NEW ENGLAND FUNDS
Where The Best Minds Meet(TM)
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NEW ENGLAND MONEY MARKET FUNDS
NEW ENGLAND CASH MANAGEMENT TRUST - MONEY MARKET SERIES
NEW ENGLAND CASH MANAGEMENT TRUST - U.S. GOVERNMENT SERIES
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST
Statement of Additional Information -- September 1, 1995
As revised March 11, 1996
This Statement of Additional Information (the "Statement") is not a
prospectus. This Statement relates to the prospectus of New England
Cash Management Trust and New England Tax Exempt Money Market Trust
dated September 1, 1995, as supplemented October 26, 1995 and January
5, 1996 (the "Prospectus"), and should be read in conjunction
therewith. A copy of the Prospectus may be obtained from New England
Funds, L.P. (the "Distributor"), 399 Boylston Street, Boston,
Massachusetts 02116.
T a b l e o f C o n t e n t s
Page
Investment Objectives and Policies
Investment Restrictions
Management of the Funds
Investment Advisory, Distribution and Other
Services
Portfolio Transactions
Performance
Description of the Funds and Ownership of
Shares
Purchase of Shares
Shareholder Services
Open Accounts
Retirement Plans Offering Tax Benefits
Systematic Withdrawal Plans
Exchange Privilege
Automatic Exchange Plan
Redemptions
Net Income, Dividends and Valuation
Tax-Free Investing
Taxes
Appendix A - Description Certain New England Cash
Management Trust Investments
Appendix B - Description of Municipal Securities
Appendix C - Ratings of Corporate and Municipal Bonds,
Commercial Paper and Short-Term Tax Exempt
Obligations
Appendix D - Publications That May be Referred to in
Fund Advertisements or Sales Literature
Appendix E - Certain Information That May Be Included
in Advertising and Promotional Literature
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INVESTMENT OBJECTIVES AND POLICIES
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GENERAL
The investment objectives and policies of New England Cash
Management Trust - Money Market Series (the "Money Market Fund"), New
England Cash Management Trust - U.S. Government Series (the
"Government Fund") and New England Tax Exempt Money Market Trust (the
"Tax Exempt Fund") (the "Funds," and each a "Fund") are summarized in
the Prospectus under "Investment Objectives," "Investment Strategy"
and "Investment Risks."
The investment policies and types of permitted investments of
each Fund set forth below and in the Prospectus may be changed without
shareholder approval except that the investment objective of each, and
any investment policy expressly identified as fundamental, may not be
changed without the approval of a majority of the outstanding voting
securities of that Fund.
The terms "shareholder approval" and "majority of the outstanding
voting securities" as used in the Prospectus and this Statement each
mean the lesser of (i) 67% or more of the shares of the applicable
Fund represented at a meeting at which more than 50% of the
outstanding shares of such Fund are represented or (ii) more than 50%
of the outstanding shares of such Fund.
New England Cash Management Trust and New England Tax Exempt
Money Market Trust are sometimes referred to hereinafter as the
"Trusts," and each as a "Trust."
MONEY MARKET FUND AND GOVERNMENT FUND
Each Fund will invest only in securities which the Funds'
adviser, Back Bay Advisors(R), L.P. ("Back Bay Advisors(R)"), acting
under guidelines established by the relevant Trust's Board of
Trustees, has determined are of high quality and present minimal
credit risk. For a description of certain of the money market
instruments in which each Fund may invest, and the related
descriptions of the ratings of Standard and Poor's Ratings Group
("S&P") and Moody's Investors Service, Inc. ("Moody's"), see the
Appendices to this Statement. Money market instruments maturing in
less than one year may yield less than obligations of comparable
quality having longer maturities.
Obligations in which the Government Fund invests generally yield
less than the obligations in which the Money Market Fund may invest.
Therefore, the Government Fund may generally be expected to have a
lower yield than the Money Market Fund.
As described in the Prospectus, the Money Market Fund's
investments may include certain U.S. dollar-denominated obligations of
foreign banks or of foreign branches and subsidiaries of U.S. banks,
which may be subject to foreign economic, political and legal risks.
Such risks include foreign economic and political developments,
foreign governmental restrictions that may adversely affect payment of
principal and interest on the obligations, foreign withholding and
other taxes on interest income, difficulties in obtaining and
enforcing a judgment against a foreign obligor, exchange control
regulations (including currency blockage), and the expropriation or
nationalization of assets or deposits. Foreign branches of U.S. banks
and foreign banks are not necessarily subject to the same or similar
regulatory requirements that apply to domestic banks. For instance,
such branches and banks may not be subject to the types of
requirements imposed on domestic banks with respect to mandatory
reserves, loan limitations, examinations, accounting, auditing,
recordkeeping and the public availability of information. Obligations
of such branches or banks will be purchased only when Back Bay
Advisors(R) believes the risks are minimal.
The full faith and credit obligations of the U.S. Government in
which the Government Fund may invest include obligations issued by
such government agencies as the Government National Mortgage
Association, the Farmer's Home Administration and the Small Business
Administration.
Considerations of liquidity, safety and preservation of capital
may preclude the Funds from investing in money market instruments
paying the highest available yield at a particular time. Each Fund,
consistent with its investment objective, attempts to maximize yields
by engaging in portfolio trading and by buying and selling portfolio
investments in anticipation of or in response to changing economic and
money market conditions and trends. Each Fund also invests to take
advantage of what are believed to be temporary disparities in the
yields of the different segments of the high quality money market or
among particular instruments within the same segment of the market.
These policies, as well as the relatively short maturity of
obligations to be purchased by the Funds, may result in frequent
changes in the portfolio of each Fund. There are usually no brokerage
commissions as such paid by the Funds in connection with the purchase
of securities of the type in which they invest. See "Portfolio
Transactions."
See also "Investment Restrictions" below.
TAX EXEMPT FUND
As described in the Prospectus, the Tax Exempt Fund seeks to
achieve its objective through investment in a diversified portfolio
consisting primarily of high quality short-term fixed, variable and
floating rate debt securities the interest on which is, in the opinion
of bond counsel for the issuers of the securities at the time of their
issuance, exempt from federal income taxation ("Municipal
Securities"). Municipal Securities are generally obligations issued
by or on behalf of states, territories and possessions of the United
States and the District of Columbia and their political subdivisions,
agencies and instrumentalities, or by or on behalf of multi-state
agencies or authorities. For a more complete description of various
types of Municipal Securities and the meanings of the Moody's and S&P
ratings referred to in the Prospectus, see the Appendices to this
Statement. The Fund expects that at least 95% of all dividends paid
by the Fund in any given year will be exempt from federal income tax.
See "Taxes."
As described in the Prospectus, the Fund may elect on a temporary
basis to hold cash or to invest in obligations other than Municipal
Securities when such action is deemed advisable by Back Bay
Advisors(R). For example, the Fund might hold cash or make such
temporary investments: (i) due to market conditions; (ii) in the
event of the scarcity of suitable Municipal Securities; (iii) pending
investment of proceeds from subscriptions for Fund shares or from the
sale of portfolio securities; or (iv) in anticipation of redemptions.
The Fund will limit its investments in obligations other than
Municipal Securities to "money market securities" such as (i) short-
term obligations issued or guaranteed by the United States Government
or its agencies, authorities or instrumentalities ("U.S. Government
Securities"), (ii) high quality short-term domestic certificates of
deposit, commercial paper and domestic bankers' acceptances and other
high quality money market instruments, or (iii) repurchase agreements
with brokers, dealers and banks relating to Municipal or U.S.
Government Securities. The interest earned on money market securities
is not exempt from federal income tax and may be taxable to
shareholders as ordinary income. The ability of the Fund to invest in
such taxable money market securities is limited by a requirement of
the Internal Revenue Code (the "Code") that at least 50% of the Fund's
total assets be invested in Municipal Securities at the end of each
quarter of the Fund's fiscal year (see "Taxes") and by a fundamental
policy of the Fund which requires that during periods of normal market
conditions the Fund will not purchase any security if, as a result,
less than 80% of the Fund's net assets would then be invested in
Municipal Securities.
As described in the Prospectus, the Fund may invest in variable
or floating rate Municipal Securities. These obligations pay a rate
of interest adjusted on a periodic basis and determined by reference
to a prescribed formula. Such obligations will be subject to
prepayment without penalty, at the option of either the Fund or the
issuer, and may be backed by letters of credit or similar arrangements
where necessary to ensure that the obligations are of appropriate
investment quality. Back Bay Advisors(R) intends to evaluate the
credit of the issuers of these obligations and the providers of credit
support no less frequently than monthly.
The price stability and liquidity of the Fund may not be equal to
that of a money market fund which invests exclusively in short-term
taxable money market securities, because the taxable money market is a
broader and more liquid market with a greater number of investors,
issuers and market makers than the short-term Municipal Securities
market and because the average portfolio maturity of a money market
fund will generally be shorter than the average portfolio maturity of
a tax exempt money fund such as the Fund. Adverse economic, business
or political developments might affect all or a substantial portion of
the Fund's Municipal Securities in the same manner.
When-Issued Securities
As described in the Prospectus, the Tax Exempt Fund may purchase
Municipal Securities on a when-issued basis, which means that delivery
and payment for the securities normally occurs 15 to 45 days after the
date of the commitment to purchase. The payment obligation and the
interest rate that will be received on the securities are each fixed
at the time the buyer enters into the commitment. Pending delivery of
securities purchased on a when-issued basis, the amount of the
purchase price will be held in liquid assets such as cash or high
quality debt obligations. Such obligations and cash will be
maintained in a separate account with the Fund's custodian in an
amount equal on a daily basis to the amount of the Fund's when-issued
commitments. By committing itself to purchase Municipal Securities on
a when-issued basis, the Fund subjects itself to market and credit
risks on such commitments as well as such risks otherwise applicable
to its portfolio securities. Therefore, to the extent the Fund
remains substantially fully invested at the same time that it has
purchased securities on a when-issued basis, there will be a greater
possibility that the market value of the Fund's assets will vary from
$1.00 per share. (See "Net Income, Dividends and Valuation.") The
Fund will make commitments to purchase such securities only with the
intention of actually acquiring the securities. However, the Fund may
sell these securities before the settlement date if it is deemed
advisable as a matter of investment strategy. Such sales may result
in capital gains which are not exempt from federal income taxes. When
the time comes to pay for when-issued securities, the Fund will meet
its obligations from then available cash flow or the sale of
securities, or, although it would not normally expect to do so, from
the sale of the when-issued securities themselves (which may have a
value greater or less than the Fund's payment obligation).
Purchase of Securities with Rights to Put Securities to Seller
The Fund has authority to purchase securities, including
Municipal Securities, at a price which would result in a yield to
maturity lower than that generally offered by the seller at the time
of purchase if the Fund simultaneously acquires the right to sell the
securities back to the seller at an agreed-upon price at any time
during a stated period or on a certain date. Such a right is
generally called a "put." The purpose of engaging in transactions
involving puts is to maintain flexibility and liquidity and to permit
the Fund to meet redemptions while remaining as fully invested as
possible in Municipal Securities. The Fund will acquire puts only
from recognized security dealers.
For the purposes of asset valuation, the Fund will never ascribe
any value to puts. The Fund will rarely pay specific consideration
for them (although typically the yield on a security that is subject
to a put will be lower than for an otherwise comparable security that
is not subject to a put). In no event will the specific consideration
paid for puts held in the Fund's portfolio at any time exceed 1/2 of
1% of the Fund's net assets. Puts purchased by the Fund will
generally not be marketable and the Fund's ability to exercise puts
will depend on the creditworthiness of the other party to the
transaction.
ALL FUNDS
As noted in the Prospectus, each Fund may enter into repurchase
agreements, which are agreements by which the Fund purchases a
security and obtains a simultaneous commitment from the seller (a
member bank of the Federal Reserve or, to the extent permitted by the
Investment Company Act of 1940 [the "1940 Act"], a recognized
securities dealer) to repurchase the security at an agreed upon price
and date (usually seven days or less from the date of original
purchase). 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 each Fund the
opportunity to earn a return on temporarily available cash at minimal
market risk. While the underlying security may be a U.S. Government
Security (in the case of any Fund), a Municipal Security (in the case
of the Tax Exempt Fund) or another type of high quality money market
instrument, the obligation of the seller is not guaranteed by the U.S.
Government, the issuer of the Municipal Security, or the issuer of any
other high quality money market instrument underlying the agreement,
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, in case of such a
default, a 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 attempted enforcement. Each Fund will enter into
repurchase agreements only where the market value of the underlying
security equals or exceeds the repurchase price, and each Fund will
require the seller to provide additional collateral if this market
value falls below the repurchase price at any time during the term of
the repurchase agreement.
As described in the Prospectus, all of each Fund's investments
will, at the time of investment, have remaining maturities of 397 days
or less. The average maturity of each Fund's portfolio securities
based on their dollar value will not exceed 90 days at the time of
each investment. If the disposition of a portfolio security results
in a dollar-weighted average portfolio maturity in excess of 90 days
for any Fund, such Fund will invest its available cash in such a
manner as to reduce its dollar-weighted average portfolio maturity to
90 days or less as soon as reasonably practicable. For the purposes
of the foregoing maturity restrictions, variable rate instruments are
treated as having a maturity equal to the longer of (i) the period
remaining until the next readjustment of the interest rate and (ii) if
the Fund is entitled to demand prepayment of the instrument, the
notice period remaining before the Fund is entitled to such
prepayment; floating rate instruments are treated as having a maturity
equal to the notice period remaining before the Fund is entitled to
demand prepayment of the instrument.
The value of the securities in each Fund can be expected to vary
inversely to changes in prevailing interest rates. Thus, if interest
rates increase after a security is purchased, that security, if sold,
might be sold at a loss. Conversely, if interest rates decline after
purchase, the security, if sold, might be sold at a profit. In either
instance, if the security were held to maturity, no gain or loss would
normally be realized as a result of these fluctuations. Substantial
redemptions of the shares of any Fund could require the sale of
portfolio investments of that Fund at a time when a sale might not be
desirable.
After purchase by a Fund, a security may cease to be rated or its
rating may be reduced below the minimum required for purchase by such
Fund. Neither event will require a sale of such security by such
Fund. However, such event will be considered in determining whether
the Fund should continue to hold the security. To the extent that the
ratings given by Moody's or S&P (or another SEC-approved nationally
recognized statistical rating organization ["NRSRO"]) may change as a
result of changes in such organizations or their rating systems, each
Fund will, in accordance with standards approved by the relevant Board
of Trustees, attempt to use comparable ratings as standards for
investments in accordance with the investment policies contained in
the Prospectus.
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INVESTMENT RESTRICTIONS
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The following is a list of each Fund's investment restrictions.
Except as otherwise specifically indicated, they are fundamental
policies and, accordingly, will not be changed without the consent of
the holders of a majority of the outstanding voting securities of the
applicable Fund.
MONEY MARKET FUND AND GOVERNMENT FUND
Neither the Money Market Fund nor the Government Fund will:
(1) Purchase any security (other than U.S. Government Securities
and repurchase agreements relating thereto) if, as a result, more than
5% of the Fund's total assets (taken at current value) would be
invested in securities of a single issuer. This restriction applies
to securities subject to repurchase agreements but not to the
repurchase agreements themselves;
(2) Purchase any security if, as a result, more than 25% of the
Fund's total assets (taken at current value) would be invested in any
one industry. This restriction does not apply to U.S. Government
Securities and bank obligations. For purposes of this restriction,
telephone, gas and electric public utilities are each regarded as
separate industries and finance companies whose financing activities
are related primarily to the activities of their parent companies are
classified in the industry of their parents;
(3) Purchase securities on margin (but it may obtain such short-
term credits as may be necessary for the clearance of purchases and
sales of securities); or make short sales except where, by virtue of
ownership of other securities, it has the right to obtain, without
payment of further consideration, securities equivalent in kind and
amount to those sold, and the Fund will not deposit or pledge more
than 10% of its total assets (taken at current value) as collateral
for such sales;
(4) Acquire more than 10% of the total value of any class of the
outstanding securities of an issuer or acquire more than 10% of the
outstanding voting securities of an issuer. This restriction does not
apply to U.S. Government Securities;
(5) Borrow money, except as a temporary measure for
extraordinary or emergency purposes (but not for the purpose of
investment) up to an amount not in excess of 10% of its total assets
(taken at cost) or 5% of such total assets (taken at current value),
whichever is lower;
(6) Pledge, mortgage or hypothecate more than 10% of its total
assets (taken at cost);
(7) Invest more than 5% of its total assets (taken at current
value) in securities of businesses (including predecessors) less than
three years old;
(8) Purchase or retain securities of any issuer if, to the
knowledge of the Fund, officers and Trustees of the Fund or officers
and directors of any investment adviser of the Fund who individually
own beneficially more than 1/2 of 1% of the securities of that
company, together own beneficially more than 5%;
(9) Make loans, except by purchase of debt obligations in which
the Fund may invest consistent with its objective and investment
policies. This restriction does not apply to repurchase agreements;
(10) Buy or sell oil, gas or other mineral leases, rights or
royalty contracts, commodities or commodity contracts or real estate.
This restriction does not prevent the Fund from purchasing securities
of companies investing in real estate or of companies which are not
principally engaged in the business of buying or selling such leases,
rights or contracts;
(11) Act as underwriter except to the extent that, in connection
with the disposition of portfolio securities, it may be deemed to be
an underwriter under the federal securities laws;
(12) Make investments for the purpose of exercising control or
management;
(13) Participate on a joint or joint and several basis in any
trading account in securities. (The "bunching" of orders for the
purchase or sale of portfolio securities with New England Mutual Life
Insurance Company ["The New England"] or accounts under its management
or the management of Back Bay Advisors(R) to reduce acquisition costs,
to average prices among them, or to facilitate such transactions, is
not considered participating in a trading account in securities);
(14) Write or purchase puts, calls or combinations thereof; or
(15) Invest in the securities of other investment companies,
except in connection with a merger, consolidation or similar
transaction.
Except as otherwise stated, the foregoing percentages and the
percentage limitations set forth in the Prospectus will apply at the
time of the purchase of a security and shall not be considered
violated unless an excess or deficiency occurs or exists immediately
after and as a result of a purchase of such security.
As a matter of operating policy and subject to change without
shareholder approval, the Funds will not purchase or sell real
property, including limited partnership interests.
TAX EXEMPT FUND
The Tax Exempt Fund will not:
(1) Purchase any security if, as a result, more than 5% of the
Fund's total assets (based on current value) would then be invested in
the securities of a single issuer. This limitation does not apply to
securities of the United States Government, its agencies or
instrumentalities or to any security guaranteed thereby. The
limitation applies to securities subject to credit enhancement, but
guarantors, insurers, issuers of puts and letters of credit and other
parties providing credit enhancement are not considered issuers for
purposes of the restriction, although investment in such securities
may be limited by applicable regulatory restrictions. The restriction
also applies to securities subject to repurchase agreements but not to
the repurchase agreements themselves. (The SEC staff currently takes
the position that only fully collateralized repurchase agreements may
be excluded from such restriction);
(2) Purchase voting securities or make investments for the
purpose of exercising control or management;
(3) Invest more than 25% of its total assets in industrial
development bonds which are based, directly or indirectly, on the
credit of private entities in any one industry or in securities of
private issuers in any one industry. (In the utilities category, gas,
electric, water and telephone companies will be considered as being in
separate industries.);
(4) Participate on a joint or joint and several basis in any
trading account in securities;
(5) Make short sales of securities, maintain a short position or
purchase securities on margin, except that the Fund may obtain short-
term credits as necessary for the clearance of security transactions;
(6) Borrow money except for temporary or emergency purposes and
then only in an amount not exceeding 10% of its total assets taken at
cost, except that the Fund may enter into reverse repurchase
agreements. The Fund will not, however, borrow or enter into reverse
repurchase agreements if the value of the Fund's assets would be less
than 300% of its borrowing and reverse repurchase agreement
obligations. In addition, when borrowings (other than reverse
repurchase agreements) exceed 5% of the Fund's total assets (taken at
current value), the Fund will not purchase additional portfolio
securities. Permissible borrowings and reverse repurchase agreements
will be entered into solely for the purpose of facilitating the
orderly sale of portfolio securities to accommodate redemption
requests;
(7) Make loans, except that the Fund may purchase or hold debt
instruments in accordance with its investment objective and policies
and may enter into loan participations and repurchase agreements;
(8) Pledge, mortgage or hypothecate its assets except in
connection with reverse repurchase agreements and except to secure
temporary borrowings permitted by (6) above in aggregate amounts not
to exceed 10% of its net assets taken at cost at the time of the
incurrence of such borrowings;
(9) Act as an underwriter of securities of other issuers except
that, in the disposition of portfolio securities, it may be deemed to
be an underwriter under the federal securities laws;
(10) Invest in securities of other investment companies, except
by purchases in the open market involving only customary brokers'
commissions, or in connection with a merger, consolidation,
reorganization or similar transaction. Under the 1940 Act the Fund
may not (a) invest more than 10% of its total assets (taken at current
value) in such securities, (b) own securities of any one investment
company having a value in excess of 5% of the Fund's total assets
(taken at current value), or (c) own more than 3% of the outstanding
voting stock of any one investment company;
(11) Purchase or retain securities of an issuer if, to the
knowledge of the Fund, officers, trustees or directors of the Fund or
any investment adviser of the Fund who individually own beneficially
more than 1/2 of 1% of the shares or securities of that issuer own
more than 5% of such shares or securities;
(12) Purchase securities of any company which has (with
predecessor businesses and entities) a record of less than three
years' continuing operation or purchase securities whose source of
repayment is based, directly or indirectly, on the credit of such a
company, except (i) obligations issued or guaranteed by the United
States Government, its agencies or instrumentalities, or (ii)
Municipal Securities which are rated by at least two nationally
recognized municipal bond rating services, if as a result more than 5%
of the total assets of the Fund (taken at current value) would be
invested in such securities;
(13) Buy or sell oil, gas or other mineral leases, rights or
royalty contracts, commodities or commodity contracts or real estate
(except that the Fund may buy Municipal Securities or other permitted
investments secured by real estate or interests therein), or
(14) Write or purchase puts, calls, warrants, straddles, spreads
or combinations thereof, except that the Fund may purchase puts as
described under "Investment Objectives and Policies -- Tax Exempt Fund
- -- Purchase of Securities with Rights to Put Securities to Seller" and
may purchase Municipal Securities on a "when-issued" basis as
described under "Investment Objectives and Policies -- Tax Exempt Fund
- -- When-Issued Securities";
Except as otherwise stated in restriction (6), the foregoing
percentages and the percentage limitations set forth in the Prospectus
will apply at the time of the purchase of a security and shall not be
considered violated unless an excess or deficiency occurs or exists
immediately after and as a result of a purchase of such security. As
regards restriction (6), as a non-fundamental operating policy, any
borrowings of the Tax Exempt Fund will not exceed 5% of the Fund's
total assets.
For the purpose of the foregoing investment restrictions, the
identification of the "issuer" of Municipal Securities which are not
general obligation bonds (see Appendix A-2) is made by Back Bay
Advisors(R) on the basis of the characteristics of the obligation, the
most significant of which is the source of funds for the payment of
principal and interest on such securities. If the assets and revenues
of an agency, authority, instrumentality or other political
subdivision are separate from those of the government creating the
subdivision, and the obligation is based solely on the assets and
revenues of the subdivision, such subdivision would be regarded as the
sole issuer. Similarly, in the case of industrial development bonds
(see Appendix A-2), if the bond is backed only by the assets and
revenues of the non-governmental user, the non-governmental user would
be regarded as the sole issuer.
As a matter of operating policy and subject to change without
shareholder approval, the Funds will not purchase or sell real
property, including limited partnership interests.
ALL FUNDS
No Fund will purchase any security restricted as to disposition
under federal securities laws if, as a result, more than 10% of such
Fund's net assets would be invested in such securities or in other
securities that are illiquid.
The staff of the SEC is currently of the view that repurchase
agreements maturing in more than seven days are "illiquid" securities.
Each Fund currently intends to conduct its operations in a manner
consistent with this view. In addition, certain loan participations
may be "illiquid" securities for this purpose.
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MANAGEMENT OF THE FUNDS
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Trustees
The trustees of the Trusts and their principal occupations during
at least the past five years are as follows:
GRAHAM T. ALLISON, JR.--Trustee (55); 79 John F. Kennedy Street,
Cambridge, MA 02138; Douglas Dillon Professor and Director for
the Center of Science and International Affairs, John F. Kennedy
School of Government; Special Advisor to the United States
Secretary of Defense; formerly, Assistant Secretary of Defense;
formerly Dean, John F. Kennedy School of Government.
KENNETH J. COWAN -- Trustee (63); One Beach Drive, S.E. #2103, St.
Petersburg, Florida 33701; Retired; formerly, Senior Vice
President-Finance and Chief Financial Officer, Blue Cross of
Massachusetts, Inc. and Blue Shield of Massachusetts, Inc.;
formerly, Director, Neworld Bank for Savings and Neworld Bancorp.
SANDRA O. MOOSE -- Trustee (53); 135 E. 57th Street New York, NY
10022; Senior Vice President and Director, The Boston Consulting
Group, Inc. (management consulting); Director, GTE Corporation
and Rohm and Haas Company (specialty chemicals).
HENRY L. P. SCHMELZER* -- Trustee and President (52); 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.
("NEFM"); Director, Back Bay Advisors(R), Inc.; formerly,
Director, New England Securities Corporation ("New England
Securities").
* Trustee deemed an "interested person" of the Trusts, as defined in
the 1940 Act.
JAMES H. SCOTT -- Trustee (52); 2001 Bryan Street, Suite 1850, Dallas,
Texas 75201; Vice President - Corporate Services, Texas Utilities
Services, Inc. (electric utility); formerly, Treasurer, The
Trustees of Amherst College.
JOHN A. SHANE -- Trustee (62); 300 Unicorn Drive, Woburn,
Massachusetts 01801; President, Palmer Service Corporation
(venture capital organization); General Partner, The Palmer
Organization and Palmer Partners L.P.; Director, Arch
Communications Group, Inc. (paging service); Director, Dowden
Publishing Company, Inc. (publishers of medical magazines);
Director, Eastern Bank Corporation; Director, Overland Data, Inc.
(manufacturer of computer tape drives); Director, Gensym
Corporation (expert system software); Director, Summa Four, Inc.
(manufacturer of telephone switching equipment); Director, United
Asset Management Corporation (holding company for institutional
money management); formerly, Director, Abt Associates, Inc.
(consulting firm); formerly, Director, Aviv Corporation
(manufacturer of controllers); and formerly, Director, Banyan
Systems, Inc. (manufacturer of network software); formerly,
Director, Cerjac Inc. (manufacturer of telephone testing
equipment).
PETER S. VOSS* -- Chairman of the Board, Chief Executive Officer and
Trustee (48); President and Chief Executive Officer of New
England Investment Companies, L.P. ("NEIC"); Director, President
and Chief Executive Officer of New England Investment Companies,
Inc.; Chairman of the Board and Director, NEF Corporation;
Chairman of the Board and Director, Back Bay Advisors(R), Inc.;
Director, The New England; formerly, Executive Vice President,
Bank of America; formerly, Group Head of International Banking,
Trading and Securities, Security Pacific National Bank and Chief
Executive Officer, Security Pacific Investment Group.
* Trustee deemed an "interested person" of the Trusts, as defined in
the 1940 Act.
PENDLETON P. WHITE -- Trustee (64); 6 Breckenridge Lane, North,
Savannah, Georgia 31411; Retired; formerly, President and Chairman
of the Executive Committee, Studwell Associates (executive search
consultants); Trustee, The Faulkner Corporation.
Officers
In addition to Messrs. Voss and Schmelzer, the officers of the
Trusts and their principal occupations during the past five years are
as follows:
CHARLES T. WALLIS -- Senior Vice President; President, Chief Executive
Officer and Director, Back Bay Advisors(R), Inc.; President and
Chief Executive Officer, Back Bay Advisors(R); Director, NEF
Corporation.
J. STEVEN NEAMTZ -- Executive Vice President; Executive Vice
President, NEF Corporation; Executive Vice President, New England
Funds, L.P.
BRUCE R. SPECA -- Executive Vice President; Executive Vice President,
NEF Corporation; Executive Vice President, New England Funds,
L.P.; Executive Vice President, NEFM.
J. SCOTT NICHOLSON -- Vice President; Senior Vice President, Back Bay
Advisors(R).
HAROLD B. BJORNSON -- Vice President; Vice President, Back Bay
Advisors(R); formerly, Assistant Vice President, New England
Securities.
JOHN E. MALONEY (New England Tax Exempt Money Market Trust only) --
Vice President; Portfolio Manager, Back Bay Advisors(R);
formerly, Assistant Portfolio Manager, Back Bay Advisors(R) and
Treasury Specialist, The New England.
ROBERT P. CONNOLLY -- Secretary and Clerk; Senior Vice President and
General Counsel, NEF Corporation; Senior Vice President and
General Counsel, New England Funds, L.P.; Senior Vice President
and General Counsel, NEFM; formerly, Managing Director and
General Counsel, Kroll Associates, Inc. (business consulting
company); formerly, Managing Director and General Counsel,
Equitable Capital Management Corporation (investment management
company).
FRANK NESVET -- Treasurer; 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.
Previous positions during the past five years with The New
England, Back Bay Advisors(R), New England Securities or New England
Funds, L.P. are omitted, if not materially different. Each of the
trustees is also a director or trustee of several other investment
companies for which New England Funds, L.P. acts as principal
underwriter and affiliates of The New England act as investment
adviser.
The address of each trustee and officer affiliated with NEF
Corporation, New England Funds, L.P., NEFM, New England Securities or
Back Bay Advisors(R) is 399 Boylston Street, Boston, MA 02116.
Compensation
Neither Trust pays compensation to its officers, or to its
trustees who are "interested persons" of the Trusts.
Until May 1, 1995, each trustee who is not an interested person
of the Trusts received, in the aggregate for serving on the boards of
the Trusts and thirty-three other mutual fund portfolios, a retainer
fee at the annual rate of $40,000 and meeting attendance fees of
$2,500 for each meeting of the boards he or she attended and $1,500
for each meeting he or she attended of a committee of the board of
which he or she was a member. Each committee chairman received an
additional retainer fee at the annual rate of $2,500. These fees were
allocated among the Funds and thirty-three other mutual fund
portfolios based on a formula that took into account, among other
factors, the net assets of each Fund.
Since May 1, 1995, each trustee who is not an interested person
has received the foregoing rates of compensation for serving as
trustee of the Trusts and seventeen other mutual fund portfolios. The
compensation is allocated among the Funds and these seventeen
portfolios based on a formula similar to that in effect before May 1,
1995.
During the fiscal year ended June 30, 1995, the persons who were
trustees of the Trusts for all or part of such year received the
amounts set forth in the following table for serving as a trustee of
the Trusts; and during the year ended December 31, 1994, such persons
received the amounts set forth below for serving as trustee of the
Trusts and for also serving on the governing boards of thirty-three
other mutual fund portfolios (the "Other Funds"). As of December 31,
1994, there were a total of 36 Funds in the Trusts and the Other Funds
combined.
Aggregate Aggregate Total
Compensation Compensation Compensation
from from from the
New England New England Tax Trusts and
Cash Management Exempt Money the Other
Trust in the Market Trust in Funds in
Year Ended the Year Ended Year Ended
June 30, June 30, December 31,
Name of Trustee 1995 1995 1994
- ------------------- --------------- --------------- -------------
Kenneth J. Cowan $4,340 $1,635 $59,375
Joseph M. Hinchey 4,182 1,547 56,875
Richard S. 4,182 1,547 56,875
Humphrey, Jr.
Robert B. Kittredge 4,182 1,547 89,279(a)
Laurens MacLure 4,340 1,635 91,779(a)
Sandra O. Moose 3,993 1,443 52,875
James H. Scott 4,182 1,547 56,875
John A. Shane 4,182 1,547 55,875
Joseph F. Turley 4,182 1,547 58,375
Pendleton P. White 4,182 1,547 58,375
(a)Also includes compensation paid by the 5 CGM Funds, a group of mutual
funds for which Capital Growth Management Limited Partnership, the
investment adviser of New England Funds Trust I's New England Growth
Fund, serves as investment adviser.
The Trusts provide no pension or retirement benefits to trustees,
but have adopted a deferred payment arrangement under which each Trustee
may elect not to receive fees from each Fund on a current basis but to
receive in a subsequent period an amount equal to the value that such
fees would have if they had been invested in each Fund on the normal
payment date for such fees. As a result of this method of calculating
the deferred payments, each Fund, upon making the deferred payments,
will be in the same financial position as if the fees had been paid on
the normal payment dates.
At August 1, 1995, the officers and trustees of each Trust as a
group owned less than 1% of the outstanding shares of each class of
shares of each Trust.
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INVESTMENT ADVISORY, DISTRIBUTION AND OTHER SERVICES
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Investment Advisory Agreements
Pursuant to separate advisory agreements, each dated January 2,
1996, New England Funds Management, L.P. ("NEFM") has agreed, subject
to the supervision of the Board of Trustees of the Trust, to manage
the investment and reinvestment of the assets of the Funds and to
provide a range of administrative services to the Funds. For the
services described in the advisory agreements, each Fund has agreed to
pay NEFM a management fee as set forth below:
Money Market Fund and Government Fund
Annual Percentage Average Daily Net Asset
Rate Value Levels
--------------------- ---------------------------
.425% the first $500 million
.400% the next $500 million
.350% the next $500 million
.300% the next $500 million
.250% amounts in excess of $2
billion
Tax Exempt Fund -- Under the advisory agreement relating to the
Tax Exempt Fund, the Fund pays NEFM a fee at the annual rate of 0.40%
of the average daily net asset value of the Fund up to $100 million
and 0.30% of such asset value in excess of $100 million.
The advisory agreements each provide that NEFM may delegate its
responsibilities thereunder to other parties. Pursuant to separate
subadvisory agreements, each dated January 2, 1996, NEFM has delegated
responsibility for managing the investment and reinvestment of each
Fund's assets to Back Bay Advisors as subadviser. For providing such
subadvisory services to the Funds, NEFM pays Back Bay Advisors a
subadvisory fee as set forth below:
Annual
Fee Average Net
Fund Rate Asset Levels
- --------------------- ------- -------------------------------
Money Market 0.205% the first $500 million
0.180% the next $500 million
0.160% the next $500 million
0.140% the next $500 million
0.120% amounts in excess of $2 billion
Government 0.2125% the first $500 million
0.2000% the next $500 million
0.1750% the next $500 million
0.1500% the next $500 million
0.1250% amounts in excess of $2 billion
Tax Exempt 0.200% the first $100 million
0.150% amounts in excess of $100
million
The Funds pay no direct fees to Back Bay Advisors.
Prior to January 2, 1996, Back Bay Advisors served as adviser to
the Funds pursuant to separate advisory agreements, each of which
provided for an advisory fee payable by the Fund to Back Bay Advisors
a the same rate as the management fee currently payable by the Fund to
NEFM.
For the fiscal years ended June 30, 1993, 1994 and 1995, this
compensation amounted to $3,511,783, $3,022,248 and $2,796,164
respectively, for the Money Market Fund and $314,873, $265,221 and
$255,727 respectively, for the Government Fund.
Until further notice to the Tax Exempt Fund, NEFM and Back Bay
Advisors have agreed to reduce their fee and/or pay the charges,
expenses and fees for the Class A and B shares of the Fund (not
including fees payable to the trustees who are not "interested
persons") to the extent necessary to limit the Fund's expenses for the
Class A and B shares to an annual rate of 0.5625 of 1% of average
assets. For the fiscal years ended June 30, 1993, 1994 and 1995,
gross management fees of $238,984, $231,093 and $281,837,
respectively, were reduced by $163,494, $192,773 and $199,639
respectively, as a result of this expense limitation.
In General. Back Bay Advisors(R) serves as investment subadviser
to the Funds. Formed in 1986, Back Bay Advisors(R) provides
investment management services to institutional clients, including
other registered investment companies and accounts of The New England
and its affiliates. Back Bay Advisors'(R) general partner, Back Bay
Advisors(R), Inc., is a wholly-owned subsidiary of NEIC. NEIC and its
seven subsidiary or affiliated asset management firms, collectively,
have more than $68 billion of assets under management or
administration.
Each Fund pays all of its expenses not assumed by NEFM,
including, but not limited to, the charges and expenses of the Fund's
custodian and transfer agent, independent auditors and legal counsel,
all brokerage commissions and transfer taxes in connection with
portfolio transactions, all taxes and filing fees, the fees and
expenses for registration or qualification of its shares under the
federal or state securities laws, all expenses of shareholders' and
trustees' meetings and of preparing and printing reports to
shareholders and the compensation of trustees who are not directors,
officers or employees of NEFM or its affiliates (other than registered
investment companies).
Under each advisory agreement, if the total ordinary business
expenses of a particular Fund (and, in the case of New England Cash
Management Trust, the total ordinary business expenses of the Trust as
a whole) for any fiscal year exceed the lowest applicable limitation
(based on a percentage of average net assets or income) prescribed by
any state in which shares of that Fund (or, with respect to New
England Cash Management Trust, of any series of the Trust) are
qualified for sale, NEFM shall pay such excess. At the date of this
Statement, the most restrictive state annual expense limitation is 2
1/2% of the average annual net assets up to $30,000,000, 2% of the
next $70,000,000 of such assets and 1 1/2% of such assets in excess of
$100,000,000. NEFM will not be required to reduce its fee or pay such
expenses to an extent or under circumstances which might result in a
Fund's inability to qualify as a regulated investment company under
the Code. The term "expenses" is defined in the statutes or
regulations of such jurisdictions and, generally speaking, excludes
brokerage commissions, taxes, interest, distribution-related expenses
and extraordinary expenses.
Each advisory agreement provides that it will continue in effect
only if it is approved at least annually (i) by the trustees of the
relevant Trust or by vote of a majority of the outstanding voting
securities of the applicable Fund and (ii) by vote of a majority of
the trustees who are not interested persons of the Fund or NEFM. Any
amendment to the advisory agreements must be approved by vote of a
majority of the outstanding voting securities of the applicable Fund
and by vote of a majority of the trustees who are not such interested
persons. Each agreement may be terminated without penalty by the
trustees or by the shareholders of the applicable Fund upon 60 days'
written notice or by NEFM upon 90 days' written notice, and each
terminates automatically in the event of its assignment.
Each advisory agreement provides that NEFM 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.
Prior to January 2, 1996, Back Bay Advisors(R) had contracted
with New England Securities for New England Securities to provide
certain administrative services to the Funds, at Back Bay Advisors'(R)
expense.
Certain officers and employees of Back Bay Advisors(R) who are
also officers of the Trusts have responsibility for portfolio
management of other advisory accounts and clients of Back Bay
Advisors(R) (including other registered investment companies and
accounts of affiliates of Back Bay Advisors(R)) that may invest in
securities in which the Funds also invest. If Back Bay Advisors(R)
determines that an investment purchase or sale opportunity is
appropriate and desirable for more than one advisory account, purchase
and sale orders may be executed separately or may be combined and, to
the extent practicable, allocated by Back Bay Advisors(R) to the
participating accounts.
It is believed that the ability of the Funds to participate in
larger volume transactions in this manner will in some cases produce
better executions for the Funds. However, in some cases, this
procedure could have a detrimental effect on the price and amount of a
security available to a Fund or the price at which a security may be
sold. The trustees are of the view that the benefits of retaining
Back Bay Advisors(R) as investment subadviser to each of the Funds
outweigh the disadvantages, if any, that may result from participating
in such transactions.
Where advisory accounts have competing interests in a limited
investment opportunity, Back Bay Advisors(R) will allocate an
investment purchase opportunity based on the relative time the
competing accounts have had funds available for investment, and the
relative amounts of available funds, and will allocate an investment
sale opportunity based on relative cash requirements and the relative
time the competing accounts have had investments available for sale.
It is Back Bay Advisors'(R) policy to allocate, to the extent
practicable, investment opportunities to each client over a period of
time on a fair and equitable basis relative to its other clients.
Distribution Agreement
Under separate agreements with each Fund, New England Funds,
L.P., the Distributor, 399 Boylston Street, Boston, Massachusetts
02116, a wholly-owned subsidiary of NEIC, acts as the distributor of
the Funds' shares, which are sold at net asset value without any sales
charge. The Distributor receives no compensation from the Funds or
purchasers of Fund shares for acting as distributor. The agreements
do not obligate the Distributor to sell a specific number of shares.
Under the agreements, the Distributor pays promotion and distribution
expenses relating to the sale of Fund shares, including the cost of
preparing, printing and distributing prospectuses used in offering
shares of the Funds for sale.
The Distributor pays investment dealers a service fee in order to
compensate them for services they provide and expenses they incur in
connection with the establishment or maintenance of shareholder
accounts in the Funds. The service fee is paid quarterly at an annual
rate equal to 0.10% of average Fund net assets, including reinvested
dividends, in accounts serviced by the investment dealer during the
year. In order to receive a fee for a particular quarter, the
investment dealer's clients' average daily net asset balance in a Fund
must equal or exceed $1 million. The Distributor pays the service
fee; the fee is not a direct or indirect expense of the Funds or their
shareholders and does not affect the Funds' yields.
The Distributor also acts as general distributor for several
other mutual funds advised by affiliates of NEIC.
Independent Accountants
The Funds' independent accountants are Price Waterhouse LLP, 160
Federal Street, Boston, Massachusetts 02110. Price Waterhouse LLP
conducts an annual audit of the Funds' financial statements, assists
in the preparation of the Funds' federal and state income tax returns
and consults with the Funds as to matters of accounting and federal
and state income taxation. The information concerning Financial
Highlights in the Prospectus, and the financial statements
incorporated by reference in this Statement, have been so included in
reliance on the reports of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in
auditing and accounting.
Custodian
State Street Bank and Trust Company ("State Street Bank"), 225
Franklin Street, Boston, Massachusetts 02102, is the custodian for
each Fund. 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 in connection with transactions of
each Fund and collects all dividends and other distributions made with
respect to each Fund's portfolio securities. State Street Bank also
maintains certain accounts and records of the Funds and calculates the
total net asset value, total net income and net asset value per share
of the Funds. State Street Bank does not determine the investment
policies of the Funds or decide which securities a Fund will buy or
sell.
Other Services
Pursuant to a contract between the Funds and the Distributor, the
Distributor 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 a per
account fee to the Distributor for these services in the amount of
$21.50, annually, which may be increased with the approval of the
Trusts' Boards. The aggregate amount of fees paid by the Funds to the
Distributor for these services during the three most recent fiscal
years of the Funds were as follows:
Fiscal Year Ended June 30,
--------------------------------
Trust 1993 1994 1995
- -------------------------------- ------- ----------- ----------
New England Cash Management $0 $1,720,812 $2,111,479
Trust
New England Tax Exempt Money $0 $ 58,609 $ 76,391
Market Trust
Prior to September 1, 1993, the Distributor provided more limited
services to the Funds and was compensated at a substantially lower
rate per shareholder account.
The Distributor 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.
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PORTFOLIO TRANSACTIONS
---------------------------------------------------------------------
In General
In placing orders for the purchase and sale of portfolio
securities for each Fund, Back Bay Advisors(R) will always seek the
best price and execution. It is expected that the Funds' portfolio
transactions will generally be with issuers or dealers in money market
instruments acting as principal. Accordingly, the Funds do not
anticipate that they will pay significant brokerage commissions.
During the year ended June 30, 1995, the Funds did not incur any
brokerage fees in connection with portfolio transactions.
Some of the portfolio transactions for each Fund are placed with
dealers who provide Back Bay Advisors(R) with supplementary investment
and statistical information or furnish market quotations to the Funds
or other investment companies advised by Back Bay Advisors(R). The
business would not be so placed if the Funds would not thereby obtain
the best price and execution. Although it is not possible to assign an
exact dollar value to these research services, they may, to the extent
used, tend to reduce the expenses of Back Bay Advisors(R). The
research services may also be used by Back Bay Advisors(R) in
connection with its other advisory accounts and in some cases may not
be used with respect to the Funds.
The Board of Trustees of the Trust has requested that Back Bay
Advisors(R) seek to reduce underwriting commissions or similar fees on
Trust portfolio transactions through certain methods currently
available. It is not expected that these methods will result in
material reductions. The Board has not requested that Back Bay
Advisors(R) or its affiliates attempt to join underwriting syndicates
to reduce underwriting commissions or fees.
Tax Exempt Fund
It is expected that the Tax Exempt Fund's portfolio securities
will normally be purchased directly from an underwriter or in the over-
the-counter market from the principal dealers in such securities,
unless it appears that a better price or execution may be obtained
elsewhere. Purchases from underwriters will include a commission or
concession paid by the issuer to the underwriter, and purchases from
dealers will include the spread between the bid and asked price.
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PERFORMANCE
---------------------------------------------------------------------
From time to time, the Funds may use performance data in
advertisements and promotional material. These results may include
comparisons to the average daily yields of money market funds
reporting to IBC/Donoghue's Money Fund Report ("Donoghue's"),
including comparisons of such average yields for funds considered by
Donoghue's to be in the same category as each of the Funds. See "Net
Income, Dividends and Valuation" below for an explanation of how the
Funds calculate yield and "effective" (or "compound") yield.
New England Funds, L.P. will make reference in its advertising
and sales literature to awards, citations and honor bestowed on it by
industry organizations and other observers and raters, 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.
From inception of each Fund (Class A shares) or date of first
offering (Class B shares) through each of the dates set forth below,
an investment of $10,000 in each Fund grew, assuming the reinvestment
of all dividends, to the respective amounts set forth below. The
periods covered included periods of widely fluctuating interest rates
and should not necessarily be considered representative of performance
of an investment in a Fund today.
New England Cash Management Trust -- Money Market Series
($10,000 investment on 7/10/78)
(Class A Shares)
Value of Value of
Period Ended Investment on Cumulative Total Value
First Day of Reinvested
Period Dividends
12/31/78 $10,000 $ 385 $10,385
12/31/79 10,385 1,504 11,504
12/31/80 11,504 2,971 12,971
12/31/81 12,971 5,194 15,194
12/31/82 15,194 7,155 17,155
12/31/83 17,155 8,680 18,680
12/31/84 18,680 10,628 20,628
12/31/85 20,628 12,259 22,259
12/31/86 22,259 13,675 23,675
12/31/87 23,675 15,110 25,110
12/31/88 25,110 16,915 26,915
12/31/89 26,915 19,320 29,320
12/31/90 29,320 21,638 31,638
12/31/91 31,638 23,499 33,499
12/31/92 33,499 24,655 34,655
12/31/93 34,655 25,536 35,536
06/30/94 35,536 26,036 36,036
06/30/95 36,036 27,750 37,750
New England Cash Management Trust -- Money Market Series
($10,000 investment on 9/13/93)
(Class B Shares)
Value of Value of
Period Ended Investment on Cumulative Total Value
First Day of Reinvested
Period Dividends
12/31/93 $10,000 $ 74 $10,074
06/30/94 10,074 216 10,216
06/30/95 10,216 702 10,702
New England Cash Management Trust - U.S. Government Series
($10,000 investment on 6/2/82)
(Class A Shares)
Value of Value of
Period Ended Investment on Cumulative Total Value
First Day of Reinvested
Period Dividends
12/31/82 $10,000 $ 543 $10,543
12/31/83 10,543 1,435 11,435
12/31/84 11,435 2,559 12,559
12/31/85 12,559 3,550 13,550
12/31/86 13,550 4,402 14,402
12/31/87 14,402 5,213 15,213
12/31/88 15,213 6,232 16,232
12/31/89 16,232 7,610 17,610
12/31/90 17,610 8,925 18,925
12/31/91 18,925 10,009 20,009
12/31/92 20,009 10,694 20,694
12/31/93 20,694 11,213 21,213
06/30/94 21,213 11,500 21,500
06/30/95 21,500 12,486 22,486
New England Cash Management Trust - U.S. Government Series
($10,000 investment on 9/20/93)
(Class B Shares)
Value of Value of
Period Ended Investment on Cumulative Total Value
First Day of Reinvested
Period Dividends
12/31/93 $10,000 $ 67 $10,067
06/30/94 10,067 203 10,203
06/30/95 10,203 672 10,672
New England Tax Exempt Money Market Trust
($10,000 investment on 4/21/83)
(Class A Shares)
Value of Value of
Period Ended Investment on Cumulative Total Value
First Day of Reinvested
Period Dividends
12/31/83 $10,000 $ 371 $10,371
12/31/84 10,371 984 10,984
12/31/85 10,984 1,543 11,543
12/31/86 11,543 2,043 12,043
12/31/87 12,043 2,531 12,531
12/31/88 12,531 3,134 13,134
12/31/89 13,134 3,899 13,899
12/31/90 13,899 4,660 14,660
12/31/91 14,660 5,268 15,268
12/31/92 15,268 5,667 15,667
12/31/93 15,667 5,979 15,979
06/30/94 15,979 6,153 16,153
06/30/95 16,153 6,663 16,663
New England Tax Exempt Money Market Trust
($10,000 investment on 9/13/93)
(Class B shares)
Value of Value of
Period Ended Investment on Cumulative Total Value
First Day of Reinvested
Period Dividends
12/31/93 $10,000 $ 60 $10,060
06/30/94 10,060 170 10,170
06/30/95 10,170 491 10,491
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DESCRIPTION OF THE FUNDS AND OWNERSHIP OF SHARES
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New England Cash Management Trust was organized as a
Massachusetts business trust under the laws of Massachusetts by an
agreement and declaration of trust ("Declaration of Trust") dated June
5, 1980. The Trust commenced operations on October 3, 1980 by
acquiring all the assets and liabilities of NEL Cash Management
Account, Inc., which commenced operations on July 10, 1978 and had the
same investment objective, policies restrictions and investment
adviser as the Money Market Fund then had. On June 2, 1982 the U.S.
Government Series commenced operations as a separate portfolio of New
England Cash Management Trust, the Trust's then existing portfolio
having been redesignated the "Money Market Series." The Money Market
Fund and the Government Fund are the only series of New England Cash
Management Trust currently in existence. Each such Fund has two
classes of shares available for purchase.
New England Tax Exempt Money Market Trust was organized as a
Massachusetts business trust under the laws of Massachusetts by a
Declaration of Trust dated January 18, 1983, and commenced operations
on April 21, 1983. Only one series of shares of New England Tax
Exempt Money Market Trust is currently in existence; it has two
classes of shares available for purchase.
Class A and B shares of each Fund are identical, except that the
classes have different exchange privileges, as set forth in detail in
the Prospectus.
The Declarations of Trust currently permit the relevant trustees
to issue an unlimited number of full and fractional shares of each
Fund. Each Fund is represented by a particular series of shares. The
Declarations of Trust further permit each 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
have no pre-emptive rights. Upon termination of any Fund, whether
pursuant to liquidation of the Fund or otherwise, shareholders of each
series of shares are entitled to share pro rata in the net assets
belonging to that series then available for distribution to such
shareholders.
The assets received by each series of the Cash Management Trust
from the issue or sale of shares of each series thereof and all
income, earnings, profits, losses and proceeds therefrom, subject only
to the rights of creditors, are allocated to, and constitute the
underlying assets of, that series. The underlying assets of each
series are segregated and are charged with the expenses in respect of
that series and with a share of the general expenses of New England
Cash Management Trust. Any general expenses of New England Cash
Management Trust not readily identifiable as belonging specifically to
a particular series are allocated by or under the direction of the
trustees in such manner as the trustees determine to be fair and
equitable. While the expenses of New England Cash Management Trust
are allocated to the separate books of account of each series of the
Trust, certain expenses may be legally chargeable against the assets
of both series.
The Declarations of Trust also permit the trustees to charge
shareholders directly for custodial, transfer agency and servicing
expenses.
The Declarations of Trust also permit the trustees, without
shareholder approval, to subdivide any series or class of shares into
various sub-series or sub-classes participating in the same portfolio
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 series or classes.
At such time as the trustees of New England Tax Exempt Money Market
Trust create another series, the Fund would become a "series" company
as that term is used in Section 18(f) of the 1940 Act. Currently, New
England Cash Management Trust is such a "series" company.
The Declarations of Trust provide for the perpetual existence of
the Funds. Either Trust or any Fund, however, may be terminated at
any time by vote of at least two-thirds of the outstanding shares of
the Fund affected or by the relevant trustees upon written notice to
the shareholders. Similarly, any class within a Fund may be
terminated by vote of at least two-thirds of the outstanding shares of
such class or by notice from the trustees.
VOTING RIGHTS
General
As summarized in the Prospectus, shareholders are entitled to one
vote for each full share held (with fractional votes for fractional
shares held) and may vote (to the extent described below) in the
election of trustees and the termination of the Funds and on other
matters submitted to the vote of shareholders.
The Declaration of Trust for each Trust provides that, on any
matter submitted to a vote of all Trust shareholders, all of a Trust's
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 the 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.
There will normally be no meetings of shareholders for the
purpose of electing trustees except that in accordance with the 1940
Act (i) each Trust will hold a meeting of its shareholders 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 in the Board of Trustees, less than two-
thirds of the trustees holding office have been elected by the
shareholders, that vacancy may only be filled by a vote of the
shareholders. In addition, trustees of the Tax Exempt Fund may be
removed from office by a written consent signed by the holders of two-
thirds of the outstanding shares and filed with the Fund's custodian
or by a vote of the holders of two-thirds of the outstanding shares at
a meeting duly called for the purpose, which meeting shall be held
upon the written request of the holders of not less than 10% of the
outstanding shares.
Upon written request by the holders of shares having a net asset
value of $25,000 or constituting 1% of the outstanding shares stating
that such shareholders wish to communicate with the other shareholders
for the purpose of obtaining the signatures necessary to demand a
meeting to consider removal of a trustee, the Tax Exempt Fund has
undertaken to provide a list of shareholders or to disseminate
appropriate materials (at the expense of the requesting shareholders).
Except as set forth above, the trustees shall continue to hold
office and may appoint successor trustees. Voting rights are not
cumulative.
No amendment may be made to the Declarations of Trust without the
affirmative vote of a majority of the outstanding shares of the
applicable Trust except (i) to change the name of the Trust or a
series thereof or to cure technical problems in the Declaration of
Trust, (ii) to establish and designate new series or classes of
shares, and (iii) to establish, designate or modify new and existing
series or classes of shares or modify other provisions relating to
Trust shares in response to applicable laws or regulations, or, in the
case of the Tax Exempt Fund, in order to convert the Fund into a
"series" company. If one or more new series of either Trust is
established and designated by the trustees, the shareholders having
beneficial interests in the Funds described in the Prospectus and this
Statement shall not be entitled to vote on matters exclusively
affecting such new series, such matters including, without limitation,
the adoption of or any change in the investment objectives, policies
or restrictions of the new series and the approval of the investment
advisory contracts of the new series. Similarly, the shareholders of
the new series shall not be entitled to vote on any such matters as
they affect the Funds.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, a Trust's shareholders could, under
certain circumstances, be held personally liable for the obligations
of the Trust. However, the Declarations of Trust disclaim shareholder
liability for acts or obligations of a Fund and require that notice of
such disclaimer be given in each agreement, obligation or instrument
entered into or executed by a Trust or its trustees. The Declarations
of Trust provide for indemnification out of the assets of a Fund for
all loss and expense of any shareholder held personally liable for the
obligations of that 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 the Fund itself would be unable to meet its
obligations.
The Declarations of Trust further provide that the trustees will
not be liable for errors of judgment or mistakes of fact or law.
However, nothing in the Declarations 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 each Trust provide for indemnification by the
Trust of the trustees and the officers of such 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 person may not be
indemnified against any liability to the Trust or its 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.
OWNERSHIP OF SHARES
At June 30, 1995, there were 649,808,456 shares of the Money
Market Fund, 59,742,493 shares of the Government Fund and 67,797,313
shares of the Tax Exempt Fund issued and outstanding. State Street
Bank in its capacity as trustee for various retirement and individual
trust accounts owned of record and may be deemed to have owned
beneficially approximately 57,528,575 shares of the Money Market
Fund's Class A shares, about 8.9% of the total Class A shares then
outstanding, and one account registered to National Financial Services
Corp. (For the Exclusive Benefit of its Customers), 200 Liberty
Street, 1 World Financial Center; New York, NY 10281 owned 41, 216,190
Class A shares of the Fund, about 6.5% of the total Class A shares
then outstanding. State Street Bank in its capacity as trustee for
various retirement and individual trust accounts owned of record and
may be deemed to have owned beneficially approximately 1,579,260
shares of the Money Market Fund's Class B shares, about 34.6% of the
total Class B shares then outstanding. State Street Bank in its
capacity as trustee for various retirement and individual trust
accounts owned of record and may be deemed to have owned beneficially
approximately 5,829,083 shares of the Government Fund's Class A
shares, about 9.9% of the total shares then outstanding, and two
accounts registered to National Financial Services Corp. (For the
Exclusive Benefit of its Customers), 200 Liberty Street, 1 World
Financial Center, New York, NY 10281 and Kevin and Mary Mahoney, 228
Common Street, Belmont, MA 02178 owned 5,786,931 and 3,344,211 Class A
shares of the Fund, respectively, about 9.9% and 5.7%, respectively,
of the total Class A shares then outstanding. State Street Bank in
its capacity as trustee for various retirement and individual trust
accounts owned of record and may be deemed to have owned beneficially
approximately 269,928 shares of the Government Fund's Class B shares,
about 41.3% of the total shares then outstanding, and five accounts
registered to Jean Magill (Guardian, Amy L. Magill - U/A/DTD 6/15/93),
P.O. Box 1673, Snellville, GA 30278, Jean J. Magill (Guardian for
Property of James C. Magill, Jr.), P.O. Box 1673, Snellville, GA
30278, Mable J. Snell, 2145 North Road, Snellville, GA 30278, State
Street Bank and Trust Company (Custodian for the IRA Rollover of
Ronald J. Weber), 101 Rainbow Drive, Apartment Number 4691,
Livingston, TX 77351 and State Street Bank and Trust Company
(Custodian for the IRA Rollover of Marilyn Seidner Batshaw), 166
Westgate Drive, Edison, NJ 08820 owned 75,012, 75,012, 104,609, 77,708
and 44,812 Class B shares of the Fund, respectively, about 11.4%,
11.4%, 15.8%, 11.8% and 6.8%, respectively of the total Class B shares
then outstanding. For the Tax Exempt Fund's Class A shares, there is
one account registered to National Financial Services Corp. (For the
Exclusive Benefit of its Customers), 200 Liberty Street, 1 World
Financial Center, New York, NY 10281, which owned 8,259,059 Class A
shares of the Fund, about 12.5% of the total Class A shares then
outstanding. State Street Bank in its capacity as trustee for various
retirement and individual trust accounts owned of record and may be
deemed to have owned beneficially none of the Tax Exempt Fund's Class
B shares, and three accounts registered to Henry S. Belber II, Trico
Construction Company, Inc., 227 Lancaster, Avenue, Devon, PA 19333,
Lawrence and Alex Friedman, 160 Washington Avenue, Watchung, NJ 07060
and Ann Coughlin, Box 399 Golf Course Road, Dallas, PA 18612 owned
166,064, 144,556 and 54,630 Class B shares of the Fund, respectively,
about 38.1%, 33.2% and 12.5%, respectively, of the total Class B
shares then outstanding.
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PURCHASE OF SHARES
---------------------------------------------------------------------
The procedures for purchasing shares of the Funds are summarized
in the Prospectus under the caption "6 Ways to Buy Fund Shares."
Shares may also be purchased either in writing, by phone or by
electronic funds transfer, or by exchange as described in the
Prospectus, through firms that have selling agreements with the
Distributor.
Shares of each Fund are offered for sale continuously at their
respective net asset values, which the Funds seek to maintain at a
constant $1 per share. See "Net Income, Dividends and Valuation."
There is no sales charge.
The minimum initial investment is $1,000, with a $50 minimum for
subsequent investments. There are reduced initial investment minimums
for certain investments described below under "Shareholder Services."
Banks may charge a fee for transmitting funds by wire or through
the Automated Clearing House ("ACH") system. With respect to shares
purchased by federal funds wire, shareholders should bear in mind that
wire transfers may take two or more hours to complete.
A shareholder may purchase additional shares electronically
through the ACH system so long as the shareholder's bank or credit
union is a member of the ACH system and the shareholder has a
completed, approved ACH application on file.
In all instances where checks are sent for the purchase of
shares, they must be drawn on U.S. banks and payable in U.S. dollars.
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SHAREHOLDER SERVICES
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Open Accounts
Except for investors who own shares through certain broker
"street name" or retirement plan arrangements, each shareholder's
investment is automatically credited to a separate open account
maintained for the shareholder by the Distributor, and the shareholder
will receive a monthly statement disclosing the current balance of
shares owned in the shareholder's account and the details of all
transactions in that account during the month; however, if there were
no transactions other than dividend declarations during a month, the
shareholder will receive a quarterly statement instead of a monthly
statement. After the close of each calendar year, the Distributor
will send the shareholder a statement for each of his or her accounts
providing federal tax information on dividends and distributions paid
during the year including information as to that percentage, if any,
of Tax Exempt Fund dividends that are not exempt from federal income
taxation. Shareholders should retain this as a permanent record. The
Distributor reserves the right to charge a fee for providing duplicate
information.
Automatic Investment Plans
As described in the Prospectus, shareholders may, after opening
an account, authorize automatic monthly transfers of a least $50 from
the shareholder's bank account to purchase shares of a Fund. These
transfers are effected through checks drawn under Investment Builder,
a program designed to facilitate such periodic payments.
Under Investment Builder, funds normally are credited to the Fund
not later than the fourth business day after the check is drawn. An
Investment Builder application must be completed to open an automatic
investment plan. An application is included in the Prospectus or may
be obtained from your investment dealer or from New England Funds by
calling 1-800-225-5478. The plan may be discontinued 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
shareholders 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 - Money Market Fund and
Government Fund
The federal tax laws provide for a variety of retirement plans
offering tax benefits. These plans may be funded with shares of the
Money Market Fund or the Government Fund, 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 and profit sharing plans, including 401(k)
plans, and retirement plans for public school systems and certain tax
exempt organizations (403(b) plans).
Initial investments in either Fund must be at least $250 for each
participant in corporate pension and profit sharing plans, IRAs and
Keogh plans and $50 for subsequent investments. There is a special
initial and subsequent investment minimum of $25 for payroll deduction
investment programs for 401(k), SARSEP, 403(b) and certain other
retirement plans. Income dividends and capital gain distributions
will be automatically reinvested (unless the investor is age 59 1/2 or
disabled). Plan documents can be obtained from the Distributor.
An investor should consult a competent tax or other adviser as to
the suitability of either Fund's shares as a vehicle for funding a
plan, in whole or in part, under the Employee Retirement Income
Security Act of 1974 and as to the eligibility requirements for a
specific plan and its state as well as federal tax aspects.
Systematic Withdrawal Plans
A shareholder owning shares having a value of $5,000 or more in
any Fund may establish a Systematic Withdrawal Plan providing for
periodic payments of a fixed or variable amount from the shareholder's
account. There is no minimum account size where payments are made
directly to The New England or the Distributor. There is no charge
for this service, and the shareholder may terminate his or her plan at
any time. Shareholders can establish the plan on the account
application or obtain a Service Options form for establishing such a
plan by calling New England Funds at 1-800-225-5478.
Under a Systematic Withdrawal Plan, shareholders may elect to
receive or direct payments monthly, quarterly, semiannually or
annually for a fixed amount of not less than $100 or a variable amount
based on (1) a specified percentage of an account's market value or
(2) a specified number of years for liquidating an 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.). Under a variable payment option,
the initial payment from an account for each Fund must be $100 or
more. In addition, shareholders who have purchased insurance or
annuity products of The New England may elect to have amounts
withdrawn from a Fund monthly to pay the necessary premiums.
Withdrawals may be paid to a person other than the shareholder if a
signature guarantee is provided. On Systematic Withdrawal Plans for
accounts subject to a contingent deferred sales charge ("CDSC"), the
redemption of shares will not be subject to a CDSC if the amount or
percentage you specify does not exceed, on an annualized basis, 10% of
the value of your account with the Fund. In the case of Class A and B
shares not subject to a CDSC, there is no limit on the percentage of
an account that may be redeemed. Please consult your investment
dealer or New England Funds for additional information.
No share certificates will be issued for an account that is
subject to a Systematic Withdrawal Plan. Income dividends and capital
gain distributions will be reinvested.
Since Systematic Withdrawal Plan payments represent proceeds from
the liquidation of shares, withdrawals may reduce and possibly exhaust
the initial investment, particularly in the event of a period of low
earnings. Accordingly, the 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
make no recommendations or representations in this regard. It may be
appropriate for the shareholder to consult a tax adviser before
establishing such a Plan. See "Redemptions" and "Tax Status," below,
for certain information as to federal income taxes. New England Funds
may modify or terminate this program at any time.
Exchange Privilege
Class A Fund shares may be exchanged for shares of either class
of the other Funds and Class B Fund shares may be exchanged for Class
B shares of any other Funds, subject to the minimum investment and
eligibility requirements of the series into which you are exchanging
and state securities law requirements. Shareholders may also exchange
their shares in the Funds for shares of the same class of any other
fund in the New England Funds listed below, subject to those funds'
eligibility requirements and sales charges. Class A shares may also
be exchanged for Class C shares of the New England Funds' Stock or
Bond Series, subject to the applicable sales charge. The Stock Series
of the New England Funds are: New England Capital Growth Fund, New
England Value Fund, New England Balanced Fund, New England Growth
Opportunities Fund, New England International Equity Fund, New England
Star Advisers Fund and New England Growth Fund; the Bond Series of the
New England Funds are: New England Government Securities Fund, New
England Limited Term U.S. Government Fund, New England Adjustable Rate
U.S. Government Fund, New England Strategic Income Fund, New England
Bond Income Fund, New England High Income Fund, New England Tax Exempt
Income Fund, New England Massachusetts Tax Free Income Fund, New
England Intermediate Term Tax Free Fund of California and New England
Intermediate Term Tax Free Fund of New York.
Shareholders of any of the other funds in the New England Funds
may exchange all or any portion of their shares (including the
proceeds of shares redeemed within 30 days before the exchange) for
shares of the same class of the Funds by telephoning or writing New
England Funds or their investment dealer; however, shareholders of
Class C shares of the New England Funds' Stock or Bond Series may
exchange those shares only for Class A shares of the Funds. Such an
exchange in the case of the Class B shares of the New England Funds
stops the aging period for purposes of determining the CDSC and
conversion to Class A, and the aging resumes only when an exchange is
made back into a non-money market fund in the New England Funds.
Shares of any Fund acquired through an exchange from the New
England Funds listed above may be re-exchanged for shares of the same
class of those New England Funds. Any such exchange will be based on
the respective current net asset values of the shares involved and no
sales charge will be imposed. Shareholders making such exchanges must
provide New England Funds with sufficient information to permit
verification of their prior ownership of shares.
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 at 1-800-225-5478 or (2) a written request to New England Funds,
using the Service Options Form available from your investment dealer.
In any event, a current prospectus of the fund whose shares will be
received must be delivered to the shareholder before the transaction
can be completed.
Automatic Exchange Plan
Shareholders may establish an Automatic Exchange Plan under which
shares are automatically redeemed each month and immediately
reinvested in shares of the same class of one or more of New England
Funds listed below, subject to the investor eligibility requirement of
that other fund and the exchange rules regarding Class A and Class B
above. Also, proceeds of automatic redemptions of Class A shares of
the Funds may be reinvested in Class C shares of those New England
Funds' Stock or Bond Series that offer Class C shares. Registrations
on all accounts must be identical. The two dates each month on which
exchanges may be made are the 15th or 28th (or the first business day
thereafter if the 15th or the 28th are not business days) and are made
until the account is exhausted or until New England Funds is notified
in writing to terminate the plan. Exchanges may be made in amounts of
$50 or more from any Fund. A sales charge will be imposed on such
exchanges unless the shares being exchanged were previously acquired
through an exchange from one of the New England Funds listed below.
Complete the account application or the Service Options form available
from New England Funds to establish an Automatic Exchange Plan.
Every exchange constitutes a sale of fund shares for federal
income tax purposes, on which an investor may realize a long- or short-
term capital gain or loss.
The other New England Funds and their investment objectives are as
follows:
STOCK FUNDS
NEW ENGLAND CAPITAL GROWTH FUND -- long term growth of capital.
NEW ENGLAND VALUE FUND -- a reasonable long-term investment return
from a combination of market appreciation and dividend income
from equity securities.
NEW ENGLAND BALANCED FUND -- a reasonable long-term investment return
from a combination of long-term capital appreciation and moderate
current income.
NEW ENGLAND GROWTH OPPORTUNITIES FUND -- opportunities for long-term
growth of capital and income.
NEW ENGLAND INTERNATIONAL EQUITY FUND -- total return, from long-term
growth of capital and dividend income, primarily through
investment in international equity securities.
NEW ENGLAND STAR ADVISERS FUND -- long-term growth of capital.
NEW ENGLAND GROWTH FUND -- 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.
(Note: New England Growth Fund offers only Class A shares, and
is available for purchase only by certain eligible investors.)
BOND FUNDS
NEW ENGLAND GOVERNMENT SECURITIES FUND -- 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 -- a high current return
consistent with preservation of capital. The Fund's current
return will include both interest income earned on investments
and any net short-term capital gains realized from options and
other portfolio transactions.
NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND -- a high level of
current income consistent with low volatility of principal.
NEW ENGLAND STRATEGIC INCOME FUND -- high current income with a
secondary objective of capital growth.
NEW ENGLAND BOND INCOME FUND -- a high level of current income
consistent with what the Fund considers reasonable risk.
NEW ENGLAND HIGH INCOME FUND -- high current income plus the
opportunities for capital appreciation to produce a high total
return.
NEW ENGLAND TAX EXEMPT INCOME FUND -- as high a level of current
income exempt from federal income taxes as is consistent with
reasonable risk and protection of shareholders' capital.
NEW ENGLAND MASSACHUSETTS TAX FREE INCOME FUND -- as high a level of
current income exempt from federal income tax and Massachusetts
personal income taxes as the Fund's investment adviser and
manager believes is consistent with preservation of capital.
NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA -- as high a
level of current income exempt from federal income tax and
California state personal income tax as is consistent with
preservation of capital.
NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF NEW YORK -- as high a
level of current income exempt from federal income tax and New
York state personal income tax and New York City personal income
tax as is consistent with preservation of capital.
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REDEMPTIONS
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The procedures for redemption of Fund shares are summarized in
the Prospectus following the caption "Selling Fund Shares." As
described in the Prospectus, under "Contingent Deferred Sales
Charges," a CDSC may be imposed in certain instances upon the
redemption of Fund shares which were acquired through an exchange of
shares of the New England Funds. For purposes of the CDSC, an
exchange of shares from one Fund to another Fund is not considered a
redemption or purchase. Any applicable CDSC will be calculated in the
manner described in the relevant prospectus of the New England Funds
and the related Statement of Additional Information.
Except as noted below, 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. Signature
guarantees by notaries public are not acceptable. However, as noted
in the Prospectus, 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.
In order to have redemption proceeds sent to your bank by
telephone, you either must select this service when completing the new
account application or must do so subsequently on the Service Options
Form, available from New England Funds or your investment dealer.
When selecting the service, you 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 New England Funds
or your investment dealer a completed Service Options Form with a
signature guarantee. Telephone redemptions proceeds may be wired to a
bank account only 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 Funds, the
Distributor and State Street Bank are not responsible for the
authenticity of withdrawal instructions received by telephone.
In order to redeem shares electronically through the ACH system,
a shareholder's bank or credit union must be a member of the ACH
system and the shareholder must have a completed, approved ACH
application on file. In addition, the telephone request must be
received no later than 4:00 p.m. (Eastern time). Upon receipt of the
required information, the appropriate number of shares will be
redeemed and the monies forwarded to the bank designated on the
shareholder's application through the ACH system. The redemption will
be processed the day the telephone call is made and the monies
generally will arrive at the shareholder's bank within three business
days. The availability of these monies will depend on the individual
bank's rules.
The redemption price will be the net asset value per share next
determined after the redemption request and any necessary special
documentation are received by New England Funds in proper form.
Payment normally will be made by State Street Bank on behalf of the
Fund within seven days thereafter. However, payment of the redemption
proceeds may be delayed if the purchase of shares was made by a check
or an electronic funds transfer, which was deposited or initiated,
respectively, less than ten days prior to the redemption request
(unless the Fund is aware that the check or transfer has cleared).
The Funds will normally redeem shares for cash. However, each of
the Funds reserves the right to pay the redemption price wholly or
partly in kind if the Board of Trustees of the relevant Trust
determines it to be advisable in the interest of the remaining
shareholders. If portfolio securities are distributed in lieu of
cash, the shareholder may be unable to sell the securities for the
full value placed on them when held by the Fund and will probably have
to pay a "dealer spread" or other brokerage amounts in order to
liquidate such securities. However, each Trust has elected to be
governed by Rule 18f-1 under the 1940 Act pursuant to which each Fund
is obligated to redeem shares solely in cash for any shareholder
during any 90-day period up to the lesser of $250,000 or 1% of the
total net asset value of the Fund at the beginning of such period.
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NET INCOME, DIVIDENDS AND VALUATION
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Determination of Net Income
The net income of each Fund is determined as of the close of
regular trading on the New York Stock Exchange (the "Exchange") on
each day that the Exchange is open for trading. The Exchange is
expected to be closed on the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. Net income includes (i) all
interest accrued and discount earned on the portfolio investments of
the Fund, minus (ii) amortized premium on such investments, plus or
minus (iii) all realized gains and losses on such investments, and
minus (iv) all expenses of the Fund.
Determination of Yield
Yield. Each Fund's yield, as it may appear in advertisements or
written sales material, represents the net change, exclusive of
capital changes, in the value of a hypothetical account having a
balance of one share at the beginning of the period for which yield is
determined (the "base period"). Current yield for the base period
(for example, seven calendar days) is calculated by dividing (i) the
net change in the value of the account for the base period by (ii) the
number of days in the base period. The resulting number is then
multiplied by 365 to determine the net income on an annualized basis.
This amount is divided by the value of the account as of the beginning
of the base period, normally $1, in order to state the current yield
as a percentage. Yield may also be calculated on a compound basis
("effective" or "compound" yield) which assumes continual reinvestment
throughout an entire year of net income earned at the same rate as net
income is earned by the account for the base period.
Each Fund's yield for the seven days ended June 30, 1995 and
effective yield based on such seven-day period were, respectively,
5.47% and 5.62% (Money Market Fund), 5.72% and 5.88% (Government Fund)
and 3.64% and 3.71% (Tax Exempt Fund).
Tax-Equivalent Yield. The Tax Exempt Fund may also advertise a
tax-equivalent yield or tax-equivalent effective yield, calculated as
described above, except that, for any given tax bracket, net
investment income will be calculated using as gross investment income
an amount equal to the sum of (i) any taxable income of the Fund plus
(ii) the tax exempt income of the Fund divided by the difference
between 1 and the effective federal income tax rate for taxpayers in
that tax bracket.
Tax-Equivalent Yield and Tax-Equivalent
Effective Yield for the 7 day period ended 6/30/95
7 day yield: 3.64%
7 day effective: 3.71%
Federal Tax- Tax-Equivalent
Tax Rate Equivalent Effective Yield
Yield
15% 4.28% 4.36%
28% 5.06% 5.15%
31% 5.28% 5.38%
36% 5.69% 5.80%
39.6% 6.03% 6.14%
The table below compares taxable and tax-free yields, based on
tax rates for 1995:
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TAX-FREE INVESTING
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Federal
Marginal
TAXABLE INCOME Tax
Joint Single Rate If Tax Exempt Yield is:
Return Return (1995) 2% 3% 4% 5% 6%
Then the Equivalent Taxable Yield
would be:
$0-$39,000 $0-$23,350 15% 2.35% 3.53% 4.71% 5.88% 7.06%
$39,001- $23,351-$56,550 28% 2.78% 4.17% 5.56% 6.94% 8.33%
$94,250
$94,251- $56,551- 31% 2.90% 4.35% 5.80% 7.25% 8.70%
$143,600 $117,950
$143,601- $117,951- 36% 3.13% 4.69% 6.25% 7.81% 9.38%
$256,500 $256,500
over $256,500 over $256,500 39.6% 3.31% 4.97% 6.62% 8.28% 9.93%
The table above does not take into account the effect of state
and local taxes, if any, or federal income taxes on social security
benefits which may arise as a result of receiving tax exempt income.
In General
Yield is calculated without regard to realized and unrealized
gains and losses. The yield of each Fund will vary depending on
prevailing interest rates, operating expenses and the quality,
maturity and type of instruments held in the portfolio of that Fund.
Consequently, no yield quotation should be considered as
representative of what the yield of the applicable Fund may be for any
future period. The Funds' yields are not guaranteed.
Shareholders comparing Fund yield with that of alternative
investments (such as savings accounts, various types of bank deposits,
and other money market funds) should consider such things as
liquidity, minimum balance requirements, checkwriting privileges, the
differences in the periods and methods used in the calculation of the
yields being compared, and the impact of taxes on alternative types of
investments.
Yield information may be useful in reviewing each Fund's
performance and providing a basis for comparison with other investment
alternatives. However, unlike bank deposits, traditional corporate or
municipal bonds or other investments which pay a fixed yield for a
stated period of time, money market and tax exempt money market fund
yields fluctuate.
Daily Dividends
As described in the Prospectus, the net income of each Fund is
declared as a dividend, at the closing of regular trading on the
Exchange each day that the Exchange is open. Dividends will be paid
in cash to the shareholder if the shareholder has notified State
Street Bank in writing of the election on or before payable date. The
net income for Saturdays, Sundays and other days on which the Exchange
is closed is declared as a dividend on the immediately preceding
business day. Although the Funds do not expect to realize any long-
term capital gains, if such gains are realized they will be
distributed once a year.
Valuation of the Funds' Portfolio Investments
The total net asset value of each Fund (the excess of the Fund's
assets over its liabilities) is determined by State Street Bank as of
the close of regular trading on the Exchange on each day the Exchange
is open for trading. (See "Determination of Net Income.") The
portfolio securities of each Fund are valued at their fair value as
determined in good faith by the relevant Trust's Board of Trustees or
persons acting at their direction. Under normal market conditions,
portfolio securities will be valued at amortized cost as described
below. Expenses of each Fund are paid or accrued each day.
Under the amortized cost method of valuation, securities are
valued at cost on the date of purchase. Thereafter, the value of
securities purchased at a discount or premium is increased or
decreased incrementally each day so that at maturity the purchase
discount or premium is fully amortized and the value of the security
is equal to its principal amount. Due to fluctuations in interest
rates, the amortized cost value of the securities of a Fund may at
times be more or less than their market value.
By using amortized cost valuation, the Funds seek to maintain a
constant net asset value of $1.00 per share despite minor shifts in
the market value of their portfolio securities. The yield on a
shareholder's investment may be more or less than that which would be
recognized if the net asset value per share were not constant and were
permitted to fluctuate with the market value of the portfolio
securities of each Fund. However, as a result of the following
procedures, it is believed that any difference will normally be
minimal. The trustees monitor quarterly the deviation between the net
asset value per share of each Fund as determined by using available
market quotations and its amortized cost price per share. Back Bay
Advisors(R) makes such comparisons at least weekly and will advise the
trustees promptly in the event of any significant deviation. If the
deviation exceeds 1/2 of 1% for any Fund, the relevant Board of
Trustees will consider what action, if any, should be initiated to
provide fair valuation of the portfolio securities of that Fund and
prevent material dilution or other unfair results to shareholders.
Such action may include redemption of shares in kind; selling
portfolio securities prior to maturity; withholding dividends; or
using a net asset value per share as determined by using available
market quotations. There is no assurance that each Fund will be able
to maintain its net asset value at $1.00.
---------------------------------------------------------------------
TAXES
---------------------------------------------------------------------
In General
The tax status of the Funds and the distributions that each Fund
may make are summarized in the text of the Prospectus titled "Income
Tax Considerations." Each Fund intends to qualify as a regulated
investment company under the Code. This means that the Fund is not
subject to federal income tax on net income and net realized capital
gains distributed to shareholders provided it distributes annually
substantially all its net investment income and net realized short-
term capital gains.
To avoid certain excise taxes, each Fund must distribute by
December 31 each year virtually all of its ordinary income realized in
that year, and any previously undistributed capital gains it realized
in the twelve months ended on October 31 of that year. Certain
dividends declared by a Fund in December but not actually received by
you until January will be treated for federal tax purposes as though
you had received them in December.
Money Market Fund and Government Fund
It is not expected that either Fund will realize any long-term
capital gains. However, to the extent that distributions of any net
realized long-term capital gains are made to shareholders of either
Fund, such gains are taxable to such shareholders as long-term capital
gains, whether received in cash or additional shares and regardless of
how long shareholders have held their shares. Such distributions are
not eligible for the dividends received deduction for corporations.
The Money Market Fund and the Government Fund are treated as
separate entities for federal income tax purposes.
Tax Exempt Fund
The Fund intends to have at least 50% of its total assets
invested in Municipal Securities at the close of each quarter of its
taxable year so that dividends paid by the Fund which are derived from
interest on Municipal Securities will be "exempt-interest dividends"
within the meaning of the Code. Exempt-interest dividends may be
treated by shareholders as interest excludable from gross income under
Section 103(a) of the Code. Dividends derived from income which is
not exempt from federal income tax, including interest earned on
investments in taxable money market securities or in repurchase
agreements and any net short-term capital gains realized by the Fund,
will be taxable to shareholders as ordinary income whether received in
cash or additional shares. See the Prospectus for information
concerning the federal income tax treatment of interest on "private
activity bonds" and certain other limitations on the tax-exempt status
of interest on Municipal Securities.
Net long-term capital gain distributions, if any, will be taxable
to shareholders as long-term capital gains, regardless of the length
of time the shareholder has held shares of the Fund.
None of the Funds' dividends or distributions are expected to be
eligible for the dividends-received deduction available to
corporations.
Under the Code, investors may not deduct interest on indebtedness
incurred or continued to purchase or carry shares of an investment
company paying exempt-interest dividends, such as the Fund. (See
Section 265(4) of the Code.) Further, entities or persons who are
"substantial users" (or persons related to "substantial users") of
facilities financed by industrial development bonds (see Appendix A-2)
should consult their tax advisers before purchasing shares of the
Fund.
Shareholders are advised to consult their own tax advisers for
more detailed information concerning the federal income taxation of
the Fund and the income tax consequences to its shareholders.
All Funds
The foregoing relates only to federal income taxation of
individuals and corporations. Prospective shareholders should consult
their tax advisers as to the possible application of state and local
income tax laws to Fund dividends and capital gain distributions and
the tax consequences of retirement plans offering tax benefits.
Information regarding the tax status of distributions made by the
Funds will be sent to shareholders shortly after the end of each
calendar year.
Financial Statements
The Financial Statements of each of the Funds and the related
reports of the independent accountants included in the annual reports
of the Funds for the year ended June 30, 1995, are incorporated herein
by reference.
---------------------------------------------------------------------
APPENDIX A
---------------------------------------------------------------------
DESCRIPTION OF CERTAIN NEW ENGLAND CASH MANAGEMENT TRUST INVESTMENTS:
Obligations Backed by Full Faith and Credit of the U.S.
Government(1) -- are bills, certificates of indebtedness, notes and
bonds issued by (i) the U.S. Treasury or (ii) agencies, authorities
and instrumentalities of the U.S. Government or other entities and
backed by the full faith and credit of the U.S. Government. Such
obligations include, but are not limited to, obligations issued by the
Government National Mortgage Association, the Farmers' Home
Administration and the Small Business Administration.
(1)These obligations, together with related repurchase agreements, are
the only obligations that may be purchased by the U.S. Government
Series.
Other U.S. Government Obligations -- are bills, certificates of
indebtedness, notes and bonds issued by agencies, authorities and
instrumentalities of the U.S. Government which are supported by the
right of the issuer to borrow from the U.S. Treasury or by the credit
of the agency, authority or instrumentality itself. Such obligations
include, but are not limited to, obligations issued by the Tennessee
Valley Authority, the Bank for Cooperatives, Federal Home Loan Banks,
Federal Intermediate Credit Banks, Federal Land Banks and the Federal
National Mortgage Association.
Repurchase Agreements -- are agreements by which the Fund
purchases a security (usually a U.S. Government Obligation) and
obtains a simultaneous commitment from the seller (a member bank of
the Federal Reserve System or, to the extent permitted by the 1940
Act, a recognized securities dealer) to repurchase the security at an
agreed upon price and date. The resale price is in excess of the
purchase price and reflects an agreed upon market rate unrelated to
the coupon rate on the purchased security. Such transactions afford
an opportunity for the Fund to earn a return on temporarily available
cash at minimal market risk, although the Fund may be subject to
various delays and risks of loss if the seller is unable to meet its
obligation to repurchase.
Certificates of Deposit -- are certificates issued against funds
deposited in a bank, are for a definite period of time, earn a
specified rate of return and are normally negotiable.
Bankers' Acceptances -- are short-term credit instruments used to
finance the import, export, transfer or storage of goods. They are
termed "accepted" when a bank guarantees their payment at maturity.
Yankeedollar Obligations -- obligations of U.S. branches of
foreign banks.
Eurodollar Obligations -- dollar-denominated obligations of
foreign banks (including U.S. and London branches of foreign banks)
and foreign branches of U.S. banks.
Commercial Paper -- refers to promissory notes issued by
corporations in order to finance their short-term credit needs. (See
Appendix C.)
Corporate Obligations -- include bonds and notes issued by
corporations in order to finance longer-term credit needs. (See
Appendix C.)
- ----------------------------------------------------------------------
APPENDIX B
- ----------------------------------------------------------------------
DESCRIPTION OF MUNICIPAL SECURITIES
The three principal classifications of Municipal Securities are
"Notes," "Bonds" and "Commercial Paper."
Municipal Notes. Municipal Notes are generally issued to finance
short-term capital needs and generally have maturities of one year or
less. Municipal Notes include:
1. Project Notes. Project Notes are issued by public bodies (called
"local issuing agencies") created under the laws of a state, territory
or U.S. possession. They have maturities that range up to one year
from the date of issuance. These Notes provide financing for a wide
range of financial assistance programs for housing, redevelopment and
related needs (such as low-income housing programs and urban renewal
programs). While they are the primary obligations of the local public
housing agencies or the local urban renewal agencies, they are also
backed by the full faith and credit of the U.S. Government.
Accordingly, investment restriction (1) of New England Tax Exempt
Money Market Trust is not applicable to Project Notes. See
"Investment Restrictions."
2. Tax Anticipation Notes. Tax Anticipation Notes are issued to
finance working capital needs of states, counties, municipalities and
other public bodies which have the legal power to tax. Generally,
they are issued in anticipation of various seasonal tax revenues, such
as real and personal property, income, sales, use and business taxes,
and are payable from some or all of these specific future taxes.
3. Revenue Anticipation Notes. Revenue Anticipation Notes are
issued to provide interim financing in expectation of receipt of
various types of non-tax revenue, such as revenues available to the
issuer under various federal revenue sharing programs. In some cases,
Revenue Anticipation Notes may be payable additionally from tax
revenues.
4. Bond Anticipation Notes. Bond Anticipation Notes are issued to
provide interim financing until long-term financing can be arranged.
In most cases, the long-term bonds, when sold and issued, then provide
the money for repayment of the Notes.
5. Construction Loan Notes. Construction Loan Notes are sold to
provide construction financing. After successful completion and
acceptance, many projects receive permanent financing through the
Federal Housing Administration under "Fannie Mae" (the Federal
National Mortgage Association) or "Ginnie Mae" (the Government
National Mortgage Association) programs.
Municipal Bonds. Municipal Bonds, which meet longer-term capital
needs and generally have maturities of more than one year when issued,
have two principal classifications: General Obligation Bonds and
Limited Obligation or Revenue Bonds. One type of Municipal Revenue
Bonds is referred to as Industrial Development Bonds. These three are
discussed below.
1. General Obligation Bonds. Issuers of General Obligation Bonds
include states, counties, cities, towns and regional districts. The
proceeds of these obligations are used to fund a wide range of public
projects, including construction or improvement of schools, highways
and roads, and water and sewer systems. The basic security behind
General Obligation Bonds is the issuer's pledge of its full faith and
credit and taxing power for the payment of principal and interest.
General Obligation Bonds are not payable 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. The taxes that can be levied for
the payment of debt service may be limited or unlimited as to rate or
amount. Such bonds may be additionally secured by special
assessments.
2. Limited Obligation or Revenue Bonds. The principal source for
repayment of a Revenue Bond is generally the net revenues derived from
a particular facility or group of facilities or, in some cases, the
proceeds of a special excise or other specific revenue source.
Revenue Bonds have been or may be issued to finance a wide variety of
capital projects including: electric, gas, water and sewer systems;
highways, bridges and tunnels; port facilities; colleges and
universities; and hospitals. Although the principal security behind
these bonds may vary, many provide additional security in the form of
a debt service reserve fund whose money may be used to make principal
and interest payments on the issuer's obligations. Housing finance
authorities have a wide range of security, including partially or
fully insured mortgages, rent subsidies and/or collateralized
mortgages, and/or the net revenues from housing or other public
projects. Some authorities provide further security in the form of a
state's ability (without obligation) to make up deficiencies in the
debt service reserve fund.
3. Industrial Development Bonds. 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 raise money
to finance various privately-operated facilities for business and
manufacturing, housing, sports and pollution control; such obligations
are included within the term Municipal Bonds if the interest paid
thereon is, in the opinion of bond counsel, exempt from federal income
tax. These bonds also have been or may be used to finance public
facilities, which may be privately used and operated, such as
airports, mass transit systems, ports and parking. The payment of the
principal and interest on such bonds is dependent solely on the
ability of the facility's user to meet its financial obligations and
the pledge, if any, of real or personal property so financed as
security for such payment. The Tax Reform Act of 1986 eliminated some
types of industrial revenue bonds but retained others under the
general category of "private activity bonds."
Tax-Exempt Commercial Paper. Tax-Exempt Commercial Paper is a
short-term obligation with a stated maturity of 365 days or less. It
is issued by agencies of state and local governments to finance
seasonal working capital needs or as short-term financing in
anticipation of longer term financing. Tax-Exempt Commercial Paper is
often renewed or refunded at its maturity by the issuance of other
short or long-term obligations.
Other Types of Municipal Securities. The foregoing describes
types of Municipal Securities which are presently available. New
England Tax Exempt Money Market Trust may, to the extent consistent
with its investment objective, policies and restrictions, invest in
other types of Municipal Securities as they become available in the
future.
- ----------------------------------------------------------------------
APPENDIX C
- ----------------------------------------------------------------------
RATINGS OF CORPORATE AND MUNICIPAL BONDS, COMMERCIAL PAPER AND
SHORT-TERM TAX-EXEMPT OBLIGATIONS
Set forth below are descriptions of the highest ratings of Moody's
Investors Service, Inc. ("Moody's") and Standard & Poor's Ratings
Group ("S&P") for corporate and municipal bonds, commercial paper and
short-term tax-exempt obligations. Ratings for commercial paper have
been included since certain of the obligations which the Funds are
authorized to purchase have characteristics of commercial paper and
have been rated as such by Moody's and S&P.
MOODY'S RATINGS
Corporate and Municipal Bonds
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be 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 which make the long-
term risks appear somewhat larger than in Aaa securities.
Short-Term Municipal Notes
The two highest ratings of Moody's for short-term municipal notes are
MIG-1 and MIG-2: MIG-1 denotes "best quality, enjoying strong
protection from established cash flows;" MIG-2 denotes "high quality,"
with margins of protection ample although not so large as in the
preceding group.
Commercial Paper
The rating P-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings
are the following: (1) evaluation of the management of the issuer;
(2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain
areas; (3) evaluation of the issuer's products in relation to
competition and customer acceptance; (4) liquidity; (5) amount and
quality of long-term debt; (6) trend of earnings over a period of ten
years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by the
management of obligations which may be present or may arise as a
result of public interest questions and preparations to meet such
obligations.
Issuers rated Prime-1 are judged to be of the best quality. Their
short-term debt obligations carry the smallest degree of investment
risk. Margins of support for current indebtedness are large or stable
with cash flow and asset protection well assured. Current liquidity
provides ample coverage of near-term liabilities and unused
alternative financing arrangements are generally available. While
protective elements may change over the intermediate or long term,
such changes are most unlikely to impair the fundamentally strong
position of short-term obligations.
S&P RATINGS
Corporate and Municipal Bonds
AAA -- This is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity to pay principal and
interest.
AA -- Bonds rated AA also qualify as high quality debt obligations.
Capacity to pay principal and interest is very strong, and in the
majority of instances they differ from AAA issues only in small
degree.
Short-Term Municipal Notes
S&P does not rate short-term municipal notes as such.
Commercial Paper
Commercial paper rated A-1 by S&P has the following characteristics:
Liquidity ratios are adequate to meet cash requirements. Long-term
senior debt is rated "A" or better. The issuer has access to at least
two additional channels of borrowing. Basic earnings and cash flow
have an upward trend with allowance made for unusual circumstances.
Typically, the issuer's industry is well established and the issuer
has a strong position within the industry. The reliability and
quality of management are unquestioned. Commercial paper within the A-
1 category which has overwhelming safety characteristics is denoted "A-
1+."
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APPENDIX D
---------------------------------------------------------------------
PUBLICATIONS THAT MAY BE REFERRED TO IN FUND ADVERTISEMENTS OR
SALES LITERATURE
ABC and affiliates
Adam Smith's Money World
America On Line
Anchorage Daily News
Atlanta Constitution
Atlanta Journal
Arizona Republic
Austin American Statesman
Baltimore Sun
Barron's
Bergen County Record (NJ)
Bloomberg Business News
Bond Buyer
Boston Business Journal
Boston Globe
Boston Herald
Broker World
Business Radio Network
Business Week
CBS and affiliates
CFO
Changing Times
Chicago Sun Times
Chicago Tribune
Christian Science Monitor
Christian Science Monitor News Service
Cincinnati Enquirer
Cincinnati Post
CNBC
CNN
Columbus Dispatch
CompuServe
Dallas Morning News
Dallas Times-Herald
Denver Post
Des Moines Register
Detroit Free Press
Donoghues Money Fund Report
Dorfman, Dan (syndicated column)
Dow Jones News Service
Economist
FACS of the Week
Financial News Network
Financial Planning
Financial Planning on Wall Street
Financial Research Corp.
Financial Services Week
Financial World
Fitch Insights
Forbes
Fort Worth Star-Telegram
Fortune
Fox Network and affiliates
Fund Action
Fund Decoder
Global Finance
(the) Guarantor
Hartford Courant
Houston Chronicle
INC
Indianapolis Star
Individual Investor
Institutional Investor
International Herald Tribune
Internet
Investment Advisor
Investment Company Institute
Investment Dealers Digest
Investment Profiles
Investment Vision
Investor's Daily
IRA Reporter
Journal of Commerce
Kansas City Star
KCMO (Kansas City)
KOA-AM (Denver)
Los Angeles Times
Leckey, Andrew (syndicated column)
Lear's
Life Association News
Lifetime Channel
Miami Herald
Milwaukee Sentinel
Money
Money Maker
Money Management Letter
Morningstar
Mutual Fund Market News
National Public Radio
National Underwriter
NBC and affiliates
New England Business
New England Cable News
New Orleans Times-Picayune
New York Daily News
New York Times
Newark Star Ledger
Newsday
Newsweek
Nightly Business Report
Orange County Register
Orlando Sentinel
Palm Beach Post
Pension World
Pensions and Investments
Personal Investor
Philadelphia Inquirer
Porter, Sylvia (syndicated column)
Portland Oregonian
Prodigy
Public Broadcasting Service
Quinn, Jane Bryant (syndicated column)
Registered Representative
Research Magazine
Resource
Reuters
Rocky Mountain News
Rukeyser's Business (syndicated column)
Sacramento Bee
San Diego Tribune
San Francisco Chronicle
San Francisco Examiner
San Jose Mercury
Seattle Post-Intelligencer
Seattle Times
Securities Industry Management
Smart Money
St. Louis Post Dispatch
St. Petersburg Times
Standard & Poor's Outlook
Standard & Poor's Stock Guide
Stanger's Investment Advisor
Stockbroker's Register
Strategic Insight
Tampa Tribune
Time
Tobias, Andrew (syndicated column)
Toledo Blade
UPI
US News and World Report
USA Today
USA TV Network
Value Line
Wall St. Journal
Wall Street Letter
Wall Street Week
Washington Post
WBZ
WBZ-TV
WCVB-TV
WEEI
WHDH
Worcester Telegram
Worth Magazine
WRKO
---------------------------------------------------------------------
APPENDIX E
---------------------------------------------------------------------
CERTAIN INFORMATION THAT MAY BE INCLUDED IN ADVERTISING AND
PROMOTIONAL LITERATURE
References may be included in New England Funds' advertising and
promotional literature to NEIC and its affiliates that perform
advisory or subadvisory functions for New England Funds including, but
not limited to: New England Funds Management, L.P., Back Bay
Advisors(R), Loomis, Sayles & Company, L.P., Capital Growth Management
Limited Partnership, Draycott Partners, Ltd. and Westpeak Investment
Advisors, L.P.
References may be included in New England Funds' advertising and
promotional literature to NEIC affiliates that do not perform advisory
or subadvisory functions for the Funds including, but not limited to,
New England Investment Associates, L.P., Copley Real Estate Advisors,
L.P., Marlborough Capital Advisors, L.P., Reich & Tang Capital
Management and Reich & Tang Mutual Funds Group.
References to subadvisers unaffiliated with NEIC that perform
subadvisory functions on behalf of New England Funds may be contained
in New England Funds' advertising and promotional literature
including, but not limited to, Berger Associates, Inc., Janus Capital
Corporation and Founders Asset Management, Inc.
New England Funds' advertising and promotional material may
include, but is not limited to, discussions of the following
information about the above entities:
[]Specific and general investment emphasis, specialties, competencies,
operations and functions
[]Specific and general investment philosophies, strategies, processes
and techniques
[]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
[]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
[]Specific identification of, and general reference to, current
individual, corporate and institutional clients, including pension
and profit sharing plans
[]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
In addition, communications and materials developed by New
England Funds may make reference to the following information about
NEIC and its affiliates:
NEIC is the fifth largest publicly traded money manager in the
U.S. listed on the New York Stock Exchange. NEIC maintains over $68
billion in assets under management. Clients serviced by NEIC and its
affiliates, besides New England Funds, include wealthy individuals,
major corporations and large institutions.
Back Bay Advisors(R) employs a conservative style of management
emphasizing short and intermediate term securities to reduce
volatility, adds value through careful, continuous credit analysis and
has expertise in government, corporate and tax-free municipal bonds
and equity securities. Among its clients are Boston City Retirement
System, Public Service Electric & Gas of New Jersey, Petrolite Corp.
and General Mills.
Draycott Partners, Ltd. specializes in international stocks and
tracks key world markets and economic trends from offices in London
and Boston. Its investment approach is based on concentration on
"blue chip" companies in stable, growing economies and is guided by
independent, non-consensus thinking. It monitors country weightings
with strict attention to risk control to promote long-term returns.
Capital Growth Management Limited Partnership seeks to deliver
exceptional growth for its clients through the selection of stocks
with the potential to outperform the market and grow at a faster rate
than the U.S. economy. Among its approaches are pursuit of growth 50%
above the Standard & Poor's Index of 500 Common Stocks, prompt
responses to changes in the market or economy and aggressive, highly
concentrated portfolios.
Loomis, Sayles & Company, L.P. is one of the oldest and largest
investment firms in the U.S. and has provided investment counseling to
individuals and institutions since 1926. Characteristic of Loomis,
Sayles & Company, L.P. is that it has one of the largest staffs of
research analysts in the industry, practices strict buy and sell
disciplines and focuses on sound value in stock and bond selection.
Among its clients are large corporations such as Chrysler, Mobil Oil
and Revlon.
Westpeak Investment Advisors, L.P. ("Westpeak") employs
proprietary research and a disciplined stock selection process that
seeks rigorously to control unnecessary risk. Its investment process
is designed to evaluate when value and growth styles - two primary
approaches to stock investing - hold potential for reward. Over
seventy fundamental attributes are continuously analyzed by Westpeak's
experienced analysts and sophisticated computer systems. The results
are assessed against Wall Street's consensus thinking, in pursuit of
returns in excess of appropriate benchmarks. The value/growth
strategy is a unique blend of investment styles, seeking opportunities
for increased return with reduced risk. Among the keys to Westpeak's
investment process are continuous review of timely, accurate data on
over 3600 companies, analysis of dozens of factors for excess return
potential and identification of overvalued and undervalued stocks.
On June 30, 1995, NEIC purchased the assets of Graystone
Partners, L.P. ("Graystone"), a Chicago-based consulting firm focusing
exclusively on working with the wealthiest families in the country.
Founded in 1993, Graystone specializes in assisting high net worth
families in developing asset allocation strategies, identifying
appropriate portfolio managers and the monitoring of investment
performance.
In addition, NEIC expects to purchase the assets of Harris
Associates, L.P., a Chicago-based investment management company with
more than $6.5 billion in assets under management, comprised of the
$3.2 billion Oakmark Fund Group and $3.3 billion in institutional
assets.
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 which 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 legislation and IRS
requirements and rules, including, but not limited to, reporting
standards, minimum distribution notices, Forms 5500, Form 1099R
and other relevant forms and documents, Department of Labor rules
and standards and other regulations. 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 other 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 regulations 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 its 401(k) and retirement plan offerings,
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 Systems, Inc. and BFDS, including but not
limited to mutual fund processing support, participant 800
numbers and participant 401(k) statements
-the services of Trust Consultants Inc., including but not limited
to, sales support, plan record keeping, document service support,
plan sponsor support, compliance testing and Form 5500
preparation.
[]Specific and general reference to the role of the investment dealer
and the benefits and features of working with a financial
professional including:
-access to expertise on investments
-assistance in interpreting past, present and future market trends
and economic events
-providing information to clients, including participants, during
enrollment and on an ongoing basis after enrollment
-promoting and understanding the benefits of investing, including
mutual fund diversification and professional management.
