<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange
Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
NEW ENGLAND FUNDS TRUST I, NEW ENGLAND FUNDS TRUST II, NEW ENGLAND
CASH MANAGEMENT TRUST and NEW ENGLAND TAX EXEMPT MONEY MARKET
TRUST
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(Name of each Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-6(j)(2).
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
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(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
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[X] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND
NEW ENGLAND BALANCED FUND
NEW ENGLAND BOND INCOME FUND
NEW ENGLAND CAPITAL GROWTH FUND
NEW ENGLAND CASH MANAGEMENT TRUST--MONEY MARKET SERIES
NEW ENGLAND CASH MANAGEMENT TRUST--U.S. GOVERNMENT SERIES
NEW ENGLAND GOVERNMENT SECURITIES FUND
NEW ENGLAND GROWTH FUND
NEW ENGLAND GROWTH OPPORTUNITIES FUND
NEW ENGLAND HIGH INCOME FUND
NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA
NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF NEW YORK
NEW ENGLAND INTERNATIONAL EQUITY FUND
NEW ENGLAND LIMITED TERM U.S. GOVERNMENT FUND
NEW ENGLAND MASSACHUSETTS TAX FREE INCOME FUND
NEW ENGLAND STAR ADVISERS FUND
NEW ENGLAND STRATEGIC INCOME FUND
NEW ENGLAND TAX EXEMPT INCOME FUND
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST
NEW ENGLAND VALUE FUND
NOTICE OF SPECIAL MEETINGS OF SHAREHOLDERS
December 28, 1995
To the Shareholders:
Notice is hereby given that a Special Meeting of Shareholders of the New
England Funds listed above (the "Funds") will be held at the offices of New
England Funds, L.P., 399 Boylston Street, 4th floor, Boston, Massachusetts
02116, on December 28, 1995 at 11:00 a.m. (Boston time), for the following
purposes:
With respect to each Fund:
1. To approve or disapprove new investment advisory arrangements
to be effective upon the merger of New England Mutual Life
Insurance Company into Metropolitan Life Insurance Company,
such arrangements to be substantially identical to the
investment advisory arrangements in effect for the Fund
immediately prior to such merger. (See page 5 of the attached
Proxy Statement for a summary and page 9 for more detailed
information.)
With respect to each Fund except New England Growth Fund, New England
International Equity Fund and New England Strategic Income Fund:
2. To approve or disapprove a new Advisory Agreement between the
Fund and New England Funds Management, L.P. ("NEFM"); and
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3. To approve or disapprove a related Sub-Advisory Agreement
between NEFM and such Fund's current investment adviser (in
the case of New England Growth Opportunities Fund, between
NEFM and the Fund's current sub-adviser, and in the case of
New England Star Advisers Fund, separate Sub-Advisory
Agreements between NEFM and the Fund's four current sub-
advisers). (See page 6 of the attached Proxy Statement for a
summary and page 13 for more detailed information.)
With respect to New England International Equity Fund only:
4. To approve or disapprove a new Advisory Agreement between the
Fund and NEFM;
5. To approve or disapprove a related Sub-Advisory Agreement
between NEFM and Draycott Partners, Ltd. ("Draycott"), the
Fund's current investment adviser, to be effective upon the
sale of Draycott to Cursitor Holdings Ltd. U.K. ("Cursitor
Holdings"); and
6. To approve or disapprove a new Sub-Advisory Agreement between
NEFM and Draycott, to be effective upon the acquisition of the
business of Cursitor Holdings and Cursitor-Eaton Asset
Management Company by Alliance Capital Management L.P. (See
page 7 of the attached Proxy Statement for a summary and page
18 for more detailed information.)
With respect to New England Growth Fund only:
7. To approve or disapprove authorization to issue multiple
classes of shares of the Fund. (See page 8 of the attached
Proxy Statement for a summary and page 24 for more detailed
information.)
With respect to New England Bond Income, New England High Income and New
England Massachusetts Tax Free Income Funds only:
8. To approve or disapprove changes in each Fund's fundamental
investment restrictions, in order to permit each Fund to
engage in transactions in options and futures contracts (and,
in the case of New England Bond Income Fund only, currency
forward contracts). (See page 8 of the attached Proxy
Statement for a summary and page 26 for more detailed
information.)
With respect to New England Massachusetts Tax Free Income Fund only:
9. To approve or disapprove a change in the Fund's fundamental
investment policies, in order to permit the Fund, under normal
market conditions, to invest up to 20% of its net assets in
securities that produce income that is subject to the regular
federal income tax, the Massachusetts personal income tax or
<PAGE>
the federal alternative minimum tax. (See page 9 of the
attached Proxy Statement for a summary and page 30 for more
detailed information.)
With respect to New England Tax Exempt Income Fund only:
10. To approve or disapprove the elimination of the Fund's
fundamental investment policy that requires that it normally
invest at least 80% of its net assets in tax exempt bonds the
income from which is not subject to the federal alternative
minimum tax. (See page 9 of the attached Proxy Statement for a
summary and page 31 for more detailed information.)
With respect to each Fund:
11. To consider and act upon any other matters which may properly
come before the meeting or any adjournment thereof.
By order of the President,
ROBERT P. CONNOLLY, Secretary
November 17, 1995
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YOUR VOTE IS IMPORTANT
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PLEASE FILL IN, DATE, SIGN AND RETURN THE ENCLOSED INSTRUCTION FORM PROMPTLY
IN THE ENCLOSED POSTAGE-PAID ENVELOPE WHETHER OR NOT YOU PLAN TO BE PRESENT AT
THE MEETING. YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING.
<PAGE>
NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND
NEW ENGLAND BALANCED FUND
NEW ENGLAND BOND INCOME FUND
NEW ENGLAND CAPITAL GROWTH FUND
NEW ENGLAND CASH MANAGEMENT TRUST--MONEY MARKET SERIES
NEW ENGLAND CASH MANAGEMENT SERIES--U.S. GOVERNMENT SERIES
NEW ENGLAND GOVERNMENT SECURITIES FUND
NEW ENGLAND GROWTH FUND
NEW ENGLAND GROWTH OPPORTUNITIES FUND
NEW ENGLAND HIGH INCOME FUND
NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA
NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF NEW YORK
NEW ENGLAND INTERNATIONAL EQUITY FUND
NEW ENGLAND LIMITED TERM U.S. GOVERNMENT FUND
NEW ENGLAND MASSACHUSETTS TAX FREE INCOME FUND
NEW ENGLAND STAR ADVISERS FUND
NEW ENGLAND STRATEGIC INCOME FUND
NEW ENGLAND TAX EXEMPT INCOME FUND
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST
NEW ENGLAND VALUE FUND
PROXY STATEMENT
Each of the funds listed above (each a "Fund") is a portfolio of New England
Funds Trust I, New England Funds Trust II, New England Cash Management Trust
or New England Tax Exempt Money Market Trust (the "Trusts"). This Proxy
Statement is furnished in connection with the solicitation of proxies by the
Boards of Trustees of the Trusts for use at the Special Meeting of
Shareholders of the Funds to be held at the offices of New England Funds, L.P.
(the "Distributor"), 399 Boylston Street, 4th floor, Boston, Massachusetts
02116, on December 28, 1995 at 11:00 a.m. (Boston time), and at any
adjournment or adjournments thereof (the "Meeting"). This statement and its
enclosures are being mailed to shareholders of the Funds beginning on or about
November 20, 1995. Shareholders of each Fund may obtain a copy of that Fund's
most recent annual report to shareholders (and any more recent semi-annual
report) without charge by writing to the Distributor at the above address or
by calling (800) 225-5478.
This Proxy Statement consists of eight parts.
PART I contains general information relating to the Meeting and a summary of
the matters being proposed for shareholder consideration at the Meeting. Part
I is intended to give shareholders a concise overview of the matters to be
voted on at the Meeting.
PART II contains information relating to the merger (the "Merger") of New
England Mutual Life Insurance Company ("The New England") into
<PAGE>
Metropolitan Life Insurance Company ("Metropolitan Life"). The Merger is being
treated, for purposes of the Investment Company Act of 1940 (the "1940 Act"),
as a change of control of (1) New England Investment Companies, L.P. ("NEIC")
and its subsidiary firms, and (2) Capital Growth Management Limited
Partnership ("CGM"). NEIC serves as investment adviser to New England Star
Advisers Fund, and subsidiaries of NEIC serve as advisers or sub-advisers to
all of the Funds except New England Growth Fund. The New England owns a
controlling interest in NEIC. After the Merger, this interest will be owned
directly or indirectly by Metropolitan Life. NEIC owns a majority limited
partnership interest in CGM, which serves as adviser to New England Growth
Fund. Under the 1940 Act, a change of control of NEIC, its subsidiaries and
CGM constitutes an "assignment" (as defined in the 1940 Act) of the agreements
under which those firms serve as advisers or sub-advisers to the Funds, and
results in the automatic termination of those agreements, effective at the
time of the Merger. The Trustees have approved, and recommend that the
shareholders of each Fund approve, a new Advisory Agreement (and, for Funds
that have Sub-Advisory Agreements in effect prior to the Merger, new Sub-
Advisory Agreements). These proposed new agreements would be identical, except
for their dates, to the agreements in effect immediately prior to the Merger,
and would take effect at the time of the Merger. As a result, the Funds'
advisers and sub-advisers would continue to perform advisory and sub-advisory
services for the Funds after the Merger, on the same terms as are in effect
immediately before the Merger.
PART III contains information relating to the proposed restructuring and/or
standardization of the advisory arrangements for 17 of the Funds. Under the
proposed restructuring, New England Funds Management, L.P. ("NEFM") would
become the adviser of 16 of these Funds, and, except in the case of New
England Star Advisers Fund, the firm that currently acts as adviser for the
Fund would become the Fund's sub-adviser. As sub-adviser, the Fund's current
adviser would continue to provide day-to-day portfolio management services to
the Fund, under the oversight of NEFM and the Trustees. NEFM would conduct the
day-to-day administration of the Fund's affairs (other than portfolio
management). (In the case of New England Star Advisers Fund, the proposed
restructuring would simply involve substituting NEFM for NEIC as the Fund's
adviser; the Fund's four current sub-advisers would remain as sub-advisers,
under NEFM's and the Trustees' oversight. In the case of New England Growth
Opportunities Fund, restructured advisory and sub-advisory arrangements are
already in effect, and it is proposed only to modify the termination
provisions and the standard of liability that applies to NEFM's and the sub-
adviser's provision of services to the Fund, so that they will be the same as
for the other Funds.) The proposed restructuring and standardization do not
apply to New England Strategic Income Fund (which already has similar
arrangements in place with NEFM and a sub-adviser), or to New England Growth
Fund.
PART IV contains information concerning proposed changes in the investment
advisory arrangements for New England International Equity Fund.
2
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These changes include a proposed restructuring of advisory arrangements
similar to that relating to other Funds described in Part III, and the
approval of new Sub-Advisory Agreements to take effect upon certain expected
changes in the ownership of Draycott Partners, Ltd. ("Draycott"), which
currently serves as the Fund's adviser and is proposed to become the Fund's
sub-adviser.
PART V contains information concerning a proposal to authorize the issuance
of multiple classes of shares of New England Growth Fund.
PART VI contains information concerning proposed changes in investment
policies or restrictions for four of the Funds (New England Bond Income Fund,
New England High Income Fund, New England Massachusetts Tax Free Income Fund
and New England Tax Exempt Income Fund).
PART VII contains additional information about the Funds' current advisory
and sub-advisory arrangements, the proposed new advisory and sub-advisory
arrangements for the Funds affected by Proposals 2-6, the Funds' advisers and
sub-advisers and certain brokerage matters. Shareholders should review this
information in conjunction with their consideration of the proposals described
in Parts II, III and IV of this Proxy Statement.
PART VIII contains certain additional information about the conduct of the
Meeting, ownership of Fund shares as of the record date for the Meeting and
miscellaneous other matters.
3
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I. GENERAL
The following table summarizes which of the Proposals described in this
Proxy Statement relate to which of the Funds:
<TABLE>
<CAPTION>
RELEVANT SECTIONS OF
PROPOSAL RELEVANT FUND(S) THIS PROXY STATEMENT
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<S> <C> <C>
1. New investment advisory All Funds II, VII
arrangements, to be
effective at the time
of the Merger.
2, 3. New Advisory Agreement All Funds except New III, VII
with NEFM and related England Growth Fund,
Sub-Advisory Agreement New England International
between NEFM and the Equity Fund and New
Fund's current adviser England Strategic
(or sub-adviser(s), in Income Fund
the case of New England
Growth Opportunities
Fund and New England
Star Advisers Fund).
4, 5. New Advisory Agreement New England IV, VII
with NEFM and related International Equity Fund
Sub-Advisory Agreement
between NEFM and
Draycott, to be
effective upon a change
in ownership of
Draycott.
6. Sub-Advisory Agreement New England IV, VII
with Draycott, to be International Equity Fund
effective at the time
of a further change in
ownership of Draycott.
7. Authorization to issue New England Growth Fund V
multiple classes of
shares.
8. Changes in investment New England Bond Income VI(A)
restrictions to permit Fund, New England High
transactions in Income Fund and New
options, futures England Massachusetts
contracts and (for New Tax Free Income Fund
England Bond Income
Fund only) currency
forward contracts.
9. Change in investment New England VI(B)
policies relating to Massachusetts Tax Free
investments that Income Fund
produce income subject
to regular federal
income tax,
Massachusetts personal
income tax or the
federal alternative
minimum tax.
10. Elimination of New England Tax Exempt VI(C)
fundamental investment Income Fund
policy relating to
investment in tax
exempt bonds.
</TABLE>
Each Fund's shareholders of record on October 31, 1995 (the "Record Date")
are entitled to one vote for each share of beneficial interest of the Fund
held as of that date. Shareholders of each Fund vote only on the proposals
that apply to that Fund. Information about the number of shares outstanding on
the Record Date and certain shareholders is set forth in Part VIII of this
Proxy Statement.
4
<PAGE>
Timely, properly executed proxies will be voted as you instruct. If you
return your proxy card and no choice is indicated, your shares will be voted
in favor of the proposals relating to your Fund set forth in the attached
Notice of Meeting. At any time before it has been voted, the enclosed proxy
may be revoked by the signer by a written revocation received by the Secretary
of the Trusts, by properly executing a later-dated proxy or by attending the
Meeting, requesting return of any previously delivered proxy and voting in
person.
The portion of the costs of solicitation of proxies that is allocable to
Proposals 1-6 will be borne by one or more of The New England, NEIC, NEFM, the
Distributor, Draycott, Metropolitan Life or their affiliates, and not by the
Funds. The portion of such costs that is allocable to Proposals 7, 8, 9 and 10
will be borne by the four Funds to which those Proposals apply. Solicitation
of proxies by personal interview, mail, telephone and telegraph may be made by
officers and Trustees of the Funds and employees of The New England, the
Distributor (which is the Funds' principal underwriter), NEFM, New England
Securities Corporation ("NESCO") and the Funds' advisers and sub-advisers. The
firm of D.F. King & Co., Inc. has been retained to assist in the solicitation
of proxies, at a cost not expected to exceed $270,000 plus reimbursement of
the firm's out-of-pocket expenses.
SUMMARY OF PROPOSALS
PROPOSAL 1--APPROVAL OF NEW ADVISORY ARRANGEMENTS FOR EACH FUND, TO BE
EFFECTIVE AT THE TIME OF THE MERGER.
As explained above, the Merger of The New England into Metropolitan Life is
being treated, for purposes of the 1940 Act, as a change of control of CGM,
NEIC and NEIC's subsidiaries that serve as advisers and sub-advisers to the
Funds. The Merger will thus result in the automatic termination, at the time
of the Merger, of all of the Funds' Advisory and Sub-Advisory Agreements.
Proposal 1 seeks shareholder approval of new Advisory Agreements for each Fund
(including new Sub-Advisory Agreements for those Funds that have Sub-Advisory
Agreements in effect immediately before the Merger), to be effective at the
time of the Merger. For each Fund, the proposed new agreement(s) would be in
substance identical to the agreement(s) in effect with respect to such Fund
immediately before the Merger. THE EFFECT OF PROPOSAL 1 IS TO PERMIT THE FUNDS
TO CONTINUE TO OPERATE, FOLLOWING THE MERGER, UNDER ARRANGEMENTS SUBSTANTIALLY
IDENTICAL TO THOSE THAT ARE IN EFFECT IMMEDIATELY BEFORE THE MERGER. PROPOSAL
1 WILL NOT RESULT IN ANY CHANGE IN THE IDENTITY OF THE FIRMS OR PERSONNEL
PROVIDING ADVISORY OR SUB-ADVISORY SERVICES TO THE FUNDS, OR IN THE FEE RATES
PAYABLE BY THE FUNDS. For each Fund, the advisory arrangements in effect will
be either (1) the arrangements that are currently in effect (the "Existing
Advisory Arrangements") or (2) any new arrangements that are approved at the
Meeting and take effect before the Merger. Part VII of
5
<PAGE>
this Proxy Statement describes the Existing Advisory Arrangements for each
Fund. Parts III and IV of this Proxy Statement describe proposed changes in
the Existing Advisory Arrangements for most of the Funds. The changes proposed
in Parts III and IV are unrelated to the Merger, and, if approved by
shareholders at the Meeting, are expected to be put into effect whether or not
the Merger occurs. The Merger is currently expected to occur no earlier than
the first calendar quarter of 1996.
PROPOSALS 2 AND 3--NEW ADVISORY AGREEMENT WITH NEFM AND RELATED SUB- ADVISORY
AGREEMENT(S) (FOR ALL FUNDS EXCEPT NEW ENGLAND GROWTH
FUND, NEW ENGLAND INTERNATIONAL EQUITY FUND AND NEW
ENGLAND STRATEGIC INCOME FUND).
Proposals 2 and 3 relate to a proposed restructuring and standardization of
the Existing Advisory Arrangements for a number of the Funds. Under the
Existing Advisory Arrangements for many of these Funds, an investment advisory
subsidiary of NEIC is responsible, under an Advisory Agreement with the Fund,
for providing both portfolio management and general administrative services
for the Fund. Each investment adviser provides portfolio management services
to the Fund, but has elected to delegate responsibility for the Fund's
administrative affairs to the Distributor or its affiliate, NESCO. In the case
of New England Star Advisers Fund, NEIC itself is the Fund's investment
adviser, but has delegated day-to-day portfolio management responsibilities to
four sub-advisers, and day-to-day administrative responsibilities to the
Distributor. In the case of New England Adjustable Rate U.S. Government Fund,
New England Intermediate Term Tax Free Fund of California and New England
Intermediate Term Tax Free Fund of New York, a NEIC subsidiary acts as
investment adviser, and the Distributor provides administrative services under
a separate agreement with the Fund. In the case of New England Growth
Opportunities Fund, NEFM acts as the Fund's adviser, but has delegated day-to-
day portfolio management responsibilities to a NEIC subsidiary as sub-adviser.
Under the proposed restructuring, each Fund would enter into a new Advisory
Agreement with NEFM (Proposal 2). NEFM, in turn, would enter into a new Sub-
Advisory Agreement with the firm that currently acts as the Fund's investment
adviser (or, in the case of New England Growth Opportunities Fund, a new Sub-
Advisory Agreement with the firm that currently acts as the Fund's sub-adviser
and, in the case of New England Star Advisers Fund, new Sub-Advisory
Agreements with each of the four firms that currently act as the Fund's sub-
advisers) (Proposal 3). NEFM is a recently organized subsidiary of NEIC that
is intended to provide centralized coordination and oversight of the affairs
and operations of the New England Funds. The proposed restructuring would give
NEFM overall advisory and administrative responsibility for all of the
affected Funds, while continuing the responsibilities of the Funds' current
advisers (sub-adviser(s), in the case of New England Growth Opportunities Fund
and New England Star Advisers Fund) with respect to the Funds' day-to-day
portfolio management.
6
<PAGE>
The proposed restructuring will not result in any changes in the investment
objectives or policies of the Funds, or the personnel that are currently
responsible for the Funds' day-to-day investment operations. Furthermore, the
fee rates payable by the Funds under the new arrangements would be exactly the
same as the aggregate rates under their existing advisory and administrative
services agreements. In the case of several of the Funds, however (New England
Adjustable Rate U.S. Government Fund, New England Cash Management Trust--Money
Market Series, New England Cash Management Trust--U.S. Government Series, New
England High Income Fund, New England Intermediate Term Tax Free Fund of
California, New England Intermediate Term Tax Free Fund of New York, New
England Limited Term U.S. Government Fund, New England Massachusetts Tax Free
Income Fund and New England Tax Exempt Money Market Trust), the proposed new
arrangements would shift certain legal and accounting expenses from the Fund's
current investment adviser to the Fund. For these nine Funds, therefore, the
restructuring would result in an increase (estimated at between 0.01% and
0.19% of each Fund's average net assets annually) in Fund operating expenses.
The effect of these increases and certain voluntary fee waivers is illustrated
in Appendix A to this Proxy Statement. In the case of New England Growth
Opportunities Fund, the purpose of the proposed new arrangements is simply to
conform the termination provisions and the standard of liability in the Fund's
Advisory and Sub-Advisory Agreements to those that are currently in effect for
most of the other Funds and will be in effect for all of the other Funds
assuming the proposed restructuring is effected.
The proposed new advisory and sub-advisory arrangements, if approved by
shareholders, are expected to be put into effect on January 1, 1996, or as
soon thereafter as is practicable.
PROPOSALS 4, 5 AND 6--NEW ADVISORY AND SUB-ADVISORY AGREEMENTS FOR NEW ENGLAND
INTERNATIONAL EQUITY FUND.
Draycott has served as the investment adviser for New England International
Equity Fund since that Fund's inception in 1992. NEIC, which owns all of the
stock of Draycott, has recently entered into an agreement to sell the stock to
Cursitor Holdings Ltd. U.K. ("Cursitor Holdings"). Under the 1940 Act, this
sale will constitute a change in control of Draycott and will result in the
automatic termination of the Fund's Advisory Agreement with Draycott. The
Trustees have determined that it is desirable to retain Draycott, as sub-
adviser, to manage the Fund's investment portfolio following Cursitor
Holdings' acquisition of Draycott. For the same reasons that the Trustees are
proposing the restructuring of investment advisory arrangements for most of
the other Funds (see "Proposals 2 and 3" immediately above and Part III of
this Proxy Statement), the Trustees are proposing that the Fund enter into a
new Advisory Agreement with NEFM (Proposal 4), and that NEFM enter into a new
Sub-Advisory Agreement with Draycott (Proposal 5), both concurrently with the
acquisition of Draycott by Cursitor Holdings. This new Advisory Agreement
7
<PAGE>
would combine in a single agreement the responsibilities for both investment
management and general administration, which are currently the subject of
separate agreements. Under the new Advisory Agreement, NEFM would have overall
advisory and administrative responsibility for the Fund, and would oversee the
portfolio management services provided by Draycott as sub-adviser pursuant to
the new Sub-Advisory Agreement. The fee rate payable by the Fund under the new
arrangements would be the same as the combined investment management and
administration fee payable by the Class A, B and C shares of the Fund, but
would represent a small increase (0.05% annually of average daily net assets)
for the Fund's Class Y shares.
Shortly after the acquisition of Draycott's stock by Cursitor Holdings,
Cursitor Holdings itself is expected to enter into a transaction with Alliance
Capital Management L.P., as described more fully in Part IV(B) of this Proxy
Statement. This transaction will constitute a change in control of Draycott
and will result in the automatic termination of the proposed Sub-Advisory
Agreement between NEFM and Draycott. To permit Draycott to continue to act as
sub-adviser following this second change of control, the Trustees are
proposing a new Sub-Advisory Agreement, to take effect at the time of the
second change of control (Proposal 6). The new Sub-Advisory Agreement would be
identical in substance to the Sub-Advisory Agreement that would be in effect
immediately before the second change of control.
PROPOSALS 4, 5 AND 6 WOULD NOT RESULT IN ANY CHANGE IN THE FUND'S INVESTMENT
OBJECTIVE OR POLICIES OR IN THE PERSONNEL RESPONSIBLE FOR THE FUND'S DAY-TO-
DAY PORTFOLIO MANAGEMENT.
PROPOSAL 7--AUTHORIZATION OF MULTIPLE CLASSES OF SHARES FOR NEW ENGLAND GROWTH
FUND.
All of the stock and bond Funds in the New England Funds group currently
issue two or more different classes of shares, with the exception of New
England Growth Fund. The ability to issue multiple classes of shares permits
funds to offer investors a choice among different sales load and shareholder
servicing arrangements. The Trustees believe that it is desirable and
appropriate for New England Growth Fund to have the same flexibility in this
regard as the other stock and bond Funds already have.
PROPOSAL 8--CHANGES IN INVESTMENT RESTRICTIONS OF NEW ENGLAND BOND INCOME, NEW
ENGLAND HIGH INCOME AND NEW ENGLAND MASSACHUSETTS TAX FREE INCOME
FUNDS.
As more fully described in Part VI(A) of this Proxy Statement, the Trustees
are proposing certain changes in the investment restrictions of New England
Bond Income, New England High Income and New England Massachusetts Tax Free
Income Funds, at the recommendation of these Funds' investment adviser. These
changes would permit these Funds to buy and sell futures contracts on
securities and securities indexes and to write, purchase or sell put or call
options on securities and on such futures contracts or indexes and, in the
case of New England Bond Income Fund, to enter into currency forward
contracts.
8
<PAGE>
PROPOSAL 9--CHANGE IN INVESTMENT POLICIES FOR NEW ENGLAND MASSACHUSETTS TAX
FREE INCOME FUND.
New England Massachusetts Tax Free Income Fund currently operates under
investment policies that provide in substance that, under normal market
conditions, at least 90% of the Fund's income distributions will be exempt
from federal income tax and Massachusetts personal income taxes, and from the
federal alternative minimum tax. As more fully described in Part VI(B) of this
Proxy Statement, it is proposed to replace these policies with a policy that,
under normal market conditions, no more than 20% of the Fund's assets will be
invested in investments that produce income subject to regular federal income
tax, Massachusetts personal income taxes or the federal alternative minimum
tax.
PROPOSAL 10--ELIMINATION OF FUNDAMENTAL INVESTMENT POLICY FOR NEW ENGLAND TAX
EXEMPT INCOME FUND.
New England Tax Exempt Income Fund currently has an investment policy that
requires the Fund, under normal market conditions, to invest at least 80% of
its net assets in tax exempt bonds the income from which is not subject to the
federal alternative minimum tax. This policy is a "fundamental" policy, which
means that it cannot be changed or eliminated without a vote of the Fund's
shareholders. As more fully described in Part VI(C) of this Proxy Statement,
it is proposed to eliminate this fundamental policy, and replace it with a
non-fundamental policy that will require the Fund, under normal market
conditions, to invest at least 80% of its total assets in municipal securities
(including securities the income from which is subject to the federal
alternative minimum tax).
II. APPROVAL OR DISAPPROVAL OF NEW INVESTMENT ADVISORY ARRANGEMENTS TO BE
EFFECTIVE AT THE TIME OF THE MERGER (ALL FUNDS)
The Trustees of the Trust unanimously recommend that the shareholders of
each Fund vote to approve new investment advisory arrangements for the Fund,
to be effective at the time of the Merger. The new arrangements would be
substantially identical to the arrangements in effect for each Fund
immediately prior to the time of the Merger. As explained above, the Merger is
being treated, for purposes of the 1940 Act, as a change in control of CGM,
NEIC and NEIC's subsidiary firms that serve as advisers or sub-advisers to the
Funds. The 1940 Act provides that such a change in control constitutes an
"assignment" of the Advisory and Sub-Advisory Agreements under which CGM, NEIC
and NEIC's subsidiaries provide advisory and sub-advisory services to the
Funds. The 1940 Act further provides that such an "assignment" will result in
the automatic termination of those agreements, at the time of the Merger. (In
the case of New England Star Advisers Fund, three firms that are unaffiliated
with NEIC (as well as one NEIC subsidiary) serve as sub-advisers under Sub-
Advisory Agreements with NEIC, which is the Fund's adviser. The Merger does
not constitute a change in control of these unaffiliated sub-advisers, but
their Sub-Advisory Agreements with NEIC provide that they terminate
automatically upon any termination of the Advisory Agreement between the Fund
and NEIC. Because
9
<PAGE>
the Merger will result in the automatic termination of the Advisory Agreement
between the Fund and NEIC, it will also result in the termination of these
Sub-Advisory Agreements with unaffiliated sub-advisers.)
THE MERGER. In August 1995, The New England and Metropolitan Life entered
into an agreement providing for the Merger of the two companies (the "Merger
Agreement"). Metropolitan Life will be the surviving company following the
Merger. Both The New England and Metropolitan Life are mutual insurance
companies. The Merger will result in the insurance policyholders of The New
England becoming policyholders of Metropolitan Life. The policyholders of The
New England will not receive any other payment, property or consideration in
connection with the Merger. The Merger will not be effected unless it is
approved by the requisite vote of the policyholders of both The New England
and Metropolitan Life. The Merger also requires approval by various government
regulatory agencies. In addition, consummation of the Merger is subject to the
fulfillment of a number of other conditions, although the parties may waive
some or all of these conditions. There is no assurance that the Merger will in
fact be consummated. In addition, because it is impossible to predict with
certainty when the necessary regulatory approvals will be obtained and the
other conditions to the Merger be fulfilled, it is not known, as of the date
of this Proxy Statement, when the Merger will occur. The parties currently
expect, however, that the Merger will not occur earlier than the first
calendar quarter of 1996.
NEIC is organized as a limited partnership. NEIC's sole general partner, New
England Investment Companies, Inc. ("NEIC Inc."), is a wholly-owned subsidiary
of The New England. The address of The New England is 501 Boylston Street,
Boston, Massachusetts 02116. As a result of the Merger, NEIC Inc. would become
a direct or indirect wholly-owned subsidiary of Metropolitan Life. The New
England also owns a majority of the outstanding limited partnership interest
in NEIC. The Merger would result in Metropolitan Life becoming the owner
(directly or through a wholly-owned subsidiary) of this limited partnership
interest. The Merger Agreement provides that, following the consummation of
the Merger, Metropolitan Life shall have the right to designate a majority of
the board of directors of NEIC Inc. The following wholly-owned subsidiaries of
NEIC serve as advisers or sub-advisers of various Funds: Loomis, Sayles &
Company, L.P. ("Loomis Sayles"), Back Bay Advisors, L.P. ("Back Bay
Advisors"), Westpeak Investment Advisors, L.P. ("Westpeak") and Draycott. NEIC
also owns a majority limited partnership interest in CGM. The New England's
current ownership interest, through NEIC, in these subsidiaries and in CGM
would become indirectly owned by Metropolitan Life as a result of the Merger.
(As explained in Part IV of this Proxy Statement, however, NEIC has entered
into an agreement to sell Draycott to Cursitor Holdings, a company
unaffiliated with The New England or Metropolitan Life. This sale is currently
expected to occur before the Merger, in which case Metropolitan Life would not
become the indirect owner of any equity interest in Draycott as a result of
the Merger.)
10
<PAGE>
Under the Merger Agreement, The New England and Metropolitan Life agree that
they will use their best efforts to satisfy the conditions of Section 15(f) of
the 1940 Act with respect to the Trusts. Section 15(f) provides that an
investment adviser to a registered investment company (such as each Trust),
and affiliated persons of such investment adviser, may receive any amount or
benefit in connection with the sale of securities of, or a sale of any other
interest in, such investment adviser which results in an assignment of an
investment advisory contract with such investment company, if
(1) for a period of 3 years after the time of such action, at least 75%
of the board of such investment company are not interested persons of such
company's investment adviser or predecessor investment adviser, and
(2) there is not imposed an unfair burden on such investment company as
a result of such transaction or any express or implied terms, conditions
or understandings applicable thereto.
Satisfaction of condition (1) above is not expected to require any changes in
the composition of the Trusts' Boards of Trustees.
INFORMATION ABOUT METROPOLITAN LIFE. Metropolitan Life was incorporated
under the laws of New York in 1866 and since 1868 has been engaged in the life
insurance business under its present name. By the early 1900s, it had become
the largest life insurance company in the United States and is currently the
second largest life insurance company in the United States in terms of total
assets. Metropolitan Life's assets as of June 30, 1995 were over $130 billion,
and its adjusted capital as of that date exceeded $8 billion. Subsidiaries of
Metropolitan Life manage over $25 billion of assets for mutual fund,
institutional and other investment advisory clients. The address of
Metropolitan Life is One Madison Avenue, New York, New York 10010.
TRUSTEES' RECOMMENDATION. The Trustees unanimously recommend that
shareholders approve new investment advisory arrangements for the Funds, to be
effective at the time of the Merger. These new arrangements will be
substantially identical to the arrangements in effect immediately before the
Merger. (The only difference will be that the new arrangements will be set
forth in Advisory and Sub-Advisory Agreements dated the date of the Merger,
whereas the arrangements in effect prior to the Merger are set forth in
Advisory and Sub-Advisory Agreements that bear earlier dates.) The proposed
new arrangements will be substantially identical to the Funds' Existing
Advisory Arrangements (which are described in Part VII of this Proxy
Statement), except in the cases of those Funds that have instituted, prior to
the Merger, the proposed restructuring of advisory arrangements described in
Parts III and IV of this Proxy Statement. (The proposed restructuring is
unrelated to the Merger and is intended to take effect, if approved by Fund
shareholders, regardless of whether the Merger occurs.)
In coming to the recommendation set forth above, the Trustees reviewed
extensive information about the Funds, their advisers and sub-advisers, NEIC
11
<PAGE>
and Metropolitan Life. The Trustees also considered the policies of each
adviser and sub-adviser with respect to the placing of portfolio transactions
for the Funds with brokers or dealers who furnish brokerage and research
services to the advisers and sub-advisers. (Those policies are described in
Part VII of this Proxy Statement.)
The Trustees noted that, for purposes of the 1940 Act, the Merger
constitutes a change in control of NEIC and of NEIC's subsidiaries that act as
advisers or sub-advisers for the Funds. The Merger may also constitute a
change in control of CGM, the adviser to New England Growth Fund. (NEIC owns a
majority limited partnership interest in CGM.) To avoid any uncertainty over
whether the Advisory Agreement between New England Growth Fund and CGM would
be deemed to terminate with the change of control of NEIC, it is proposed (and
the Trustees recommend) that shareholders approve a new Advisory Agreement for
New England Growth Fund, identical, except for its date, to the existing
agreement, to be effective at the time of the Merger.
Although the Merger is being treated as a change in control of NEIC and CGM
and of the Funds' advisers and sub-advisers that are subsidiaries of NEIC, the
Merger is not expected to result in any change in the personnel, operations or
financial condition of NEIC, CGM or the Funds' advisers and sub-advisers that
are subsidiaries of NEIC. NEIC has indicated that each adviser and sub-adviser
affiliated with NEIC will continue to be independently managed, as has
historically been the case. Thus, the Merger is not expected to result in any
changes in the investment approaches or styles of the advisers and sub-
advisers.
The Trustees accordingly concluded that it is appropriate and desirable for
the Funds to continue, after the Merger, to operate under substantially the
same investment advisory and sub-advisory arrangements as are in effect
immediately before the Merger. Under the 1940 Act, such continuation requires,
in the case of each Fund, the approval of that Fund's shareholders, by vote of
the lesser of (1) 67% of the shares of that Fund represented at the Meeting,
if more than 50% of the shares of that Fund are represented at the Meeting, or
(2) more than 50% of the outstanding shares of the Fund.
The Trustees unanimously recommend that the shareholders of each Fund vote
in favor of Proposal 1, in order that the Funds may continue to receive
investment advisory and sub-advisory services following the Merger, on the
same basis as before the Merger.
If the shareholders of any Fund do not approve Proposal 1, the Advisory and
any Sub-Advisory Agreement(s) relating to that Fund will terminate at the time
of the Merger, and the Trustees will consider such alternative actions as are
in the best interest of that Fund.
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<PAGE>
III. APPROVAL OR DISAPPROVAL OF NEW ADVISORY AND SUB-ADVISORY AGREEMENTS (ALL
FUNDS EXCEPT NEW ENGLAND GROWTH FUND, NEW ENGLAND INTERNATIONAL EQUITY
FUND AND NEW ENGLAND STRATEGIC INCOME FUND)
Proposals 2 and 3 relate to the proposed restructuring and/or
standardization of the management arrangements for certain Funds.
Two of the Funds currently employ NEFM as adviser. In these two cases, NEFM
has delegated day-to-day portfolio management responsibility to another firm
that acts as sub-adviser to the Fund. The two Funds that currently employ this
adviser/sub-adviser structure are New England Growth Opportunities Fund and
New England Strategic Income Fund. A third Fund--New England Star Advisers
Fund--currently employs NEIC as adviser, with day-to-day portfolio management
responsibilities delegated to four different sub-advisers, each of which is
responsible for a separate segment of the Fund's portfolio. Each of the 17
other Funds in the New England Funds group currently employs an investment
adviser directly. These Funds and their advisers are listed in the following
table:
<TABLE>
<CAPTION>
FUND ADVISER
---- -------
<S> <C>
New England Adjustable Rate U.S. Government Fund Back Bay Advisors
New England Balanced Fund Loomis Sayles
New England Bond Income Fund Back Bay Advisors
New England Capital Growth Fund Loomis Sayles
New England Cash Management Trust--Money Market Series Back Bay Advisors
New England Cash Management Trust--U.S. Government Series Back Bay Advisors
New England Government Securities Fund Back Bay Advisors
New England Growth Fund CGM
New England High Income Fund Back Bay Advisors
New England Intermediate Term Tax Free Fund of California Back Bay Advisors
New England Intermediate Term Tax Free Fund of New York Back Bay Advisors
New England International Equity Fund Draycott
New England Limited Term U.S. Government Fund Back Bay Advisors
New England Massachusetts Tax Free Income Fund Back Bay Advisors
New England Tax Exempt Income Fund Back Bay Advisors
New England Tax Exempt Money Market Trust Back Bay Advisors
New England Value Fund Loomis Sayles
</TABLE>
13
<PAGE>
Although the existing Advisory Agreements obligate the advisers of 13 of these
17 Funds to provide certain administrative services, as well as portfolio
management services, the advisers have in every such case elected to delegate
their administrative functions to either the Distributor or its affiliate,
NESCO. In the case of four of the Funds listed in the table above (New England
Adjustable Rate U.S. Government Fund, New England Intermediate Term Tax Free
Fund of California, New England Intermediate Term Tax Free Fund of New York
and New England International Equity Fund), the adviser is not obligated to
provide the Fund with general administrative services, but the Distributor is
so obligated under a separate Administrative Services Agreement with the Fund.
Thus, in practice, the advisers of all 17 of these Funds are themselves
furnishing the Funds with portfolio management services only, while the
Distributor or NESCO is furnishing administrative services.
PROPOSED RESTRUCTURING. The Trustees are now proposing to restructure and
standardize the contractual terms of the investment advisory arrangements for
most of the Funds. Under the proposed restructuring, NEFM would become the
investment adviser for all of the Funds listed in the table in the preceding
paragraph, in addition to the two Funds for which it already acts as adviser
(New England Growth Opportunities Fund and New England Strategic Income Fund).
Day-to-day portfolio management for each of these Funds would continue to be
provided by the same firms, and the same personnel, as currently. These firms
would perform these portfolio management services under Sub-Advisory
Agreements with NEFM, and would operate under the oversight of NEFM and the
Trustees of the Trusts. (One Fund, New England Growth Fund, would continue to
receive advisory services directly from its current adviser, CGM, without any
involvement by NEFM, although certain administrative services would continue
to be provided by the Distributor, under contract with CGM. Personnel of the
Distributor who provide these services are in most cases also personnel of
NEFM and would provide similar services to the other Funds under the proposed
new Advisory Agreements between those Funds and NEFM.)
The Funds that would be directly affected by the proposed restructuring are
New England Adjustable Rate U.S. Government Fund, New England Balanced Fund,
New England Bond Income Fund, New England Capital Growth Fund, New England
Cash Management Trust--Money Market Series, New England Cash Management
Trust--U.S. Government Series, New England Government Securities Fund, New
England High Income Fund, New England Intermediate Term Tax Free Fund of
California, New England Intermediate Term Tax Free Fund of New York, New
England International Equity Fund, New England Limited Term U.S. Government
Fund, New England Massachusetts Tax Free Income Fund, New England Star
Advisers Fund, New England Tax Exempt Income Fund, New England Tax Exempt
Money Market Trust and New England Value Fund. New England Growth
Opportunities Fund would be affected only in that its Advisory and Sub-
Advisory Agreements would be changed to conform the termination provisions in
the agreements with those of the other Funds and to subject the adviser and
sub-adviser to the same standard
14
<PAGE>
of liability (willful misfeasance, bad faith, gross negligence and reckless
disregard of obligations and duties) as applies to the advisers of most of the
other Funds and as will apply to the advisers and sub-advisers of all of the
other Funds, assuming the proposed restructuring is effected. The Funds listed
in this paragraph are referred to in this Proxy Statement as the "Affected
Funds."
Proposals 2 and 3 relate to the proposed restructuring and/or
standardization of the advisory arrangements for all of the Affected Funds
except New England International Equity Fund, which is the subject of
Proposals 4 and 5 (see Part IV of this Proxy Statement). In the case of each
Affected Fund except New England International Equity Fund, Proposal 2 seeks
shareholder approval for the new Advisory Agreement between each Fund and
NEFM, under which NEFM would be appointed the Fund's adviser, and Proposal 3
seeks shareholder approval for the related Sub-Advisory Agreement(s) relating
to each such Fund.
In the case of each Affected Fund except New England Growth Opportunities
Fund and New England Star Advisers Fund, the restructuring and standardization
would take the form of (1) appointing NEFM as the Fund's adviser, in place of
the Fund's current adviser, and (2) appointing the Fund's current adviser as
sub-adviser, with responsibility for day-to-day portfolio management. In the
case of New England Star Advisers Fund, the restructuring would take the form
of (1) appointing NEFM as the Fund's adviser, in place of NEIC, and (2) re-
appointing the Fund's four current sub-advisers, who would continue to provide
the same services as currently, but under the oversight of NEFM (rather than
NEIC) and the Trustees. In the case of those Funds with Administrative
Services Agreements with the Distributor, such agreements would be terminated
because NEFM will provide administrative services to these Funds under the new
Advisory Agreements. For these Funds, the advisory fee rate to be paid to NEFM
under the new Advisory Agreement is equal to the sum of the advisory fee rate
provided in the Fund's existing Advisory Agreement plus the administrative
services fee rate provided in the Fund's existing Administrative Services
Agreement with the Distributor. In the case of New England Growth
Opportunities Fund, no changes in the current structure of the Fund's advisory
and sub-advisory arrangements are proposed, but the provisions of the Fund's
Advisory and Sub-Advisory Agreements relating to termination of the Agreements
and to the standard for determining liability of the adviser and sub-adviser
would be changed.
In addition to establishing the adviser/sub-adviser structure described
above, the proposed new Advisory and Sub-Advisory Agreements would effect
certain other substantive changes in the advisory arrangements for some of the
Funds. First, for six of the Funds (New England Star Advisers Fund, New
England Capital Growth Fund, New England High Income Fund, New England Limited
Term U.S. Government Fund, New England Massachusetts Tax Free Income Fund and,
as noted above, New England Growth Opportunities Fund), the contractual
provisions relating to the circumstances in which the advisers or
15
<PAGE>
sub-advisers may be liable to the Funds would be changed. See "The New
Advisory Agreements and the Existing Advisory Agreements--Other Provisions" in
Part VII of this Proxy Statement. Second, for two of the Funds (New England
High Income Fund and New England Massachusetts Tax Free Income Fund), a
provision obligating the adviser to bear Fund expenses in excess of 1 1/2% of
Fund average annual net assets would be eliminated. See "The New Advisory
Agreements and the Existing Advisory Agreements--Services and Fees" in Part
VII of this Proxy Statement. The purpose of these changes is to eliminate
substantive differences that currently exist between the advisory arrangements
for these Funds and those for the other New England Funds.
Each Fund's investment objective, policies and strategies would be
unaffected by the proposed restructuring and standardization of advisory
arrangements.
TRUSTEES' RECOMMENDATION. The Trustees have unanimously approved the
proposed new Advisory Agreements with NEFM and the related Sub-Advisory
Agreements. In deciding to approve the agreements, the Trustees considered
that the 20 Funds within the New England Funds group currently employ a total
of 10 different investment management firms (including NEIC and NEFM) as
investment advisers or sub-advisers.
THE TRUSTEES BELIEVE THAT IT IS APPROPRIATE AND DESIRABLE, IN THE INTERESTS
OF CONSISTENT, CENTRALIZED MANAGEMENT AND OVERSIGHT OF THE FUNDS' OPERATIONS,
TO APPOINT NEFM AS INVESTMENT ADVISER AND ADOPT THE PROPOSED ADVISER/SUB-
ADVISER STRUCTURE.
In voting to approve the proposed arrangements, the Trustees noted that the
proposal involves no reduction in the scope of services to be provided to the
Affected Funds, and no increase in the fees and expenses to be borne by the
Affected Funds, except that in the case of nine Funds, the cost of certain
legal and accounting services which is currently borne by these Funds'
advisers would be shifted to the Funds themselves. These nine Funds are New
England Adjustable Rate U.S. Government Fund, New England Cash Management
Trust--Money Market Series, New England Cash Management Trust--U.S. Government
Series, New England High Income Fund, New England Intermediate Term Tax Free
Fund of California, New England Intermediate Term Tax Free Fund of New York,
New England Limited Term U.S. Government Fund, New England Massachusetts Tax
Free Income Fund and New England Tax Exempt Money Market Trust. For these nine
Funds, the restructuring would result in an increase (estimated at between
0.01% and 0.19% of each Fund's average net assets annually) in Fund operating
expenses. The effect of this shifting of costs for these Funds and certain
voluntary fee waivers is illustrated in Appendix A at the end of this Proxy
Statement.
THE PROPOSED NEW ARRANGEMENT WOULD MORE ACCURATELY REFLECT THE FACT THAT THE
AFFECTED FUNDS' CURRENT ADVISERS ARE ENGAGED PRIMARILY IN THE
16
<PAGE>
INVESTMENT MANAGEMENT BUSINESS, AND ARE NOT IN THE BUSINESS OF THEMSELVES
RENDERING COMPREHENSIVE ADMINISTRATIVE AND GENERAL MANAGEMENT SERVICES TO
MUTUAL FUNDS. THE TRUSTEES ALSO BELIEVE IT IS BENEFICIAL TO ADOPT STANDARDIZED
FORMS OF ADVISORY AND SUB-ADVISORY AGREEMENTS FOR THE FUNDS, IN PLACE OF THE
DIFFERING FORMS OF ADVISORY, SUB-ADVISORY AND ADMINISTRATIVE SERVICES
AGREEMENTS CURRENTLY IN PLACE.
The Trustees also noted that the firms that currently serve as investment
advisers to the Affected Funds, but would become sub-advisers under the
proposed restructuring, would receive lower compensation under the proposed
Sub-Advisory Agreements than they receive under their existing Advisory
Agreements with the Affected Funds. This reduction in compensation reflects,
among other things, that, as sub-advisers, these firms would be responsible
for providing only portfolio management services to the Affected Funds, and
would be relieved of their current responsibilities to provide administrative
and general management services to the Affected Funds. The Trustees concluded
that the fee rates payable to NEFM by the Funds, and to the sub-advisers by
NEFM, under the proposed new agreements are reasonable and appropriate in
light of the respective services to be provided and obligations undertaken by
those parties under the new agreements.
In determining to recommend the proposed Sub-Advisory Agreement for each
Affected Fund, the Trustees considered the policies of each such Fund's
proposed sub-adviser with respect to the placing of portfolio transactions for
the Fund with brokers or dealers who furnish brokerage and research services
to the proposed sub-advisers. These policies are described in Part VII of this
Proxy Statement.
REQUIRED VOTE. The shareholders of each Affected Fund (other than New
England International Equity Fund, which is not the subject of Proposals 2 and
3) vote separately from the shareholders of each other Affected Fund with
respect to the new Advisory Agreement (Proposal 2) and Sub-Advisory
Agreement(s) (Proposal 3) for that Fund. Although shareholders of each
Affected Fund will vote on the proposed Sub-Advisory Agreement(s) separately
from the proposed new Advisory Agreement, neither the Sub-Advisory
Agreement(s) nor the new Advisory Agreement relating to a Fund will take
effect unless shareholders of that Fund approve both Proposal 2 and Proposal
3, i.e., both the Advisory Agreement and the Sub-Advisory Agreement(s). The
required vote for each Proposal is the lesser of (1) 67% of the shares of the
relevant Fund represented at the Meeting, if more than 50% of the shares of
that Fund are represented at the Meeting, or (2) more than 50% of the
outstanding shares of the relevant Fund. If shareholders of any Affected Fund
(other than New England International Equity Fund) do not approve both the new
Advisory Agreement and new Sub-Advisory Agreement(s) relating to that Fund,
the existing Advisory Agreement relating to that Fund (and, in the case of New
England Growth Opportunities Fund and New England Star Advisers Fund, the
existing Sub-Advisory Agreements) will remain in effect.
17
<PAGE>
The Trustees unanimously recommend that shareholders of each Affected Fund
vote to approve the proposed new Advisory Agreement and Sub-Advisory
Agreement(s) relating to that Fund.
IV. APPROVAL OR DISAPPROVAL OF NEW INVESTMENT ADVISORY AND SUB-ADVISORY
AGREEMENTS (NEW ENGLAND INTERNATIONAL EQUITY FUND ONLY)
Proposals 4 and 5 relate, respectively, to a proposed new Advisory Agreement
and Sub-Advisory Agreement for New England International Equity Fund, and
Proposal 6 relates to another proposed new Sub-Advisory Agreement for New
England International Equity Fund, to take effect upon two expected changes of
control of Draycott, the Fund's current adviser.
A. PROPOSALS 4 AND 5--NEW ADVISORY AND SUB-ADVISORY AGREEMENTS TO TAKE EFFECT
UPON THE SALE OF DRAYCOTT TO CURSITOR HOLDINGS.
The Fund currently employs Draycott as its investment adviser. Under the
proposed new arrangements, NEFM would be the Fund's adviser, and Draycott, as
sub-adviser, would continue to be responsible for the day-to-day management of
the Fund's investment portfolio. This proposed adviser/sub-adviser structure
is similar to the structure currently in effect for three of the Funds, and
proposed for adoption by most of the other Funds as described in Part III of
this Proxy Statement. The proposed restructuring of the advisory arrangements
for New England International Equity Fund (Proposals 4 and 5) is discussed in
this Part IV(A), separately from the proposed restructuring of the
arrangements for these other Funds, because NEIC has entered into an agreement
to sell the stock of Draycott to Cursitor Holdings. This sale will constitute
a change in control of Draycott under the 1940 Act, which will terminate the
current Advisory Agreement in effect between the Fund and Draycott. Proposal 4
relates to a new Advisory Agreement between the Fund and NEFM, and Proposal 5
relates to a new Sub-Advisory Agreement between NEFM and Draycott, each to
take effect upon the acquisition of Draycott by Cursitor Holdings.
EXISTING ADVISORY ARRANGEMENTS. Draycott currently serves as adviser to the
Fund under an Advisory Agreement that obligates Draycott to provide the Fund
with portfolio management services, and obligates the Fund to pay Draycott an
advisory fee at the annual rate of 0.80% of the first $200 million of the
Fund's average daily net assets, 0.75% of the next $300 million of such assets
and 0.70% of the excess of such assets over $500 million. The Advisory
Agreement also obligates Back Bay Advisors to provide day-to-day cash
management services in connection with the Fund's portfolio, for a fee
(payable by Draycott) of 0.08% annually of the Fund's average daily net
assets. Under a separate Administrative Services Agreement with the
Distributor, the Fund pays the Distributor for providing general
administrative services, at the annual rate of 0.10% of the average daily net
assets attributable to all classes of shares of
18
<PAGE>
the Fund except Class Y shares, and 0.05% of the average daily net assets
attributable to the Class Y shares. (Class Y shares are available for purchase
only by certain institutional investors; the other classes of shares--Classes
A, B and C--are available for purchase by the investing public generally.)
PROPOSED NEW ARRANGEMENTS. The proposed new arrangements would consist of an
Advisory Agreement between NEFM and the Fund (Proposal 4), and a related Sub-
Advisory Agreement between NEFM and Draycott (Proposal 5). Under the Advisory
Agreement, NEFM would be obligated to provide the Fund with the same services
that are currently provided under two different agreements (the existing
Advisory Agreement and the existing Administrative Services Agreement). The
annual rate of the fee payable by the Fund to NEFM under the new Advisory
Agreement would be 0.90% of the first $200 million of the Fund's average daily
net assets, 0.85% of the next $300 million of such assets and 0.80% of such
assets in excess of $500 million. (As of September 30, 1995, the Fund's net
assets were $268 million.) Under the new Sub-Advisory Agreement, Draycott
would continue to be responsible for the day-to-day portfolio management of
the Fund, subject to the oversight of NEFM and the Trustees. Draycott would
receive a fee, payable by NEFM, at the annual rate of 0.54% of the first $200
million of the Fund's average daily net assets, 0.49% of the next $300 million
of such assets and 0.44% of such assets in excess of $500 million. Draycott,
rather than Back Bay Advisors, would be responsible for providing day-to-day
cash management services.
The fee rate payable by the Fund under the proposed new Advisory Agreement
is equal to the combined rate currently payable by the Fund under its Advisory
Agreement with Draycott and with respect to the Fund's Class A, B and C shares
under the Fund's Administrative Services Agreement with the Distributor. The
fee rate under the new Advisory Agreement represents a fee increase, for Class
Y shareholders of the Fund, of 0.05% annually of the average daily net asset
value of the Class Y shares. (The Class Y shares currently bear the same
advisory fee rate as the other classes, but bear an administrative services
fee that is lower than that borne by the other classes. Under the new Advisory
Agreement, all four classes will bear the same fee rate in all respects.) The
effect of this fee increase for Class Y shareholders is illustrated in
Appendix B at the end of this Proxy Statement. Draycott and the Distributor
currently voluntarily limit the expenses of the Class Y shares to 1.00%
annually of average daily net assets. NEFM and the Distributor currently
intend to continue the same voluntary limit after the proposed new Advisory
and Sub-Advisory Agreements take effect. So long as such a voluntary expense
limit is in effect and the expenses of the Class Y shares without regard to
such limit exceed 1.05% of average daily net assets, the change in fee rate
for the Class Y shares will have no effect on the actual expenses borne by the
Class Y shares. Draycott, NEFM or the Distributor (as the case may be) may,
however, terminate the voluntary expense limit at any time.
INFORMATION ABOUT CURSITOR HOLDINGS. Cursitor Holdings is an international
investment management group formed in July 1990 by the
19
<PAGE>
reorganization of a group of related companies with common executive
management and overlapping shareholders. The group comprises two holding
entities, one of which is Cursitor Holdings. The group is two-thirds owned by
its executive management, and one-third by a wholly-owned subsidiary of the
Government of Singapore Ministry of Finance. The following members of the
group's executive management each own, directly or indirectly, 10% or more of
the outstanding voting securities of Cursitor Holdings: Eric G. Auboyneau,
Hugh M. Eaton III, Charles J. Gave and John S. Ricciardi.
The principal activity of the group (representing more than 90% of revenues)
is institutional investment management, which is carried on by Cursitor-Eaton
Asset Management Company, Cursitor Management Limited, and Cursitor Cecogest
SA. At present the group manages approximately $9.2 billion, primarily for US-
based pension funds, foundations and endowments. The major investment product
is global asset allocation focusing on cash, bonds and equities in major
economies. The principal place of business of Cursitor Holdings is 66
Buckingham Gate, London SW1E 6AU England.
As described below under "Proposal 6," it is currently expected that,
subsequent to the acquisition of Draycott by Cursitor Holdings, Cursitor
Holdings itself will be acquired by Alliance Capital Management L.P.
SALE OF DRAYCOTT TO CURSITOR HOLDINGS. NEIC currently owns all of the stock
of Draycott. NEIC has agreed to sell this stock to Cursitor Holdings for
$477,000, plus any advances to Draycott that NEIC may make after June 30, 1995
and prior to the closing of the sale, and minus any dividends or distributions
paid by Draycott to NEIC during that period. Cursitor Holdings has also agreed
that, for the five-year period following the sale, Cursitor Holdings will pay
NEIC an amount equal to 30% of Draycott's sub-advisory fee revenues from
Draycott's current mutual fund clients, net of fee waivers and expense
reimbursements and reduced by commissions payable to a marketing affiliate of
NEIC, and 20% of Draycott's advisory fee revenues from certain other clients
(subject to certain adjustments).
As noted in Part II of this Proxy Statement, Section 15(f) of the 1940 Act
provides that an investment adviser to a registered investment company, and
affiliated persons of such investment adviser, may receive any amount or
benefit in connection with the sale of securities of, or a sale of any other
interest in, such investment adviser which results in an assignment of an
investment advisory contract with such investment company, if
(1) for a period of 3 years after the time of such action, at least 75%
of the board of such investment company are not interested persons of such
company's investment adviser or predecessor investment adviser, and
(2) there is not imposed an unfair burden on such investment company as
a result of such transaction or any express or implied terms, conditions
or understandings applicable thereto.
20
<PAGE>
NEIC, Cursitor Holdings and Draycott have all undertaken to use reasonable
efforts to ensure satisfaction of the conditions of Section 15(f). It is not
expected that compliance with condition (1) above will require any changes in
the composition of the Board of Trustees of New England Funds Trust I, of
which New England International Equity Fund is a series.
TRUSTEES' RECOMMENDATION. The Trustees conducted a two-stage analysis of the
proposed new investment advisory arrangements for New England International
Equity Fund. First, they considered whether it was desirable for the Fund to
continue to receive day-to-day portfolio management services from Draycott
following the proposed acquisition of Draycott by Cursitor Holdings. Second,
they considered whether it was desirable to adopt the proposed adviser/sub-
adviser structure, in place of the Fund's current adviser/administrator
structure.
As to the desirability of continuing the engagement of Draycott, the
Trustees considered extensive information concerning Draycott's investment
approach, personnel, performance record and regulatory compliance experience.
The Trustees were informed by Draycott and Cursitor Holdings that the
acquisition of Draycott by Cursitor Holdings is not expected to result in any
changes in Draycott's investment approach or in the portfolio management staff
at Draycott. The Trustees further considered Draycott's ability to provide all
necessary cash management services related to the Fund's operations. (Back Bay
Advisors is currently obligated to perform these services, but Draycott would
be responsible for providing these services under the proposed new Sub-
Advisory Agreement.) The Trustees also considered the brokerage practices of
Draycott that are described in Section VII of this Proxy Statement.
As to the adoption of an adviser/sub-adviser management structure for the
Fund, the Trustees considered the same factors as they considered in
connection with their approval of a similar structure for most of the other
Funds. See Part III of this Proxy Statement for a discussion of these factors.
After considering the foregoing factors, the Trustees voted unanimously to
recommend that shareholders of New England International Equity Fund approve
Proposal 4 (the proposed new Advisory Agreement between the Fund and NEFM) and
Proposal 5 (the related Sub-Advisory Agreement between NEFM and Draycott).
Although shareholders will vote separately on Proposals 4 and 5, the new
Advisory and Sub-Advisory Agreements will not take effect unless shareholders
approve both Proposals. On each Proposal, the required vote is the lesser of
(1) 67% of the shares of the Fund represented at the Meeting, if more than 50%
of the shares of the Fund are represented at the Meeting, or (2) more than 50%
of the outstanding shares of the Fund.
If Proposals 4 and 5 are not approved, the proposed new Advisory and Sub-
Advisory Agreements will not take effect, and the Trustees will consider such
further actions as may be in the best interests of the Fund.
21
<PAGE>
B. PROPOSAL 6--NEW SUB-ADVISORY AGREEMENT TO TAKE EFFECT UPON THE ACQUISITION
OF CURSITOR HOLDINGS BY ALLIANCE CAPITAL MANAGEMENT L.P.
Subsequent to the acquisition of the stock of Draycott by Cursitor Holdings,
Cursitor Holdings is itself expected to be acquired by another firm, Alliance
Capital Management L.P. ("Alliance"). Through a series of transactions (the
"Cursitor/Alliance Transaction"), the stock of Cursitor Holdings and the
assets of Cursitor Holdings L.P. ("CHLP") and the stock of certain
international operations of Alliance will be contributed to Cursitor Alliance
LLC, a newly formed limited liability corporation (the "LLC"). Alliance will
own directly or indirectly 93% of the LLC and CHLP will own 7%. The
Cursitor/Alliance Transaction will constitute a further change in control of
Draycott, which will terminate the proposed Sub-Advisory Agreement between
NEFM and Draycott that is the subject of Proposal 5 above. Proposal 6 relates
to a new Sub-Advisory Agreement between NEFM and Draycott, to take effect upon
the consummation of the Cursitor/Alliance Transaction. This new Sub-Advisory
Agreement would be identical, except for its date, to the Sub-Advisory
Agreement that is the subject of Proposal 5 above.
ACQUISITION OF CURSITOR HOLDINGS BY ALLIANCE. On October 24, 1995, Alliance
announced that it had reached an agreement in principle to acquire the
business of Cursitor Holdings and Cursitor-Eaton Asset Management Company. The
acquisition would result in the formation of a new subsidiary of Alliance,
called Cursitor Alliance LLC. Alliance would own 93% of Cursitor Alliance LLC,
and Cursitor Alliance LLC would own all of the stock of Draycott. The
acquisition of Cursitor Holdings by Alliance is subject to the negotiation and
execution of definitive agreements by the parties, and to the satisfaction of
various other conditions. There is no assurance that the acquisition will in
fact be consummated.
Alliance, a New York Stock Exchange listed company with principal offices at
1345 Avenue of the Americas, New York, New York 10105, is a leading
international investment manager supervising client accounts with assets as of
September 30, 1995 totaling over $143 billion. Alliance Capital Management
Corporation ("ACMC"), with offices at the same address, is the sole general
partner of, and the owner of a 1% general partnership interest in, Alliance.
ACMC is an indirect wholly-owned subsidiary of The Equitable Life Assurance
Society of the United States ("Equitable"), one of the largest life insurance
companies in the United States and a wholly-owned subsidiary of The Equitable
Companies Incorporated ("ECI"), a holding company controlled by AXA, a French
insurance holding company. As of September 30, 1995, Equitable, ACMC and
Equitable Capital Management Corporation ("ECMC") owned in the aggregate
approximately 59% of the issued and outstanding units representing assignments
of beneficial ownership of limited partnership interests in Alliance
("Units"). ACMC and ECMC are wholly-owned subsidiaries of Equitable. As of
September 30, 1995, approximately 33% and 8% of the Units
22
<PAGE>
were owned by the public and by employees of Alliance and its subsidiaries,
respectively.
AXA is the holding company for an international group of insurance and
related financial services companies. AXA's insurance operations consist of
activities in life insurance, property and casualty insurance and reinsurance.
The insurance operations are diverse geographically with activities in France,
the United States, the United Kingdom, Canada and other countries, principally
in Europe. AXA is also engaged in asset management, investment banking and
brokerage, real estate and other financial services activities in the United
States and Europe. Based on information provided by AXA, as of January 1,
1995, 42.3% of the issued shares (representing 54.7% of the voting power) of
AXA were owned by Midi Participations, a French corporation that is a holding
company. The voting shares of Midi Participations are in turn owned 60% by
Finaxa, a French corporation that is a holding company, and 40% by
subsidiaries of Assicurazioni Generali S.p.A., an Italian corporation
("Generali") (one of which, Belgica Insurance Holding S.A., a Belgian
corporation, owned 34.1%). As of January 1, 1995, 62.1% of the issued shares
(representing 75.7% of the voting power) of Finaxa were owned by five French
mutual insurance companies (the "Mutuelles AXA") (one of which, AXA Assurance
I.A.R.D. Mutuelle, owned 31.8% of the issued shares) (representing 39.0% of
the voting power), and 26.5% of the issued shares (representing 16.6% of the
voting power) of Finaxa were owned by Banque Paribas, a French bank
("Paribas"). Including the shares owned by Midi Participations, as of January
1, 1995, the Mutuelles AXA directly or indirectly owned 51.3% of the issued
shares (representing 65.8% of the voting power) of AXA. In addition, certain
subsidiaries of AXA own 0.4% of the shares of AXA, which are not entitled to
be voted. Acting as a group, the Mutuelles AXA control AXA, Midi
Participations and Finaxa.
The addresses of the Mutuelles AXA are as follows: The address of each of
AXA Assurances I.A.R.D. Mutuelle and AXA Assurances Vie Mutuelle is La Grande
Arche, Paroi Nord, Paris La Defense, France; the address of each of Alpha
Assurances Vie Mutuelle and Alpha Assurances I.A.R.D. Mutuelle is Tour
Franklin 100-101 Terrasse Boildieu, Paris La Defense, France; and the address
of Uni Europe Assurance Mutuelle is 24 Rue Drouot, Paris, France.
Although a definitive agreement relating to the acquisition of Cursitor
Holdings by Alliance has not yet been reached, it is anticipated that such
agreement will provide that Cursitor Holdings and Alliance will undertake to
use their best efforts to ensure satisfaction of the conditions of Section
15(f) of the 1940 Act with respect to the Fund. It is not expected that such
satisfaction will require any changes in the composition of the Board of
Trustees of New England Funds Trust I.
TRUSTEES' RECOMMENDATION. The Trustees considered, in relation to Proposal
6, the same factors as they considered in connection with their
23
<PAGE>
approval of the Sub-Advisory Agreement with Draycott that is the subject of
Proposal 5. In addition, the Trustees were informed by Draycott, Cursitor
Holdings and Alliance that the acquisition of Cursitor Holdings by Alliance is
not expected to result in any changes in Draycott's investment approach or
brokerage practices or in the portfolio management staff at Draycott.
After considering the foregoing factors, the Trustees voted unanimously to
recommend that shareholders of New England International Equity Fund vote to
approve Proposal 6 (the new Sub-Advisory Agreement between NEFM and Draycott
that would take effect upon the acquisition of Cursitor Holdings by Alliance).
The required vote for Proposal 6 is the lesser of (1) 67% of the shares of the
Fund represented at the Meeting, if more than 50% of the shares of the Fund
are represented at the Meeting, or (2) more than 50% of the outstanding shares
of the Fund. The new Sub-Advisory Agreement that is the subject of Proposal 6
will not take effect unless both (1) the restructured advisory arrangements
that are the subject of Proposals 4 and 5 have previously taken effect and (2)
the proposed acquisition of Cursitor Holdings by Alliance occurs. If
conditions (1) and (2) set forth in the preceding sentence have been fulfilled
but shareholders do not approve Proposal 6, the Trustees will consider such
further actions as may be in the best interests of the Fund.
V. AUTHORIZATION TO ISSUE MULTIPLE CLASSES OF SHARES (NEW ENGLAND GROWTH FUND
ONLY)
New England Growth Fund (the "Growth Fund") is a series of shares of New
England Funds Trust I ("Trust I"). The Agreement and Declaration of Trust of
Trust I (the "Declaration of Trust") currently provides for the issuance of
one class of shares of the Growth Fund, with each share representing an equal
proportionate interest in the Fund. All of the other Funds in Trust I, and all
of the other stock and bond Funds in the New England Funds group, have
conferred on the Trustees the authority to issue one or more additional
classes of shares of each Fund, having such preferences or special or relative
rights and privileges as the Trustees may determine. The Trustees have
exercised this authority, in the case of the other Funds, to permit those
Funds to issue several classes of shares each.
Classes of shares of the other Funds include Class A shares, which are sold
subject to an initial sales charge and bear lower Rule 12b-1 fees than Classes
B and C; Class B shares, which are sold without an initial sales charge but
subject to a contingent deferred sales charge ("CDSC") that declines over time
for a period of several years after purchase, bear Rule 12b-1 servicing and
distribution fees at a higher rate than Class A shares, and convert
automatically into Class A shares at some time after the expiration of the
term of the CDSC; Class C shares, which are subject to no initial sales charge
or CDSC but bear Rule 12b-1 servicing and distribution fees at a higher rate
than Class A shares; and Class Y shares, which are sold to institutional and
other large investors, are subject to no initial sales charge, CDSC or Rule
12b-1 fees, and bear lower levels of certain other expenses than Class A, B
and C shares. Each stock and bond Fund
24
<PAGE>
other than the Growth Fund currently offers at least two classes of shares.
The existing shares of the Growth Fund have the characteristics of Class A
shares described above.
The creation of one or more separate classes of shares for this purpose
would permit the Trustees to allocate costs associated with the distribution
of such shares and the provision of certain services to those investors who
elect each particular method of purchasing shares. Investors who have
purchased shares and paid a sales charge under the Fund's current distribution
arrangements would not bear any portion of such costs associated with new
classes of shares that may be established in the future.
Any additional classes of shares would participate in all other respects on
an equal proportionate basis with all other classes of shares, including as to
investment income, realized and unrealized gains and losses on portfolio
investments and all other operating expenses of the Fund. All classes of
shares would vote together as a single class at meetings of shareholders
except that shares of a class which is affected by any matter materially
differently from shares of other classes would vote as a separate class and
that holders of shares of a class not affected by a matter would not vote on
that matter.
The determination whether to issue additional classes of shares of the
Growth Fund would be made by the Trustees, in consultation with the
Distributor, in light of then existing business conditions, and certain
classes of shares that may be offered by other Funds would not necessarily be
offered by the Growth Fund. The Trustees unanimously recommend that the
shareholders of the Growth Fund approve Proposal 7 in order that the Trustees
may be authorized to amend the Declaration of Trust at this time in order to
permit the Growth Fund to take advantage of such opportunities as may exist in
the future to develop alternative sales arrangements.
The proposed amendments also would permit the creation of additional classes
of shares for purposes other than allocating distribution and shareholder
servicing costs, without the need for shareholder approval, although the
Trustees do not currently contemplate creating additional classes of shares
for purposes other than as described above.
REQUIRED VOTE. Approval of this proposal will require the affirmative vote
of a majority of the outstanding shares of the Growth Fund.
VI. PROPOSED CHANGES IN INVESTMENT RESTRICTIONS (NEW ENGLAND BOND INCOME, NEW
ENGLAND HIGH INCOME, NEW ENGLAND MASSACHUSETTS TAX FREE INCOME AND NEW
ENGLAND TAX EXEMPT INCOME FUNDS ONLY)
Section VI of this Proxy Statement relates to certain proposed changes in
the investment policies or restrictions of four of the Funds.
25
<PAGE>
A. PROPOSAL 8--CHANGES TO PERMIT NEW ENGLAND BOND INCOME FUND, NEW ENGLAND
HIGH INCOME FUND AND NEW ENGLAND MASSACHUSETTS TAX FREE
INCOME FUND TO ENGAGE IN OPTIONS AND FUTURES TRANSACTIONS,
AND TO PERMIT NEW ENGLAND BOND INCOME FUND TO ENGAGE IN
TRANSACTIONS IN CURRENCY FORWARD CONTRACTS.
New England Bond Income Fund, New England High Income Fund and New England
Massachusetts Tax Free Income Fund each currently operates under investment
restrictions that prohibit it from engaging in transactions in options,
futures contracts or currency forward contracts. These restrictions are
generally "fundamental" policies of each of these three Funds, which means
that they cannot be changed without a vote of the shareholders of the relevant
Fund. Back Bay Advisors, the investment adviser of each of these Funds, has
recommended to the Trustees that these Funds' investment restrictions be
modified to permit all three Funds to engage in transactions in options and
futures, and to permit New England Bond Income Fund to engage in transactions
in currency forward contracts. The Trustees have determined to accept Back Bay
Advisors' recommendation, and are recommending that shareholders of each of
the three Funds vote to approve the proposed changes.
PROPOSED CHANGES
The chart below sets forth (1) each Fund's current fundamental investment
restrictions that limit its ability to engage in options, futures and currency
forward transactions and (2) the fundamental investment restrictions that are
proposed to be adopted in place of those current restrictions:
<TABLE>
<CAPTION>
CURRENT RESTRICTIONS PROPOSED RESTRICTIONS
FUND THE FUND WILL NOT: THE FUND WILL NOT:
---- -------------------- ---------------------
<S> <C> <C>
New England Bond Income Fund "Buy or sell oil, gas "Buy or sell oil, gas
or other mineral or other mineral
leases, rights or leases, rights or
royalty contracts, royalty contracts,
commodities or commodities or
commodity contracts commodity contracts
or real estate or real estate
(except that the Bond (except that the Bond
Income Fund may buy Income Fund may buy
and sell marketable and sell marketable
securities of securities of
companies, including companies, including
real estate real estate
investment trusts, investment trusts,
which may represent which may represent
indirect interests in indirect interests in
real estate)." real estate; may buy
and sell futures
contracts on
securities or on
securities indexes
and may write,
purchase or sell put
or call options on
such futures
contracts or indexes;
and may enter into
currency forward
contracts)."
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
CURRENT RESTRICTIONS PROPOSED RESTRICTIONS
FUND THE FUND WILL NOT: THE FUND WILL NOT:
---- -------------------- ---------------------
<S> <C> <C>
"Write or purchase "Write, purchase or
puts, calls or sell options or
combinations of both warrants, except that
except that the Bond the Fund may (a)
Income Fund may acquire warrants or
purchase warrants or rights to subscribe
other rights to to securities of
subscribe to companies issuing
securities of such warrants or
companies issuing rights or of parents
such warrants or or subsidiaries of
rights, or of parents such companies,
or subsidiaries of provided that such
such companies, warrants or other
provided that such rights to subscribe
warrants or other are attached to, or
rights to subscribe part of a unit
are attached to, or a offering involving,
part of a unit other securities, and
offering involving, (b) write, purchase
other securities." or sell put or call
options on
securities,
securities indexes or
futures contracts."
New England High Income Fund "Purchase or sell "Purchase or sell
commodities and commodities or
commodity contracts." commodity contracts,
or write, purchase or
"Write or purchase sell options, except
put, call, straddle, that the Fund may (a)
or spread options." buy or sell futures
contracts on
securities or on
securities indexes
and (b) write,
purchase or sell put
or call options on
securities, on
securities indexes or
on futures contracts
of the type referred
to in clause (a) of
this restriction."
New England Massachusetts Tax "Purchase or sell "Purchase or sell
Free Income Fund commodities or commodities or
commodity commodity contracts,
contracts."* or write or purchase
options, except that
the Fund may (a) buy
or sell futures
contracts on
securities or on
securities indexes
and (b) write,
purchase or sell put
or call options on
securities, on
securities indexes or
on futures contracts
of the type referred
to in clause (a) of
this restriction."
</TABLE>
- -----------------------------
* The Fund is also subject to a non-fundamental restriction, which may be
changed without shareholder approval, that prohibits it from purchasing
options or puts, calls, straddles, spreads or combinations thereof. This
non-fundamental restriction would be eliminated if the Fund's proposed new
fundamental restriction is adopted.
27
<PAGE>
OPTIONS AND FUTURES. Since the inception of the Funds over ten years ago, it
has become common for mutual funds and other institutional investors to make
use of various investment strategies that involve options and futures. The
Funds' adviser, Back Bay Advisors, has made use of options and futures in
managing other accounts (including other New England Funds) for more than ten
years as well. Back Bay Advisors believes that options and futures can be
useful in managing portfolios like those of New England Bond Income Fund, New
England High Income Fund and New England Massachusetts Tax Free Income Fund.
Options and futures strategies do, however, involve certain risks, as
summarized below.
Options can generally be classified as either "call" options or "put"
options. There are two parties to a typical options transaction: the "writer"
and the "buyer." A call option gives the buyer the right to buy a security or
other asset (such as a futures contract) from, and a put option the right to
sell a security or other asset to, the option writer at a specified price, on
or before a specified date. The buyer of an option pays a premium when
purchasing the option, which reduces the return on the underlying security or
other asset, if the option is exercised, and results in a loss if the option
expires unexercised. The writer of an option receives a premium from writing
an option, which may increase its return if the option expires or is closed
out at a profit. If the buyer is unable to close out an unexpired option, the
buyer must continue to hold the underlying security or other asset until the
option expires.
A futures contract creates an obligation by the seller to deliver and the
buyer to take delivery of the type of instrument or cash at the time and in
the amount specified in the contract. Although most futures contracts call for
the delivery (or acceptance) of the specified instrument, futures are usually
closed out before the settlement date through the purchase (or sale) of a
comparable contract. If the price of the sale of the futures contract by a
Fund exceeds (or is less than) the price of the offsetting purchase, the Fund
will realize a gain (or loss).
The value of options purchased by a Fund and futures contracts held by a
Fund may fluctuate up or down based on a variety of market and economic
factors. In some cases, the fluctuations may offset (or be offset by) changes
in the value of securities held in the Fund's portfolio. All transactions in
options or futures involve the possible risk of loss to the Fund of all or a
significant part of the value of its investment. In some cases, the risk of
loss may exceed the amount of the Fund's investment. Each Fund will be
required, however, to set aside with its custodian bank liquid, high grade
assets in amounts sufficient at all times to satisfy its obligations under
options and futures contracts.
The use of futures and options may result in taxable income or capital gains
and involves certain special risks. The successful use of futures and options
will usually depend on Back Bay Advisors' ability to forecast interest rate or
other financial market movements correctly. The Funds' ability to hedge
against
28
<PAGE>
adverse changes in the value of securities held in their portfolios through
futures and options transactions also depends on the degree of correlation
between the changes in the value of futures or options positions and changes
in the values of the portfolio securities. The successful use of futures and
options also depends on the availability of a liquid secondary market to
enable the Funds to close their positions on a timely basis. There can be no
assurance that such a market will exist at any particular time. Certain
provisions of the Internal Revenue Code and certain regulatory requirements
may limit a Fund's ability to engage in futures and options transactions.
CURRENCY FORWARD CONTRACTS. A currency forward contract is a contract with a
major international bank that obligates the bank and the other party to the
contract to exchange specified amounts of different currencies at a specified
future date. For example, the bank may agree to deliver a specified number of
French francs, in exchange for a specified number of U.S. dollars, on a
certain date. It is proposed that New England Bond Income Fund's investment
restrictions be amended to permit it to engage in these transactions.
From time to time, a portion of New England Bond Income Fund's assets may be
invested in securities that are denominated in foreign currencies or that are
traded in markets where purchase or sale transactions settle in a foreign
currency. Back Bay Advisors has indicated that the ability to engage in
currency forward contracts would both (1) facilitate the Fund's transactions
in these securities and (2) permit the Fund to hedge against possible adverse
changes in the relative values of the currencies in which the Fund's portfolio
holdings (or intended future holdings) are denominated.
Currency forward contracts involve transaction costs and the risk that the
banks with which the Fund enters into such contracts will fail financially.
Back Bay Advisors will, however, monitor the creditworthiness of these banks
on an ongoing basis. Successful use of currency forward contracts for hedging
purposes also depends on the accuracy of Back Bay Advisors' forecasts as to
future changes in the relative values of currencies. The accuracy of such
forecasts cannot be assured. Currency forward contracts involve the possible
risk of loss to the Fund of all or a significant portion of its investment.
The Fund will set aside with its custodian certain assets to provide for
satisfaction of its obligations under currency forward contracts.
Although the proposed change would permit the Fund to use currency forward
contracts, it will not be obligated to do so. Thus, the Fund will not
necessarily be fully (or even partially) hedged against the risk of adverse
currency price movements at any given time.
TRUSTEES' RECOMMENDATION. The Trustees unanimously recommend that
shareholders of each of the three Funds approve Proposal 8, in order to permit
the Funds to engage in options and futures transactions and, in the case of
New England Bond Income Fund, currency forward contracts.
29
<PAGE>
REQUIRED VOTE. As to each of the three Funds, the vote required to approve
the proposed changes in investment restrictions is the lesser of (1) 67% of
the shares of that Fund represented at the Meeting, if more than 50% of the
shares of the Fund are represented at the Meeting, or (2) more than 50% of the
outstanding shares of the Fund.
B. PROPOSAL 9--CHANGE IN FUNDAMENTAL INVESTMENT POLICIES OF NEW ENGLAND
MASSACHUSETTS TAX FREE INCOME FUND.
New England Massachusetts Tax Free Income Fund currently operates under
fundamental investment policies that provide that (1) at least 90% of the
Fund's income distributions will be exempt from federal income tax and
Massachusetts personal income taxes, except during times of adverse market
conditions when the Fund is investing for temporary defensive purposes and (2)
that distributions from interest income on "private activity bonds" (the
income from which is an item of tax preference for purposes of the federal
alternative minimum tax for individuals), together with distributions of
interest income from investments other than Massachusetts Tax Exempt Bonds,
will not normally exceed 10% of the total amount of the Fund's income
distributions. For this purpose, "Massachusetts Tax Exempt Bonds" is defined
to mean debt obligations issued by the Commonwealth of Massachusetts and its
political subdivisions, the interest from which is, in the opinion of bond
counsel, exempt from both federal income tax and Massachusetts personal income
taxes (other than the possible incidence of any alternative minimum taxes).
At the recommendation of the Fund's adviser, Back Bay Advisors, the Trustees
are proposing that these policies be replaced by a new fundamental policy.
Under the new policy, the Fund would "normally invest at least 80% of the
value of its net assets in debt obligations the interest from which is, in the
opinion of bond counsel at the time of issuance, exempt from regular federal
income tax and Massachusetts personal income taxes and is not subject to the
federal alternative minimum tax for individuals."
The proposed change would conform the Fund's policy regarding investment in
potentially taxable instruments to the policy of many other Massachusetts tax
exempt bond funds. Back Bay Advisors believes that the proposed change would
enhance the Fund's ability to achieve a higher yield. The change would also,
however, potentially increase the amount of taxable income distributions from
the Fund to its shareholders, and thus potentially increase the amount of
federal or state taxes (including alternative minimum taxes) payable by the
Fund's shareholders.
The Trustees unanimously recommend that shareholders approve Proposal 9.
REQUIRED VOTE. The vote required to approve the proposed change is the
lesser of (1) 67% of the shares of the Fund represented at the Meeting, if
more
30
<PAGE>
than 50% of the shares of the Fund are represented at the Meeting, or (2) more
than 50% of the outstanding shares of the Fund.
C. PROPOSAL 10--ELIMINATION OF FUNDAMENTAL INVESTMENT POLICY OF NEW ENGLAND
TAX EXEMPT INCOME FUND.
New England Tax Exempt Income Fund currently operates under an investment
policy (the "80% Policy") that requires that, under normal conditions, the
Fund invest at least 80% of its net assets in tax exempt bonds. Tax exempt
bonds are debt obligations issued by states and other political subdivisions
of the United States, local governments, and agencies, authorities and other
instrumentalities of the foregoing (collectively, "Municipal Issuers"), the
interest from which obligations is not subject to federal income tax. For
purposes of the 80% Policy, if the interest on a debt obligation of a
Municipal Issuer is subject to regular federal income tax, or to the federal
alternative minimum tax ("AMT"), the security is not considered to be tax
exempt. The 80% Policy is a "fundamental" policy of the Fund, and cannot be
eliminated or changed without a vote of the Fund's shareholders.
Prior to the Tax Reform Act of 1986, securities of Municipal Issuers were
generally tax exempt. The Tax Reform Act modified the tax status of certain
municipal obligations to create, in effect, three categories of municipal
obligations: "public purpose" obligations that generate interest that is
exempt from both regular federal income tax and AMT; qualified "private
activity" obligations (typically, industrial revenue bonds) that generate
income that is tax exempt under regular income tax rules but must be included
in computing AMT tax; and obligations that generate income that is fully
taxable under both regular and AMT rules ("taxable municipals").
The Fund's investment adviser, Back Bay Advisors, has recommended to the
Trustees that the Fund change its investment policies so as to permit the Fund
to invest any portion of its assets in securities of Municipal Issuers the
interest on which is subject to AMT. Back Bay Advisors believes that this
change would enhance the Fund's ability to achieve a higher yield. The change
would also, however, potentially increase the amount of income distributions
from the Fund to its shareholders that is subject to AMT. Such an increase
would potentially increase the amount of federal taxes payable by those
shareholders of the Fund who are liable to pay AMT (and similar state taxes).
Shareholders should consult their own tax advisers to determine whether they
are liable to pay AMT.
The Trustees have determined to accept Back Bay Advisors' recommendation.
Accordingly, the Trustees unanimously recommend that shareholders vote in
favor of Proposal 10. Proposal 10 would eliminate the 80% Policy. If
shareholders approve Proposal 10, the Trustees currently intend to adopt, in
place of the 80% Policy, a new, non-fundamental policy under which the Fund
would normally invest at least 80% of its total assets in debt securities
31
<PAGE>
of Municipal Issuers, the interest from which is exempt from regular federal
income tax but may be subject to AMT. This new policy could be changed by the
Trustees in the future, without a shareholder vote. In conjunction with these
changes of policy, the name of the Fund would be changed to "New England
Municipal Income Fund."
REQUIRED VOTE. Approval of Proposal 10 requires the vote of the lesser of
(1) 67% of the shares of the Fund represented at the Meeting, if more than 50%
of the shares of the Fund are represented at the Meeting, or (2) more than 50%
of the outstanding shares of the Fund.
VII. ADDITIONAL INFORMATION ABOUT THE EXISTING ADVISORY ARRANGEMENTS, THE
FUNDS' ADVISERS AND SUB-ADVISERS AND CERTAIN BROKERAGE PRACTICES
This section of this Proxy Statement presents certain additional information
about the Funds' current investment advisory and sub-advisory agreements, the
proposed new Advisory Agreements and Sub-Advisory Agreements for the Affected
Funds, the Funds' advisers and sub-advisers and certain brokerage practices.
Shareholders should review this information in connection with their
consideration of Proposals 1 through 6, described in Parts II, III and IV of
this Proxy Statement.
BRIEF DESCRIPTION OF THE EXISTING ADVISORY ARRANGEMENTS FOR ALL FUNDS, THE
PROPOSED NEW ADVISORY AGREEMENTS FOR THE AFFECTED FUNDS AND THE PROPOSED SUB-
ADVISORY AGREEMENTS FOR THE AFFECTED FUNDS
The following is a summary of each Fund's Existing Advisory Arrangements and
of the proposed new Advisory Agreement and Sub-Advisory Agreement(s) for each
Affected Fund. In this summary, (1) the term "Existing Advisory Agreement"
refers to the current Advisory Agreement of each Fund except New England
Growth Opportunities Fund, New England Strategic Income Fund and New England
Star Advisers Fund; (2) the terms "New Advisory Agreement" and "Sub-Advisory
Agreement" refer to both (A) the forms of those agreements that are currently
in effect for New England Growth Opportunities Fund, New England Strategic
Income Fund and New England Star Advisers Fund (except that, in the case of
New England Star Advisers Fund, the Advisory Agreement currently in effect is
between the Fund and NEIC rather than between the Fund and NEFM, and the Sub-
Advisory Agreements currently in effect are between NEIC and each sub-adviser
rather than between NEFM and each sub-adviser) and (B) the forms of those
agreements that are proposed to be adopted for each Affected Fund in
connection with the proposed restructuring of advisory arrangements that is
the subject of Proposals 2 and 3 (or Proposals 4 and 5, in the case of New
England International Equity Fund), as explained in Parts III and IV of this
Proxy Statement.
32
<PAGE>
THE NEW ADVISORY AGREEMENTS AND THE EXISTING ADVISORY AGREEMENTS
SERVICES AND FEES. The New Advisory Agreement relating to each Fund provides
that NEFM will, subject to its rights to delegate such responsibilities to
sub-advisers, provide to such Fund both (1) Portfolio Management Services
(defined to mean managing the investment and reinvestment of the assets of the
Fund, subject to the supervision and control of the Trustees) and (2)
Administrative Services (defined to mean furnishing or paying the expenses of
the Fund for office space, facilities and equipment, services of executive and
other personnel of the Trusts and certain other administrative and general
management services).
The Existing Advisory Agreement for each Fund in substance requires each
Fund's current adviser to provide these same services to the Fund, with two
exceptions. First, in the case of four of the Funds (New England Adjustable
Rate U.S. Government Fund, New England Intermediate Term Tax Free Fund of
California, New England Intermediate Term Tax Free Fund of New York and New
England International Equity Fund) the current adviser is obligated to provide
only Portfolio Management Services, and Administrative Services are provided
by the Distributor under a separate Administrative Services Agreement with the
Fund. Second, in the cases of New England Adjustable Rate U.S. Government
Fund, New England Cash Management Trust--Money Market Series, New England Cash
Management Trust--U.S. Government Series, New England High Income Fund, New
England Intermediate Term Tax Free Fund of California, New England
Intermediate Term Tax Free Fund of New York, New England Limited Term U.S.
Government Fund, New England Massachusetts Tax Free Income Fund and New
England Tax Exempt Money Market Trust, the Existing Advisory Agreement (or
Administrative Services Agreement) obligates the adviser (or the Distributor)
to bear the cost of certain legal and accounting services that, under the New
Advisory Agreements, will be borne by these Funds. These legal and accounting
services include (i) bookkeeping, accounting, and financial reporting and
related clerical functions and (ii) certain services in connection with the
preparation of the Fund's registration statements and prospectuses,
shareholder reports and notices and proxy solicitation materials.
Under the Advisory Agreements currently in effect, each Fund pays its
current adviser the annual percentage rates of the corresponding level of the
Fund's net assets set forth in the table below. The table also sets forth the
net assets of each Fund as of September 30, 1995, and the amount of fees paid
by each Fund to its current adviser during its most recent fiscal year.
33
<PAGE>
<TABLE>
<CAPTION>
FEES TO
CURRENT
ADVISER (IN
THOUSANDS) NET
FOR FUND'S ASSETS
ANNUAL AVERAGE MOST (IN
CURRENT FEE NET ASSET RECENT MILLIONS)
FUND ADVISER RATES LEVELS FISCAL YEAR AT 9/30/95
---- ----------------- ------ ------------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
New England Adjustable Back Bay Advisors 0.400% first $200 million $2,352(a) $ 402
Rate U.S. Government 0.375% next $300 million
Fund 0.350% over $500 million
New England Balanced Loomis Sayles 0.75% first $200 million $1,498 $ 278
Fund(b) 0.70% next $300 million
0.65% over $500 million
New England Bond Income Back Bay Advisors 0.500% first $100 million $ 774 $ 215
Fund 0.375% over $100 million
New England Capital Loomis Sayles 0.75% first $200 million $ 835 $ 148
Growth Fund(b) 0.70% next $300 million
0.65% over $500 million
New England Cash Back Bay Advisors 0.425% first $500 million $2,796 $ 650
Management Trust--Money 0.400% next $500 million
Market Series 0.350% next $500 million
0.300% next $500 million
0.250% over $2 billion
New England Cash Back Bay Advisors 0.425% first $500 million $ 256 $ 57
Management Trust--U.S. 0.400% next $500 million
Government Series 0.350% next $500 million
0.300% next $500 million
0.250% over $2 billion
New England Government Back Bay Advisors 0.650% first $200 million $1,103 $ 152
Securities Fund 0.625% next $300 million
0.600% over $500 million
New England Growth CGM 0.75% first $200 million $7,572 $1,209
Fund(b) 0.70% next $300 million
0.65% over $500 million
New England Growth NEFM 0.70% first $200 million $ 555(c) $ 143
Opportunities Fund 0.65% next $300 million
0.60% over $500 million
New England High Income Back Bay Advisors 0.75% of all assets $ 274(a) $ 48
Fund
New England Intermediate Back Bay Advisors 0.400% first $200 million $ 157(a) $ 38
Term Tax Free Fund of 0.375% next $300 million
California 0.350% over $500 million
New England Intermediate Back Bay Advisors 0.400% first $200 million $ 82(a) $ 18
Term Tax Free Fund of 0.375% next $300 million
New York 0.350% over $500 million
New England Draycott 0.80% first $200 million $1,541(a) $ 268
International Equity 0.75% next $300 million
Fund(b) 0.70% over $500 million
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
FEES TO
CURRENT
ADVISER (IN
THOUSANDS) NET
FOR FUND'S ASSETS
ANNUAL AVERAGE MOST (IN
CURRENT FEE NET ASSET RECENT MILLIONS)
FUND ADVISER RATES LEVELS FISCAL YEAR AT 9/30/95
---- ----------------- ------ ------------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
New England Limited Term Back Bay Advisors 0.650% first $200 million $3,164 $389
U.S. Government Fund 0.625% next $300 million
0.600% over $500 million
New England NEIC 1.05% of all assets $ 569(a)(d) $440
Star Advisers
Fund (b)
New England Strategic NEFM 0.65% first $200 million (e) $ 68
Income Fund 0.60% over $200 million
New England Back Bay Advisors 0.60% first $100 million $ 710(a) $122
Massachusetts Tax Free 0.50% over $100 million
Income Fund
New England Tax Exempt Back Bay Advisors 0.500% first $100 million $ 926 $203
Income Fund 0.375% over $100 million
New England Tax Exempt Back Bay Advisors 0.40% first $100 million $ 282(a) $ 65
Money Market Trust 0.30% over $100 million
New England Value Fund Loomis Sayles 0.75% first $200 million $1,543 $264
(b) 0.70% next $300 million
0.65% over $500 million
</TABLE>
- -----------------------------
(a) Fees do not reflect voluntary fee waivers and expense assumptions by the
current advisers of (dollars in thousands) $1,296 for New England
Adjustable Rate U.S. Government Fund, $83 for New England High Income
Fund, $198 for New England Intermediate Term Tax Fee Fund of California,
$197 for New England Intermediate Term Tax Free Fund of New York, $92 for
New England International Equity Fund, $474 for New England Massachusetts
Tax Free Income Fund, $26 for New England Star Advisers Fund and $200 for
New England Tax Exempt Money Market Trust.
(b) The fee rate for this Fund is higher than that paid by most mutual funds,
but is comparable to the rates paid by some other mutual funds with
similar investment objectives and policies.
(c) Represents fees paid to Back Bay Advisors, which was the adviser to New
England Growth Opportunities Fund prior to May 1, 1995, and was paid an
advisory fee at the annual rate of 0.50% of the Fund's average daily net
assets .
(d) Fees for New England Star Advisers Fund are for the period from July 7,
1994 (commencement of operations) to December 31, 1994.
(e) New England Strategic Income Fund commenced operations on May 1, 1995 and
therefore paid no fees during the fiscal year ended December 31, 1994.
35
<PAGE>
The fee rates payable by each fund to NEFM under its New Advisory Agreement
will be the same as the rates set forth in the table above, except that the
fee rates will be as follows for the four Funds listed in the table below:
<TABLE>
<CAPTION>
FUND ANNUAL FEE RATES AVERAGE NET ASSET LEVELS
---- ---------------- ------------------------
<S> <C> <C>
New England 0.55% first $200 million
Adjustable Rate 0.51% next $300 million
U.S. Government Fund 0.47% over $500 million
New England Intermediate 0.525% first $200 million
Term Tax Free 0.500% next $300 million
Fund of California 0.475% over $500 million
New England Intermediate 0.525% first $200 million
Term Tax Free 0.500% next $300 million
Fund of New York 0.475% over $500 million
New England International 0.90% first $200 million
Equity Fund 0.85% next $300 million
0.80% over $500 million
</TABLE>
For each of these Funds, these fee rates represent the sum of the fee rates
under (1) the Fund's Existing Advisory Agreement and (2) the Fund's
Administrative Services Agreement with the Distributor. (In the case of the
International Equity Fund, the fee rates in the table are the sum of the rates
under the Fund's Existing Advisory Agreement and the rates applicable to Class
A, B and C shares under the Fund's Administrative Services Agreement.) If the
New Advisory and Sub-Advisory Agreements for these Funds are adopted, the
Administrative Services Agreements will be terminated.
36
<PAGE>
In addition to fees paid to their advisers, the Funds pay certain additional
amounts to the Distributor (which is a subsidiary of NEIC) for transfer agency
services, shareholder servicing or distribution services ("12b-1 fees"),
certain legal and accounting services or administrative services. The same
services will continue to be provided after the proposed Advisory and Sub-
Advisory Agreements that are the subject of Proposals 1-6 are approved. If,
however, the proposed restructuring of advisory arrangements for the Affected
Funds (Proposals 2-5) is effected, (1) certain legal and accounting services
that are now provided to the nine Funds marked with an asterisk (*) in the
table below at the adviser's expense will be provided at those Funds' expense
and (2) the administrative services that are now provided to the four Funds
marked with a dagger (+) in the table below under Administrative Services
Agreements between those Funds and the Distributor will be provided under the
proposed new Advisory Agreements between those Funds and NEFM. The following
table sets forth information about these payments in each Fund's most recent
fiscal year:
<TABLE>
<CAPTION>
AMOUNT OF PAYMENT
IN FUND'S MOST
RECENT FISCAL YEAR
(BEFORE ANY
FUND SERVICE PROVIDED VOLUNTARY WAIVER)
---- ---------------------- ------------------
<S> <C> <C>
New England Adjustable Transfer Agency $ 180,182
Rate U.S. Government Distribution/Servicing $1,565,458
Fund*+ Administrative $ 851,321
Services
New England Balanced Transfer Agency $ 287,709
Fund Distribution/Servicing $ 542,734
Legal and Accounting $ 41,657
New England Bond Income Transfer Agency $ 212,921
Fund Distribution/Servicing $ 481,140
Legal and Accounting $ 42,528
New England Capital Transfer Agency $ 256,929
Growth Fund Distribution/Servicing $ 369,388
Legal and Accounting $ 38,364
New England Cash Transfer Agency $2,011,934
Management Trust--
Money Market Series*
New England Cash Transfer Agency $ 99,545
Management Trust--
U.S. Government Series*
New England Government Transfer Agency $ 223,158
Securities Fund Distribution/Servicing $ 433,179
Legal and Accounting $ 41,564
New England Growth Fund Transfer Agency $1,665,521
Distribution/Servicing $2,777,712
Legal and Accounting $ 38,777
New England Growth Transfer Agency $ 155,764
Opportunities Fund Distribution/Servicing $ 411,826
New England High Income Transfer Agency $ 58,169
Fund* Distribution/Servicing $ 147,824
New England Intermediate Transfer Agency $ 28,803
Term Tax Free Fund of Distribution/Servicing $ 135,463
California*+ Administrative $ 49,097
Services
New England Intermediate Transfer Agency $ 27,850
Term Tax Free Fund of Distribution/Servicing $ 59,455
New York*+ Administrative $ 25,557
Services
New England International Transfer Agency $ 268,548
Equity Fund+ Distribution/Servicing $ 603,931
Legal and Accounting $ 28,497
Administrative $ 178,326
Services
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
AMOUNT OF PAYMENT
IN FUND'S MOST
RECENT FISCAL YEAR
(BEFORE ANY
FUND SERVICE PROVIDED VOLUNTARY WAIVER)
---- ---------------------- ------------------
<S> <C> <C>
New England Limited Term Transfer Agency $ 375,139
U.S. Government Fund* Distribution/Servicing $1,803,729
New England Massachusetts Transfer Agency $ 104,335
Tax Free Income Fund* Distribution/Servicing $ 448,223
New England Star Advisers Transfer Agency $ 97,326
Fund(a) Distribution/Servicing $ 336,280
Legal and Accounting $ 18,490
New England Strategic Income Fund None (operations commenced after December
31, 1994)
New England Tax Exempt Transfer Agency $ 121,307
Income Fund Distribution/Servicing $ 583,999
Legal and Accounting $ 39,573
New England Tax Exempt Transfer Agency $ 76,391
Money Market Fund*
New England Value Fund Transfer Agency $ 300,766
Distribution/Servicing $ 571,176
Legal and Accounting $ 40,074
</TABLE>
(a) Amounts are for the period from July 7, 1994 (commencement of operations)
to December 31, 1995.
Under each New Advisory Agreement, if the total ordinary business expenses
of a Fund or the relevant Trust as a whole for any fiscal year exceed the
lowest applicable limitation (based on percentages of average net assets or
income) prescribed by any state in which the shares of the Fund or Trust are
qualified for sale, NEFM shall pay such excess. The lowest such limitation
currently prescribed by any state would limit expenses (exclusive of brokerage
costs, distribution expenses, taxes, interest and extraordinary expenses) to
the annual rates of 2 1/2% of the first $30 million of net assets, 2% of the
next $70 million of such assets and 1 1/2% of such assets in excess of $100
million. 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 Internal Revenue Code of
1986, as amended (the "Code"). The term "expenses" is defined in each New
Advisory Agreement and excludes brokerage commissions, taxes, interest,
distribution-related expenses and extraordinary expenses. The Existing
Advisory Agreement for each Affected Fund contains a substantially identical
provision obligating the Fund's current adviser to bear expenses in excess of
those permitted by relevant state law, except in the cases of New England High
Income Fund and New England Massachusetts Tax Free Income Fund, for which the
current adviser is obligated to bear all expenses in excess of the lesser of
(i) 1 1/2% of the relevant Fund's average annual net assets or (ii) any
expense limitation imposed by any state in which shares of the relevant Fund
are qualified for offer and sale.
38
<PAGE>
The New Advisory Agreements do not require NEFM to delegate responsibility
for Portfolio Management Services to any sub-adviser. No Affected Fund will
enter into its proposed New Advisory Agreement with NEFM, however, unless the
proposed Sub-Advisory Agreement(s) relating to that Fund between NEFM and the
Fund's current investment adviser (sub-adviser(s), in the case of New England
Growth Opportunities Fund and New England Star Advisers Fund) is (or are) also
entered into at the same time. Each New Advisory Agreement would, however,
permit NEFM to continue as the Fund's investment adviser (subject to the
Fund's rights to terminate the New Advisory Agreement as described below under
"Other Provisions"), even after any termination of the proposed Sub-Advisory
Agreement. If at any time the Sub-Advisory Agreement relating to any Affected
Fund is terminated without simultaneous termination of the Fund's New Advisory
Agreement with NEFM, the Trustees of the Trusts would consider whether to
appoint a new sub-adviser or adviser. (Each such appointment would also be
subject to approval by vote of the relevant Fund's shareholders.)
OTHER PROVISIONS. Each New Advisory Agreement provides that it will continue
in effect for two years from its date of execution and thereafter from year to
year if its continuance is approved at least annually (i) by the Board of
Trustees of the relevant Trust or by vote of a majority of the outstanding
voting securities of the relevant Fund and (ii) by vote of a majority of the
Trustees who are not "interested persons" of the Trust, as that term is
defined in the 1940 Act, cast in person at a meeting called for the purpose of
voting on such approval. Any amendment to a New Advisory Agreement must be
approved by a majority of the outstanding voting securities of the relevant
Fund, and by vote of a majority of the Trustees who are not such interested
persons, cast in person at a meeting called for the purpose of voting on such
approval. Each New Advisory Agreement may be terminated without penalty by
vote of the Board of Trustees or by vote of a majority of the outstanding
voting securities of the relevant Fund, upon sixty days' written notice to
NEFM, or by NEFM upon ninety days' written notice to the relevant Fund. Each
New Advisory Agreement terminates automatically in the event of its
assignment. Each New Advisory Agreement will automatically terminate if the
relevant Trust or Fund shall at any time be required by the Distributor to
eliminate all reference to the words "TNE" or "New England" in the name of
such Trust or Fund, unless the continuance of the New Advisory Agreement after
such change of name is approved by a majority of the outstanding voting
securities of the relevant Fund and by a majority of the Trustees who are not
interested persons of the Trust or the Distributor, cast in person at a
meeting called for the purpose of voting on such approval.
The termination provisions contained in the Existing Advisory Agreements are
substantially the same as those contained in the New Advisory Agreements,
except that the Existing Advisory Agreements for New England High Income Fund,
New England Limited Term U.S. Government Fund and New England Massachusetts
Tax Free Income Fund may be terminated at any time without
39
<PAGE>
penalty by vote of a majority of the Trustees of the relevant Trust, by vote
of a majority of the Trustees who are not parties to the agreement or
"interested persons" of any such party or by vote of a majority of the
outstanding voting securities of the relevant Fund, upon sixty days' written
notice to the investment adviser, or by the adviser upon sixty days' written
notice to the relevant Fund, and the Existing Advisory Agreements for these
three Funds do not include a termination provision related to the
Distributor's requiring the elimination of any reference to "TNE" or "New
England" in the name of the relevant Trust or Fund; and except that the
Existing Advisory Agreements for New England Tax Exempt Money Market Trust,
New England Cash Management Trust--Money Market Series and New England Cash
Management Trust--U.S. Government Series require the annual approval for their
continuance to begin in the first year of the agreement rather than after two
years as in the New Advisory Agreements.
Except as explained in this paragraph, each New Advisory Agreement and each
Existing Advisory Agreement provides that the adviser shall not be subject to
any liability in connection with the performance of its services thereunder in
the absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations or duties. The only exceptions are that (1) the
Existing Advisory Agreements for New England High Income Fund, New England
Limited Term U.S. Government Fund and New England Massachusetts Tax Free
Income Fund provide that the adviser shall also be liable to the Fund for any
loss resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services and (2) the Advisory Agreements currently in effect
for New England Star Advisers Fund, New England Growth Opportunities Fund and
New England Capital Growth Fund provide that the standard of liability is
willful misfeasance, bad faith, negligence or reckless disregard of
obligations or duties. Approval of Proposals 2 and 3 for each Fund would
result in a uniform standard of liability (willful misfeasance, bad faith,
gross negligence and reckless disregard of obligations or duties) for the
adviser of each Fund.
EXPENSE LIMITATIONS
NEIC agreed to voluntarily reduce its advisory fee for New England Star
Advisers Fund to an annual rate of 1.00%, and that Fund's sub-advisers agreed
to reduce their sub-advisory fee to the annual rate of 0.50%, until December
31, 1994. Total advisory fees of $569,280 were reduced by $26,026 for the
period from July 7, 1994 (commencement of operations) to December 31, 1994 due
to this agreement.
Commencing May 21, 1992, Draycott and the Distributor had voluntarily agreed
to reduce their fees and, if necessary, to assume expenses of the New England
International Equity Fund in order to limit the Fund's expenses (exclusive of
brokerage costs, interest, taxes and extraordinary expenses (collectively,
"Excluded Expenses")) to the annual rate of 1.50% of the Fund's average daily
net assets. On October 1, 1993, this limitation was changed to
40
<PAGE>
1.75% of the Fund's Class A average net assets, 2.50% of Classes B and C
average net assets and 1.00% of Class Y average net assets, until further
notice to the Fund. As a result of the Fund's expenses exceeding the voluntary
expense limitation during the fiscal year ended December 31, 1994, Draycott
waived $91,617 of its $1,541,223 advisory fee and the Distributor waived
$10,601 of its $178,326 administrative services fee.
Under an expense deferral arrangement for New England Strategic Income Fund,
which NEFM and Loomis Sayles may terminate at any time, NEFM and Loomis Sayles
have agreed to waive advisory and sub-advisory fees until further notice,
subject to the obligation of the Fund to pay NEFM such fees to the extent that
the Fund's expenses (exclusive of Excluded Expenses) fall below the annual
rate of 1.40% for Class A shares and 2.15% for Class B shares and Class C
shares; provided, however, in any period, that the Fund is not obligated to
pay any fees waived by NEFM and Loomis Sayles more than two years after the
end of the fiscal year in which such fee was waived. The Fund commenced
operations on May 1, 1995, and therefore no fees were paid or waived during
the fiscal year ended December 31, 1994.
Commencing October 1, 1993 and until further notice to New England High
Income Fund, Back Bay Advisors has voluntarily agreed to reduce its advisory
fee for that Fund and, if necessary, to assume expenses of the Fund in order
to limit the Fund's expenses (exclusive of Excluded Expenses) to the annual
rate of 1.60% of Class A average daily net assets and 2.25% of Class B average
daily net assets. As a result of the Fund's expenses exceeding the foregoing
expense limitations during the fiscal year ended December 31, 1994, Back Bay
Advisors reduced its advisory fee of $273,994 by $83,039.
Commencing May 1, 1991 and until further notice to the Fund, Back Bay
Advisors has voluntarily agreed to reduce its advisory fee and, if necessary,
to assume expenses of New England Massachusetts Tax Free Income Fund in order
to limit the Fund's expenses (exclusive of Excluded Expenses) to the annual
rate of 0.85% of the Fund's Class A average daily net assets and, effective
September 13, 1993, 1.50% of Class B average daily net assets. As a result of
the Fund's expenses exceeding the applicable voluntary expense limitation
during the fiscal year ended December 31, 1994, Back Bay Advisors' advisory
fee of $709,536 was reduced by $473,698.
Commencing June 1, 1995 and until further notice to the Fund, Back Bay
Advisors has voluntarily agreed to reduce its advisory fee and the Distributor
has voluntarily agreed to reduce its administrative services fee in order to
limit New England Adjustable Rate U.S. Government Fund's expenses (exclusive
of Excluded Expenses) to the annual rate of 0.70% of the Fund's Class A
average daily net assets and 1.45% of Class B average daily net assets. From
May 1, 1995 through June 1, 1995 expenses were voluntarily limited to 0.65% of
Class A average net assets and 1.40% of Class B average net assets. From April
1, 1992 through May 1, 1995 expenses were voluntarily limited to 0.60% of
Class A average net assets and 1.35% of Class B average net assets. As a
result of the
41
<PAGE>
Fund's expenses exceeding the applicable voluntary expense limitations during
the fiscal year ended December 31, 1994, Back Bay Advisors reduced its
advisory fee of $2,351,792 by $1,295,585 and the Distributor reduced its
administrative services fee of $851,321 by $468,986.
Commencing April 23, 1993 and until further notice to the Fund, Back Bay
Advisors and the Distributor have voluntarily agreed to reduce their advisory
and administrative services fees in order to limit New England Intermediate
Term Tax Free Fund of California's expenses (exclusive of Excluded Expenses)
to the annual rate of 0.70% of the Fund's Class A average daily net assets
and, effective September 13, 1993, 1.45% of Class B average daily net assets.
As a result of the Fund's expenses exceeding the foregoing expense limitation
during the fiscal year ended December 31, 1994, Back Bay Advisors waived its
entire advisory fee of $157,109 and the Distributor waived its entire
administrative fee of $49,097.
Commencing April 23, 1993 and until further notice to the Fund, Back Bay
Advisors and the Distributor have voluntarily agreed to reduce their advisory
and administrative services fees in order to limit New England Intermediate
Term Tax Free Fund of New York's expenses (exclusive of Excluded Expenses) to
the annual rate of 0.70% of the Fund's Class A average daily net assets and,
effective September 13, 1993, 1.45% of Class B average daily net assets. As a
result of the Fund's expenses exceeding the foregoing voluntary limitation
during the fiscal year ended December 31, 1994 Back Bay Advisors waived its
entire advisory fee of $82,155 and the Distributor waived its entire
administrative services fee of $25,557.
Back Bay Advisors has voluntarily agreed, until further notice, to reduce
its advisory fee and, if necessary, to assume expenses of New England Tax
Exempt Money Market Trust in order to limit the Fund's expenses (exclusive of
Excluded Expenses) to the annual rate of 0.5625% of average net assets per
year. As a result of exceeding the expense limitation, advisory fees of
$281,837 for the fiscal year ended June 30, 1995 were reduced by $199,639.
THE SUB-ADVISORY AGREEMENTS
Each Sub-Advisory Agreement requires the relevant sub-adviser to manage the
investment and reinvestment of the assets of the Fund, subject to the
supervision of NEFM and oversight by the Trustees. The sub-adviser is
authorized to effect portfolio transactions for the relevant Fund in the
discretion of the sub-adviser and without prior consultation with NEFM. Each
sub-adviser is required to report periodically to NEFM, its agents and the
Trustees of the Trusts. (In the case of New England Star Advisers Fund, each
sub-adviser has responsibility for only the portion ("segment") of the Fund's
assets that is allocated to that sub-adviser for management.)
42
<PAGE>
The Sub-Advisory Agreements provide that NEFM (NEIC, in the case of the
existing Sub-Advisory Agreements for New England Star Advisers Fund) shall
compensate the relevant sub-adviser(s) at the annual percentage rates of the
corresponding levels of the Funds' average daily net assets set forth in the
table below. The fee to the sub-advisers is payable by NEFM (or NEIC), not by
the Funds.
<TABLE>
<CAPTION>
ANNUAL AVERAGE NET
FUND SUB-ADVISER FEE RATE ASSET LEVELS
---- ------------ -------- -----------------
<S> <C> <C> <C>
New England Adjustable Rate Back Bay 0.275% of the first $200
Advisors million
U.S. Government Fund 0.255% of the next $300
million
0.235% of amounts in
excess of $500
million
New England Balanced Fund Loomis 0.535% of the first $200
Sayles million
0.350% of the next $300
million
0.300% of amounts in
excess of $500
million
New England Bond Income Back Bay 0.2500% of the first $100
Advisors million
Fund 0.1875% of amounts in
excess of $100
million
New England Capital Growth Loomis 0.600% of the first $25
Sayles million
Fund 0.550% of the next $75
million
0.500% of the next $100
million
0.350% of the next $300
million
0.300% of amounts in
excess of $500
million
New England Cash Back Bay 0.205% of the first $500
Advisors million
Management Trust--Money 0.180% of the next $500
million
Market Series 0.160% of the next $500
million
0.140% of the next $500
million
0.120% of amounts in
excess of $2
billion
New England Cash Back Bay 0.2125% of the first $500
Advisors million
Management Trust--U.S. 0.2000% of the next $500
million
Government Series 0.1750% of the next $500
million
0.1500% of the next $500
million
0.1250% of amounts in
excess of $2
billion
New England Government Back Bay 0.3250% of the first $200
Advisors million
Securities Fund 0.3125% of the next $300
million
0.3000% of amounts in
excess of $500
million
New England Growth Opportunities Westpeak 0.50% of the first $25
million
Fund 0.40% of the next $75
million
0.35% of the next $100
million
0.30% of amounts in
excess of $200
million
New England High Income Fund Back Bay 0.375% of all assets
Advisors
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
ANNUAL AVERAGE NET
FUND SUB-ADVISER FEE RATE ASSET LEVELS
---- ------------ -------- -----------------
<S> <C> <C> <C>
New England IntermediateTerm Back Bay 0.2625% of the first $200
Tax Free Fund of Advisors 0.2500% million
of the next $300
million
California 0.2375% of amounts in
excess of $500
million
New England Intermediate Back Bay 0.2625% of the first $200
Advisors million
Term Tax Free Fund of New 0.2500% of the next $300
million
York 0.2375% of amounts in
excess of $500
million
New England International Draycott 0.540% of the first $200
million
Equity Fund 0.490% of the next $300
million
0.440% of amounts in
excess of $500
million
New England Limited Term Back Bay 0.3250% of the first $200
Advisors million
U.S. Government Fund 0.3125% of the next $300
million
0.3000% of amounts in
excess of $500
million
New England Massachusetts Back Bay 0.300% of the first $100
Advisors million
Tax Free Income Fund 0.250% of amounts in
excess of $100
million
New England Star Advisers Loomis 0.550% of the first $50
Sayles, million*
Fund Janus 0.500% of amounts in
Capital excess of $50
Corporation, million*
Founders
Asset
Management,
Inc., Berger
Associates,
Inc.
New England Strategic Income Loomis 0.35% of the first $200
Fund Sayles million
0.30% of amounts in
excess of $200
million
New England Tax Exempt Back Bay 0.2500% of the first $100
Advisors million
Income Fund 0.1875% of amounts in
excess of $100
million
New England Tax Exempt Back Bay 0.200% of the first $100
Advisors million
Money Market Trust 0.150% of amounts in
excess of $100
million
New England Value Fund Loomis 0.535% of the first $200
Sayles million
0.350% of the next $300
million
0.300% of amounts in
excess of $500
million
</TABLE>
- -----------------------------
* Based on assets of each sub-adviser's segment of the Fund's overall
portfolio.
Each Sub-Advisory Agreement provides that it will continue in effect for two
years from its date of execution and thereafter from year to year if its
continuance is approved at least annually (i) by the Board of Trustees of the
relevant Trust or by vote of a majority of the outstanding voting securities
of the relevant Fund and (ii) by vote of a majority of the Trustees who are
not "interested persons," as that term is defined in the 1940 Act, of the
relevant
44
<PAGE>
Trust, NEFM or the relevant sub-adviser, cast in person at a meeting called
for the purpose of voting on such approval. Any amendment to a Sub-Advisory
Agreement must be approved by NEFM, by the relevant sub-adviser, by vote of a
majority of the outstanding voting securities of the relevant Fund, and by
vote of a majority of the Trustees who are not such interested persons, cast
in person at a meeting called for the purpose of voting on such approval. Each
Sub-Advisory Agreement may be terminated without penalty by vote of the Board
of Trustees or by vote of a majority of the outstanding voting securities of
the relevant Fund, upon sixty days' written notice to the relevant sub-
adviser. The Sub-Advisory Agreements currently in effect for New England Star
Advisers Fund each provide that the relevant sub-adviser may terminate the
Agreement upon 60 days' written notice to NEFM or the Fund. The Sub-Advisory
Agreements currently in effect for New England Growth Opportunities Fund and
New England Strategic Income Fund, and the proposed new Sub-Advisory
Agreements for each Affected Fund, provide that the relevant sub-adviser may
terminate the Agreement upon 90 days' written notice to NEFM or the Fund. Each
current and proposed new Sub-Advisory Agreement provides that it may also be
terminated by NEFM (if approved by the Trustees) upon sixty days' written
notice to the relevant sub-adviser, except that the current Sub-Advisory
Agreement for New England Growth Opportunities Fund requires ninety days'
written notice. Each Sub-Advisory Agreement terminates automatically in the
event of its assignment. Each Sub-Advisory Agreement will automatically
terminate if the New Advisory Agreement relating to the relevant Fund is
terminated.
Each Sub-Advisory Agreement (except the existing Sub-Advisory Agreement for
New England Growth Opportunities Fund) provides that the relevant sub-adviser
shall not be subject to any liability in connection with the performance of
its services thereunder in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations and duties. This is
the same standard of liability to which each sub-adviser is currently subject
under each Affected Fund's Existing Advisory Agreement (and as is found in the
current Sub-Advisory Agreements for New England Star Advisers Fund and New
England Strategic Income Fund), except that in the case of New England Capital
Growth Fund (as in the existing Advisory and Sub-Advisory Agreements for New
England Growth Opportunities Fund), the current standard is willful
misconduct, bad faith, negligence or reckless disregard of duties or
obligations.
45
<PAGE>
CERTAIN OTHER INFORMATION ABOUT THE EXISTING ADVISORY ARRANGEMENTS
Each Fund's Existing Advisory Agreement, and the Sub-Advisory Agreement(s)
relating thereto, in the case of New England Strategic Income Fund, New
England Growth Opportunities Fund and New England Star Advisers Fund, was last
approved by shareholders of the relevant Fund on the date set forth below,
when it was submitted to shareholder vote for the purpose set forth below:
<TABLE>
<CAPTION>
DATE OF
EXISTING DATE OF
ADVISORY LAST PURPOSE FOR
(AND SUB-ADVISORY) SHAREHOLDER SUBMITTING TO
FUND AGREEMENT(S) APPROVAL SHAREHOLDER VOTE
---- ------------------ ----------- ----------------
<S> <C> <C> <C>
New England Adjustable 10/17/91 6/30/93 Initial approval
Rate U.S. Government of agreement
Fund
New England Balanced Fund 1/9/87 12/4/86 Increase in
advisory fee
New England Bond Income 1/9/87 12/4/86 Reorganization
Fund of Fund and
reallocation of
certain expenses
New England Capital 7/31/92 6/30/93 Initial approval
Growth Fund of agreement
New England Cash 5/31/85 5/20/85 Increase in
Management advisory fee
Trust--Money Market
Series
New England Cash 5/31/85 5/20/85 Increase in
Management advisory fee
Trust--U.S. Government
Series
New England Government 1/9/87 12/4/86 Reallocation of
Securities Fund certain expenses
New England Growth Fund 9/1/93 6/30/93 Change in
control of
investment
adviser
New England Growth 5/1/95 4/24/95 Approval of new
Opportunities Fund investment
adviser and sub-
adviser
New England High Income 1/3/89 12/19/88 Reorganization
Fund of Fund
New England Intermediate 3/1/93 2/26/93 Initial approval
Term Tax Free Fund of of agreement
California
New England Intermediate 3/1/93 2/26/93 Initial approval
Term Tax Free Fund of of agreement
New York
New England International 3/31/92 6/30/93 Initial approval
Equity Fund of agreement
New England Limited Term 1/3/89 1/3/89 Initial approval
U.S. Government Fund of agreement
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
DATE OF
EXISTING DATE OF
ADVISORY LAST PURPOSE FOR
(AND SUB-ADVISORY) SHAREHOLDER SUBMITTING TO
FUND AGREEMENT(S) APPROVAL SHAREHOLDER VOTE
---- ------------------ ----------- ----------------
<S> <C> <C> <C>
New England Massachusetts 1/3/89 12/19/88 Reorganization
Tax Free Income Fund of Fund
New England Star Advisers 7/6/94* 7/5/94 Initial approval
Fund of agreements
New England Strategic 5/1/95 4/27/95 Initial approval
Income Fund of agreements
New England Tax Exempt 1/9/87 12/4/86 Reorganization
Income Fund of Fund and
reallocation of
certain expenses
New England Tax Exempt 4/21/83 4/2/85 Initial approval
Money Market Trust of agreement
New England Value Fund 1/9/87 12/4/86 Increase in
advisory fee
</TABLE>
- -----------------------------
* The Sub-Advisory Agreement for New England Star Advisers Fund between NEIC
and Berger Associates, Inc. is dated 10/14/94 rather than 7/6/94.
On May 19, 1994 and May 16, 1995, the Trustees approved the continuation of
all the Existing Advisory Agreements (and any related Sub- Advisory
Agreements) then in effect. The Trustees initially approved the Existing
Advisory Arrangements for New England Growth Opportunities Fund on January 27,
1995, and for New England Strategic Income Fund on April 28, 1995. For New
England Star Advisers Fund, the Trustees initially approved the Existing
Advisory Agreement, the existing Sub-Advisory Agreements with Loomis Sayles,
Janus Capital Corporation and Founders Asset Management, Inc., and a Sub-
Advisory Agreement with Berger Associates, Inc. on May 19, 1994, and the
current Sub-Advisory Agreement with Berger Associates, Inc. on July 29, 1994.
The Trustees approved the proposed advisory arrangements that are the subject
of Proposals 1-6 on October 27, 1995.
INFORMATION ABOUT NEFM
NEFM is a limited partnership. NEFM's sole general partner, NEF Corporation,
is a wholly-owned subsidiary of NEIC Holdings, Inc. ("NEIC Holdings"), which
is a wholly-owned subsidiary of NEIC. NEF Corporation is also the sole general
partner of the Distributor. NEIC owns the entire limited partnership interest
in each of the Distributor and NEFM. The principal executive officer of the
Distributor and NEFM is Henry L.P. Schmelzer, who is President and Trustee of
each of the Trusts and whose principal occupation is his positions with the
Distributor and NEFM. The address of the Distributor, NEFM, NEF Corporation,
NEIC Holdings, NEIC, NEIC, Inc. and Mr. Schmelzer is 399 Boylston Street,
Boston, Massachusetts 02116.
NEFM is proposed to act as adviser to all of the Funds except New England
Growth Fund. NEFM currently acts as investment adviser to New England Growth
Opportunities Fund and New England Strategic Income Fund, pursuant to Advisory
Agreements described earlier in this Part VII. In both cases, it has delegated
responsibility for portfolio management to a sub-adviser.
47
<PAGE>
INFORMATION ABOUT BACK BAY ADVISORS
Back Bay Advisors is a limited partnership. Its sole general partner, Back
Bay Advisors, Inc., is a wholly-owned subsidiary of NEIC Holdings. NEIC owns
the entire limited partnership interest in Back Bay Advisors. The principal
executive officer of Back Bay Advisors is Charles T. Wallis, who is a Senior
Vice President of each of the Trusts and whose principal occupation is his
position with Back Bay Advisors. The address of Back Bay Advisors, Back Bay
Advisors, Inc. and Mr. Wallis is 399 Boylston Street, Boston, Massachusetts
02116.
Back Bay Advisors currently acts as investment adviser (and is proposed to
act as sub-adviser) to New England Adjustable Rate U.S. Government Fund, New
England Bond Income Fund, New England Cash Management Trust--Money Market
Series, New England Cash Management Trust--U.S. Government Series, New England
Government Securities Fund, New England High Income Fund, New England
Intermediate Term Tax Free Fund of California, New England Intermediate Term
Tax Free Fund of New York, New England Limited Term U.S. Government Fund, New
England Massachusetts Tax Free Income Fund, New England Tax Exempt Income Fund
and New England Tax Exempt Money Market Trust.
Back Bay Advisors acts as sub-adviser to the following other mutual funds
that have a similar objective to the Funds listed below, for compensation at
the annual percentage rates of the corresponding average net asset levels of
those funds set forth in the table below. The table also sets forth the net
assets of those funds at September 30, 1995.
<TABLE>
<CAPTION>
NET ASSETS OF
OTHER FUND AVERAGE
OTHER FUND WITH (IN MILLIONS) ANNUAL NET
FUND SIMILAR OBJECTIVE AT 9/30/95 FEE RATE ASSET LEVELS
---- ------------------ ------------- -------- -------------------------
<S> <C> <C> <C> <C>
New England New England Zenith $151 0.25% of the first $50 million
Bond Income Fund--Back Bay 0.20% of the next $200 million
Fund Advisors Bond 0.15% of amounts in excess of
Income Series $250 million
New England New England Zenith $84 0.15% of the first $100 million
Cash Fund--Back Bay 0.10% of amounts in excess of
Management Advisors Money $100 million
Trust--Money Market Series
Market Series
</TABLE>
INFORMATION ABOUT CGM
CGM has served as investment adviser to New England Growth Fund since March
1, 1990. CGM is a Massachusetts limited partnership organized on December 7,
1989. Its operations are governed by a Second Amended and Restated Limited
Partnership Agreement, dated as of June 23, 1993 (the "Second Partnership
Agreement").
48
<PAGE>
CGM's sole general partner, Kenbob, Inc. ("Kenbob"), is a corporation
controlled equally by G. Kenneth Heebner and Robert L. Kemp. Messrs. Heebner
and Kemp are employees of CGM and officers of New England Funds Trust I.
Messrs. Heebner and Kemp are the Directors of Kenbob and also serve as its
Chairman and President, respectively. As of September 30, 1995, NEIC owned a
54% limited partnership interest in CGM. The Second Partnership Agreement
provides for the sale of part of NEIC's interest in CGM to Kenbob in annual
increments. The address of CGM and Kenbob is One International Place, Boston,
Massachusetts 02110.
CGM acts as investment adviser to the following other mutual funds that have
similar investment objectives to New England Growth Fund, for compensation at
the annual fee rates of the corresponding average net asset levels of those
funds set forth in the table below. The table also sets forth the net assets
of those other funds at September 30, 1995.
<TABLE>
<CAPTION>
NET ASSETS OF
OTHER FUND
OTHER FUND WITH (IN MILLIONS) ANNUAL AVERAGE
SIMILAR OBJECTIVE AT 9/30/95 FEE RATE NET ASSET LEVELS
----------------- ------------- -------- -------------------------
<S> <C> <C> <C>
New England Zenith $903 0.70% of the first $200 million
Fund--Capital 0.65% of the next $300 million
Growth Series 0.60% of amounts in excess of
$500 million
New England Variable $ 61 0.3066% of all assets
Annuity Fund I
CGM Capital Development Fund $502 0.75% of the first $200 million
0.70% of the next $300 million
0.65% of amounts in excess of
$500 million
</TABLE>
INFORMATION ABOUT LOOMIS SAYLES
Loomis Sayles is a limited partnership. Its sole general partner, Loomis,
Sayles & Company, Incorporated ("LSCI"), is a wholly-owned subsidiary of NEIC
Holdings. NEIC owns the entire limited partnership interest in Loomis Sayles.
The principal executive officer of Loomis Sayles is Robert Blanding, who is a
Senior Vice President of New England Funds Trust I and whose principal
occupation is his position with Loomis Sayles. The address of Loomis Sayles
and LSCI is One Financial Center, Boston, Massachusetts 02111. Mr. Blanding's
address is 465 First Street West, Sonoma, California 95476.
Loomis Sayles currently acts as investment adviser (and is proposed to act
as sub-adviser) to New England Capital Growth Fund, New England Balanced Fund
and New England Value Fund. Loomis Sayles currently acts as a sub-adviser to
New England Star Advisers Fund and New England Strategic Income Fund.
Loomis Sayles acts as investment adviser (or sub-adviser, in the case of the
funds marked with an asterisk below) to the following other mutual funds that
have similar investment objectives to the Funds listed below, for compensation
at the annual fee rates of the corresponding average net assets levels of
those funds set forth in the table below. The table also sets forth the net
assets of those other funds at September 30, 1995.
49
<PAGE>
<TABLE>
<CAPTION>
NET ASSETS OF
OTHER FUND
OTHER FUND WITH (IN MILLIONS) ANNUAL AVERAGE
FUND SIMILAR OBJECTIVE AT 9/30/95 FEE RATE NET ASSET LEVELS
---- --------------------- ------------- -------- ------------------------
<S> <C> <C> <C> <C>
New England New England Zenith $ 21 0.55% of the first $25 million
Star Advisers Fund--Loomis Sayles 0.50% of the next $75 million
Fund Small Cap Series* 0.45% of the next $100 million
0.40% of amounts in excess of
$200 million
Maxim Series-- $ 25 0.50% of the first $10 million
Maxim Small 0.40% of the next $15 million
Cap Aggressive 0.35% of the next $75 million
Growth Fund 0.30% of amounts in excess of
$100 million
Loomis Sayles $103 1.00% of all assets
Small Cap Fund
New England New England Zenith $ 45 0.50% of the first $25 million
Capital Growth Fund--Loomis Sayles 0.40% of the next $75 million
Fund Avanti Growth Series* 0.35% of the next $100 million
0.30% of amounts in excess of
$200 million
Loomis Sayles $ 48 0.75% of all assets
Growth Fund
New England New England Zenith $ 13 0.50% of the first $25 million
Balanced Fund Fund--Loomis Sayles 0.40% of the next $75 million
Balanced Series* 0.30% of amounts in excess of
$100 million
</TABLE>
INFORMATION ABOUT WESTPEAK
Westpeak is a limited partnership. Its sole general partner, Westpeak
Investment Advisors, Inc. ("Westpeak Inc."), is a wholly-owned subsidiary of
NEIC Holdings. NEIC owns the entire limited partnership interest in Westpeak.
The principal executive officer of Westpeak is Gerald H. Scriver, who is a
Senior Vice President of New England Funds Trust II and whose principal
occupation is his position with Westpeak. The address of Westpeak, Westpeak
Inc. and Mr. Scriver is 1011 Walnut Street, Boulder, Colorado 80302. Westpeak
currently acts as sub-adviser to New England Growth Opportunities Fund.
Westpeak acts as sub-adviser to the Westpeak Value Growth Series of New
England Zenith Fund, a mutual fund that has a similar investment objective to
New England Growth Opportunities Fund. For the sub-advisory services it
provides to the Westpeak Value Growth Series of New England Zenith Fund,
Westpeak receives compensation at an annual rate of 0.50% of the first $25
million of such fund's average net assets, 0.40% of the next $75 million of
such assets, 0.35% of the next $100 million of such assets and 0.30% of such
assets in excess of $200 million. The net assets of the Westpeak Value Growth
Series of New England Zenith Fund at September 30, 1995 were $42 million.
50
<PAGE>
INFORMATION ABOUT BERGER ASSOCIATES, INC.
Berger Associates, Inc. ("Berger") currently acts as a sub-adviser to New
England Star Advisers Fund. Berger's address is 210 University Boulevard,
Suite 900, Denver, Colorado 80206. Kansas City Southern Industries, Inc.
("KCSI"), a publicly traded holding company, owns approximately 80% of the
stock of Berger. KCSI's address is 114 West 11th Street, Kansas City, Missouri
64105.
The names, addresses and principal occupations of Berger's principal
executive officer and directors are as follows:
<TABLE>
<CAPTION>
NAME ADDRESS PRINCIPAL OCCUPATION POSITION WITH BERGER
---- ------------------------ -------------------- --------------------
<S> <C> <C> <C>
Gerard M. Lavin 210 University Boulevard President and President and
Denver, CO 80206 Director of Director
Berger
William M.B. Berger 210 University Boulevard Chairman of Chairman of
Denver, CO 80206 the Board and the Board and
Director of Director
Berger
Rodney L. Linafelter 210 University Boulevard Vice Vice
Denver, CO 80206 President, President,
Chief Chief
Investment Investment
Officer and Officer and
Director of Director
Berger
Landon H. Rowland 114 West 11th Street President, Director
Kansas City, MO 64105 Chief
Executive
Officer and
Director of
KCSI
</TABLE>
Berger acts as investment adviser (or sub-adviser, in the case of the fund
marked with an asterisk below), to the following other mutual funds that have
similar investment objectives to New England Star Advisers Fund, for
compensation at the annual fee rates of the corresponding average net asset
levels of those funds set forth in the table below. The table also sets forth
the net assets of those other funds at September 30, 1995.
<TABLE>
<CAPTION>
NET ASSETS OF
OTHER FUND
OTHER FUND WITH (IN MILLIONS) ANNUAL AVERAGE
SIMILAR OBJECTIVE AT 9/30/95 FEE RATE NET ASSET LEVELS
----------------- ------------- -------- ------------------------
<S> <C> <C> <C>
The One Hundred Fund, $2,206 0.75% of all assets
Inc.
American Skandia Trust- $ 34 0.55% of the first $25 million
Berger Capital Growth 0.50% of the next $25 million
Portfolio* 0.40% of amounts in excess of
$50 million
</TABLE>
INFORMATION ABOUT FOUNDERS ASSET MANAGEMENT, INC.
Founders Asset Management, Inc. ("Founders") currently acts as a sub-adviser
to New England Star Advisers Fund. The principal executive officer of Founders
is Bjorn K. Borgen, whose principal occupation is his position as Chief
Executive Officer and Director of Founders. Mr. Borgen owns all of the
51
<PAGE>
stock of Founders. The address of Founders and Mr. Borgen is 2930 East Third
Avenue, Denver, Colorado 80206.
Founders acts as investment adviser to Founders Growth Fund, a mutual fund
that has a similar investment objective to New England Star Advisers Fund. For
advisory services it provides to Founders Growth Fund, Founders receives
compensation at an annual rate of 1.00% of the first $30 million of such
fund's average net assets, 0.75% of the next $270 million of such assets,
0.70% of the next $200 million of such assets and 0.65% of such assets in
excess of $500 million. The net assets of Founders Growth Fund at September
30, 1995 were $596 million.
INFORMATION ABOUT JANUS CAPITAL CORPORATION
Janus Capital Corporation ("Janus Capital") currently acts as a sub-adviser
to New England Star Advisers Fund. Janus Capital's address is 100 Fillmore
Street, Suite 300, Denver, Colorado 80206. KCSI owns approximately 83% of the
outstanding voting stock of Janus Capital; and Thomas H. Bailey, the President
and Chairman of the Board of Janus Capital, owns approximately 12% of Janus
Capital's voting stock and, by agreement with KCSI, selects a majority of
Janus Capital's Board.
The names, addresses and principal occupations of Janus Capital's principal
executive officer and directors are as follows:
<TABLE>
<CAPTION>
POSITION WITH
NAME ADDRESS PRINCIPAL OCCUPATION JANUS CAPITAL
---- ------- -------------------- -------------
<C> <C> <S> <C>
Thomas H. Bailey Chairman of the Chairman of the
100 Fillmore Street, Board, President Board, President
Suite 300 and Director of and Director
Denver, CO 80206 Janus Capital
James P. Craig 100 Fillmore Street; Chief Investment Chief Investment
Suite 300 Officer, Vice Officer, Vice
Denver, CO 80206 President and President and
Director of Janus Director; portfolio
Capital manager of Janus
Fund and Janus
Balanced Fund
Michael E. Herman 4900 Oak Chairman of the Director
Kansas City, MO Finance
64112 Committee of Ewing
Marion Kauffman
Foundation
Michael N. Stolper 525 "B" Street; President of Director
Suite 1080 Stolper
San Diego, CA and Company, Inc.
92101
Thomas A. McDonnell 1004 Baltimore Avenue President, Chief Director
Kansas City, MO Executive
64105 Officer and
Director of
DST Systems, Inc.
114 W 11th Street Executive Vice
Kansas City, MO President and
64105 Director
of KCSI
</TABLE>
52
<PAGE>
Janus Capital acts as investment adviser (or sub-adviser, in the case of the
funds marked with an asterisk below) to the following other mutual funds that
have similar investment objectives to New England Star Advisers Fund, for
compensation at the annual fee rates of the corresponding average net asset
levels of those funds set forth in the table below. The table also sets forth
the net assets of those other funds at September 30, 1995.
<TABLE>
<CAPTION>
NET ASSETS OF
OTHER FUND
OTHER FUND WITH (IN MILLIONS) ANNUAL AVERAGE
SIMILAR OBJECTIVE AT 9/30/95 FEE RATE NET ASSET LEVELS
----------------- ------------- -------- ---------------------------
<S> <C> <C> <C>
Janus Investment Fund-- $12,058 1.00% of the first $30 million
Janus Fund 0.75% of the next $270 million
0.70% of the next $200 million
0.65% of amounts in excess of
$500 million
Janus Investment Fund-- $ 471 1.00% of the first $30 million
Janus Enterprise Fund 0.75% of the next $270 million
0.70% of the next $200 million
0.65% of amounts in excess of
$500 million
Janus Investment Fund-- $ 1,578 1.00% of the first $30 million
Janus Mercury Fund 0.75% of the next $270 million
0.70% of the next $200 million
0.65% of amounts in excess of
$500 million
Janus Investment Fund-- $ 3,068 1.00% of the first $30 million
Janus Twenty Fund 0.75% of the next $270 million
0.70% of the next $200 million
0.65% of amounts in excess of
$500 million
Janus Investment Fund-- $ 1,872 1.00% of the first $30 million
Janus Venture Fund 0.75% of the next $270 million
0.70% of the next $200 million
0.65% of amounts in excess of
$500 million
Janus Aspen Series-- $ 95 1.00% of the first $30 million(1)
Growth Portfolio 0.75% of the next $270 million
0.70% of the next $200 million
0.65% of amounts in excess of
$500 million
Janus Aspen Series-- $ 144 1.00% of the first $30 million(1)
Aggressive Growth Port- 0.75% of the next $270 million
folio 0.70% of the next $200 million
0.65% of amounts in excess of
$500 million
American Skandia $ 391 0.60% of the first $100 million
Trust--Jancap 0.55% of the next $900 million
Growth Portfolio* 0.50% of amounts in excess of
$1 billion
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
NET ASSETS OF
OTHER FUND
OTHER FUND WITH (IN MILLIONS) ANNUAL AVERAGE
SIMILAR OBJECTIVE AT 9/30/95 FEE RATE NET ASSET LEVELS
----------------- ------------- -------- -------------------------
<S> <C> <C> <C>
Allmerica Investment $ 24 0.60% of the first $100 million
Trust--Select 0.55% of amounts in excess of
Capital Appreciation $100 million
Fund*
Chubb America Fund-- $ 46 0.75% of the first $200 million
Capital Growth 0.70% of the next $1.1 billion
Portfolio* 0.65% of amounts in excess of
$1.3 billion
Maxim Series Fund, $130 0.60% of the first $100 million
Inc.-- 0.55% of amounts in excess of
Mid-Cap Portfolio* $100 million
JNL Series Trust-- $ 6 0.60% of the first $50 million
JNL Aggressive Growth 0.55% of the next $100 million
Series* 0.45% of the next $150 million
0.40% of amounts in excess of
$300 million
JNL Series Trust-- $ 6 0.60% of the first $50 million
JNL Capital Growth 0.55% of the next $100 million
Series* 0.45% of the next $150 million
0.40% of amounts in excess of
$300 million
Lincoln National $111 0.60% of the first $100 million
Capital Appreciation 0.55% of amounts in excess of
Fund, Inc.* $100 million
Pacific Select Fund-- $162 0.60% of the first $100 million
Growth LT Portfolio* 0.55% of amounts in excess of
$100 million
Sierra Trust Funds-- $268 0.55% of the first $100 million
Emerging Growth 0.50% of amounts in excess of
Fund* $100 million
Sierra Trust Funds-- $208 0.55% of the first $100 million
Growth Fund* 0.50% of amounts in excess of
$100 million
The Sierra Variable $ 40 0.55% of the first $25 million
Trust--Emerging 0.50% of amounts in excess of
Growth Fund* $25 million
The Sierra Variable $ 91 0.55% of the first $25 million
Trust--Growth Fund* 0.50% of amounts in excess of
$25 million
Traveler's Fund U-- $117 0.55% of all assets
Capital Appreciation
Fund
IDEX Fund* $329 50% of the fees received by
the Fund's adviser
less 50% of fee waiver
or reimbursement
provided by adviser(2)
IDEX II Series Fund-- $492 50% of the fees received by
IDEX II Growth the Fund's adviser
Portfolio* less 50% of fee waiver
or reimbursement
provided by adviser(2)
IDEX II Series $ 9 50% of the fees received by
Fund-- the Fund's adviser
IDEX II Capital less 50% of fee waiver
Appreciation or reimbursement
Portfolio* provided by adviser(2)
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
NET ASSETS OF
OTHER FUND
OTHER FUND WITH (IN MILLIONS) ANNUAL AVERAGE
SIMILAR OBJECTIVE AT 9/30/95 FEE RATE NET ASSET LEVELS
- ----------------- ------------- -------- ----------------
<S> <C> <C> <C>
IDEX Fund 3* $ 166 50% of the fees received
by
the Fund's adviser
less 50% of fee waiver
or reimbursement
provided by adviser(3)
WRL Series Fund, $1,115 0.40% of all assets
Inc.--Growth
Portfolio*
</TABLE>
- -----------------------------
(1) Janus Capital has agreed to reduce each Portfolio's advisory fee to the
extent that such fee exceeds the effective rate of the Janus retail fund
corresponding to such Portfolio. The effective rate is the advisory fee
calculated by the corresponding retail fund as of the last day of each
calendar quarter (expressed as an annual rate). The effective rates of
Janus Fund and Janus Enterprise Fund (which correspond to the Growth
Portfolio and Aggressive Growth Portfolio, respectively, of Janus Aspen
Series) were 0.65% and 0.75%, respectively, for the quarter ended March
31, 1995.
(2) The adviser's fee is 1.00% of the first $750 million of the fund's average
net assets, 0.90% of the next $250 million of such assets and 0.85% of
such assets in excess of $1 billion.
(3) The adviser's fee is 1.00% of the fund's average net assets.
INFORMATION ABOUT DRAYCOTT
Draycott, formed in 1991, is a wholly-owned subsidiary of NEIC until its
acquisition by Cursitor Holdings is consummated. (See Part IV of this Proxy
Statement.) Draycott currently acts as adviser (and is proposed to act as sub-
adviser) to New England International Equity Fund. Draycott's address is 8
City Road, London EC2Y 1HE England. The names and principal occupations of
Draycott's principal executive officer and directors are as follows:
<TABLE>
<CAPTION>
POSITION WITH
NAME ADDRESS PRINCIPAL OCCUPATION DRAYCOTT
---- ------- ------------------------- --------------------
<S> <C> <C> <C>
Nicholas D.P. Carn 8 City Road, Chief Executive Officer, Chief Executive
London, England President, Chief Officer, President,
EC 2Y 1HE Investment Officer and Chief Investment
Director of Draycott Officer and Director
Peter S. Voss 399 Boylston Street Chief Executive Officer Director
Boston, MA 02116 and President of NEIC
Sherry Umberfield 399 Boylston Street Executive Vice President, Director
Boston, MA 02116 of NEIC
</TABLE>
Draycott acts as sub-adviser to the following other mutual funds that have
similar investment objectives to New England International Equity Fund, for
compensation at the annual fee rates of the corresponding average net asset
levels of those funds set forth in the table below. The table also sets forth
the net assets of those other Funds at September 30, 1995.
55
<PAGE>
<TABLE>
<CAPTION>
NET ASSETS OF
OTHER FUND
OTHER FUND WITH (IN MILLIONS) ANNUAL AVERAGE
SIMILAR OBJECTIVE AT 9/30/95 FEE RATE NET ASSET LEVELS
----------------- ------------- -------- ------------------------
<S> <C> <C> <C>
New England $12 0.75% of the first $10 million
Zenith Fund-- 0.60% of the next $40 million
Draycott 0.45% of amounts in excess of
International $50 million
Equity Series
Maxim Series Fund-- $63 0.60% of the first $10 million
Foreign Equity 0.50% of the next $40 million
Portfolio 0.35% of amounts in excess of
$50 million
</TABLE>
CERTAIN BROKERAGE MATTERS
In determining to recommend Proposals 1-6, the Trustees considered the
following policies of the Funds' advisers and sub-advisers with respect to
certain matters relating to the execution of portfolio transactions for the
Funds:
ALL FUNDS (EXCEPT SEGMENTS OF NEW ENGLAND STAR ADVISERS FUND ADVISED BY
BERGER AND JANUS CAPITAL). In placing orders for the purchase and sale of
portfolio securities for each Fund, Back Bay Advisors, CGM, Draycott,
Founders, Westpeak and Loomis Sayles always seek the best price and execution.
Some of each Fund's portfolio transactions are placed with brokers and dealers
who provide Back Bay Advisors, CGM, Draycott, Founders, Westpeak or Loomis
Sayles with supplementary investment and statistical information or furnish
market quotations to that Fund, the other Funds or other accounts advised by
Back Bay Advisors, CGM, Draycott, Founders, Westpeak or Loomis Sayles. The
business would not be so placed in the Funds would not thereby obtain the best
price and execution. Although it is not possible to assign an exact dollar
value to these services, they may, to the extent used, tend to reduce the
expenses of Back Bay Advisors, CGM, Draycott, Founders, Westpeak or Loomis
Sayles. The services may also be used by Back Bay Advisors, CGM, Draycott,
Founders, Westpeak or Loomis Sayles in connection with their other advisory
accounts and in some cases may not be used with respect to the Funds.
In placing orders for the purchase and sale of equity securities, each
Fund's adviser (or sub-adviser) selects only brokers which it believes are
financially responsible, will provide efficient and effective services in
executing, clearing and settling an order and will charge commission rates
that, when combined with the quality of the foregoing services, will produce
best price and execution for the transaction. This does not necessarily mean
that the lowest available brokerage commission will be paid. However, the
commissions are believed to be competitive with generally prevailing rates.
Each Fund's adviser (or sub-adviser) will use its best efforts to obtain
information as to the general level of commission rates being charged by the
brokerage community from time to time and will evaluate the overall
reasonableness of brokerage commissions paid on transactions by reference to
such data. In making such evaluation, all factors
56
<PAGE>
affecting liquidity and execution of the order, as well as the amount of the
capital commitment by the broker in connection with the order, are taken into
account. No Fund will pay a broker a commission at a higher rate than
otherwise available for the same transaction in recognition of the value of
research services provided by the broker or in recognition of the value of any
other services provided by the broker which do not contribute to the best
price and execution of the transaction.
NEW ENGLAND STAR ADVISERS FUND (SEGMENT ADVISED BY BERGER). Berger places
portfolio transactions for its segment of New England Star Advisers Fund only
with brokers and dealers who render satisfactory service in the execution of
orders at the most favorable prices and at reasonable commission rates.
However, Berger may place such transactions with a broker with whom it has
negotiated a commission that is in excess of the commission then being charged
by another broker where such commission is the result of Berger having
reasonably taken into account the quality and reliability of the brokerage
services, including, without limitation, the availability and value of
research services or execution services. Berger places portfolio brokerage
business of its segment of New England Star Advisers Fund with brokers who
provide useful research services to Berger. Such research services typically
consist of studies made by investment analysts or economists relating either
to the past record of and future outlook for companies and the industries in
which they operate, or to national and worldwide economic conditions, monetary
conditions and trends in investors' sentiment, and the relationship of these
factors to the securities market. In addition, such analysts may be available
for regular consultation so that Berger may be apprised of current
developments in the above-mentioned factors. The research services received
from brokers are often helpful to Berger in performing its investment advisory
responsibilities to its segment of New England Star Advisers Fund, but they
are not essential, and the availability of such services from brokers does not
reduce the responsibility of Berger advisory personnel to analyze and evaluate
the securities in which its segment of the Fund invests. The research services
obtained as a result of the Fund's brokerage business also will be useful to
Berger in making investment decisions for its other advisory accounts and,
conversely, information obtained by reason of placement of brokerage business
of such other accounts may be used by Berger in rendering investment advice to
its segment of the Fund. Although such research services may be deemed to be
of value to Berger, they are not expected to decrease the expenses that Berger
would otherwise incur in performing investment advisory services for its
segment of the Fund nor will the sub-advisory fees that are received by Berger
for providing services to the Fund be reduced as a result of the availability
of such research services from brokers.
NEW ENGLAND STAR ADVISERS FUND (SEGMENT ADVISED BY JANUS CAPITAL). Decisions
as to the assignment of portfolio business for the segment of New England Star
Advisers Fund's portfolio advised by Janus Capital and negotiation of
commission rates are made by Janus Capital, whose policy is to
57
<PAGE>
obtain the "best execution" (prompt and reliable execution at the most
favorable securities price) of all portfolio transactions. In placing
portfolio transactions for its segment of the Fund's portfolio, Janus Capital
may cause the Fund to pay brokerage commissions for effecting a securities
transaction in an amount higher than another broker or dealer would have
charged for effecting that transaction, as authorized, under certain
circumstances, by the Securities Exchange Act of 1934.
In selecting brokers and dealers and in negotiating commissions, Janus
Capital considers a number of factors, including but not limited to: Janus
Capital's knowledge of currently available negotiated commission rates or
prices of securities currently available and other current transaction costs;
the nature of the securities being traded; the size and type of the
transaction; the nature and character of the markets for the security to be
purchased or sold; the desired timing of the trade; the activity existing and
expected in the market for the particular security; confidentiality; the
quality of the execution, clearance and settlement services; the financial
stability of the broker or dealer; the existence of actual or apparent
operational problems of any broker or dealer; and research products or
services provided. In recognition of the value of the foregoing factors, Janus
Capital may place portfolio transactions with a broker or dealer with whom it
has negotiated a commission that is in excess of the commission another broker
or dealer would have charged for effecting that transaction if Janus Capital
determines in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer viewed in terms of either that particular transaction or of
the overall responsibilities of Janus Capital. Research may include furnishing
advice, either directly or through publications or writings, as to the value
of securities, the advisability of purchasing or selling specific securities
and the availability of securities or purchases or sellers of securities;
furnishing seminars, information, analyses and reports concerning issuers,
industries, securities, trading markets and methods, legislative developments,
changes in accounting practices, economic factors and trends and portfolio
strategy; access to research analysts, corporate management personnel,
industry experts, economists and government officials; comparative performance
evaluation and technical measurement services and quotation services; and
other products and services (such as third party publications, reports and
analyses, and computer and electronic access, equipment, software, information
and accessories that deliver, process or otherwise utilize information,
including the research described above) that assist Janus Capital in carrying
out its responsibilities. Research received from brokers or dealers is
supplemental to Janus Capital's own research efforts.
Janus Capital may use research products and services in servicing other
accounts in addition to New England Star Advisers Fund. If Janus Capital
determines that any research product or service has a mixed use, such that it
also serves functions that do not assist in the investment decision-making
process,
58
<PAGE>
Janus Capital may allocate the costs of such service or product accordingly.
Only that portion of the product or service that Janus Capital determines will
assist it in the investment decision-making process may be paid for in
brokerage commission dollars. Such allocation may create a conflict of
interest for Janus Capital.
Janus Capital may also consider sales of shares of mutual funds advised by
Janus Capital by a broker-dealer or the recommendation of a broker-dealer to
its customers that they purchase shares of such funds as a factor in the
selection of broker-dealers to execute portfolio transactions for New England
Star Advisers Fund. In placing portfolio business with such broker-dealers,
Janus Capital will seek the best execution of each transaction.
GENERAL. Subject to procedures adopted by the Trustees, brokerage
transactions for each Fund (except New England Tax Exempt Money Market Trust
and the two Series of New England Cash Management Trust) may be executed by
brokers that are affiliated with the Distributor or the Fund's adviser or sub-
adviser(s). Any such transactions will comply with Rule 17e-1 under the 1940
Act, which requires that the commissions paid on such transactions not exceed
"usual and customary" brokerage commissions. The rule defines "usual and
customary" commissions to include amounts which are "reasonable and fair
compared to the commission, fee or other remuneration received or to be
received by other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange during a
comparable period of time." The Trustees, including those who are not
"interested persons" of the Trusts, have adopted procedures for evaluating the
reasonableness of commissions paid to affiliated brokers and will review those
procedures periodically. The Funds did not pay any amounts to affiliated
brokers during their most recent fiscal year.
Under the 1940 Act, persons affiliated with each Trust are prohibited from
dealing with such Trust as a principal in the purchase and sale of securities.
Since transactions in the over-the-counter market usually involve transactions
with dealers acting as principals for their own accounts, affiliated persons
of a Fund may not serve as the Fund's dealer in connection with such
transactions.
It is expected that the portfolio transactions in fixed-income securities
will generally be with issuers or dealers on a net basis without a stated
commission. Securities firms may receive brokerage commissions on transactions
involving options, futures and options on futures and the purchase and sale of
underlying securities upon exercise of options. The brokerage commissions
associated with buying and selling options may be proportionately higher than
those associated with general securities transactions.
INFORMATION ABOUT CERTAIN TRUSTEES AND OFFICERS OF THE TRUSTS
The following table lists persons who are officers or Trustees of the Trusts
and are also officers, directors, employees or shareholders of the advisers or
sub-
59
<PAGE>
advisers to the Funds listed below. In the second column of the table, "I,"
"II," "CMT" and "TEMMT" represent, respectively, New England Funds Trust I,
New England Funds Trust II, New England Cash Management Trust and New England
Tax Exempt Money Market Trust; and "All" indicates that a person is an officer
or Trustee of all four of the Trusts.
<TABLE>
<CAPTION>
TRUST(S) WITH WHICH
POSITION OF OFFICER OR ADVISER OR
NAME TRUSTEE IS HELD SUB-ADVISER
---- ---------------------- -----------------
<S> <C> <C>
Peter S. Voss All Draycott, NEIC
Henry L.P. Schmelzer All NEFM
Frank Nesvet All NEFM
Robert P. Connolly All NEFM
Bruce R. Speca All NEFM
Sheila M. Barry All NEFM
Peter H. Duffy All NEFM
Robert J. Blanding I Loomis Sayles
Meri Ann Beck I Loomis Sayles
David M. Davis I Loomis Sayles
Carol C. McMurtrie I Loomis Sayles
Scott S. Pape I Loomis Sayles
Jeffery C. Petherick I Loomis Sayles
Tricia Mills I Loomis Sayles
Richard W. Hurkes I Loomis Sayles
Charles J. Finlayson I Loomis Sayles
G. Kenneth Heebner I CGM
Robert L. Kemp I CGM
Gerald H. Scriver II Westpeak
Phillip J. Cooper II Westpeak
Charles T. Wallis All Back Bay Advisors
Christine Creelman I, II Back Bay Advisors
Harold B. Bjornson All Back Bay Advisors
Catherine L. Bunting II Back Bay Advisors
Kimberly Forsyth I, II Back Bay Advisors
Charles A. Glueck I, II Back Bay Advisors
Eric Gutterson I, II Back Bay Advisors
John E. Maloney TEMMT Back Bay Advisors
Scott A. Millimet I, II Back Bay Advisors
J. Scott Nicholson All Back Bay Advisors
Douglas D. Ramos I Loomis Sayles
Edgar M. Reed I, II Back Bay Advisors
James S. Welch II Back Bay Advisors
Nathan R. Wentworth I Back Bay Advisors
</TABLE>
60
<PAGE>
VIII. OTHER INFORMATION
SHARES AND SHAREHOLDERS AS OF THE RECORD DATE
The number of shares of beneficial interest of each Fund issued and
outstanding as of the Record Date are as follows:
<TABLE>
<CAPTION>
SHARES
OUTSTANDING ON
FUND RECORD DATE
---- --------------
<S> <C>
New England Adjustable Rate U.S. Government Fund ................ 50,454,001
New England Balanced Fund ....................................... 21,810,281
New England Bond Income Fund .................................... 18,183,679
New England Capital Growth Fund ................................. 7,914,163
New England Cash Management Trust--Money Market Series .......... 666,040,500
New England Cash Management Trust--U.S. Government Series ....... 60,168,003
New England Government Securities Fund .......................... 13,581,654
New England Growth Fund ......................................... 112,423,776
New England Growth Opportunities Fund ........................... 10,811,388
New England High Income Fund .................................... 5,411,591
New England Intermediate Term Tax Free Fund of California ....... 5,077,264
New England Intermediate Term Tax Free Fund of New York ......... 2,328,245
New England International Equity Fund ........................... 16,704,259
New England Limited Term U.S. Government Fund ................... 32,355,600
New England Massachusetts Tax Free Income Fund .................. 7,504,115
New England Star Advisers Fund .................................. 27,717,272
New England Strategic Income Fund ............................... 5,987,885
New England Tax Exempt Income Fund .............................. 65,281,439
New England Tax Exempt Money Market Trust ....................... 27,377,177
New England Value Fund .......................................... 30,880,798
</TABLE>
As of the Record Date, the following persons owned beneficially (within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934) the following
numbers of shares of the following Funds, representing the indicated
percentage of the outstanding shares of the relevant Fund:
<TABLE>
<CAPTION>
NUMBER OF
FUND SHAREHOLDER SHARES %
---- ----------- --------- -
<S> <C> <C> <C>
New England Adjustable Rate Molten Metal 2,855,220 5.69
U.S. Government Technology, Inc.
Fund--Class A 51 Sawyer Rd.
Waltham, MA 02154
San Bernardino County 10,124,900 20.19
Treasurer
172 W. Third St.
San Bernardino, Ca
92415
Seagate Technology 2,757,821 5.5
920 Disc Drive
P.O. Box 66360
Scotts Valley, CA
95066-4544
Prudential Securities 2,529,760 5.04
For the Benefit of
Marquette Bank, N.A.
60 S. 6th St.
Minneapolis, MN
55402-4400
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
FUND SHAREHOLDER SHARES %
---- ----------- --------- -
<S> <C> <C> <C>
New England Adjustable Rate NFSC For the Exclusive 20,298 6.57
U.S. Government Fund--Class B Benefit of
Lynn C. Knarr
14 Canal Rd.
Westport, CT 06880-
6904
Smith Barney Inc. 21,002 6.80
Account Number
00167338643
388 Greenwich St.
New York, NY 10013-
2375
New England Balanced Fund--Class C State Street Bank & 3,612 11.20
Trust Co.--
Cust. for the IRA of
William J. Walker
11 Saddle Club Rd.
Lexington, MA 02173-
2102
Great Lakes Elevator, 5,657 17.54
Inc.
Employees 401(k) Plan
401 Hall St. SW Box 9
Grand Rapids, MI
49503-5098
PaineWebber For the 2,088 6.47
Benefit of
Susan R. Labunski
916 Union Street
Apt 5C
Brooklyn, NY 11215-
1628
New England Balanced Fund--Class Y The New England 265,546 6.18
Progress Sharing Plan
c/o Benefit Admin.
Services
501 Boylston Street
Boston, MA 02116
New England Mutual 3,471,708 80.74
Life Insurance Co.
501 Boylston Street-
6th Floor
Boston, MA 02116-3706
The New England 273,653 6.36
Agents' Retirement
Plan
c/o Benefit Admin.
Services
501 Boylston Street
Boston, MA 02116
New England Bond Income Fund-- State Street Bank & 5,455 20.20
Class C Trust Co.--
Cust. for the IRA of
William J. Walker
11 Saddle Club Rd.
Lexington, MA 02173-
2102
Marily Cantrell 1,402 5.19
1117 W. Payne St.
Olney, TX 76374-1369
State Street Bank & 1,918 7.10
Trust Co.--
Cust. for the IRA
Rollover of
Arthur C. Schrader,
Jr.
Indianapolis, IN
46240-2984
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
FUND SHAREHOLDER SHARES %
---- ----------- --------- -
<S> <C> <C> <C>
Advest, Inc. 1,968 7.29
Account Number 202-
07949-19
280 Trumbull St.
Hartford, CT 06103-
3502
Resources Trust Co.-- 1,734 6.42
IRA
For the Benefit of
Gordon W. Horton
Account Number 1-481-
34-3788
P.O. Box 5900
Denver, CO 80217-5900
Jarle B. Leirfallom 1,661 6.15
2730 Hazelwood Ave.
Apt 111
Maplewood, MN 55109-
1133
PaineWebber For the 1,729 6.40
Benefit of
Ann W. Grunwalt
3765 Winding Pine
Drive
Metamora, MI 48455-
8969
New England Capital Growth Fund--Class State Street Bank & 1,666 13.29
C Trust Co.--
Cust. for the IRA of
William J. Walker
11 Saddle Club Rd.
Lexington, MA 02173-
2102
State Street Bank & 1,230 9.81
Trust Co.--
Cust. for the IRA of
Rita D. Kiehle
1716 8th St. NW
Grand Rapids, MI
49504-3905
Wanda N. Burkett 1,109 8.85
Kenneth D. Burkett JT
TEN
40 Twining Rd.
Taos Ski Valley, NM
87525
James R. Peyton MD PA 865 6.90
Profit Sharing Plan
64 Merrimon Ave.
Asheville, NC 28801-
2323
Larry Minnick 1,577 12.58
8105 Bromlay Pl.
Indianapolis, IN
46219-2851
Raymond James & 1,405 11.21
Assoc. Inc.-- Cust.
for the IRA Rollover
of Norman P. Swefford
2236 E. Rock Creek
Rd.
Arnold, MO 63010-3605
New England Cash Management Trust-- National Financial 50,870,415 7.70
Money Market Series--Class A Services Corp.
For the Exclusive
Benefit of
its Customers
200 Liberty St.
1 World Financial
Center
New York, NY 10281-
0095
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
FUND SHAREHOLDER SHARES %
---- ----------- --------- -
<S> <C> <C> <C>
New England Cash Management Trust--U.S. Kevin M. Mahony 3,401,692 5.74
Government Series--Class A Mary S. Mahony JT TEN
228 Common Street
Belmont, MA 02178-
2916
National Financial 5,765,490 9.72
Series Corp.
For the Exclusive
Benefit of
its Customers
200 Liberty St.
1 World Financial
Center
New York, NY 10281-
0095
New England Cash Management Trust-- Smith Barney Inc. 101,603 11.74
U.S. Government Series--Class B Account No.
00167333729
388 Greenwich Street
New York, NY 10013-
2375
Jean J. Magill-- 76,302 8.81
Guardian for
Property of
James C. Magill, Jr.
P.O. Box 1673
Snellville, GA 30278-
1673
Jean Magill--Guardian 76,302 8.81
for
Property of
Amy L. Magill
P.O. Box 1673
Snellville, GA 20278-
1678
Mable J. Snell 106,407 12.29
2145 North Rd.
Snellville, GA 30278-
2630
State Street Bank & 79,043 9.13
Trust Co.--
Cust. for the IRA
Rollover of
Ronald J. Weber
101 Rainbow Dr. Apt.
#4691
Edison, NJ 08820-1158
State Street Bank & 45,572 5.26
Trust Co.
Cust. for the IRA
Rollover of
Marilyn Seidner
Batshaw
166 Westgate Dr.
Edison, NJ 08820-1158
Winnie S. Escoe 50,681 5.86
5102 Arthur Ave.
Oakwood, GA 30566-
2633
Thomas Smith Co. Inc. 85,154 9.84
401K Plan
288 Grove St.
Worcester, MA 01605-
3908
New England Government Securities State Street Bank & 23,531 6.24
Fund--Class B Trust Co.--
Cust. for the IRA
Rollover of
Edith H. Growson
22410 Provincial
Katy, TX 77450-1624
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
FUND SHAREHOLDER SHARES %
---- ----------- --------- -
<S> <C> <C> <C>
New England Government Securities New England Mutual 474,856 100
Fund--Class Y Life Insurance
Company
501 Boylston Street
Boston, MA 02116
New England Growth Opportunities PaineWebber For the 4,256 6.02
Fund--Class C Benefit of
Martin Karplus
133 Irving St.
Cambridge, MA 12138-
1906
PaineWebber 4,219 5.97
Cust. For the Benefit
of
David R. Cray
P.O. Box 3321
Weehawken, NJ 07087-
8154
PaineWebber For the 13,601 19.25
Benefit of
Shraga Kawior Esq.--
Personal
Representative--
Estate of
Moses Lichtig
8401 Colesvilles Rd.
Suite 420
Silver Spring, MD
20910-3363
New England Intermediate Term Tax Free Merrill Lynch Pierce 84,577 11.17
Fund of California--Class B Fenner & Smith, Inc.
Mutual Fund
Operations
4800 Deer Lake Drive
East
Jacksonville, FL
32246-6484
Smith Barney Shearson 54,030 7.13
Account Numbers
00164702313
388 Greenwich St.
New York, NY 10013-
2375
Smith Barney Inc. 45,337 5.99
Account Number
00168604468
388 Greenwich St.
New York, NY 10013-
2375
New England Intermediate Term Tax Smith Barney, Inc. 106,007 5.02
Free Fund of New York--Class A Account Number
0168732050
388 Greenwich Street
New York, NY 10013-
2375
New England Intermediate Term Tax NFSC For the 12,730 5.84
Free Fund of New York--Class B Exclusive Benefit of
Account Number
OXM-606006
Julius Slomowitz
c/o Hotel Metro
45 W 35th Street,
Room 512
New York, NY 10001-
2202
PaineWebber For the 17,227 7.90
Benefit of
Nathan R. Lorman and
Vivian Lorman JT WROS
130 East 63rd Street
New York, NY 10021-
7334
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
FUND SHAREHOLDER SHARES %
---- ----------- --------- -
<S> <C> <C> <C>
NFSC For the Exclusive 14,278 6.55
Benefit of Account Number
OBV-587265
Frank Paulino Trustee
Frank Paulino Revocable Trust
763 Washington Street
Franklin Square NY 11010-3801
New England International PaineWebber For the Benefit 5,066 9.55
Equity Fund Class C of
Polly P. White
240 S. High Haro Drive
Friday Harbor, WA 98250-9442
PaineWebber For the Benefit 3,404 6.41
of
Karen J. Foley
12 Walden Oaks
St. Joseph, MO 64505-9400
PaineWebber For the Benefit 3,301 6.22
of
First Minnetonka City Bank--
Cust. for
Rick A. Rosoff
14550 Excelsior Blvd.
Minnetonka, MN 55345-5822
New England International Walker Art Center 454,995 9.30
Equity Fund--Class Y Vineland Place
Minneapolis, MN 55403
The New England 291,020 5.95
Progress Sharing Plan
c/o Benefit Admin. Services
501 Bolyston Street
Boston, MA 02116-3706
New England Mutual 2,521,550 51.52
Life Ins. Co.
Separate Investment
Accounting
501 Boylston Street, 6th
Floor
Boston, MA 02116-3706
First Bank North--As Agent 631,457 12.90
Holding Shares
for BHS Custody Agency
Mutual Funds--
Account Number 14067563
P.O. Box 64010
St. Paul, MN 55164-0010
New England Limited Term Hook's Concrete Construction 37,961 13.30
U.S. Government Fund--Class Corp.--Defined Benefit
C Pension Plan and Trust
527 East 169th St.
South Holland, IL 60473-2925
State Street Bank and 29,689 10.40
Trust Co.--
Cust. for the IRA of
E. Richard Snell, Jr.
4400 Hidden Stream Dr.
Loganville, GA 30249
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
FUND SHAREHOLDER SHARES %
---- ----------- --------- -
<S> <C> <C> <C>
Smith Barney Inc. 16,973 5.95
Account Number
00169860084
388 Greenwich St.
New York, NY 10013-
2375
Smith Barney Inc. 16,476 5.77
Account Number
00169862477
388 Greenwhich St.
New York, NY 10013-
2375
Smith Barney Inc. 22,381 7.84
Account Number
00169862469
388 Greenwhich St.
New York, NY 10013-
2375
New England Limited Term U.S. New England Mutual 187,083 42.09
Government Fund--Class Y Life Ins. Co.--
Separate Investment
Accounting
501 Boylston St.--6th
Floor
Boston, MA 02116-3706
NEIC Master 257,425 57.91
Retirement Trust
c/o Defined
Contribution
Services-- The New
England PO Box 755
Boston, MA 02117
New England Massachusetts Willie Maginest 25,485 6.95
Tax Free Income Fund--Class B 2001 Marina Drive
#704
North Quincy, MA
02171-1542
New England Star Advisers Fund--Class Y New England Mutual 272,204 100
Life Ins. Co.--
Separate Investment
Accounting
501 Boylston St.--6th
Floor
Boston, MA 02116-3306
New England Tax Exempt National Financial 8,737,660 13.46
Money Market Trust--Class A Services
Corp.--For the
Exclusive
Benefit of our
Customers
200 Liberty St.
1 World Financial
New York, NY 10281
New England Tax Exempt Roy S. Takaki 20,693 5.40
Money Market Trust--Class B Gail M. Takaki JT TEN
7275 Nohili St.
Honolulu, HI 96825-
2249
Henry S. Belber II 121,928 31.84
Trico Construction
Co., Inc.
229 Lancaster Ave.
Devon, PA 19333-1589
Lawrence Friedman 133,447 34.85
Alex Friedman JT TEN
160 Washington Ave.
Watchung, NJ 07060-
6321
Ann Coughlin 55,240 14.42
Box 399 Golf Course
Rd.
Dallas, PA 18612-0399
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
FUND SHAREHOLDER SHARES %
---- ----------- --------- -
<S> <C> <C> <C>
New England Value Fund--Class C NFSC For the 4,085 5.27
Exclusive Benefit
of Acct. Number 041-
647039
Henry L. Johnson
Florence L. Johnson
639 Meadowbrook Drive
Huntingdon Valley, PA
19006-6914
Iris S. Caldwell 11,575 14.93
c/o Jack Whiteley
24032 153rd St Place
SE
Monroe, WA 98272-7673
New England Value Fund--Class Y New England Mutual 714,379 100
Life
Ins. Co.--Separate
Investment
Accounting
501 Boylston St.--6th
Floor
Boston, MA 02116
</TABLE>
QUORUM; ADJOURNMENT; MATTERS TO COME BEFORE THE MEETING
Forty percent of the shares of each Fund outstanding on the Record Date,
present in person or represented by proxy, constitutes a quorum for the
transaction of business with respect each Proposal relating to such Fund.
Votes cast by proxy or in person at the Meeting will be counted by persons
appointed by the Trusts as tellers for the Meeting. As to each Proposal to be
voted on by shareholders of a Fund, shares of that Fund as to which the
proxies are instructed to abstain from voting will have the effect of a
negative vote on the proposal.
In the event that a quorum is not present for purposes of acting on any
Proposal, or sufficient votes in favor of any Proposals 1 through 10 with
respect to any relevant Fund are not received by December 28, 1995, the
persons named as proxies may vote on those matters for which a quorum is
present and as to which sufficient votes have been received and may propose
one or more adjournments of the Meeting to permit further solicitation of
proxies. Any such adjournment will require the affirmative vote of a majority
of the shares present in person or by proxy at the session of the Meeting to
be adjourned. The persons named as proxies will vote in favor of such
adjournment those proxies which they are entitled to vote in favor of
Proposals 1 through 10. They will vote against any such adjournment those
proxies required to be voted against any of Proposals 1 through 10 and will
not vote any proxies that direct them to abstain from voting on such
Proposals.
Although the Meeting is called to transact any other business that may
properly come before it, the only business management intends to present or
knows that others will present is Proposals 1 through 10 mentioned in the
attached Notice of Special Meeting. However, shareholders are being asked on
the enclosed proxy to authorize the persons named therein to vote in
accordance
68
<PAGE>
with their judgment with respect to any additional matters which properly come
before the Meeting, and on all matters incidental to the conduct of the
Meeting.
SHAREHOLDER PROPOSALS AT FUTURE MEETINGS
Shareholder proposals to be presented at any future meeting of shareholders
of any Trust must be received by that Trust a reasonable time before the
Trust's solicitation of proxies for that meeting in order for such proposals
to be considered for inclusion in the proxy materials relating to that
meeting.
69
<PAGE>
APPENDIX A
The following tables contained in this Appendix A summarize the maximum
transaction costs from investing in nine of the Funds, for which an increase
in expenses is proposed, and the annual expenses borne by each Class of those
Fund's shares in each Fund's last fiscal year, as well as such annual expenses
calculated on a pro forma basis assuming that the new Advisory Agreement that
is the subject of Proposal 2 had been in effect beginning at the start of each
Fund's last fiscal year.
NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND
<TABLE>
<CAPTION>
SHAREHOLDER
TRANSACTION EXPENSES
------------------------
CLASS A CLASS B
---------- ----------
<S> <C> <C>
Maximum Initial Sales Charge imposed on a purchase
(as a percentage of offering price)(1)(2).......... 1.00% None
Maximum Contingent Deferred Sales Charge (as a
percentage of original purchase price or redemption
proceeds, as applicable)........................... (3) 4.00%
</TABLE>
- -----------------------------
(1) Reduced Class A sales charges apply in some cases.
(2) Does not apply to reinvested distributions.
(3) A 1.00% contingent deferred sales charge applies with respect to any
portion of certain purchases of Class A shares greater than $1,000,000
redeemed within approximately one year after purchase.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET
ASSETS DURING THE YEAR ENDED
DECEMBER 31, 1994)
---------------------------------------
PRO FORMA
(ASSUMING THE
PROPOSED NEW ADVISORY
ARRANGEMENTS HAD BEEN
ACTUAL IN EFFECT SINCE 1/1/94)
------------ -----------------------
CLASS CLASS CLASS CLASS
EXPENSE TYPE A B A B
- ------------ ----- ----- ----------- -----------
<S> <C> <C> <C> <C>
Advisory Fees......................... 0.25%* 0.25%* 0.33%** 0.33%**
12b-1 Fees............................ 0.25% 1.00% 0.25% 1.00%
Administrative Services Fees.......... 0.09%* 0.09%* None None
Other Expenses........................ 0.11% 0.11% 0.12% 0.12%
Total Fund Operating Expenses......... 0.70%* 1.45%* 0.70%** 1.45%**
</TABLE>
- -----------------------------
* After voluntary fee waiver and expense reduction by the Fund's adviser
and/or the Distributor. Without the voluntary limitations, Advisory Fees and
Administrative Service Fees would be 0.38% and 0.14%, respectively; and
Total Fund Operating Expenses would be 0.88% for Class A shares and 1.63%
for Class B shares. These voluntary limitations can be terminated by the
Fund's adviser or the Distributor at any time.
** After voluntary fee waiver and expense reduction by the Fund's adviser
and/or the Distributor. Without the voluntary limitations, Advisory Fees
would be 0.52% and Total Fund Operating Expenses would be 0.89% for Class A
shares and 1.64% for Class B shares. These voluntary limitations can be
terminated by the Fund's adviser or the Distributor at any time.
A-1
<PAGE>
EXAMPLE. A $1,000 investment in each Class of the Fund would incur the
following dollar amount of transaction costs and operating expenses, assuming
a 5% annual return and, unless otherwise noted, redemption at period end. The
5% return and the expense levels used in calculating this example (which give
effect to the voluntary limitations described in the footnotes to the
preceding table) should not be regarded as predictions of future investment
return or Fund expenses, both of which will vary:
<TABLE>
<CAPTION>
BASED ON PRO FORMA EXPENSES
FOR THE YEAR ENDED 12/31/94
BASED ON ACTUAL EXPENSES (ASSUMING THE PROPOSED NEW
INCURRED DURING ADVISORY ARRANGEMENTS HAD
THE YEAR ENDED 12/31/94 BEEN IN EFFECT SINCE 1/1/94)
---------------------------- -------------------------------
CLASS CLASS CLASS CLASS CLASS CLASS
A B B(1) A B B(1)
-------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 year................ $ 37 $ 55 $ 15 $ 37 $ 55 $ 15
3 years............... $ 52 $ 76 $ 46 $ 52 $ 76 $ 46
5 years............... $ 68 $ 89 $ 79 $ 68 $ 89 $ 79
10 years(2) .......... $114 $153 $153 $114 $153 $153
</TABLE>
- -----------------------------
(1) Assumes no redemption.
(2) Class B shares automatically convert to Class A shares eight years after
purchase; therefore, Class B amounts are calculated using Class A expenses
in years 9 and 10.
A-2
<PAGE>
NEW ENGLAND CASH MANAGEMENT TRUST--MONEY MARKET SERIES
<TABLE>
<CAPTION>
SHAREHOLDER
TRANSACTION
EXPENSES
-----------------
CLASS A CLASS B
------- -------
<S> <C> <C>
Maximum Initial Sales Charge imposed on a purchase (as a
percentage of offering price).............................. None None
Maximum Contingent Deferred Sales Charge (as a percentage of
original purchase price or redemption proceeds, as
applicable)................................................ None(1) None(1)
</TABLE>
- -----------------------------
(1) Shares of each Class are sold without any sales charge. However, Class A
and B shares may be subject to a contingent deferred sales charge if the
shares were purchased by exchange from another of the Funds.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET
ASSETS DURING THE FISCAL YEAR ENDED
JUNE 30, 1995)
-----------------------------------
PRO FORMA
(ASSUMING THE
PROPOSED NEW ADVISORY
ARRANGEMENTS HAD BEEN
ACTUAL IN EFFECT SINCE 7/1/94)
----------- -----------------------
CLASS CLASS CLASS CLASS
EXPENSE TYPE A B A B
- ------------ ----- ----- ----------- -----------
<S> <C> <C> <C> <C>
Advisory Fees............................... 0.42% 0.42% 0.42% 0.42%
12b-1 Fees.................................. None None None None
Other Expenses.............................. 0.46% 0.46% 0.47% 0.47%
Total Fund Operating Expenses............... 0.88% 0.88% 0.89% 0.89%
</TABLE>
- -----------------------------
EXAMPLE. A $1,000 investment in each Class of the Fund would incur the
following dollar amount of transaction costs and operating expenses, assuming
a 5% annual return and, unless otherwise noted, redemption at period end. The
5% return and the expense levels used in calculating this example should not
be regarded as predictions of future investment return or Fund expenses, both
of which will vary:
<TABLE>
<CAPTION>
BASED ON PRO FORMA
EXPENSES FOR THE FISCAL
YEAR ENDED 6/30/95
BASED ON ACTUAL EXPENSES (ASSUMING THE PROPOSED NEW
INCURRED DURING ADVISORY ARRANGEMENTS HAD
THE FISCAL YEAR ENDED 6/30/95 BEEN IN EFFECT SINCE 7/1/94)
------------------------------ ------------------------------
CLASS CLASS CLASS CLASS
A B A B
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
1 year............. $ 9 $ 9 $ 9 $ 9
3 years............ $ 28 $ 28 $ 28 $ 28
5 years............ $ 49 $ 49 $ 49 $ 49
10 years .......... $108 $108 $110 $110
</TABLE>
A-3
<PAGE>
NEW ENGLAND CASH MANAGEMENT TRUST--U.S. GOVERNMENT SERIES
<TABLE>
<CAPTION>
SHAREHOLDER
TRANSACTION
EXPENSES
-------------------------
CLASS A CLASS B
------- -------
<S> <C> <C>
Maximum Initial Sales Charge imposed on a purchase
(as a percentage of offering price)................. None None
Maximum Contingent Deferred Sales Charge (as a
percentage of original purchase price or redemption
proceeds, as applicable)............................ None None(1)
</TABLE>
- -----------------------------
(1) Shares of each Class are sold without any sales charge. However, Class A
and B shares may be subject to a contingent deferred sales charge if the
shares were purchased by exchange from another of the Funds.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS DURING
THE FISCAL YEAR ENDED JUNE 30, 1995)
-----------------------------------------------
PRO FORMA
(ASSUMING THE
PROPOSED
NEW ADVISORY
ARRANGEMENTS
HAD BEEN
IN EFFECT
ACTUAL SINCE 7/1/94)
----------------------- -----------------------
CLASS CLASS CLASS CLASS
EXPENSE TYPE A B A B
- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Advisory Fees................... 0.43% 0.43% 0.43% 0.43%
12b-1 Fees...................... None None None None
Other Expenses.................. 0.49% 0.49% 0.56% 0.56%
Total Fund Operating Expenses... 0.92% 0.92% 0.99% 0.99%
</TABLE>
- -----------------------------
EXAMPLE. A $1,000 investment in each Class of the Fund would incur the
following dollar amount of transaction costs and operating expenses, assuming
a 5% annual return and, unless otherwise noted, redemption at period end. The
5% return and the expense levels used in calculating this example should not
be regarded as predictions of future investment return or Fund expenses, both
of which will vary:
<TABLE>
<CAPTION>
BASED ON
PRO FORMA
EXPENSES FOR THE FISCAL
YEAR ENDED 6/30/95
BASED ON (ASSUMING THE PROPOSED
ACTUAL EXPENSES NEW ADVISORY
INCURRED DURING ARRANGEMENTS HAD
THE FISCAL YEAR BEEN IN EFFECT
ENDED 6/30/95 SINCE 7/1/94)
---------------- ------------------------
CLASS CLASS CLASS CLASS
A B A B
------- ------- ----------- -----------
<S> <C> <C> <C> <C>
1 year................................. $ 9 $ 9 $ 10 $ 10
3 years................................ $ 29 $ 29 $ 32 $ 32
5 years................................ $ 51 $ 51 $ 55 $ 55
10 years .............................. $113 $113 $121 $121
</TABLE>
A-4
<PAGE>
NEW ENGLAND MASSACHUSETTS TAX FREE INCOME FUND
<TABLE>
<CAPTION>
SHAREHOLDER
TRANSACTION
EXPENSES
-----------------------
CLASS A CLASS B
------- -------
<S> <C> <C> <C> <C>
Maximum Initial Sales Charge imposed on a purchase (as
a percentage of offering price)(1)(2)................ 4.25% None
Maximum Contingent Deferred Sales Charge (as a
percentage of original purchase price or redemption
proceeds, as applicable)............................. (3) 4.00%
</TABLE>
- -----------------------------
(1) Reduced Class A sales charges apply in some cases.
(2) Does not apply to reinvested distributions.
(3) A 1.00% contingent deferred sales charge applies with respect to any
portion of certain purchases of Class A shares greater than $1,000,000
redeemed within approximately one year after purchase.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET
ASSETS DURING
THE YEAR ENDED DECEMBER 31,
1994)
-----------------------------------
PRO FORMA
(ASSUMING THE
PROPOSED
NEW ADVISORY
ARRANGEMENTS
HAD BEEN
IN EFFECT
ACTUAL SINCE 1/1/94)
---------------- -----------------
CLASS CLASS CLASS CLASS
EXPENSE TYPE A B A B
- ------------ ------- ------- ------- -------
<S> <C> <C> <C> <C>
Advisory Fees............................. 0.19%* 0.19%* 0.16%** 0.16%**
12b-1 Fees................................ 0.35% 1.00% 0.35% 1.00%
Other Expenses............................ 0.31% 0.31% 0.34% 0.34%
Total Fund Operating Expenses............. 0.85%* 1.50%* 0.85%** 1.50%**
</TABLE>
- -----------------------------
* After voluntary fee waiver by the Fund's adviser. Without the voluntary fee
waiver, Advisory Fees would be 0.58% and Total Fund Operating Expenses would
be 1.24% for Class A shares and 1.89% for Class B shares. This voluntary fee
waiver can be terminated at any time by the Fund's adviser.
** After voluntary fee waiver by the Fund's adviser. Without the voluntary fee
waiver, Advisory Fees would be 0.58% and Total Fund Operating Expenses
would be 1.27% for Class A shares and 1.92% for Class B shares. This
voluntary fee waiver can be terminated at any time by the Fund's adviser.
EXAMPLE. A $1,000 investment in each Class of the Fund would incur the
following dollar amount of transaction costs and operating expenses, assuming
a 5% annual return and, unless otherwise noted, redemption at period end. The
5% return and the expense levels used in calculating this example (which give
effect to the voluntary fee waiver described in the footnotes to the preceding
table) should not be regarded as predictions of future investment return or
Fund expenses, both of which will vary:
A-5
<PAGE>
<TABLE>
<CAPTION>
BASED ON PRO FORMA EXPENSES
FOR THE YEAR ENDED 12/31/94
BASED ON ACTUAL EXPENSES (ASSUMING THE PROPOSED NEW
INCURRED DURING ADVISORY ARRANGEMENTS HAD
THE YEAR ENDED 12/31/94 BEEN IN EFFECT SINCE 1/1/94)
-------------------------- -----------------------------
CLASS CLASS CLASS CLASS CLASS CLASS
A B B(1) A B B(1)
-------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 year................ $ 51 $ 55 $ 15 $ 51 $ 55 $ 15
3 years............... $ 68 $ 77 $ 47 $ 68 $ 77 $ 47
5 years............... $ 88 $ 92 $ 82 $ 88 $ 92 $ 82
10 years(2) .......... $ 143 $ 161 $ 161 $ 143 $ 161 $ 161
</TABLE>
- -----------------------------
(1) Assumes no redemption.
(2) Class B shares automatically convert to Class A shares eight years after
purchase; therefore, Class B amounts are calculated using Class A expenses
in years 9 and 10.
A-6
<PAGE>
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST
<TABLE>
<CAPTION>
SHAREHOLDER
TRANSACTION
EXPENSES
-----------------
CLASS A CLASS B
------- -------
<S> <C> <C>
Maximum Initial Sales Charge imposed on a purchase
(as a percentage of offering price)(1)............. None None
Maximum Contingent Deferred Sales Charge (as a
percentage of original purchase price or redemption
proceeds, as applicable)........................... None(1) None(1)
</TABLE>
- -----------------------------
(1) Shares of each Class are sold without any sales charge. However, Class A
and B shares may be subject to a contingent deferred sales charge if the
shares were purchased by exchange from another of the Funds.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING
EXPENSES
(AS A PERCENTAGE OF
AVERAGE NET ASSETS DURING
THE FISCAL YEAR ENDED
JUNE 30, 1995)
---------------------------------
PRO FORMA
(ASSUMING THE
PROPOSED
NEW ADVISORY
ARRANGEMENTS
HAD BEEN
IN EFFECT
ACTUAL SINCE 7/1/94)
------------- -----------------
CLASS CLASS CLASS CLASS
EXPENSE TYPE A B A B
- ------------ ----- ----- ------ ------
<S> <C> <C> <C> <C>
Advisory Fees............................. 0.12%* 0.12%* 0.06%** 0.06%**
12b-1 Fees................................ None None None None
Other Expenses............................ 0.44% 0.44% 0.50% 0.50%
Total Fund Operating Expenses............. 0.56%* 0.56%* 0.56%** 0.56%**
</TABLE>
- -----------------------------
* Back Bay Advisors has voluntarily agreed to reduce its advisory fee and, if
necessary, to assume expenses of the Fund in order to limit those expenses
for the Class A and B shares to an annual rate of 0.5625% of the Fund's
average daily net assets. Without this voluntary expense limitation for the
Class A and B shares, Advisory Fees would be 0.40% and Total Fund Operating
Expenses would be 0.85%. This voluntary expense limitation may be
terminated by Back Bay Advisors at any time.
** Back Bay Advisors has voluntarily agreed to reduce its advisory fee and, if
necessary, to assume expenses of the Fund in order to limit those expenses
for the Class A and B shares to an annual rate of 0.5625% of the Fund's
average daily net assets. Without this voluntary expense limitation for the
Class A and B shares, Advisory Fees would be 0.40% and Total Fund Operating
Expenses would be 0.91%. This voluntary expense limitation may be
terminated by Back Bay Advisors at any time.
EXAMPLE. A $1,000 investment in each Class of the Fund would incur the
following dollar amount of transaction costs and operating expenses, assuming
a 5% annual return and, unless otherwise noted, redemption at period end. The
5% return and the expense levels used in calculating this example (which give
effect to the voluntary limitation described in the footnotes to the preceding
table) should not be regarded as predictions of future investment return or
Fund expenses, both of which will vary:
A-7
<PAGE>
<TABLE>
<CAPTION>
BASED ON PRO FORMA
BASED ON ACTUAL EXPENSES FOR THE FISCAL
EXPENSES YEAR ENDED 6/30/95
INCURRED DURING (ASSUMING THE PROPOSED NEW
THE FISCAL YEAR ADVISORY ARRANGEMENTS HAD
ENDED 6/30/95 BEEN IN EFFECT SINCE 7/1/94)
---------------- ----------------------------
CLASS CLASS CLASS CLASS
A B A B
------- ------- -------------- --------------
<S> <C> <C> <C> <C>
1 year........................ $ 6 $ 6 $ 6 $ 6
3 years....................... $18 $18 $18 $18
5 years....................... $31 $31 $31 $31
10 years ..................... $70 $70 $70 $70
</TABLE>
- -----------------------------
A-8
<PAGE>
NEW ENGLAND HIGH INCOME FUND
<TABLE>
<CAPTION>
SHAREHOLDER
TRANSACTION
EXPENSES
-----------------------
CLASS A CLASS B
------- -------
<S> <C> <C>
Maximum Initial Sales Charge imposed on a purchase (as
a percentage of offering price)(1)(2)................ 4.50% None
Maximum Contingent Deferred Sales Charge (as a
percentage of original purchase price or redemption
proceeds, as applicable)............................. (3) 4.00%
</TABLE>
- -----------------------------
(1) Reduced Class A sales charges apply in some cases.
(2) Does not apply to reinvested distributions.
(3) A 1.00% contingent deferred sales charge applies with respect to any
portion of certain purchases of Class A shares greater than $1,000,000
redeemed within approximately one year after purchase.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING
EXPENSES
(AS A PERCENTAGE OF
AVERAGE NET ASSETS DURING
THE
YEAR ENDED DECEMBER 31,
1994)
-----------------------------
PRO FORMA
(ASSUMING THE
PROPOSED
NEW ADVISORY
ARRANGEMENTS
HAD BEEN
IN EFFECT
ACTUAL SINCE 1/1/94)
------------ ---------------
CLASS CLASS CLASS CLASS
EXPENSE TYPE A B A B
- ------------ ----- ----- ------ ------
<S> <C> <C> <C> <C>
Advisory Fees................................... 0.52%* 0.52%* 0.41%** 0.41%**
12b-1 Fees...................................... 0.35% 1.00% 0.35% 1.00%
Other Expenses.................................. 0.73% 0.73% 0.84% 0.84%
Total Fund Operating Expenses................... 1.60%* 2.25%* 1.60%** 2.25%**
</TABLE>
- -----------------------------
* After voluntary fee waiver by the Fund's adviser. Without the voluntary
limitation, Advisory Fees would be 0.75% and Total Fund Operating Expenses
would be 1.83% for Class A shares and 2.48% for Class B shares. This
voluntary limitation can be terminated at any time by the Fund's adviser.
** After voluntary fee waiver by the Fund's adviser. Without the voluntary
limitation, Advisory Fees would be 0.75% and Total Fund Operating Expenses
would be 1.94% for Class A shares and 2.59% for Class B shares. This
voluntary limitation can be terminated at any time by the Fund's adviser.
EXAMPLE. A $1,000 investment in each Class of the Fund would incur the
following dollar amount of transaction costs and operating expenses, assuming
a 5% annual return and, unless otherwise noted, redemption at period end. The
5% return and the expense levels used in calculating this example (which give
effect to the voluntary limitation described in the footnotes to the preceding
table) should not be regarded as predictions of future investment return or
Fund expenses, both of which will vary:
A-9
<PAGE>
<TABLE>
<CAPTION>
BASED ON PRO FORMA EXPENSES
FOR THE YEAR ENDED 12/31/94
BASED ON ACTUAL EXPENSES (ASSUMING THE PROPOSED NEW
INCURRED DURING ADVISORY ARRANGEMENTS HAD
THE YEAR ENDED 12/31/94 BEEN IN EFFECT SINCE 1/1/94)
---------------------------- -------------------------------
CLASS CLASS CLASS CLASS CLASS CLASS
A B B(1) A B B(1)
-------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 year................ $ 61 $ 63 $ 23 $ 61 $ 63 $ 23
3 years............... $ 93 $ 100 $ 70 $ 93 $ 100 $ 70
5 years............... $ 128 $130 $ 120 $128 $130 $120
10 years(2) .......... $226 $242 $242 $226 $242 $242
</TABLE>
- -----------------------------
(1) Assumes no redemption.
(2) Class B shares automatically convert to Class A eight years after
purchase; therefore, Class B amounts are calculated using Class A expenses
in years 9 and 10.
A-10
<PAGE>
NEW ENGLAND LIMITED TERM U.S. GOVERNMENT FUND
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
-------------------------------------------
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Maximum Initial Sales Charge imposed
on a purchase (as a percentage of
offering price)(1)(2).............. 3.00% None None None
Maximum Contingent Deferred Sales
Charge (as a percentage of original
purchase price or redemption
proceeds, as applicable)........... (3) 4.00% None None
</TABLE>
- -----------------------------
(1) Reduced Class A sales charges apply in some cases.
(2) Does not apply to reinvested distributions.
(3) A 1.00% contingent deferred sales charge applies with respect to any
portion of certain purchases of Class A shares greater than $1,000,000
redeemed within approximately one year after purchase.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS DURING
THE YEAR ENDED DECEMBER 31, 1994)
-----------------------------------------------
PRO FORMA
(ASSUMING THE
PROPOSED NEW ADVISORY
ARRANGEMENTS
HAD BEEN
IN EFFECT
ACTUAL SINCE 1/1/94)
----------------------- -----------------------
CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS
EXPENSE TYPE A B C Y A B C Y
- ------------ ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Advisory Fees................... 0.63% 0.63% 0.63% 0.63% 0.63% 0.63% 0.63% 0.63%
12b-1 Fees...................... 0.35% 1.00% 1.00% 0.00% 0.35% 1.00% 1.00% 0.00%
Other Expenses.................. 0.20% 0.20% 0.20% 0.20% 0.21% 0.21% 0.21% 0.21%
Total Fund Operating Expenses... 1.18% 1.83% 1.83% 0.83% 1.19% 1.84% 1.84% 0.84%
</TABLE>
- -----------------------------
EXAMPLE. A $1,000 investment in each Class of the Fund would incur the
following dollar amount of transaction costs and operating expenses, assuming
a 5% annual return and, unless otherwise noted, redemption at period end. The
5% return and the expense levels used in calculating this example should not
be regarded as predictions of future investment return or Fund expenses, both
of which will vary:
<TABLE>
<CAPTION>
BASED ON PRO FORMA EXPENSES
FOR THE YEAR ENDED 12/31/94
BASED ON ACTUAL EXPENSES (ASSUMING THE PROPOSED NEW
INCURRED DURING ADVISORY ARRANGEMENTS HAD
THE YEAR ENDED 12/31/94 BEEN IN EFFECT SINCE 1/1/94)
----------------------------- -----------------------------
CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS
A B B(1) C Y A B B(1) C Y
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year............. $ 42 $ 59 $ 19 $ 19 $ 8 $ 42 $ 59 $ 19 $ 19 $ 9
3 years............ $ 66 $ 88 $ 58 $ 58 $ 26 $ 67 $ 88 $ 58 $ 58 $ 27
5 years............ $ 93 $109 $ 99 $ 99 $ 46 $ 94 $110 $100 $100 $ 47
10 years(2) ....... $169 $198 $198 $215 $103 $170 $199 $199 $216 $104
</TABLE>
- -----------------------------
(1) Assumes no redemption.
(2) Class B shares automatically convert to Class A eight years after
purchase; therefore, Class B amounts are calculated using Class A expenses
in years 9 and 10.
A-11
<PAGE>
NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF NEW YORK
<TABLE>
<CAPTION>
SHAREHOLDER
TRANSACTION
EXPENSES
---------------
CLASS A CLASS B
------- -------
<S> <C> <C>
Maximum Initial Sales Charge imposed on a purchase (as a
percentage of offering price)(1)(2).......................... 2.50% None
Maximum Contingent Deferred Sales Charge (as a percentage of
original purchase price or redemption proceeds, as
applicable).................................................. (3) 4.00%
</TABLE>
- -----------------------------
(1) Reduced Class A sales charges apply in some cases.
(2) Does not apply to reinvested distributions.
(3) A 1.00% contingent deferred sales charge applies with respect to any
portion of certain purchases of Class A shares greater than $1,000,000
redeemed within approximately one year after purchase.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING
EXPENSES
(AS A PERCENTAGE OF
AVERAGE NET ASSETS DURING
THE YEAR ENDED DECEMBER
31, 1994)
-----------------------------
PRO FORMA
(ASSUMING THE
PROPOSED
NEW ADVISORY
ARRANGEMENTS
HAD BEEN
IN EFFECT
ACTUAL SINCE 1/1/94)
------------ ---------------
CLASS CLASS CLASS CLASS
EXPENSE TYPE A B A B
- ------------ ----- ----- ------ ------
<S> <C> <C> <C> <C>
Advisory Fees................................... 0.00%* 0.00%* 0.00%** 0.00%**
12b-1 Fees...................................... 0.25% 1.00% 0.25% 1.00%
Administrative Services Fees.................... 0.00%* 0.00%* None None
Other Expenses.................................. 0.45%* 0.45%* 0.45%** 0.45%**
Total Fund Operating Expenses................... 0.70%* 1.45%* 0.70%** 1.45%**
</TABLE>
- -----------------------------
* After voluntary fee waiver and expense reduction by the Fund's adviser
and/or the Distributor. Without the voluntary limitations, Advisory Fees,
Administrative Services Fees and Other Expenses would be 0.40%, 0.12% and
1.02%, respectively, and Total Fund Operating Expenses would be 1.79% for
Class A shares and 2.54% for Class B shares. These voluntary limitations
can be terminated by the Fund's adviser or the Distributor at any time.
** After voluntary fee waiver and expense reduction by the Fund's adviser
and/or the Distributor. Without the voluntary limitations, Advisory Fees
and Other Expenses would be 0.52% and 1.21%, respectively, and Total Fund
Operating Expenses would be 1.98% for Class A shares and 2.73% for Class B
shares. These voluntary limitations can be terminated by the Fund's adviser
or the Distributor at any time.
EXAMPLE. A $1,000 investment in each Class of the Fund would incur the
following dollar amount of transaction costs and operating expenses, assuming
a 5% annual return and, unless otherwise noted, redemption at period end. The
5% return and the expense levels used in calculating this example (which give
effect to the voluntary limitations described in the footnotes to the
preceding table) should not be regarded as predictions of future investment
return or Fund expenses, both of which will vary:
A-12
<PAGE>
<TABLE>
<CAPTION>
BASED ON PRO FORMA EXPENSES
FOR THE YEAR ENDED 12/31/94
BASED ON ACTUAL EXPENSES (ASSUMING THE PROPOSED NEW
INCURRED DURING ADVISORY ARRANGEMENTS HAD
THE YEAR ENDED 12/31/94 BEEN IN EFFECT SINCE 1/1/94)
---------------------------- -------------------------------
CLASS CLASS CLASS CLASS CLASS CLASS
A B B(1) A B B(1)
-------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 year................ $ 32 $ 55 $ 15 $ 32 $ 55 $ 15
3 years............... $ 47 $ 76 $ 46 $ 47 $ 76 $ 46
5 years............... $ 63 $ 89 $ 79 $ 63 $ 89 $ 79
10 years(2) .......... $110 $153 $153 $110 $153 $153
</TABLE>
- -----------------------------
(1) Assumes no redemption.
(2) Class B shares automatically convert to Class A eight years after
purchase; therefore, Class B amounts are calculated using Class A expenses
in years 9 and 10.
NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA
<TABLE>
<CAPTION>
SHAREHOLDER
TRANSACTION
EXPENSES
---------------
CLASS A CLASS B
------- -------
<S> <C> <C>
Maximum Initial Sales Charge imposed on a purchase (as a
percentage of offering price)(1)(2).......................... 2.50% None
Maximum Contingent Deferred Sales Charge (as a percentage of
original purchase price or redemption proceeds, as
applicable).................................................. (3) 4.00%
</TABLE>
- -----------------------------
(1) Reduced Class A sales charges apply in some cases.
(2) Does not apply to reinvested distributions.
(3) A 1.00% contingent deferred sales charge applies with respect to any
portion of certain purchases of Class A shares greater than $1,000,000
redeemed within approximately one year after purchase.
A-13
<PAGE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING
EXPENSES
(AS A PERCENTAGE OF
AVERAGE NET ASSETS DURING
THE YEAR ENDED DECEMBER
31, 1994)
---------------------------------
PRO FORMA
(ASSUMING THE
PROPOSED
NEW ADVISORY
ARRANGEMENTS
HAD BEEN
IN EFFECT
ACTUAL SINCE 1/1/94)
------------- -----------------
CLASS CLASS CLASS CLASS
EXPENSE TYPE A B A B
- ------------ ----- ----- ------ ------
<S> <C> <C> <C> <C>
Advisory Fees............................. 0.00%* 0.00%* 0.00%** 0.00%**
12b-1 Fees................................ 0.25% 1.00% 0.25% 1.00%
Administrative Services Fees.............. 0.00%* 0.00%* None None
Other Expenses............................ 0.45%* 0.45%* 0.45%** 0.45%**
Total Fund Operating Expenses............. 0.70%* 1.45%* 0.70%** 1.45%**
</TABLE>
- -----------------------------
* After voluntary fee waiver and expense reduction by the Fund's adviser
and/or the Distributor. Without the voluntary limitations, Advisory Fees,
Administrative Services Fees and Other Expenses would be 0.40%, 0.13% and
0.55%, respectively and Total Fund Operating Expenses would be 1.33% for
Class A shares and 2.08% for Class B shares. These voluntary limitations
can be terminated by the Fund's adviser or the Distributor at any time.
** After voluntary fee waiver and expense reduction by the Fund's adviser
and/or the Distributor. Without the voluntary limitations, Advisory Fees
and Other Expenses would be 0.53% and 0.65%, respectively, and Total Fund
Operating Expenses would be 1.43% for Class A shares and 2.18% for Class B
shares. These voluntary limitations can be terminated by the Fund's adviser
or the Distributor at any time.
EXAMPLE. A $1,000 investment in each Class of the Fund would incur the
following dollar amount of transaction costs and operating expenses, assuming
a 5% annual return and, unless otherwise noted, redemption at period end. The
5% return and the expense levels used in calculating this example (which give
effect to the voluntary limitations described in the footnotes to the
preceding table) should not be regarded as predictions of future investment
return or Fund expenses, both of which will vary:
<TABLE>
<CAPTION>
BASED ON PRO
FORMA EXPENSES
FOR THE YEAR
ENDED 12/31/94
(ASSUMING THE
PROPOSED NEW
BASED ON ACTUAL ADVISORY
EXPENSES INCURRED ARRANGEMENTS HAD
DURING THE YEAR BEEN IN EFFECT
ENDED 12/31/94 SINCE 1/1/94)
----------------- -----------------
CLASS CLASS CLASS CLASS CLASS CLASS
A B B(1) A B B(1)
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
1 year...................................... $ 32 $ 55 $ 15 $ 32 $ 55 $ 15
3 years..................................... $ 47 $ 76 $ 46 $ 47 $ 76 $ 46
5 years..................................... $ 63 $ 89 $ 79 $ 63 $ 89 $ 79
10 years(2)................................. $110 $153 $153 $110 $153 $153
</TABLE>
- -----------------------------
(1) Assumes no redemption.
(2) Class B shares automatically convert to Class A eight years after
purchase; therefore, Class B amounts are calculated using Class A expenses
in years 9 and 10.
A-14
<PAGE>
APPENDIX B
The following table summarizes the maximum transaction costs from investing
in New England International Equity Fund and the annual expenses borne by the
Fund's Class Y Shares in the fiscal year ended December 31, 1994, as well as
such annual expenses assuming the new Advisory Agreement that is the subject
of Proposal 4 had been in effect beginning January 1, 1994.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
--------------------------------
CLASS Y
--------------------------------
<S> <C>
Maximum Initial Sales Charge imposed on a
purchase (as a percentage of offering
price)...................................... None
Maximum Contingent Deferred Sales Charges (as
a percentage of original purchase price or
redemption proceeds, as applicable)......... None
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE
NET ASSETS DURING THE YEAR ENDED
DECEMBER 31, 1994)
--------------------------------------------
PRO FORMA
(ASSUMING THE
PROPOSED NEW ADVISORY
ARRANGEMENTS
HAD BEEN
IN EFFECT
ACTUAL SINCE 1/1/94)
---------------- -----------------------
EXPENSE TYPE CLASS Y CLASS Y
- ------------ ---------------- -----------------------
<S> <C> <C>
Advisory Fees................. 0.75%* 0.80%**
12b-1 Fees.................... None None
Administrative Services Fees.. 0.05% None
Other Expenses................ 0.20% 0.20%
Total Fund Operating Expenses. 1.00%* 1.00%**
</TABLE>
- -----------------------------
* After voluntary fee waiver and expense reduction by the Fund's adviser
and/or the Distributor. Without the voluntary limitations, Advisory Fees
and Total Fund Operating Expenses would be 0.80% and 1.05%, respectively.
These voluntary limitations can be terminated by the Fund's adviser or the
Distributor at any time.
** After voluntary fee waiver and expense reduction by the Fund's adviser
and/or the Distributor. Without the voluntary limitations, Advisory Fees
and Total Fund Operating Expenses would be 0.90% and 1.10%, respectively.
These voluntary limitations can be terminated by the Fund's adviser or the
Distributor at any time.
EXAMPLE. A $1,000 investment in each Class of the Fund would incur the
following dollar amount of transaction costs and operating expenses, assuming
a 5% annual return and, unless otherwise noted, redemption at period end. The
5% return and the expense levels used in calculating this example (which give
effect to the voluntary limitations described in the footnotes to the
preceding table) should not be regarded as predictions of future investment
return or Fund expenses, both of which will vary:
B-1
<PAGE>
<TABLE>
<CAPTION>
BASED ON PRO FORMA EXPENSES
FOR THE YEAR ENDED 12/31/94
BASED ON ACTUAL EXPENSES (ASSUMING THE PROPOSED NEW
INCURRED DURING ADVISORY ARRANGEMENTS HAD
THE YEAR ENDED 12/31/94 BEEN IN EFFECT SINCE 1/1/94)
------------------------ ----------------------------
CLASS Y CLASS Y
------------------------ ----------------------------
<S> <C> <C>
1 year.................... $10 $10
3 years................... 32 32
5 years................... 55 55
10 years ................. 122 122
</TABLE>
FI 62-1195
B-2
<PAGE>
[BACK OF PROXY CARD FOR NEW ENGLAND INTERNATIONAL EQUITY FUND]
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting. The Trustees recommend a
vote FOR the proposals below:
1. Proposal to approve new investment advisory arrangements with respect to the
Fund to be effective upon the merger of New England Mutual Life Insurance
Company into Metropolitan Life Insurance Company, such arrangements to be
substantially identical to the investment advisory arrangements in effect
for the Fund immediately prior to such merger. See page 5 of the enclosed
Proxy Statement.
For Against Abstain
[ ] [ ] [ ]
4. Proposal to approve a new Advisory Agreement with respect to the Fund
between the Fund and New England Funds Management, L.P. ("NEFM"). See page 7
of the enclosed Proxy Statement.
For Against Abstain
[ ] [ ] [ ]
5. Proposal to approve a related Sub-Advisory Agreement relating to the Fund
between NEFM and Draycott Partners, Ltd. ("Draycott"), the Fund's current
investment adviser, to be effective upon the sale of Draycott to Cursitor
Holdings Ltd. U.K. ("Cursitor Holdings") See page 7 of the enclosed Proxy
Statement.
For Against Abstain
[ ] [ ] [ ]
6. Proposal to approve a new Sub-Advisory Agreement relating to the Fund
between NEFM and Draycott to be effective upon the acquisition of the
business of Cursitor Holdings and Cursitor Eaton Asset Management Company by
Alliance Capital Management L.P. See Page 7 of the enclosed Proxy Statement.
For Against Abstain
[ ] [ ] [ ]
Please be sure to sign and date this Proxy. Date
Shareholder sign here Co-owner sign here
<PAGE>
[BACK OF PROXY CARD FOR NEW ENGLAND GROWTH FUND]
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting. The Trustees recommend a
vote FOR the proposals below:
1. Proposal to approve new investment advisory arrangements with respect to the
Fund to be effective upon the merger of New England Mutual Life Insurance
Company into Metropolitan Life Insurance Company, such arrangements to be
substantially identical to the investment advisory arrangements in effect
for the Fund immediately prior to such merger. See page 5 of the enclosed
Proxy Statement.
For Against Abstain
[ ] [ ] [ ]
7. Proposal to approve authorization to issue multiple classes of shares of the
Fund. See page 8 of the enclosed Proxy Statement.
For Against Abstain
[ ] [ ] [ ]
Please be sure to sign and date this Proxy. Date
---------
Shareholder sign here Co-owner sign here
<PAGE>
[BACK OF PROXY CARD FOR NEW ENGLAND BOND INCOME FUND
AND NEW ENGLAND HIGH INCOME FUND]
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting. The Trustees recommend a
vote FOR the proposals below:
1. Proposal to approve new investment advisory arrangement with respect to the
Fund to be effective upon the merger of New England Mutual Life Insurance
Company into Metropolitan Life Insurance Company, such arrangements to be
substantially identical to the investment advisory arrangements in effect
for the Fund immediately prior to such merger. See page 5 of the enclosed
Proxy Statement.
For Against Abstain
[ ] [ ] [ ]
2. Proposal to approve the new Advisory Agreement relating to the Fund between
the Fund and New England Funds Management, L.P. ("NEFM"). See page 6 of the
enclosed Proxy Statement.
For Against Abstain
[ ] [ ] [ ]
3. Proposal to approve a related Sub-Advisory Agreement relating to the Fund
between NEFM and the Fund's current investment adviser, Back Bay Advisors,
L.P. See page 6 of the enclosed Proxy Statement.
For Against Abstain
[ ] [ ] [ ]
8. Proposal to approve changes in the Fund's fundamental investment
restrictions, in order to permit the Fund to engage in transactions in
options and futures contracts (and, in the case of New England Bond Income
Fund only, currency forward contracts). See page 8 of the enclosed Proxy
Statement.
For Against Abstain
[ ] [ ] [ ]
Please be sure to sign and date this Proxy. Date
Shareholder sign here Co-owner sign here
<PAGE>
[BACK OF PROXY CARD FOR NEW ENGLAND MASSACHUSETTS TAX FREE INCOME FUND]
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting. The Trustees recommend a
vote FOR the proposals below:
1. Proposal to approve new investment advisory arrangements with respect to the
Fund to be effective upon the merger of New England Mutual Life Insurance
Company into Metropolitan Life Insurance Company, such arrangements to be
substantially identical to the investment advisory arrangements in effect
for the Fund immediately prior to such merger.
For Against Abstain
[ ] [ ] [ ]
2. Proposal to approve the new Advisory Agreement relating to the Fund between
the Fund and New England Funds Management, L.P. ("NEFM").
For Against Abstain
[ ] [ ] [ ]
3. Proposal to approve related Sub-Advisory Agreement relating to the Fund
between NEFM and the Fund's current investment adviser, Back Bay Advisors,
L.P.
For Against Abstain
[ ] [ ] [ ]
8. Proposal to approve changes in the Fund's fundamental investment
restrictions, in order to permit the Fund to engage in transactions in
options and futures contracts.
For Against Abstain
[ ] [ ] [ ]
9. Proposal to approve a change in the Fund's fundamental investment policies.
In order to permit the Fund, under normal market conditions, to invest up to
20% of its net assets in securities that produce income that is subject to
the regular federal income tax, the Massachusetts personal income tax or the
federal alternative minimum tax.
For Against Abstain
[ ] [ ] [ ]
Please be sure to sign and date this Proxy. Date
Shareholder sign here Co-owner sign here
<PAGE>
[BACK OF PROXY CARD FOR NEW ENGLAND TAX EXEMPT INCOME FUND]
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting. The Trustees recommend a
vote FOR the proposals below:
1. Proposal to approve new investment advisory arrangements with respect to the
Fund to be effective upon the merger of New England Mutual Life Insurance
Company into Metropolitan Life Insurance Company, such arrangements to be
substantially identical to the investment advisory arrangements in effect
for the Fund immediately prior to such merger. See page 5 of the enclosed
Proxy Statement.
For Against Abstain
[ ] [ ] [ ]
2. Proposal to approve the new Advisory Agreement relating to the Fund between
the Fund and New England Funds Management, L.P. ("NEFM"). See page 6 of the
enclosed Proxy Statement.
For Against Abstain
[ ] [ ] [ ]
3. Proposal to approve related Sub-Advisory Agreement relating to the Fund
between NEFM and the Fund's current investment adviser, Back Bay Advisors,
L.P. See page 6 of the enclosed Proxy Statement.
For Against Abstain
[ ] [ ] [ ]
10. Proposal to approve the elimination of the Fund's fundamental investment
policy that requires that it normally invest at least 80% of its net assets
in tax exempt bonds the income from which is not subject to the federal
alternative minimum tax. See page 9 of the enclosed Proxy Statement.
For Against Abstain
[ ] [ ] [ ]
Please be sure to sign and date this Proxy. Date
Shareholder sign here Co-owner sign here
<PAGE>
[BACK OF PROXY CARD FOR ALL FUNDS EXCEPT NEW ENGLAND STRATEGIC INCOME FUND,
NEW ENGLAND INTERNATIONAL EQUITY FUND, NEW ENGLAND GROWTH FUND, NEW ENGLAND
BOND INCOME FUND, NEW ENGLAND HIGH INCOME FUND, NEW ENGLAND MASSACHUSETTS TAX
FREE INCOME FUND AND NEW ENGLAND TAX EXEMPT INCOME FUND]
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting. The Trustees recommend a
vote FOR the proposals below:
1. Proposal to approve new investment advisory arrangements with respect to the
Fund to be effective upon the merger of New England Mutual Life Insurance
Company into Metropolitan Life Insurance Company, such arrangements to be
substantially identical to the investment advisory arrangements in effect
for the Fund immediately prior to such merger. See page 5 of the enclosed
Proxy Statement.
For Against Abstain
[ ] [ ] [ ]
2. Proposal to approve the new Advisory Agreement relating to the Fund between
the Fund and New England Funds Management, L.P. ("NEFM"). See page 6 of the
enclosed Proxy Statement.
For Against Abstain
[ ] [ ] [ ]
3. Proposal to approve related Sub-Advisory Agreement relating to the Fund
between NEFM and the Fund's current investment adviser (in the case of New
England Growth Opportunities Fund, between NEFM and the Fund's current sub-
adviser, and in the case of New England Star Advisers Fund, separate Sub-
Advisory Agreements between NEFM and the Fund's four current sub-advisers).
See page 6 of the enclosed Proxy Statement.
For Against Abstain
[ ] [ ] [ ]
Please be sure to sign and date this Proxy. Date
Shareholder sign here Co-owner sign here
<PAGE>
[LOGO OF NEW ENGLAND FUNDS APPEARS HERE]
NEW ENGLAND FUNDS
Where The Best Minds Meet(TM)
- --------------------------------------------------------------------------------
IMPORTANT
NOTICE
FOR NEW ENGLAND FUNDS
SHAREHOLDERS
<PAGE>
[LETTERHEAD OF NEW ENGLAND FUNDS APPEARS HERE]
- --------------------------------------------------------------------------------
November 20, 1995
Dear New England Funds Shareholder:
The enclosed Proxy Statement describes a number of important proposals for
which we request your supporting vote. To save printing and administrative
expenses, we have created a single Proxy Statement encompassing all proposals.
Some of the proposals may not apply to your particular New England Funds
account. To help identify the specific issues that affect your Fund(s), please
refer to your proxy ballot or to page 4 of the Proxy Statement.
If you own more than one New England Fund, we have consolidated your
ballots and included them with your Proxy Statement. Please be sure to complete
ALL your proxy ballot(s) and return them by December 1, 1995, in the postage
paid envelope provided.
Because the Proxy Statement is complex, we've included a Question and
Answer section, starting on the next page to help you understand why we need
your votes on the various issues discussed in the Proxy Statement.
Your vote is extremely important, no matter how many shares you own. You
may receive a call from D.F. King, a proxy solicitation firm, to remind you to
return your proxy ballot(s). Voting promptly is important; it will reduce the
need to send you another proxy package or to contact you by phone. If we do not
receive enough votes, we will need to resolicit shareholders.
The Board of Trustees has reviewed and unanimously approved ALL the
proposals and recommends that you vote in favor of each proposed change. We also
encourage you to vote in favor of the proposals and ask you once again to please
vote promptly.
Thanks for your cooperation in voting on these very important proposals.
Should you have any questions, please call 800-225-5478 to speak with an
Investor Service and Marketing Representative who will be happy to answer your
questions.
Sincerely,
/s/ Henry L.P. Schmelzer /s/ Peter S. Voss
Henry L.P. Schmelzer Peter S. Voss
President Chairman of the Board and
Chief Executive Officer
2
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE PROPOSALS
The enclosed Proxy Statement contains detailed information about a number of
important proposals affecting the New England Funds. We realize that the Proxy
Statement is a lengthy and complex document. You might find it helpful to review
these "Questions and Answers" before turning to the Proxy Statement.
................................................................................
PROPOSAL 1
The New England/Metropolitan Life Merger Proposal
- --------------------------------------------------------------------------------
[Q] What is this proposal about?
[A] We are asking you to approve new investment advisory arrangements for your
Fund, in connection with the merger of The New England into Metroplitan
Life, both mutual insurance companies. Metropolitan Life is currently the
second largest life insurance company in the United States, measured by
assets.
[Q] Should I expect changes in my New England Fund(s) as a result of the
merger?
[A] No. There will not be any changes to the management of your Fund(s),
investment objectives or fees. You will still own the same number of shares
in the same Fund(s).
[Q] Why am I being asked to vote on the proposed merger if it does not directly
affect my New England Fund?
[A] The Investment Company Act of 1940, the basic law governing the mutual fund
industry, requires a shareholder vote whenever there is a change in control
of the firms that serve as advisers or subadvisers of the Funds.
PROPOSALS 2 AND 3
Restructuring of Management Arrangements
- --------------------------------------------------------------------------------
[Q] What is the purpose of these Proposals?
[A] Many mutual fund families employ a single investment firm to manage all of
their funds. One of the strengths of New England Funds is that the 20 Funds
are managed by 8 different firms that have been selected for their special
abilities to manage particular Funds' portfolios.
The Trustees of the Funds have determined that it would be beneficial to
appoint a single firm, New England Funds Management, to oversee the
operations for most of the Funds, as conducted by the Funds' different
investment firms. New England Funds Management already provides this
oversight function for three of the Funds.
[Q] Will the restructuring mean a change in the portfolio managers or
investment approach of my Fund?
[A] No. The same portfolio managers will continue to have the same day-to-day
portfolio management responsibilities as they have now. Also, the
restructuring will not change the investment objectives, policies or
strategies of any Fund.
[Q] Will the restructuring of the advisers increase the fees paid by my Fund?
[A] Under the restructuring, each Fund will pay New England Funds Management
the same fee rate schedule as the Fund now pays for advisory and
administrative services. New England Funds Management will share a portion
of this fee with the Fund's current investment management firm. For several
of the Funds, however, the restructuring will result in the Funds paying
some administrative costs that they now do not pay. These costs are
explained in Part III of the Proxy Statement and Appendix A to the Proxy
Statement.
PROPOSALS 4, 5 AND 6
New Advisory Arrangements for
New England International Equity Fund
- --------------------------------------------------------------------------------
[Q] What new arrangements are being proposed?
[A] New England International Equity Fund's investment adviser, Draycott
Partners, is currently owned by New England Investment Companies (NEIC).
NEIC has agreed to sell Draycott Partners to a London-based money
management firm, Cursitor Holdings; New England Funds Management would then
become the Fund's adviser, and Draycott Partners would become subadviser
and would continue to be responsible for the Fund's day-to-day portfolio
management, under the oversight of New England Funds Management. Proposals
4 and 5 relate to these new arrangements with New England Funds Management
and Draycott.
After Cursitor Holdings becomes the owner of Draycott, Cursitor Holdings
and a related company plan to enter into a transaction with another money
management firm, Alliance Capital Management, L.P. This transaction will
cause a change in the ownership and control of Draycott. As with the
Metropolitan Life
continued on page 4
3
<PAGE>
(continued from page 3)
merger, this change of control requires a vote of the Fund's shareholders
in order for Draycott to continue to provide investment management services
to the Fund. Proposal 6 relates to this change in control of Draycott.
[Q] Will these proposals change the Fund's investment approach?
[A] No. The Fund's portfolio will still be managed by the same investment team
at Draycott. This team has been in place since the Fund's inception in
1992. The Fund's investment objective, policies and approach will remain
the same.
PROPOSAL 7
Authorization of Multiple Classes for
New England Growth Fund
- --------------------------------------------------------------------------------
[Q] What is this proposal about?
[A] Except for the Growth Fund, all of the New England Funds currently issue
two or more different classes of shares with different kinds of shareholder
servicing and sales arrangements. (For example, investors in the other
Funds have a choice between Class A shares, with a traditional "front-end"
sales charge and lower ongoing fees, and Class B shares, with a contingent
deferred sales charge that disappears after five years and higher ongoing
fees. Other classes are available in some cases.) This proposal would
permit the Growth Fund to do the same.
[Q] Will this proposal change the expenses on my investment in the Growth Fund?
[A] No. The proposal would not have any effect on the expense arrangements for
current investors in the Fund. The proposal would simply permit the Fund's
Trustees to create new classes of shares in the future.
PROPOSAL 8
Changes in Investment Restrictions of
New England Bond Income, High Income
and Massachusetts Tax Free Income Funds
- --------------------------------------------------------------------------------
[Q] What changes are proposed?
[A] The proposal would allow these three Funds to engage in transactions in
options and futures. Also, the Bond Income Fund would be permitted to enter
into currency forward contracts. These changes were recommended by the
Funds' investment adviser, Back Bay Advisors, and have been approved by the
Funds' Trustees.
[Q] Can other similar mutual funds engage in these transactions?
[A] Yes. Many other bond funds (including other New England bond funds) can
engage in options and futures transactions. Also, many funds that, like the
Bond Income Fund, invest in foreign securities can engage in related
transactions in currency forward contracts. Back Bay Advisors has extensive
experience in using these investment techniques for other New England Funds
and other accounts it manages. Part VI(A) of the Proxy Statement contains
information about these techniques.
PROPOSAL 9
Change in Investment Policies Relating to
New England Massachusetts Tax Free Income Fund
- --------------------------------------------------------------------------------
[Q] What changes are proposed?
[A] The Fund's current policies provide that at least 90% of the Fund's income
distributions will normally be exempt from regular federal income tax,
Massachusetts personal income tax and the federal alternative minimum tax.
The proposal is to replace this policy with a policy that the Fund will
normally invest at least 80% of its assets in investments that produce
income that is not subject to these taxes. The Fund's adviser believes this
change could enhance the Fund's ability to achieve a higher yield. However,
the change could also result in more of the Fund's distributions to
shareholders being subject to taxes.
PROPOSAL 10
Elimination of Fundamental Policy of
New England Tax Exempt Income Fund
- --------------------------------------------------------------------------------
[Q] What policy is proposed to be eliminated?
[A] The Fund currently has a policy requiring that at least 80% of its net
assets will normally be invested in tax exempt bonds that produce income
that is not subject to the federal alternative minimum tax. This is a
"fundamental" policy that can be changed only by a vote of the Fund's
shareholders.
continued on page 5
4
<PAGE>
PROPOSAL 10
Elimination of Fundamental Policy of
New England Tax Exempt Income Fund
(continued from page 3)
- --------------------------------------------------------------------------------
[Q] What is the effect of eliminating this policy?
[A] The Trustee plan to replace the policy with a new policy under which at
least 80% of the Fund's net assets would normally be invested in tax-exempt
bonds, with no limit on the amount that could be invested in bonds
producing income subject to the federal alternative minimum tax. This new
policy would not be "fundamental" and could be changed by the Trustees
without a shareholder vote. In connection with this change in policy, the
Fund would change its name to "New England Municipal Income Fund." The
Fund's adviser believes the change in policy could enhance the Fund's
ability to achieve a higher yield. However, the change could also result in
more of the Fund's distributions to shareholders being subject to the
federal alternative minimum tax.
- --------------------------------------------------------------------------------
[Q] Who is paying the cost of the shareholder meeting and this proxy
solicitation?
[A] Nearly all of these costs are being paid by The New England, its affiliated
companies or Metropolitan Life, and not by the Funds. The only exception is
that the costs relating to proposals 7-10 are being paid by the Funds to
which the proposals apply.
- --------------------------------------------------------------------------------
5
<PAGE>
[LETTERHEAD OF NEW ENGLAND ANNUITIES]
November 22, 1995
TO OWNERS OF PREFERENCE VARIABLE ANNUITY CONTRACTS:
A Special Meeting of Shareholders of certain New England Funds (the "Funds")
will be held on December 29, 1995. At the Shareholders Meeting, New England
Mutual Life Insurance Company ("The New England") will vote all shares of the
Funds held in the New England Retirement Investment Account (the "Account")
which are attributable to Preference Variable Annuity Contracts in accordance
with instructions received from Contractholders. You are now being asked how
shares of the Funds deemed attributable to your Contract should be voted at the
Shareholders Meeting.
You should give voting instructions only on proposals which relate to Funds in
which your contract value was invested on the record date for the Shareholders
Meeting. The record date is October 31, 1995. If you give voting instructions on
a proposal for which you are not eligible to vote, The New England will simply
disregard those instructions.
Enclosed you will find a copy of the Notice of Meeting and Proxy Statement
relating to the Shareholders Meeting. After reviewing this material, please
complete and execute the Instruction Form and return it in the enclosed,
postage-paid, self-addressed envelope. If you fail to return an executed
Instruction Form, shares of the Funds deemed attributable to your Contract will
be voted by The New England in proportion to the voting instructions received
from all other Preference Contractholders.
The enclosed Proxy Statement describes matters affecting the Funds as a result
of The New England's agreement to merge with Metropolitan Life Insurance Company
("Metropolitan Life"). Upon consummation of the merger, the Account will become
a separate account of Metropolitan Life. The Contracts issued by the Account
will thereafter be deemed to be variable annuity contracts issued by
Metropolitan Life, and the insurance obligations under the Contracts will be
backed by the assets of Metropolitan Life. It is possible, however, that in
light of the merger, the Contracts issued by the Account will be transferred to
New England Variable Life Insurance Company ("NEVLICO") pursuant to a separate
arrangement. NEVLICO is currently a subsidiary of The New England, but will
become a subsidiary of Metropolitan Life as a consequence of the merger. If the
Contracts are transferred to NEVLICO, your Contract will thereafter be deemed to
be a variable annuity contract issued by NEVLICO, and the insurance obligations
under your Contract will be backed by the assets of NEVLICO. In connection with
any such transfer, you will receive more information about the transaction and
how it affects your Contract. In either event, you will receive more
information about the company assuming the insurance obligations under your
Contract.
New England Mutual Life Insurance Company
<PAGE>
[LETTERHEAD OF NEW ENGLAND ANNUITIES]
November 22, 1995
TO OWNERS OF PREFERENCE VARIABLE ANNUITY CONTRACTS:
A Special Meeting of Shareholders of certain New England Funds (the "Funds")
will be held on Friday, December 29, 1995. At the Shareholders Meeting, New
England Mutual Life Insurance Company ("The New England") will vote all
shares of the Funds held in the New England Retirement Investment Account
(the "Account") which are attributable to Preference Variable Annuity
Contracts in accordance with instructions received from Contractholders. You
are now being asked how shares of the Funds deemed attributable to your
Contract should be voted at the Shareholders Meeting. Under certain
circumstances, however, annuitants have the right to instruct Contractholders
as to how all or a portion of the votes attributable to a Contract are to be
cast, and Contractholders are required to cast such votes as instructed.
IN ORDER FOR THE VOTES UNDER YOUR CONTRACTS TO BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS GIVEN BY YOU AND YOUR ANNUITANTS, YOU MUST RETURN A COMPLETED,
EXECUTED INSTRUCTION FORM. If you fail to return an executed Instruction
Form, shares of the Funds deemed attributable to your Contracts will be voted
by The New England in proportion to the voting instructions received from all
other Preference Contractholders.
Enclosed you will find a copy of the Notice of Meeting and Proxy Statement
relating to the Shareholders Meeting, as well as voting instruction forms with
the name of the annuitant entitled to instruct the Contractholder.
Please forward promptly (1) one Notice of Meeting and Proxy Statement and (2)
one Instruction Form to each person entitled to give voting instructions. One
Instruction Form is enclosed for each Contract under which votes are subject to
instruction.
The Instruction Form is to be used by each annuitant to convey instructions to
you as Contractholder. INSTRUCTION FORMS COMPLETED BY YOUR ANNUITANTS SHOULD NOT
BE RETURNED. AFTER YOU HAVE RECEIVED INSTRUCTIONS FROM AN ANNUITANT, YOU SHOULD
TRANSFER THESE INSTRUCTIONS TO THE ANNUITANT LISTING PROVIDED. RETURN ONLY THE
SINGLE INSTRUCTION FORM IN YOUR NAME, SIGNED BY YOU, ALONG WITH THE
APPROPRIATELY CHECKED ANNUITANT LIST.
If no annuitants transmit voting instructions, or if the annuitants do not have
--
the right to instruct, cast all votes at your sole discretion by completing and
signing the Instruction Form.
In order to cast votes under the Contracts you must return an INSTRUCTION
FORM signed by you, the Contract Owner. If you have any questions concerning
these procedures, please call collect, Peter Zucker, Consultant, New England
Mutual Life Insurance Company (617) 578-3566.
The enclosed Proxy Statement describes matters affecting the Fundss as a result
of The New England's agreement to merge with Metropolitan Life Insurance Company
("Metropolitan Life"). Upon consummation of the merger, the Account wil1 become
a separate account of Metropolitan Life. The Contracts issued by the Account
will thereafter be deemed to be variable annuity contracts issued by
Metropolitan Life, and the insurance obligations under the Contracts will be
backed by the assets of Metropolitan Life. It is possible, however, that in
light of the merger, the Contracts issued by the Account will be transferred to
New England Variable Life Insurance Company ("NEVLICO") pursuant to a separate
arrangement. NEVLICO is currently a subsidiary of The New England, but will
become a subsidiary of Metropolitan Life as a consequence of the merger. If the
Contracts are transferred to NEVLICO, your Contract will thereafter be deemed to
be a variable annuity contract issued by NEVLICO, and the insurance obligations
under your Contract will be backed by the assets of NEVLICO. In connection with
any such transfer, you will receive more information about the transaction and
how it affects your Contract. In either event, you will receive more information
about the company assuming the insurance obligations under your Contract.
<PAGE>
[FRONT OF PROXY CARD FOR ALL FUNDS]
YOUR VOTE IS NEEDED!
Please vote on the reverse side of this form and sign in the space provided.
Return your completed proxy in the enclosed envelope today.
You may receive additional proxies for other accounts. These are not duplicates;
you should sign and return each proxy card in order for your votes to be
counted. Please return them as soon as possible to avoid additional mailings.
NOTE: Please sign exactly as your name appears on this card. All joint owners
should sign. When signing as executor, administrator, attorney, trustee or
guardian or as custodian for a minor, please give full title as such. If a
corporation, please sign in full corporate name and indicate the signer's
office. If a partner, sign in the partnership name.
The undersigned hereby appoints Henry L.P. Schmelzer, Robert P. Connolly and
Sheila M. Barry, and each of them, proxies, with power of substitution to each,
and hereby authorizes them to represent and to vote, as designated below, at the
Special Meeting of Shareholders of New England Funds on December 28, 1995, at
11:00 a.m. Eastern time, and at any adjournments thereof, all of the shares of
the Fund which the undersigned would be entitled to vote if personally present.
This proxy when properly executed will be voted in the manner directed herein by
the undersigned shareholder. If no direction is made, this proxy will be voted
FOR each proposal for which shareholders of your Fund are entitled to vote.
<PAGE>
[BACK OF PROXY CARD FOR NEW ENGLAND STRATEGIC INCOME FUND]
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting. The Trustees recommend a
vote FOR the proposal below:
1. Proposal to approve new investment advisory arrangements with respect to the
Fund to be effective upon the merger of New England Mutual Life Insurance
Company into Metropolitan Life Insurance Company, such arrangements to be
substantially identical to the investment advisory arrangements in effect
for the Fund immediately prior to such merger. See page 5 of the enclosed
Proxy Statement.
For Against Abstain
[ ] [ ] [ ]
Please be sure to sign and date this Proxy. Date
Shareholder sign here Co-owner sign here
