custodian:
(i) in case of such resignation or inability to serve, use
its best efforts to obtain a successor Custodian;
(ii) require that the cash and securities owned by any
class or series of shares of the Trust and in the possession of
the resigning or disqualified Custodian be delivered directly to
the successor Custodian; and
(iii) in the event that no successor Custodian can be
found, submit to the Shareholders, before permitting delivery of
the cash and securities owned by any class or Series of Shares of
the Trust and in the possession of the resigning or disqualified
Custodian otherwise than to a successor Custodian, the question
whether that class or Series shall be liquidated or shall
function without a Custodian.
9.2 DETERMINATION OF NET ASSET VALUE. The Trustees or any
officer or officers or agent or agents of the Trust designated
from time to time for this purpose by the Trustees shall
determine at least once daily the net income and the value of all
the assets attributable to any class or Series of Shares of the
Trust on each day upon which the New York Stock Exchange is open
for unrestricted trading and at such other times as the Trustees
shall designate. In determining asset values, all securities for
which representative market quotations are readily available
shall be valued at fair value, all as determined in good faith by
the Trustees or an officer or officers or agent or agents, as
aforesaid, in accordance with accounting principles generally
accepted at the time. Notwithstanding the foregoing, the assets
belonging to any class or Series of Shares of the Trust may, if
so authorized by the Trustees, be valued in accordance with the
amortized cost method, and the asset value so determined, subject
to the power of the Trustees to alter the asset value so
determined, less total liabilities belonging to that class or
Series of Shares (exclusive of capital stock and surplus) shall
be the net asset value until a new asset value is determined by
the Trustees or such officers or agents. In determining the net
asset value the Trustees or such officers or agents may include
in liabilities such reserves for taxes, estimated accrued
expenses and contingencies in accordance with accounting
principles generally accepted at the time as the Trustees or such
officers or agents may in their best judgment deem fair and
reasonable under the circumstances. The manner of determining
net asset value may from time to time be altered as necessary or
desirable in the judgment of the Trustees to conform it to any
other method prescribed or permitted by applicable law or
regulation. Determinations of net asset value made by the Trust
or such officers or agents in good faith shall be binding on all
parties concerned. The foregoing sentence shall not be construed
to protect any Trustee, officer or agent of the Trust against any
liability to the Trust or its security holders to which he would
otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in
the conduct of his office.
ARTICLE 10
Amendments to the By-Laws
10.1 GENERAL. These By-Laws may be amended or repealed, in
whole or in part, by a majority of the Trustees then in office at
any meeting of the Trustees.
ARTICLE 11
11.1 PROXY INSTRUCTIONS TRANSMITTED BY TELEPHONIC OR ELECTRONIC
MEANS. The placing of a Shareholder's name on a proxy pursuant
to telephonic or electronically transmitted instructions obtained
pursuant to procedures reasonably designed to verify that such
instructions have been authorized by such Shareholder shall
constitute execution of such proxy by or on behalf of such
Shareholder.
