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GROWTH FUND OF ISRAEL
Statement of Additional Information
December 29, 1995
As revised April 30, 1996
This Statement of Additional Information (the "Statement")
contains information which may be useful to investors but which is not
included in the prospectus of Growth Fund of Israel (the "Fund").
This Statement is not a prospectus and is only authorized for
distribution when accompanied or preceded by the prospectus of the
Fund dated December 29, 1995 (the "prospectus"). The Statement should
be read together with the prospectus. Investors may obtain a free
copy of the prospectus from New England Funds, L.P., Prospectus
Fulfillment Desk, 399 Boylston Street, Boston, MA 02116.
This Statement contains information about the Class A, B, C and Y
shares of the Fund. The Fund is a series of New England Funds Trust
II (the "Trust"), a registered investment company that offers a total
of eight series.
T a b l e o f C o n t e n t s
Page
Part I
Investment Restrictions 2
Fund Charges and Expenses 4
Part II
Miscellaneous Investment Practices 4
Management of the Trust 11
Portfolio Transactions and Brokerage 17
Description of the Trust and Ownership of 18
Shares
How to Buy Shares 21
Net Asset Value and Public Offering Price 21
Reduced Sales Charges 22
Shareholder Services 24
Redemptions 28
Standard Performance Measures 30
Income Dividends, Capital Gain Distributions 34
and Tax Status
Appendix A - Description of Bond Ratings 38
Appendix B - Publications That May Contain 40
Fund Information
Appendix C - Advertising and Promotional 43
Literature
PART I
INVESTMENT RESTRICTIONS
The following is a description of restrictions on the investments
to be made by the Fund, some of which restrictions (those restrictions
marked with an asterisk) may not be changed without the approval of a
majority of the outstanding voting securities of the Fund (as defined
in the Investment Company Act of 1940 [the "1940 Act"]). Except in
the case of restriction (14) below, the percentages set forth below
and the percentage limitations set forth in the prospectus will apply
at the time of the purchase of a security and shall not be considered
violated unless an excess or deficiency occurs or exists immediately
after and as a result of a purchase of such security.
The Fund may not:
*(1) Purchase any security (other than U.S. Government securities) if,
as a result, more than 25% of the Fund's total assets (taken at
current value) would be invested in any one industry (in the
utilities category, gas, electric, water and telephone companies
will be considered as being in separate industries, and each
foreign country's government (together with subdivisions thereof)
will be considered to be a separate industry);
(2) Purchase securities on margin (but it may obtain such short-term
credits as may be necessary for the clearance of purchases and
sales of securities), or make short sales except where it owns
or, by virtue of ownership of other securities, it has the right
to obtain, without payment of further consideration, securities
equivalent in kind and amount to those sold. (For this purpose,
the deposit or payment by the Fund of initial or variation margin
in connection with futures contracts or related options
transactions is not considered the purchase of a security on
margin);
(3) Acquire more than 10% of any class of securities of an issuer
other than U.S. Government securities and taking all preferred
stock issues of an issuer as a single class and all debt issues
of an issuer as a single class) or acquire more than 10% of the
outstanding voting securities of an issuer;
*(4) Borrow money in excess of 33 1/3% of its total assets, and then
only as a temporary measure for extraordinary or emergency
purposes;
(5) Pledge more than 33 1/3% of its total assets (taken at cost).
(For the purpose of this restriction, reverse repurchase
agreements, collateral arrangements with respect to options,
futures contracts, swap contracts and other similar instruments
and with respect to initial and variation margin are not deemed
to be a pledge of assets);
(6) Invest more than 5% of its total assets (taken at current value)
in securities of businesses (including predecessors) less than
three years old;
(7) Purchase or retain securities of any issuer if officers and
trustees of the Trust or of the investment adviser of the Fund
who individually own more than 1/2 of 1% of the shares or
securities of that issuer, together own more than 5%;
*(8) Make loans, except by entering into repurchase agreements or by
purchase of bonds, debentures, commercial paper, corporate notes
and similar evidences of indebtedness, which are a part of an
issue to the public or to financial institutions, or through the
lending of the Fund's portfolio securities;
*(9) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts, real estate or commodities or commodity contracts,
except that the Fund may buy and sell futures contracts and
related options, swap contracts, currency forward contracts,
structured notes and other similar instruments. (This
restriction does not prevent the Fund from purchasing securities
of companies investing in the foregoing);
*(10) Act as underwriter, except to the extent that, in connection
with the disposition of portfolio securities, it may be deemed to
be an underwriter under certain federal securities laws;
(11) Make investments for the purpose of exercising control or
management;
(12) Except to the extent permitted by rule or order of the Securities
and Exchange Commission (the "SEC"), participate on a joint or
joint and several basis in any trading account in securities.
(The "bunching" of orders for the purchase or sale of portfolio
securities with the Fund's investment subadviser or accounts
under its management to reduce brokerage commissions, to average
prices among them or to facilitate such transactions is not
considered a trading account in securities for purposes of this
restriction.);
(13) Write, purchase or sell options or warrants, except that the Fund
may (a) acquire warrants or rights to subscribe to securities of
companies issuing such warrants or rights, or of parents or
subsidiaries of such companies, (b) write, purchase and sell put
and call options on securities, securities indexes, currencies,
futures contracts swap contracts and other similar instruments,
(c) enter into currency forward contracts and (d) invest in
structured notes;
(14) Purchase any illiquid security if, as a result, more than 15% of
its net assets (taken at current value) would be invested in such
securities;
(15) Invest in the securities of other investment companies, except by
purchases in the open market involving only customary brokers'
commissions or no commissions. Under the 1940 Act, the Fund may
not (a) invest more than 10% of its total assets (taken at
current value) in such securities, (b) own securities of any one
investment company having a value in excess of 5% of the total
assets of the Fund (taken at current value), or (c) own more than
3% of the outstanding voting stock of any one investment company;
*(16) Issue senior securities. For the purpose of this
restriction none of the following is deemed to be a senior
security: any pledge or other encumbrance of assets permitted by
restriction (5) above; any borrowing permitted by restriction (4)
above; any collateral arrangements with respect to options or
futures contracts, and with respect to initial and variation
margin; the purchase or sale of options, forward contracts,
futures contracts, swap contracts and other similar instruments;
and the issuance of shares of beneficial interest permitted from
time to time by the provisions of the Trust's Declaration of
Trust and by the 1940 Act, the rules thereunder, or any exemption
therefrom. (The Fund is required, under regulatory provisions
applicable to it as interpreted by the staff of the SEC, to set
aside in a segregated account with its custodian bank liquid,
high grade assets in amounts sufficient at all times to satisfy
its obligations under options, futures, contracts, forward
contracts, swap contracts and other similar instruments.); or
(17) Lend its portfolio securities if, as a result, the aggregate
amount of such loans outstanding at any one time would exceed 33
1/3% of the Fund's total assets (taken at current value).
The staff of the Securities and Exchange Commission (the "SEC")
is currently of the view that repurchase agreements maturing in more
than seven days are subject to restriction (14) above.
As a matter of operating policy, subject to change without
shareholder approval, the Fund will not (i) invest more than 5% of the
value of its net assets in warrants, or more than 2% of the value of
its net assets in warrants that are not listed on either the New York
Stock Exchange or the American Stock Exchange (for purposes of this
restriction, warrants acquired in units or attached to other
securities may be deemed to be without value); (ii) invest in real
estate limited partnership interests; or (iii) purchase puts, calls,
straddles, spreads and any combination thereof, if by reason thereof
the value of its aggregate investment in such classes of securities
will exceed 5% of its total assets.
FUND CHARGES AND EXPENSES
Investment Advisory and Administrative Services Fees
Pursuant to an Advisory Agreement dated December 29, 1995, New
England Funds Management, L.P. ("NEFM") has agreed, subject to the
supervision of the board of trustees of the Trust, to manage the
investment and reinvestment of the assets of the Fund and to provide a
range of administrative services to the Fund. For the services
described in the Advisory Agreement, the Fund pays NEFM a fee at the
annual rate of 1.10% of the Fund's average daily net assets.
The Advisory Agreement provides that NEFM may delegate its
responsibilities thereunder to other parties. NEFM has delegated
responsibility for the investment and reinvestment of the assets of
the portfolio to Harris Associates L.P. ("Harris"). NEFM pays Harris
a fee for managing the portfolio, at the annual rate of 0.70% of the
average daily net assets of the Fund up to $50 million, and 0.60% of
such assets in excess of $50 million.
Batucha Securities & Investments Ltd. ("Batucha") provides
information, advice to the Fund on various matters relating to or
affecting Israel, and information on markets and industries in Israel,
pursuant to an agreement between NEFM and Batucha. NEFM pays Batucha
a fee for such services at the annual rate of 0.10% of the Fund's
average daily net assets.
For more information about the Fund's investment advisory and
subadvisory agreements, see "Management of the Trust" in Part II of
this Statement.
PART II
MISCELLANEOUS INVESTMENT PRACTICES
The following information relates to certain investment practices
in which the Fund may engage.
Loans of Portfolio Securities. The Fund may lend its portfolio
securities to broker-dealers under contracts calling for cash
collateral equal to at least the market value of the securities
loaned, marked to the market on a daily basis. (The Fund at the
present time has no intention to engage in the lending of portfolio
securities.) The Fund will continue to benefit from interest or
dividends on the securities loaned and will also receive interest
through investment of the cash collateral in short-term liquid
investments, which may include shares of money market funds subject to
any investment restriction listed in Part I. Any voting rights, or
rights to consent, relating to securities loaned pass to the borrower.
However, if a material event affecting the investment occurs, such
loans will be called so that the securities may be voted by the Fund.
The Fund pays various fees in connection with such loans, including
shipping fees and reasonable custodian and placement fees approved by
the board of trustees of the Trust or persons acting pursuant to the
direction of the board.
These transactions must by fully collateralized at all times, but
involve some credit risk to the Fund if the other party should default
on its obligation and the Fund is delayed in or prevented from
recovering the collateral.
U.S. Government Securities. The Fund may invest in some or all of the
following U.S. Government securities:
- - U.S. Treasury Bills - Direct obligations of the United States
Treasury which are issued in maturities of one year or less. No
interest is paid on Treasury bills; instead, they are issued at a
discount and repaid at full face value when they mature. They are
backed by the full faith and credit of the United States
Government.
- - U.S. Treasury Notes and Bonds - Direct obligations of the United
States Treasury issued in maturities that vary between one and 40
years, with interest normally payable every six months. These
obligations are backed by the full faith and credit of the United
States Government.
- - "Ginnie Maes" - Debt securities issued by a mortgage banker or
other mortgagee which represent an interest in a pool of mortgages
insured by the Federal Housing Administration or the Farmer's Home
Administration or guaranteed by the Veterans Administration. The
Government National Mortgage Association ("GNMA") guarantees the
timely payment of principal and interest when such payments are
due, whether or not these amounts are collected by the issuer of
these certificates on the underlying mortgages. An assistant
attorney general of the United States has rendered an opinion that
the guarantee by GNMA is a general obligation of the United States
backed by its full faith and credit. Mortgages included in single
family or multi-family residential mortgage pools backing an issue
of Ginnie Maes have a maximum maturity of up to 30 years.
Scheduled payments of principal and interest are made to the
registered holders of Ginnie Maes (such as the Fund) each month.
Unscheduled prepayments may be made by homeowners, or as a result
of a default. Prepayments are passed through to the registered
holder (such as the Fund, which reinvests any prepayments) of
Ginnie Maes along with regular monthly payments of principal and
interest.
- - "Fannie Maes" - The Federal National Mortgage Association ("FNMA")
is a government-sponsored corporation owned entirely by private
stockholders that purchases residential mortgages from a list of
approved seller/servicers. Fannie Maes are pass-through
securities issued by FNMA that are guaranteed as to timely payment
of principal and interest by FNMA but are not backed by the full
faith and credit of the United States Government.
- - "Freddie Macs" - The Federal Home Loan Mortgage Corporation
("FHLMC") is a corporate instrumentality of the United States
Government. Freddie Macs are participation certificates issued by
FHLMC that represent an interest in residential mortgages from
FHLMC's National Portfolio. FHLMC guarantees the timely payment
of interest and ultimate collection of principal, but Freddie Macs
are not backed by the full faith and credit of the United States
Government.
U.S. Government securities generally do not involve the credit
risks associated with investments in other types of fixed-income
securities, although, as a result, the yields available from U.S.
Government securities are generally lower than the yields available
from corporate fixed-income securities. Like other fixed-income
securities, however, the values of U.S. Government securities change
as interest rates fluctuate. Fluctuations in the value of portfolio
securities will not affect interest income on existing portfolio
securities but will be reflected in the Fund's net asset value. Since
the magnitude of these fluctuations will generally be greater at times
when the Fund's average maturity is longer, under certain market
conditions the Fund may, for temporary defensive purposes, accept
lower current income from short-term investments rather than investing
in higher yielding long-term securities.
When-Issued Securities. The Fund may enter into agreements with banks
or broker-dealers for the purchase or sale of securities at an agreed-
upon price on a specified future date. Such agreements might be
entered into, for example, when the Fund anticipates a decline in
interest rates and is able to obtain a more advantageous yield by
committing currently to purchase securities to be issued later. When
the Fund purchases securities in this manner (i.e. on a when-issued or
delayed-delivery basis), it is required to create a segregated account
with the Trust's custodian and to maintain in that account cash or
U.S. Government securities in an amount equal to or greater than, on a
daily basis, the amount of the Fund's when-issued or delayed-delivery
commitments. The Fund will make commitments to purchase on a when-
issued or delayed-delivery basis only securities meeting the Fund's
investment criteria. The Fund may take delivery of these securities
or, if it is deemed advisable as a matter of investment strategy, the
Fund may sell these securities before the settlement date. When the
time comes to pay for when-issued or delayed-delivery securities, the
Fund will meet its obligations from the then available cash flow or
the sale of securities, or from the sale of the when-issued or delayed-
delivery securities themselves (which may have a value greater or less
than the Fund's payment obligation).
Repurchase Agreements. The Fund may enter into repurchase agreements
by which the Fund purchases a security and obtains a simultaneous
commitment from the seller to repurchase the security at an agreed-
upon price and date. The resale price is in excess of the purchase
price and reflects an agreed-upon market rate unrelated to the coupon
rate on the purchased security. Such transactions afford the Fund the
opportunity to earn a return on temporarily available cash at minimal
market risk. While the underlying security may be a bill, certificate
of indebtedness, note or bond issued by an agency, authority or
instrumentality of the United States Government, the obligation of the
seller is not guaranteed by the United States Government and there is
a risk that the seller may fail to repurchase the underlying security.
In such event, the Fund would attempt to exercise rights with respect
to the underlying security, including possible disposition in the
market. However, the Fund may be subject to various delays and risks
of loss, including (a) possible declines in the value of the
underlying security during the period while the Fund seeks to enforce
its rights thereto, (b) possible reduced levels of income and lack of
access to income during this period and (c) inability to enforce
rights and the expenses involved in the attempted enforcement.
Zero Coupon Securities. Zero coupon securities are debt obligations
that do not entitle the holder to any periodic payments of interest
either for the entire life of the obligation or for an initial period
after the issuance of the obligations. Such securities are issued and
traded at a discount from their face amounts. The amount of the
discount varies depending on such factors as the time remaining until
maturity of the securities, prevailing interest rates, the liquidity
of the security and the perceived credit quality of the issuer. The
market prices of zero coupon securities generally are more volatile
than the market prices of securities that pay interest periodically
and are likely to respond to changes in interest rates to a greater
degree than do non-zero coupon securities having similar maturities
and credit quality. In order to satisfy a requirement for
qualification as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended (the "Code"), the Fund must
distribute each year at least 90% of its net investment income,
including the original issue discount accrued on zero coupon
securities. Because the Fund will not on a current basis receive cash
payments from the issuer of a zero coupon security in respect of
accrued original issue discount, in some years the Fund may have to
distribute cash obtained from other sources in order to satisfy the
90% distribution requirement under the Code. Such cash might be
obtained from selling other portfolio holdings of the Fund. In some
circumstances, such sales might be necessary in order to satisfy cash
distribution requirements even though investment considerations might
otherwise make it undesirable for the Fund to sell such securities at
such time.
Convertible Securities. The Fund may invest in convertible securities
including corporate bonds, notes or preferred stocks of U.S. or
foreign issuers that can be converted into (that is, exchanged for)
common stocks or other equity securities. Convertible securities also
include other securities, such as warrants, that provide an
opportunity for equity participation. Because convertible securities
can be converted into equity securities, their values will normally
vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield
than the underlying equity, however, so that the price decline of a
convertible security may sometimes be less substantial than that of
the underlying equity security.
Options and Futures
Futures Contracts. A futures contract is an agreement between two
parties to buy and sell a particular commodity (e.g., an interest-
bearing security) for a specified price on a specified future date.
In the case of futures on an index, the seller and buyer agree to
settle in cash, at a future date, based on the difference in value of
the contract between the date it is opened and the settlement date.
The value of each contract is equal to the value of the index from
time to time multiplied by a specified dollar amount. For example,
Standard & Poor's 500 Index futures trade in contracts equal to $500
multiplied by the Standard & Poor's 500 Index.
When a trader, such as the Fund, enters into a futures contract,
it is required to deposit with (or for the benefit of) its broker as
"initial margin" an amount of cash or short-term high-quality
securities (such as U.S. Treasury Bills or high-quality tax exempt
bonds acceptable to the broker) equal to approximately 2% to 5% of the
delivery or settlement price of the contract (depending on applicable
exchange rules). Initial margin is held to secure the performance of
the holder of the futures contract. As the value of the contract
changes, the value of futures contract positions increases or
declines. At the end of each trading day, the amount of such increase
and decline is received and paid respectively by and to the holders of
these positions. The amount received or paid is known as "variation
margin." If the Fund has a long position in a futures contract it
will establish a segregated account with the Fund's custodian
containing cash or certain illiquid assets equal to the purchase price
of the contract (less any margin on deposit). For short positions in
futures contracts, the Fund will establish a segregated account with
the custodian with cash or high grade liquid debt assets that, when
added to the amounts deposited as margin, equal the market value of
the instruments or currency underlying the futures contracts.
Although futures contracts by their terms require actual delivery
and acceptance of securities (or cash in the case of index futures),
in most cases the contracts are closed out before settlement. A
futures sale is closed by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument or
commodity and with the same delivery date. Similarly, the closing out
of a futures purchase is closed by the purchaser selling an offsetting
futures contract.
Gain or loss on a futures position is equal to the net variation
margin received or paid over the time the position is held, plus or
minus the amount received or paid when the position is closed, minus
brokerage commissions.
Options. An option on a futures contract obligates the writer, in
return for the premium received, to assume a position in a futures
contract (a short position if the option is a call and a long position
if the option is a put), at a specified exercise price at any time
during the period of the option. Upon exercise of the option, the
delivery of the futures position by the writer of the option to the
holder of the option generally will be accompanied by delivery of the
accumulated balance in the writer's futures margin account, which
represents the amount by which the market price of the futures
contract, at exercise, exceeds, in the case of a call, or is less
than, in the case of a put, the exercise price of the option. The
premium paid by the purchaser of an option will reflect, among other
things, the relationship of the exercise price to the market price and
volatility of the underlying contract, the remaining term of the
option, supply and demand and interest rates. Options on futures
contracts traded in the United States may only be traded on a United
States board of trade licensed by the Commodity Futures Trading
Commission (the "CFTC").
An option on a security entitles the holder to receive (in the
case of a call option) or to sell (in the case of a put option) a
particular security at a specified exercise price. An "American
style" option allows exercise of the option at any time during the
term of the option. A "European style" option allows an option to be
exercised only at the end of its term. Options on securities may be
traded on or off a national securities exchange.
A call option on a futures contract written by the Fund is
considered by the Fund to be covered if the Fund owns the security
subject to the underlying futures contract or other securities whose
values are expected to move in tandem with the values of the
securities subject to such futures contract, based on historical price
movement volatility relationships. A call option on a security
written by the Fund is considered to be covered if the Fund owns a
security deliverable under the option. A written call option is also
covered if the Fund holds a call on the same futures contract or
security as the call written where the exercise price of the call held
(a) is equal to or less than the exercise price of the call written or
(b) is greater than the exercise price of the call written if the
difference is maintained by the Fund in cash, Treasury bills or other
high grade liquid obligations in a segregated account with its
custodian.
A put option on a futures contract written by the Fund, or a put
option on a security written by the Fund, is covered if the Fund
maintains cash, U.S. Treasury bills or other high-grade liquid debt
obligations with a value equal to the exercise price in a segregated
account with the Fund's custodian, or else holds a put on the same
futures contract (or security, as the case may be) as the put written
where the exercise price of the put held is equal to or greater than
the exercise price of the put written.
If the writer of an option wishes to terminate its position, it
may effect a closing purchase transaction by buying an option
identical to the option previously written. The effect of the
purchase is that the writer's position will be canceled. Likewise,
the holder of an option may liquidate its position by selling an
option identical to the option previously purchased.
Closing a written call option will permit the Fund to write
another call option on the portfolio securities used to cover the
closed call option. Closing a written put option will permit the Fund
to write another put option secured by the segregated cash, U.S.
Treasury bills or other high-grade liquid obligations used to secure
the closed put option. Also, effecting a closing transaction will
permit the cash or proceeds from the concurrent sale of any futures
contract or securities subject to the option to be used for other Fund
investments. If the Fund desires to sell particular securities
covering a written call option position, it will close out its
position or will designate from its portfolio comparable securities to
cover the option prior to or concurrent with the sale of the covering
securities.
The Fund will realize a profit from closing out an option if the
price of the offsetting position is less than the premium received
from writing the option or is more than the premium paid to purchase
the option; the Fund will realize a loss from closing out an option
transaction if the price of the offsetting option position is more
than the premium received from writing the option or is less than the
premium paid to purchase the option. Because increases in the market
price of a call option will generally reflect increases in the market
price of the covering securities, any loss resulting from the closing
of a written call option position is expected to be offset in whole or
in part by appreciation of such covering securities.
Since premiums on options having an exercise price close to the
value of the underlying securities or futures contracts usually have a
time value component (i.e. a value that diminishes as the time within
which the option can be exercised grows shorter) an option writer may
profit from the lapse of time even though the value of the futures
contract (or security in some cases) underlying the option (and of the
security deliverable under the futures contract) has not changed.
Consequently, profit from option writing may or may not be offset by a
decline in the value of securities covering the option. If the profit
is not entirely offset, the Fund will have a net gain from the options
transaction, and the Fund's total return will be enhanced. Likewise,
the profit or loss from writing put options may or may not be offset
in whole or in part by changes in the market value of securities
acquired by the Fund when the put options are closed.
Risks. The use of futures contracts and options involves risks. One
risk arises because of the imperfect correlation between movements in
the price of futures contracts and movements in the price of the
securities that are the subject of the hedge. The Fund's hedging
strategies will not be fully effective unless the Fund can compensate
for such imperfect correlation. There is no assurance that the Fund
will be able to effect such compensation.
The correlation between the price movement of the futures
contract and the hedged security may be distorted due to differences
in the nature of the markets. If the price of the futures contract
moves more than the price of the hedged security, the Fund would
experience either a loss or a gain on the future that is not
completely offset by movements in the price of the hedged securities.
In an attempt to compensate for imperfect price movement correlations,
the Fund may purchase or sell futures contracts in a greater dollar
amount than the hedged securities if the price movement volatility of
the hedged securities is historically greater than the volatility of
the futures contract. Conversely, the Fund may purchase or sell fewer
contracts if the volatility of the price of hedged securities is
historically less than that of the futures contracts.
The price of index futures may not correlate perfectly with
movement in the relevant index due to certain market distortions.
First, all participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts
through offsetting transactions, which could distort the normal
relationship between the index and futures markets. Secondly, the
deposit requirements in the futures market are less onerous than
margin requirements in the securities market, and as a result the
futures market may attract more speculators than does the securities
market. In addition, trading hours for foreign stock index futures
may not correspond perfectly to hours of trading on the foreign
exchange to which a particular foreign stock index future relates.
This may result in a disparity between the price of index futures and
the value of the relevant index due to the lack of continuous
arbitrage between the index futures price and the value of the
underlying index. Finally, hedging transactions using stock indices
involve the risk that movements in the price of the index may not
correlate with price movements of the particular portfolio securities
being hedged.
Price movement correlation also may be distorted by the
illiquidity of the futures and options markets and the participation
of speculators in such markets. If an insufficient number of
contracts are traded, commercial users may not deal in futures
contracts or options because they do not want to assume the risk that
they may not be able to close out their positions within a reasonable
amount of time. In such instances, futures and options market prices
may be driven by different forces than those driving the market in the
underlying securities, and price spreads between these markets may
widen. The participation of speculators in the market enhances its
liquidity. Nonetheless, speculators trading spreads between futures
markets may create temporary price distortions unrelated to the market
in the underlying securities.
Positions in futures contracts and options on futures contracts
may be established or closed out only on an exchange or board of
trade. There is no assurance that a liquid market on an exchange or
board of trade will exist for any particular contract or at any
particular time. The liquidity of markets in futures contracts and
options on futures contracts may be adversely affected by "daily price
fluctuation limits" established by commodity exchanges which limit the
amount of fluctuation in a futures or options price during a single
trading day. Once the daily limit has been reached in a contract, no
trades may be entered into at a price beyond the limit, which may
prevent the liquidation of open futures or options positions. Prices
have in the past exceeded the daily limit on a number of consecutive
trading days. If there is not a liquid market at a particular time,
it may not be possible to close a futures or options position at such
time, and, in the event of adverse price movements, the Fund would
continue to be required to make daily cash payments of variation
margin. However, if futures or options are used to hedge portfolio
securities, an increase in the price of the securities, if any, may
partially or completely offset losses on the futures contract.
An exchange-traded option may be closed out only on a national
securities or commodities exchange which generally provides a liquid
secondary market for an option of the same series. If a liquid
secondary market for an exchange-traded option does not exist, it
might not be possible to effect a closing transaction with respect to
a particular option, with the result that the Fund would have to
exercise the option in order to realize any profit. If the Fund is
unable to effect a closing purchase transaction in a secondary market,
it will be not be able to sell the underlying security until the
option expires or it delivers the underlying security upon exercise.
Reasons for the absence of a liquid secondary market on an exchange
include the following: (i) there may be insufficient trading interest
in certain options; (ii) restrictions may be imposed by an exchange on
opening transactions or closing transactions or both; (iii) trading
halts, suspensions or other restrictions may be imposed with respect
to particular classes or series of options or underlying securities;
(iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the
Options Clearing Corporation or other clearing organization may not at
all times be adequate to handle current trading volume or (vi) one or
more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of options
(or a particular class or series of options), in which event the
secondary market on that exchange (or in that class or series of
options) would cease to exist, although outstanding options on that
exchange that had been issued by the Options Clearing Corporation as a
result of trades on that exchange would continue to be exercisable in
accordance with their terms.
Because the specific procedures for trading foreign stock index
futures on futures exchanges are still under development, additional
or different margin requirements as well as settlement procedures may
be applicable to foreign stock index futures at the time the Fund
purchases foreign stock index futures.
The successful use of transactions in futures and options depends
in part on the ability of Harris to forecast correctly the direction
and extent of interest rate movements within a given time frame. To
the extent interest rates move in a direction opposite to that
anticipated, the Fund may realize a loss on the hedging transaction
that is not fully or partially offset by an increase in the value of
portfolio securities. In addition, whether or not interest rates move
during the period that the Fund holds futures or options positions,
the Fund will pay the cost of taking those positions (i.e. brokerage
costs). As a result of these factors, the Fund's total return for
such period may be less than if it had not engaged in the hedging
transaction.
Options trading involves price movement correlation risks similar
to those inherent in futures trading. Additionally, price movements
in options on futures may not correlate with price movements in the
futures underlying the options. Like futures, options positions may
become less liquid because of adverse economic circumstances. The
securities covering written option positions are expected to offset
adverse price movements if those options positions cannot be closed
out in a timely manner, but there is no assurance that such offset
will occur. Also, an option writer may not effect a closing purchase
transaction after it has been notified of the exercise of an option.
Over-the-Counter Options. An over-the-counter option (an option not
traded on a national securities exchange) may be closed out only with
the other party to the original option transaction. While the Fund
will seek to enter into over-the-counter options only with dealers who
agree to or are expected to be capable of entering into closing
transactions with the Fund, there can be no assurance that the Fund
will be able to liquidate an over-the-counter option at a favorable
price at any time prior to its expiration. Accordingly, the Fund
might have to exercise an over-the-counter option it holds in order to
realize any profit thereon and thereby would incur transactions costs
on the purchase or sale of the underlying assets. If the Fund cannot
close out a covered call option written by it, it will not be able to
sell the underlying security until the option expires or is exercised.
Furthermore, over-the-counter options are not subject to the
protections afforded purchasers of listed options by the Options
Clearing Corporation or other clearing organizations.
Economic Effects and Limitations. Income earned by the Fund from its
hedging activities will be treated as capital gain and, if not offset
by net recognized capital losses incurred by the Fund, will be
distributed to shareholders in taxable distributions. Although gain
from futures and options transactions may hedge against a decline in
the value of the Fund's portfolio securities, that gain, to the extent
not offset by losses, will be distributed in light of certain tax
considerations and will constitute a distribution of that portion of
the value preserved against decline.
The Fund intends to comply with guidelines of eligibility for
exclusion from the definition of the term "commodity pool operator"
adopted by the CFTC and the National Futures Association, which
regulate trading in the futures markets. The Fund will use futures
contracts and related options primarily for bona fide hedging purposes
within the meaning of CFTC regulations. To the extent that the Fund
holds positions in futures contracts and related options that do not
fall within the definition of bona fide hedging transactions, the
aggregate initial margin and premiums required to establish such
positions will not exceed 5% of the fair market value of the Fund's
net assets, after taking into account unrealized profits and
unrealized losses on any such contracts it has entered into.
Future Developments. The above discussion relates to the Fund's
proposed use of futures contracts, options and options on futures
contracts currently available. The relevant markets and related
regulations are still in the developing stage. In the event of future
regulatory or market developments, the Fund may also use additional
types of futures contracts or options and other investment techniques
for the purposes set forth above.
Foreign Currency Hedging Transactions. To protect against a change in
the foreign currency exchange rate between the date on which the Fund
contracts to purchase or sell a security and the settlement date for
the purchase or sale, or to "lock in" the equivalent of a dividend or
interest payment in another currency, the Fund might purchase or sell
a foreign currency on a spot (or cash) basis at the prevailing spot
rate. If conditions warrant, the Fund may also enter into contracts
with banks or broker-dealers to purchase or sell foreign currencies at
a future date ("forward contracts"). The Fund will maintain cash or
high-quality debt obligations in a segregated account with the
custodian in an amount at least equal to (i) the difference between
the current value of the Fund's liquid holdings that settle in the
relevant currency and the Fund's outstanding obligations under
currency forward contracts, or (ii) the current amount, if any, that
would be required to be paid to enter into an offsetting forward
currency contract which would have the effect of closing out the
original forward contract. The Fund's use of currency hedging
transactions may be limited by tax considerations. The Fund may also
purchase or sell foreign currency futures contracts traded on futures
exchanges. Foreign currency futures contract transactions involve
risks similar to those of other futures transactions. See "Options
and Futures" above.
MANAGEMENT OF THE TRUST
Trustees
Trustees of the Trust and their ages (in parentheses), addresses
and principal occupations during the past five years are as follows:
GRAHAM T. ALLISON, JR. -- Trustee (55); 79 John F. Kennedy Street,
Cambridge, MA 02138; Douglas Dillon Professor and Director for
the Center of Science and International Affairs, John F. Kennedy
School of Government; Special Advisor to the United States
Secretary of Defense; formerly, Assistant Secretary of Defense;
formerly, Dean, John F. Kennedy School of Government.
DANIEL M. CAIN - Trustee (51); 452 Fifth Avenue, New York, NY 10018;
President, Cain Brothers & Company, Incorporated (investment
banking).; Trustee, Universal Health Realty Income Trust (REIT);
Chairman, Inter Fish, Inc., (an aqua venture in Barbados).
KENNETH J. COWAN -- Trustee (63); One Beach Drive, S.E. #2103, St.
Petersburg, Florida 33701; Retired; formerly, Senior Vice
President-Finance and Chief Financial Officer, Blue Cross of
Massachusetts, Inc. and Blue Shield of Massachusetts, Inc.;
formerly Director, Neworld Bank for Savings and Neworld Bancorp.
RICHARD DARMAN - Trustee (52); 1001 Pennsylvania Avenue, N.W.,
Washington, D.C. 20004; Partner and Managing Director, The
Carlyle Group (investments); Trustee, Council for Excellence in
Government (not-for-profit); Director, Frontier Ventures
(personal investment); Director, Highway Master Communications
(mobile communications); Managing Partner, Little Falls Partners
(family investment); Director, Sequana Therapeutics
(biotechnology/genomics); Director, Telcom Ventures
(telecommunications); formerly, Director of the U.S. Office of
Management and Budget and a member of President Bush's Cabinet.
SANDRA O. MOOSE -- Trustee (53); 135 E. 57th Street New York, NY
10022; Senior Vice President and Director, The Boston Consulting
Group, Inc. (management consulting); Director, GTE Corporation
and Rohm and Haas Company (specialty chemicals).
HENRY L.P. SCHMELZER*
_______________________________
* Trustee deemed an "interested person" of the Trust, as
defined in the Investment Company Act of
1940 (the "1940 Act").
-- Trustee and President (52); President, Chief Executive Officer and
Director, NEF Corporation; President and Chief Executive Officer, New
England Funds, L.P.; President and Chief Executive Officer, NEFM;
Director, Back Bay Advisors, Inc.; formerly, Director, New England
Securities Corporation ("New England Securities").
JAMES H. SCOTT -- Trustee (53); 2001 Bryan Street, Suite 1850, Dallas,
Texas 75201; Vice President, TU Services (electric utility);
formerly, Treasurer, The Trustees of Amherst College.
JOHN A. SHANE -- Trustee (62); 300 Unicorn Park Drive, Woburn,
Massachusetts 01801; President, Palmer Service Corporation
(venture capital organization); General Partner, The Palmer
Organization and Palmer Partners L.P.; Director, Arch
Communications Group, Inc. (paging service); Director, Dowden
Publishing Company, Inc. (publishers of medical magazines);
Director, Eastern Bank Corporation; Director, Gensym Corporation
(expert system software); Director, Overland Data, Inc.
(manufacturer of computer tape drives);Director, Summa Four, Inc.
(manufacturer of telephone switching equipment); Director, United
Asset Management Corporation (holding company for institutional
money management); formerly, Director, Abt Associates, Inc.
(consulting firm); formerly, Director, Aviv Corporation
(manufacturer of controllers); formerly, Director, Banyan
Systems, Inc. (manufacturer of network software); formerly,
Director, Cerjac Inc. (manufacturer of telephone testing
equipment).
PETER S. VOSS* -- Chairman of the Board, Chief Executive Officer and
Trustee (49); President and Chief Executive Officer, New England
Investment Companies, L.P. ("NEIC"); Director, President and
Chief Executive Officer, New England Investment Companies, Inc.;
Chairman of the Board and Director, NEF Corporation; Chairman of
the Board and Director, Back Bay Advisors, Inc.; Director, New
England Mutual Life Insurance Company ("The New England");
formerly, Executive Vice President, Bank of America; formerly,
Group Head of International Banking, Trading and Securities,
Security Pacific National Bank, and Chief Executive Officer of
the Security Pacific Investment Group.
* Trustee deemed an "interested person" of the Trust, as defined
in the Investment Company Act of 1940 (the "1940 Act").
PENDLETON P. WHITE -- Trustee (64); 6 Breckenridge Lane, Savannah,
Georgia 31411; Retired; formerly, President and Chairman of the
Executive Committee, Studwell Associates (executive search
consultants); formerly, Trustee, The Faulkner Corporation
(community hospital corporation).
Officers
Officers of the Trust, in addition to Messrs. Schmelzer and Voss,
and their ages (in parentheses) and principal occupations during the
past five years are as follows:
BRUCE R. SPECA -- Vice President (40); Executive Vice President, NEF
Corporation; Executive Vice President, New England Funds, L.P.;
Executive Vice President, NEFM.
FRANK NESVET -- Treasurer (52); Senior Vice President and Chief
Financial Officer, NEF Corporation; Senior Vice President and
Chief Financial Officer, New England Funds, L.P.; Senior Vice
President and Chief Financial Officer, NEFM; formerly, Executive
Vice President, SuperShare Services Corporation.
ROBERT P. CONNOLLY -- Secretary and Clerk (42); Senior Vice President
and General Counsel, NEF Corporation; Senior Vice President and
General Counsel, New England Funds, L.P.; Senior Vice President
and General Counsel, NEFM: formerly, Managing Director and
General Counsel, Kroll Associates, Inc. (business consulting
company); formerly, Managing Director and General Counsel,
Equitable Capital Management Corporation (investment management
company).
The address of each officer is 399 Boylston Street, Boston,
Massachusetts 02116.
Trustees Fees
The Trust pays no compensation to its officers or to its trustees
who are interested persons thereof.
Each trustee who is not an interested person of the Trust
receives, in the aggregate for serving on the boards of the Trust and
New England Funds Trust I, New England Cash Management Trust and New
England Tax Exempt Money Market Trust (all four trusts collectively,
the "New England Funds Trusts"), comprising a total of 22 mutual fund
portfolios, a retainer fee at the annual rate of $40,000 and meeting
attendance fees of $2,500 for each meeting of the boards he or she
attends and $1,500 for each meeting he or she attends of a committee
of the board of which he or she was a member. Each committee chairman
receives an additional retainer fee at the annual rate of $2,500.
These fees are allocated among the Fund and the 21 other mutual fund
portfolios based on a formula that takes into account, among other
factors, the net assets of each fund.
During the fiscal year ended December 31, 1994 the persons who
were then trustees of the Trust received the amounts set forth in the
following table for serving as a trustee of the Trust and for also
serving on the governing boards of the other New England Funds Trusts,
New England Zenith Fund ("Zenith") and New England Variable Annuity
Fund I ("NEVA"), comprising as of December 29, 1995 a total of 37
mutual fund portfolios (not all of which were in existence during
1994).
Pension or Total
Retirement Compensation
Benefits from the
Aggregate Accrued as Estimated New
Compensation Part of Annual England
from the Fund Benefits Funds
Name of Trustee Trust Expenses Upon Trusts,
in 1994 in 1994 Retirement Zenith and
NEVA
in 1994
Graham T. Allison, $ 0 $0 $0 $ 0
Jr.(a)
Kenneth J. Cowan $18,244 $0 $0 $59,375
Joseph M. $17,507 $0 $0 $56,875
Hinchey(b)
Richard S. $17,507 $0 $0 $56,875
Humphrey, Jr.(b)
Robert B. $17,951 $0 $0 $89,279(c)
Kittredge(b)
Laurens MacLure(b) $18,688 $0 $0 $91,779(c)
Sandra O. Moose $16,326 $0 $0 $52,875
James H. Scott $17,507 $0 $0 $56,875
John A. Shane $17,211 $0 $0 $55,875
Joseph F. Turley(b) $17,951 $0 $0 $58,375
Pendleton P. White $17,951 $0 $0 $58,375
(a)Became a trustee of the Trust effective April 1, 1995.
(b)Resigned as a trustee of the Trust effective May 1, 1995.
(c)Also includes compensation paid by the 5 CGM Funds, a group of
mutual funds for which Capital Growth Management Limited
Partnership, the investment adviser of New England Funds Trust I's
New England Growth Fund, Zenith's Capital Growth Series and NEVA,
serves as investment adviser.
The Trust provides no pension or retirement benefits to trustees,
but has adopted a deferred payment arrangement under which each
trustee may elect not to receive fees from the Trust on a current
basis but to receive in a subsequent period an amount equal to the
value that such fees would have if they had been invested in each of
the funds in the Trust on the normal payment date for such fees. As a
result of this method of calculating the deferred payments, the Fund,
upon making the deferred payments, will be in the same financial
position as if the fees had been paid on the normal payment dates.
As of December 29, 1995, the officers and trustees of the Trust
as a group owned less than 1% of the outstanding shares of the Trust.
Advisory and Subadvisory Agreements
The Fund's advisory agreement provides that NEFM will furnish or
pay the expenses of the Fund for office space, facilities and
equipment, services of executive and other personnel of the Trust and
certain administrative services.
The Fund pays all expenses not borne by its adviser or
subadviser including, but not limited to, the charges and expenses of
the Fund's custodian and transfer agent, independent auditors and
legal counsel, all brokerage commissions and transfer taxes in
connection with portfolio transactions, all taxes and filing fees,
the fees and expenses for registration or qualification of its shares
under the federal or state securities laws, all expenses of
shareholders' and trustees' meetings and of preparing, printing and
mailing reports to shareholders and the compensation of trustees who
are not directors, officers or employees of the Fund's adviser,
subadviser or their affiliates, other than affiliated registered
investment companies. The Fund also pays NEFM for certain legal and
accounting services provided to the Fund by NEFM.
Under the Fund's advisory agreement, if the total ordinary
business expenses of the Fund or the Trust as a whole for any fiscal
year exceed the lowest applicable limitation (based on percentage 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. At present, the most restrictive state annual expense
limitation is 2 1/2% of the average annual net assets up to
$30,000,000, 2% of the next $70,000,000 and 1 1/2% of such assets in
excess of $100,000,000. NEFM will not be required to reduce its fee
or pay such expenses to an extent or under circumstances which might
result in the Fund's inability to qualify as a regulated investment
company under the Code. The term "expenses" is defined in the
advisory agreement and excludes brokerage commissions, taxes,
interest, distribution-related expenses and extraordinary expenses.
This means that the distribution fees payable to New England Funds,
L.P. under the Fund's Distribution Agreement and the Distribution
Plan would be excluded from "expenses."
The advisory agreement and the subadvisory agreement between
NEFM and Harris provides that it will continue in effect for two
years from its date of execution and thereafter from year to year if
its continuance is approved at least annually (i) by the board of
trustees of the Trust or by vote of a majority of the outstanding
voting securities of the 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 the
advisory agreement or the subadvisory agreement must be approved by
vote of a majority of the outstanding voting securities of the Fund
and by vote of a majority of the trustees of the Trust who are not
such interested persons, cast in person at a meeting called for the
purpose of voting on such approval. Each agreement may be terminated
without penalty by vote of the Trust's board of trustees or by vote
of a majority of the outstanding voting securities of the Fund, upon
60 days' written notice, or by NEFM upon 90 days' written notice, and
each terminates automatically in the event of its assignment. The
subadvisory agreement also may be terminated by Harris upon 90 days'
notice and is automatically terminated upon termination of the
related advisory agreement. In addition, the advisory agreement will
automatically terminate if the Trust or the Fund shall at any time be
required by the Distributor to eliminate all reference to the words
"New England" or the letters "TNE" in the name of the Trust, unless
the continuance of the agreement after such change of name is
approved by a majority of the outstanding voting securities of the
Fund and by a majority of the Trustees who are not interested persons
of the Trust or NEFM.
The advisory agreement and sub-advisory agreement each provide
that the adviser and subadviser shall not be subject to any liability
in connection with the performance of its services thereunder in the
absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations and duties.
NEFM, organized in 1995, is an independently operated subsidiary
of NEIC, and serves as the investment adviser to New England Growth
Opportunities Fund, New England Strategic Income Fund, New England
Equity Income Fund and New England Star Worldwide Fund, and will
serve, beginning January 2, 1996, as investment adviser to each of
the remaining funds in the New England Funds Trusts except New
England Growth Fund.
Harris was organized in 1995 to succeed to the business of a
predecessor limited partnership also named Harris Associates L.P.,
which together with its predecessor had advised and managed mutual
funds since 1970. Harris is a wholly-owned subsidiary of NEIC,
having been acquired by NEIC in 1995. Harris also serves as
investment adviser to individuals, trusts, retirement plans,
endowments and foundations, and manages numerous private
partnerships.
Certain officers and employees of Harris have responsibility for
portfolio management of other advisory accounts and clients
(including other registered investment companies and accounts of
affiliates of Harris) that may invest in securities in which the Fund
may invest. Where Harris determines that an investment purchase or
sale opportunity is appropriate and desirable for more than one
advisory account, purchase and sale orders may be executed separately
or may be combined and, to the extent practicable, allocated by
Harris to the participating accounts. Where advisory accounts have
competing interests in a limited investment opportunity, Harris will
allocate investment opportunities based on numerous considerations,
including the time the competing accounts have had funds available
for investment, and the relative amounts of available funds, an
account's cash requirements and the time the competing accounts have
had investments available for sale. It is Harris's policy to
allocate, to the extent practicable, investment opportunities to each
client over a period of time on a fair and equitable basis relative
to its other clients.
It is believed that the ability of the Fund to participate in
larger volume transactions in this manner will in some cases produce
better executions for the Fund. However, in some cases, this
procedure could have a detrimental effect on the price and amount of
a security available to the Fund or the price at which a security may
be sold. The trustees are of the view that the benefits of retaining
Harris as investment manager outweigh the disadvantages, if any, that
might result from participating in such transactions.
Distribution Agreement and Rule 12b-1 Plans. Under an agreement
with the Fund (the "Distribution Agreement"), New England Funds, L.P.
serves as the general distributor of each class of shares of the
Fund. Under this agreement, New England Funds, L.P. is not obligated
to sell a specific number of shares. New England Funds, L.P. bears
the cost of making information about the Fund available through
advertising and other means and the cost of printing and mailing
prospectuses to persons other than shareholders. The Fund pays the
cost of registering and qualifying its shares under state and federal
securities laws and the distribution of prospectuses to existing
shareholders.
New England Funds, L.P. is compensated under the Distribution
Agreement through receipt of the sales charges on Class A shares
described below under "Net Asset Value and Public Offering Price" and
is paid by the Fund the service and distribution fees described in
the prospectus.
As described in the prospectuses, the Fund has adopted Rule 12b-
1 plans (the "Plans") for its Class A, Class B and Class C shares
which, among other things, permit it to pay the Fund's distributor
(currently New England Funds, L.P.) monthly fees out of its net
assets. Pursuant to Rule 12b-1 under the 1940 Act, each Plan was
approved by the shareholders of the Fund, and (together with the
Distribution Agreement) by the board of trustees, including a
majority of the trustees who are not interested persons of the Trust
(as defined in the 1940 Act) and who have no direct or indirect
financial interest in the operation of the Plan or the Distribution
Agreement (the "Independent Trustees").
Each Plan may be terminated by vote of a majority of the
Independent Trustees, or by vote of a majority of the outstanding
voting securities of the relevant class of shares of the Fund. Each
Plan may be amended by vote of the trustees, including a majority of
the Independent Trustees, cast in person at a meeting called for that
purpose. Any change in any Plan that would materially increase the
fees payable thereunder by the relevant class of shares of the Fund
requires approval of the holders of such shares. The Trust's
trustees review quarterly written reports of such costs and the
purposes for which such costs have been incurred. For so long as a
Plan is in effect, selection and nomination of those trustees who are
not interested persons of the Trust shall be committed to the
discretion of such disinterested persons.
The Distributor has entered into selling agreements with
investment dealers, including New England Securities, an affiliate of
the Distributor, for the sale of the Fund's shares. New England
Securities is registered as a broker-dealer under the Securities
Exchange Act of 1934. The Distributor may at its expense pay an
amount not to exceed 0.50% of the amount invested to dealers who have
selling agreements with the Distributor. If they become available,
Class Y shares of the Fund may be offered by registered
representatives of New England Securities who are also employees of
New England Investment Associates, Inc. ("NEIA"), an indirect, wholly-
owned subsidiary of NEIC. NEIA may receive compensation from NEFM
with respect to sales of Class Y shares.
The Distribution Agreement may be terminated at any time on 60
days' written notice without payment of any penalty by New England
Funds, L.P. or by vote of a majority of the outstanding voting
securities of the Fund or by vote of a majority of the Independent
Trustees.
The Distribution Agreement and the Plans will continue in effect
for successive one-year periods, provided that each such continuance
is specifically approved (i) by the vote of a majority of the
Independent Trustees and (ii) by the vote of a majority of the entire
board of trustees cast in person at a meeting called for that purpose
or by a vote of a majority of the outstanding securities of Fund (or
the relevant class, in the case of the Plans).
With the exception of New England Funds, L.P., New England
Securities and their direct and indirect corporate parents (NEIC and
The New England), no interested person of the Trust nor any trustee
of the Trust had any direct or indirect financial interest in the
operation of the Plans or any related agreement.
Benefits to the Fund and its shareholders resulting from the
Plans are believed to include (1) enhanced shareholder service, (2)
asset retention, (3) enhanced bargaining position with third party
service providers and economies of scale arising from having higher
asset levels and (4) portfolio management opportunities arising from
having an enhanced positive cash flow.
New England Funds, L.P. controls the words "New England" in the
name of New England Funds Trust II and the Fund and if it should
cease to be the distributor, New England Funds Trust II or the Fund
may be required to change their names and delete these words or
letters. New England Funds, L.P. also acts as general distributor
for New England Cash Management Trust, New England Tax Exempt Money
Market Trust, New England Funds Trust I, New England Funds Trust III
and the other series of the Trust besides the Fund.
During the years ended December 31, 1992, 1993 and 1994 (the
last year for which information is available), New England Funds,
L.P. received commissions on the sale of the Class A shares of New
England Funds Trust II aggregating $7,195,240, $5,970,295, and
$2,071,744, respectively, of which $6,475,716, $573,825 and
$1,780,651, respectively, were reallowed to other securities dealers
and the balance retained by New England Funds, L.P.
Custodial Arrangements. State Street Bank and Trust Company
("State Street Bank"), 225 Franklin Street, Boston, Massachusetts
02110, is the Trust's custodian. As such, State Street Bank holds in
safekeeping certificated securities and cash belonging to the Fund
and, in such capacity, is the registered owner of securities in book-
entry form belonging to the Fund. Upon instruction, State Street
Bank receives and delivers cash and securities of the Fund in
connection with Fund transactions and collects all dividends and
other distributions made with respect to Fund portfolio securities.
State Street Bank also maintains certain accounts and records of the
Trust and calculates the total net asset value, total net income and
net asset value per share of the Fund on a daily basis.
Independent Accountants. The Fund's independent accountants are
Price Waterhouse LLP, 160 Federal Street, Boston, MA 02109. The
independent accountants of the Trust conduct an annual audit of that
Trust's financial statements, assist in the preparation of federal
and state income tax returns and consult with the Trust as to matters
of accounting and federal and state income taxation.
Other Arrangements
Pursuant to a contract between the Fund and New England Funds,
L.P., New England Funds, L.P. acts as shareholder servicing and
transfer agent for the Fund and is responsible for services in
connection with the establishment, maintenance and recording of
shareholder accounts, including all related tax and other reporting
requirements and the implementation of investment and redemption
arrangements offered in connection with the sale of the Fund's
shares. The Fund pays per account fees to New England Funds, L.P.
for these services in the amount of $17.25. New England Funds, L.P.
has subcontracted with State Street Bank for it to provide, through
its subsidiary Boston Financial Data Services, Inc. ("BFDS")
transaction processing, mail and other services. For these services,
New England Funds, L.P. pays BFDS a per account fee of $9.40.
PORTFOLIO TRANSACTIONS AND BROKERAGE
In placing orders for the purchase and sale of portfolio
securities for the Fund, Harris always seeks best execution, subject
to the considerations set forth below. Transactions in unlisted
securities are carried out through broker-dealers who make the market
for such securities unless, in the judgment of Harris, a more
favorable execution can be obtained by carrying out such transactions
through other brokers or dealers.
Harris selects only brokers or dealers which it believes are
financially responsible, will provide efficient and effective
services in executing, clearing and settling an order and will charge
commission rates which, when combined with the quality of the
foregoing services, will produce best 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. Harris 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 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.
Receipt of brokerage or research services from brokers may
sometimes be a factor in selecting a broker which Harris believes
will provide best execution for a transaction. These services
include not only a wide variety of reports on such matters as
economic and political developments, industries, companies,
securities, portfolio strategy, account performance, daily prices of
securities, stock and bond market conditions and projections, asset
allocation and portfolio structure, but also meetings with management
representatives of issuers and with other analysts and specialists.
Although it is not possible to assign an exact dollar value to these
services, they may, to the extent used, tend to reduce Harris's
expenses. Such services may be used by Harris in servicing other
client accounts and in some cases may not be used with respect to the
Fund. Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., and subject to seeking best
execution, Harris may, however, consider purchases of shares of the
Fund by customers of broker-dealers as a factor in the selection of
broker-dealers to execute the Fund's securities transactions.
Harris may cause the Fund to pay a broker-dealer that provides
brokerage and research services to Harris an amount of commission for
effecting a securities transaction for the Fund in excess of the
amount another broker-dealer would have charged for effecting that
transaction. Harris must determine in good faith that such greater
commission is reasonable in relation to the value of the brokerage
and research services provided by the executing broker-dealer viewed
in terms of that particular transaction or Harris's overall
responsibilities to the Fund and its other clients. Harris's
authority to cause the Fund to pay such greater commissions is also
subject to such policies as the trustees of the Trust may adopt from
time to time.
Subject to procedures adopted by the Board of Trustees of the
Trust, the Fund's brokerage transactions may be executed by brokers
that are affiliated with the Distributor, NEFM or Harris. Any such
transactions will comply with Rule 17e-1 under the Investment Company
Act of 1940.
Portfolio turnover is not a limiting factor with respect to
investment decisions. The Fund anticipates that their portfolio
turnover rates will vary significantly from time to time depending on
the volatility of economic and market conditions.
Under the 1940 Act, persons affiliated with the Trust are
prohibited from dealing with the Fund 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 the Trust, such as New
England Securities, 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.
DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES
New England Funds Trust II was organized in 1931 as a
Massachusetts business trust and consisted of a single investment
portfolio (now New England Growth Opportunities Fund) until January
1989. The Fund is a newly organized series of the Trust. The other
series of the Trust are New England Adjustable Rate U.S. Government
Fund, New England High Income Fund, New England Massachusetts Tax
Free Income Fund, New England Intermediate Term Tax Free Fund of
California and New England Intermediate Term Tax Free Fund of New
York, each of which currently offers two classes of shares; New
England Growth Opportunities Fund, which currently offers three
classes of shares; and New England Limited Term U.S. Government Fund,
which currently offers four classes of shares. Until December 1988,
the name of the Trust was "Investment Trust of Boston"; from December
1988 until April 1992, its name was "Investment Trust of Boston
Funds." New England High Income Fund and New England Massachusetts
Tax Free Income Fund are successors to separate investment companies
that were organized in 1983 and 1984, respectively, and reorganized
as series of the Trust in January 1989. New England Limited Term
U.S. Government Fund was organized in 1988 and commenced operations
in January 1989. New England Adjustable Rate U.S. Government Fund
was organized in 1991 and commenced operations on October 18 of that
year. New England Intermediate Term Tax Free Fund of New York and
New England Intermediate Term Tax Free Fund of California were
organized in 1993 and commenced operations on April 23 of that year.
The Agreement and Declaration of Trust of the Trust (the
"Declaration of Trust") currently permits the Trust's trustees to
issue an unlimited number of full and fractional shares of each
series. The Fund is represented by a series of shares of the Trust.
The Declaration of Trust further permits the Trust's trustees to
divide the shares of each series into any number of separate classes,
each having such rights and preferences relative to other classes of
the same series as the trustees may determine. The shares of Fund do
not have any preemptive rights. Upon termination of the Fund,
whether pursuant to liquidation of the Trust or otherwise,
shareholders of each class of the Fund are entitled to share pro rata
in the net assets attributable to that class of shares of the Fund
available for distribution to shareholders. The Declaration of Trust
also permits the trustees to charge shareholders directly for
custodial, transfer agency and servicing expenses.
The shares of the Fund are divided into four classes, Class A,
Class B, Class C and Class Y. The Fund currently offers Class A,
Class B and Class C shares. Class Y shares are not currently
available for purchase but may be offered at a later date to certain
eligible institutional investors, with higher minimum purchase
requirements than Classes A, B and C. All expenses of the Fund
[excluding transfer agency fees and expenses of printing and mailing
prospectuses to shareholders ("Other Expenses")] are borne by its
Class A, B, C and Y shares on a pro rata basis, except for 12b-1
fees, which are borne only by Classes A, B and C and may be charged
at a separate rate to each such class. Other Expenses of Classes A,
B and C are borne by such classes on a pro rata basis, but Other
Expenses relating to the Class Y shares may be allocated separately
to the Class Y shares.
The assets received by each class of the Fund for the issue or
sale of its shares and all income, earnings, profits, losses and
proceeds therefrom, subject only to the rights of creditors, are
allocated to, and constitute the underlying assets of, that class.
The underlying assets of each class of the Fund are segregated and
are charged with the expenses with respect to that class and with a
share of the general expenses of the Trust. Any general expenses of
the Trust that are not readily identifiable as belonging to a
particular class of a fund in the Trust are allocated by or under the
direction of the trustees in such manner as the trustees determine to
be fair and equitable. While the expenses of the Trust are allocated
to the separate books of account of each fund in the Trust, certain
expenses may be legally chargeable against the assets of all classes
of the funds in the Trust.
The Declaration of Trust also permits Trust's trustees, without
shareholder approval, to subdivide any series or class of shares or
fund into various sub-series or sub-classes with such dividend
preferences and other rights as the trustees may designate. While
the trustees have no current intention to exercise this power, it is
intended to allow them to provide for an equitable allocation of the
impact of any future regulatory requirements which might affect
various classes of shareholders differently. The trustees may also,
without shareholder approval, establish one or more additional series
or classes or merge two or more existing series or classes.
The Declaration of Trust provides for the perpetual existence of
the Trust. The Trust or any fund of the Trust, however, may be
terminated at any time by vote of at least two-thirds of the
outstanding shares of each fund affected. Similarly, any class
within a fund may be terminated by vote of at least two-thirds of the
outstanding shares of such class. While the Declaration of Trust
further provides that the board of trustees may also terminate the
Trust upon written notice to its shareholders, the 1940 Act requires
that the Trust receive the authorization of a majority of its
outstanding shares in order to change the nature of its business so
as to cease to be an investment company.
Voting Rights
As summarized in the prospectus, shareholders are entitled to
one vote for each full share held (with fractional votes for each
fractional share held) and may vote (to the extent provided therein)
in the election of trustees and the termination of the Trust and on
other matters submitted to the vote of shareholders.
The Declaration of Trust provides that on any matter submitted
to a vote of all shareholders of the Trust, all Trust shares entitled
to vote shall be voted together irrespective of series or class
unless the rights of a particular series or class would be adversely
affected by the vote, in which case a separate vote of that series or
class shall also be required to decide the question. Also, a separate
vote shall be held whenever required by the 1940 Act or any rule
thereunder. Rule 18f-2 under 1940 Act provides in effect that a
series or class shall be deemed to be affected by a matter unless it
is clear that the interests of each series or class in the matter are
substantially identical or that the matter does not affect any
interest of such series or class. On matters affecting an individual
series or class, only shareholders of that series or class are
entitled to vote. Consistent with the current position of the SEC,
shareholders of all series and classes vote together, irrespective of
series or class, on the election of trustees and the selection of the
Trust's independent accountants, but shareholders of each series vote
separately on other matters requiring shareholder approval, such as
certain changes in investment policies of that series or the approval
of the investment advisory and subadvisory agreements relating to
that series, and shareholders of each class within a series vote
separately as to the Rule 12b-1 plan (if any) relating to that class.
There will normally be no meetings of shareholders for the
purpose of electing trustees except that, in accordance with the 1940
Act, (i) the Trust will hold a shareholders' meeting for the election
of trustees at such time as less than a majority of the trustees
holding office have been elected by shareholders, and (ii) if, as a
result of a vacancy on the board of trustees, less than two-thirds of
the trustees holding office have been elected by the shareholders,
that vacancy may be filled only by a vote of the shareholders. In
addition, trustees may be removed from office by a written consent
signed by the holders of two-thirds of the outstanding shares and
filed with the Trust's custodian or by a vote of the holders of two-
thirds of the outstanding shares at a meeting duly called for that
purpose, which meeting shall be held upon the written request of the
holders of not less than 10% of the outstanding shares.
Upon written request by the holders of shares having a net asset
value of at least $25,000 or at least 1% of the outstanding shares
stating that such shareholders wish to communicate with the other
shareholders for the purpose of obtaining the signatures necessary to
demand a meeting to consider removal of a trustee, the Trust has
undertaken to provide a list of shareholders or to disseminate
appropriate materials (at the expense of the requesting
shareholders).
Except as set forth above, the trustees shall continue to hold
office and may appoint successor trustees. Shareholder voting rights
are not cumulative.
No amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the outstanding shares of the Trust
except (i) to change the Trust's or one of its series' name or to
cure technical problems in the Declaration of Trust, (ii) to
establish and designate new series or classes of Trust shares and
(iii) to establish, designate or modify new and existing series or
classes of Trust shares or other provisions relating to Trust shares
in response to applicable laws or regulations.
Shareholder and Trustee Liability
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the
Trust. However, the Declaration of Trust disclaims shareholder
liability for acts or obligations of the Trust and requires that
notice of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by the Trust or the trustees.
The Declaration of Trust provides for indemnification out of the
Fund's property for all loss and expense of any shareholder held
personally liable for the obligations of the Fund by reason of owning
shares of the Fund. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is considered
remote since it is limited to circumstances in which the disclaimer
is inoperative and the Fund itself would be unable to meet its
obligations.
The Declaration of Trust further provides that the board of
trustees will not be liable for errors of judgment or mistakes of
fact or law. However, nothing in the Declaration of Trust protects a
trustee against any liability to which the trustee would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of his or
her office. The By-Laws of the Trust provide for indemnification by
the Trust of trustees and officers of the Trust, except with respect
to any matter as to which any such person did not act in good faith
in the reasonable belief that his or her action was in or not opposed
to the best interests of the Trust. Such persons may not be
indemnified against any liability to the Trust or the Trust's
shareholders to which he or she would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office.
HOW TO BUY SHARES
The procedures for purchasing shares of the Fund are summarized
in the prospectus. Banks may charge a fee for transmitting funds by
wire. With respect to shares purchased by federal funds,
shareholders should bear in mind that wire transfers may take two or
more hours to complete.
For purchase of Fund shares by mail, the settlement date is the
first business day after receipt of the check by the transfer agent
so long as it is received by the close of regular trading of the New
York Stock Exchange on a day when the Exchange is open; otherwise the
settlement date is the following business day. For telephone orders,
the settlement date is the fifth business day after the order is
made.
Shares may also be purchased either in writing, by phone or, in
the case of Class A, B and C shares, by electronic funds transfer
using Automated Clearing House ("ACH"), or by exchange as described
in the prospectus through firms that are members of the National
Association of Securities Dealers, Inc. and that have selling
agreements with the Distributor.
The Distributor may at its discretion accept a telephone order
for the purchase of $5,000 or more of the Fund's Class A, B or C
shares. Payment must be received by the Distributor within five
business days following the transaction date or the order will be
subject to cancellation. Telephone orders must be placed through the
Distributor or your investment dealer.
In a redemption offer that is the first of its nature, the
Government of Israel will give notice to holders of certain of its
bond issues that they may redeem those bonds prior to maturity from
March 15, 1996 through July 15, 1996. The redemption period may be
extended at the discretion of the Government of Israel. Investors may
wish to invest the proceeds from the bond redemptions in New England
Growth Fund of Israel. Contact your investment dealer for information
about the reinvestment of the bond proceeds.
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The method for determining the public offering price and net
asset value per share is summarized in the prospectus
The total net asset value of each class of shares of the Fund
(the excess of the assets of the Fund attributable to such class over
the liabilities attributable to such class) is determined as of the
close of regular trading (normally 4:00 p.m. Eastern time) on each
day that the New York Stock Exchange is open for trading. The
weekdays that the New York Stock Exchange is expected to be closed
are New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Securities listed on a national securities exchange or on the NASDAQ
National Market System are valued at their last sale price, or, if
there is no reported sale during the day, the last reported bid price
estimated by a broker. Unlisted securities traded in the over-the-
counter market are valued at the last reported bid price in the over-
the-counter market or on the basis of yield equivalents as obtained
from one or more dealers that make a market in the securities. U.S.
Government Securities are traded in the over-the-counter market.
Options, interest rate futures and options thereon that are traded on
exchanges are valued at their last sale price as of the close of such
exchanges. Securities for which current market quotations are not
readily available and all other assets are taken at fair value as
determined in good faith by the board of trustees, although the
actual calculations may be made by persons acting pursuant to the
direction of the board.
Generally, trading in equity securities in markets outside the
United States, as well as trading in foreign government securities
and other fixed-income securities, is substantially completed each
day at various times prior to the close of the New York Stock
Exchange. Securities traded on a non-U.S. exchange will be valued at
their last sale price (or the last reported bid price, if there is no
reported sale during the day), on the exchange on which they
principally trade, as of the close of regular trading on such
exchange. The value of other securities principally traded outside
the United States will be computed as of the completion of
substantial trading for the day on the markets on which such
securities principally trade. Securities principally traded outside
the United States will generally be valued several hours before the
close of regular trading on the New York Stock Exchange, generally
4:00 p.m. Eastern time, at which time the Fund computes the net asset
value of its shares. Occasionally, events affecting the value of
securities principally traded outside the United States may occur
between the completion of substantial trading of such securities for
the day and the close of the New York Stock Exchange. If events
materially affecting the value of the Fund's securities occur during
such period, then these securities will be valued at their fair value
as determined in good faith by or in accordance with procedures
approved by the trustees.
The per share net asset value of a class of the Fund's shares is
computed by dividing the number of shares outstanding into the total
net asset value attributable to such class. The public offering
price of a Class A share of the Fund is the net asset value per share
next determined after a properly completed purchase order is accepted
by New England Funds, L.P. or State Street Bank, plus a sales charge
as set forth in the Fund's prospectus. The public offering price of
a Class B, C or Y share of the Fund is the next-determined net asset
value.
REDUCED SALES CHARGES
Class A Shares Only
Special purchase plans are enumerated in the text of the
prospectus.
Cumulative Purchase Discount. A Fund shareholder making an
additional purchase of Class A shares may be entitled to a discount
on the sales charge payable on that purchase. (This discount will
not be available to purchases of Fund shares during the Fund's
Initial Subscription Period described in the supplement dated
December 29, 1995 to the prospectus.) This discount will be
available if the shareholder's "total investment" in the Fund reaches
the breakpoint for a reduced sales charge in the table under "Buying
Fund Shares - Sales Charges" in the prospectus. The total investment
is determined by adding the amount of the additional purchase,
including sales charge, to the current public offering price of all
series and classes of shares of New England Funds Trust I and the
Trust (the "Trusts") held by the shareholder in one or more accounts.
If the total investment exceeds the breakpoint, the lower sales
charge applies to the entire additional investment even though some
portion of that additional investment is below the breakpoint to
which a reduced sales charge applies. For example, if a shareholder
who already owns shares of one or more funds in the Trusts with a
value at the current public offering price of $30,000 makes an
additional purchase of $20,000 of Class A shares of the Fund, the
reduced sales charge of 4.5% of the public offering price will apply
to the entire amount of the additional investment.
Letter of Intent. A Letter of Intent (a "Letter"), which can be
effected at any time, is a privilege available to investors which
reduces the sales charge on investments in Class A shares.
Ordinarily, reduced sales charges are available for single purchases
of Class A shares only when they reach certain breakpoints (e.g.,
$50,000, $100,000, etc.). By signing a Letter, a shareholder
indicates an intention to invest enough money in Class A shares
within 13 months to reach a breakpoint. If the shareholder's
intended aggregate purchases of all series and classes of the Trusts
over a defined 13-month period will be large enough to qualify for a
reduced sales charge, the shareholder may invest the smaller
individual amounts at the public offering price calculated using the
sales load applicable to the 13-month aggregate investment.
A Letter is a non-binding commitment, the amount of which may be
increased, decreased or canceled at any time. The effective date of
a Letter is the date it is received in good order at New England
Funds, L.P., or, if communicated by a telephone exchange or order, at
the date of telephoning provided a signed Letter, in good order,
reaches New England Funds, L.P. within five business days.
A reduced sales charge is available for aggregate purchases of
all series and classes of shares of the Trusts pursuant to a written
Letter effected within 90 days after any purchase. In the event the
account was established prior to 90 days before the Letter effective
date, the account will be credited with Rights of Accumulation
("ROA") towards the breakpoint level that will be reached upon the
completion of the 13 months' purchases. The ROA credit is the value
of all shares held as of the effective date of the Letter based on
the "public offering price computed on such date."
The cumulative purchase discount, described above, permits the
aggregate value at the current public offering price of Class A
shares of any accounts with the Trusts held by a shareholder to be
added to the dollar amount of the intended investment under a Letter,
provided the shareholder lists them on the account application.
State Street Bank will hold in escrow shares with a value at the
current public offering price of 5% of the aggregate amount of the
intended investment. The amount in escrow will be released when the
Letter is completed. If the shareholder does not purchase shares in
the amount indicated in the Letter, the shareholder agrees to remit
to State Street Bank the difference between the sales charge actually
paid and that which would have been paid had the Letter not been in
effect, and authorizes State Street Bank to redeem escrowed shares in
the amount necessary to make up the difference in sales charges.
Reinvested dividends and distributions are not included in
determining whether the Letter has been completed.
Combining Purchases. Purchases of all series and classes of the
Trusts by or for an investor, the investor's spouse, parents,
children, siblings, grandparents or grandchildren and any other
account of the investor, including sole proprietorships, in either
Trust may be treated as purchases by a single individual for purposes
of determining the availability of a reduced sales charge. Purchases
for a single trust estate or a single fiduciary account may also be
treated as purchases by a single individual for this purpose, as may
purchases on behalf of a participant in a tax-qualified retirement
plan and other employee benefit plans, provided that the investor is
the sole participant in the plan.
Combining with Other Series and Classes of the Trusts. A
shareholder's total investment for purposes of the cumulative
purchase discount and purchases under a Letter of Intent includes the
value at the current public offering price of any shares of series
and classes of the Trusts that the shareholder owns (which includes
shares of New England Cash Management Trust and New England Tax
Exempt Money Market Trust [the "Money Market Funds"] if such shares
were purchased by exchanging shares of either of the Trusts). Shares
owned by persons described in the preceding paragraph may also be
included.
Unit Holders of Unit Investment Trusts. Unit investment trust
distributions may be invested in Class A shares of the Fund at a
reduced sales charge of 1.50% of the public offering price (or 1.52%
of the net amount invested); for large purchases on which a sales
charge of less than 1.50% would ordinarily apply, such lower charge
also applies to investments of unit investment trust distributions.
Clients of Advisers or Subadvisers. No sales charge or
contingent deferred sales charge applies to investments of $100,000
or more in Class A shares of the Fund by (1) clients of an adviser or
subadviser to the Trusts; any director, officer or partner of a
client of an adviser or subadviser to the Trusts; and the spouse,
parents, children, siblings, grandparents or grandchildren of the
foregoing; (2) any individual who is a participant in a Keogh or IRA
Plan under a prototype of an adviser or subadviser to the Trusts if
at least one participant in the plan qualifies under category (1)
above; and (3) an individual who invests through an IRA and is a
participant in an employee benefit plan that is a client of an
adviser or subadviser to the Trusts. Any investor eligible for this
arrangement should so indicate in writing at the time of the
purchase.
Offering to Employees of The New England and Associated
Entities. There is no sales charge, CDSC or initial investment
minimum related to investments in Class A shares of the Fund by any
of the Trusts' investment advisers or subadvisers, New England Funds,
L.P. or any other company affiliated with The New England; current
and former directors and trustees of the Trusts; agents and general
agents of The New England and its insurance company subsidiaries;
current and retired employees of such agents and general agents;
registered representatives of broker-dealers that have selling
arrangements with New England Funds, L.P.; the spouse, parents,
children, siblings, grandparents or grandchildren of the persons
listed above and any trust, pension, profit sharing or other benefit
plans for any of the foregoing persons and any separate account of
The New England or any other company affiliated with The New England.
Eligible Governmental Authorities. There is no sales charge or
contingent deferred sales charge related to investments in Class A
shares of the Fund by any state, county or city or any
instrumentality, department, authority or agency thereof that has
determined that the Fund is a legally permissible investment and that
is prohibited by applicable investment laws from paying a sales
charge or commission in connection with the purchase of shares of any
registered investment company.
Investment Advisory Accounts. Shares of the Fund may be
purchased at net asset value by investment advisers, financial
planners or other intermediaries who place trades for their own
accounts or the accounts of their clients and who charge a
management, consulting or other fee for their services; clients of
such investment advisers, financial planners or other intermediaries
who place trades for their own accounts if the accounts are linked to
the master account of such investment adviser, financial planner or
other intermediary on the books and records of the broker or agent;
and retirement and deferred compensation plans and trusts used to
fund those plans, including, but not limited to, those defined in
Section 401(a), 403(b) or 457 of the Code and rabbi trusts.
Investors may be charged a fee if they effect transactions through a
broker or agent.
Shareholders of Reich and Tang Government Securities Trust.
Shareholders of Reich and Tang Government Securities Trust may
exchange their shares of that fund for Class A shares of the Fund at
net asset value and without imposition of a sales charge.
The reduction or elimination of the sales charge in connection with
sales described above reflects the absence or reduction of sales
expenses associated with such sales.
SHAREHOLDER SERVICES
Open Accounts
A shareholder's investment is automatically credited to an open
account maintained for the shareholder by State Street Bank.
Following each transaction in the account, a shareholder will receive
a confirmation statement disclosing the current balance of shares
owned and the details of recent transactions in the account. After
the close of each calendar year, State Street Bank will send each
shareholder a statement providing federal tax information on
dividends and distributions paid to the shareholder during the year.
This statement should be retained as a permanent record. New England
Funds, L.P. may charge a fee for providing duplicate information.
The open account system provides for full and fractional shares
expressed to three decimal places and, by making the issuance and
delivery of stock certificates unnecessary, eliminates problems of
handling and safekeeping, and the cost and inconvenience of replacing
lost, stolen, mutilated or destroyed certificates.
The costs of maintaining the open account system are paid by the
Fund and no direct charges are made to shareholders. Although the
Fund has no present intention of making such direct charges to
shareholders, it reserves the right to do so. Shareholders will
receive prior notice before any such charges are made.
Automatic Investment Plans (Class A, B and C Shares)
Subject to the Fund's investor eligibility requirements,
investors may automatically invest in additional shares of the Fund
on a monthly basis by authorizing New England Funds, L.P. to draw
checks on an investor's bank account. The checks are drawn under the
Investment Builder Program, a program designed to facilitate such
periodic payments, and are forwarded to New England Funds, L.P. for
investment in the Fund. A plan may be opened with an initial
investment of $50 or more and thereafter regular monthly checks of
$50 or more will be drawn on the investor's account. The reduced
minimum initial investment pursuant to an automatic investment plan
is referred to in the prospectus. An Investment Builder application
must be completed to open an automatic investment plan. An
application may be found in the prospectus or may be obtained by
calling New England Funds, L.P. at (800) 225-5478 or your investment
dealer.
This program is voluntary and may be terminated by New England
Funds, L.P. upon notice to existing plan participants.
The Investment Builder Program plan may be discontinued at any
time by the investor by written notice to New England Funds, L.P.,
which must be received at least five business days prior to any
payment date. The plan may be discontinued by State Street Bank at
any time without prior notice if any check is not paid upon
presentation; or by written notice to you at least thirty days prior
to any payment date. State Street Bank is under no obligation to
notify shareholders as to the nonpayment of any check.
Retirement Plans Offering Tax Benefits (Class A, B and C Shares)
The federal tax laws provide for a variety of retirement plans
offering tax benefits. These plans may be funded with shares of the
Fund or with certain other investments. The plans include H.R. 10
(Keogh) plans for self-employed individuals and partnerships,
individual retirement accounts (IRAs), corporate pension trust and
profit sharing plans, including 401(k) plans, and retirement plans
for public school systems and certain tax exempt organizations, i.e.,
403(b) plans.
The reduced minimum initial investment available to retirement
plans offering tax benefits is referred to in the prospectus. For
these plans, initial investments in the Fund must be at least $250
for each participant in corporate pension and profit sharing plans,
IRAs and Keogh plans and $50 for subsequent investments. There is a
special initial and subsequent investment minimum of $25 for payroll
deduction investment programs for 401(k), SARSEP, 403(b) and certain
other retirement plans. Income dividends and capital gain
distributions must be reinvested (unless the investor is over age 59
1/2 or disabled). Plan documents and further information can be
obtained from New England Funds, L.P.
An investor should consult a competent tax or other adviser as
to the suitability of the Fund's shares as a vehicle for funding a
plan, in whole or in part, under the Employee Retirement Income
Security Act of 1974 and as to the eligibility requirements for a
specific plan and its state as well as federal tax aspects.
Certain retirement plans may also be eligible to purchase Class
Y shares. See the prospectus.
Systematic Withdrawal Plans (Class A, B and C Shares)
An investor owning Fund shares having a value of $5,000 or more
at the current public offering price may establish a Systematic
Withdrawal Plan providing for periodic payments of a fixed or
variable amount. An investor may terminate the plan at any time. A
form for use in establishing such a plan is available from the
servicing agent or your investment dealer. Withdrawals may be paid
to a person other than the shareholder if a signature guarantee is
provided. Please consult your investment dealer or New England
Funds, L.P.
A shareholder under a Systematic Withdrawal Plan may elect to
receive payments monthly, quarterly, semiannually or annually for a
fixed amount of not less than $50 or a variable amount based on (1)
the market value of a stated number of shares, (2) a specified
percentage of the account's market value or (3) a specified number of
years for liquidating the account (e.g., a 20-year program of 240
monthly payments would be liquidated at a monthly rate of 1/240,
1/239, 1/238, etc.). The initial payment under a variable payment
option may be $50 or more.
In the case of shares subject to a CDSC, the amount or
percentage you specify may not, on an annualized basis, exceed 10% of
the value, as of the time you make the election, of your account with
the Fund with respect to which you are electing the Plan. No CDSC
applies to a redemption pursuant to the Plan.
All shares under the Plan must be held in an open
(uncertificated) account. Income dividends and capital gain
distributions will be reinvested (without a sales charge in the case
of Class A shares) at net asset value determined on the record date.
Since withdrawal payments represent proceeds from the
liquidation of shares, withdrawals may reduce and possibly exhaust
the value of the account, particularly in the event of a decline in
net asset value. Accordingly, the shareholder should consider
whether a Systematic Withdrawal Plan and the specified amounts to be
withdrawn are appropriate in the circumstances. The Fund and New
England Funds, L.P. make no recommendations or representations in
this regard. It may be appropriate for the shareholder to consult a
tax adviser before establishing such a plan.
It may be disadvantageous for a shareholder to purchase on a
regular basis additional Fund shares with a sales charge while
redeeming shares under a Systematic Withdrawal Plan. Accordingly,
the Fund and New England Funds, L.P. do not recommend additional
investments in Class A shares by a shareholder who has a withdrawal
plan in effect and who would be subject to a sales load on such
additional investments.
Because of statutory restrictions this plan is not available to
pension or profit-sharing plans, IRAs or 403(b) plans that have State
Street Bank as trustee.
Exchange Privilege
A shareholder may exchange the shares of any fund in the Trusts
(in the case of Class A shares 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, only if such shares have been held for at least six months) for
shares of the same class of any other fund of the Trusts (subject to
the investor eligibility requirements of the fund into which the
exchange is being made) on the basis of relative net asset values at
the time of the exchange without any sales charge. If you own Class
A or Class C shares, you may also elect to exchange your shares of
the Fund for Class A shares of the Money Market Funds. On all
exchanges of Class A shares subject to a CDSC, the exchange stops the
aging period relating to the CDSC. The aging resumes only when an
exchange is made back into shares of one of the Trusts. If you own
Class Y shares of the Fund, you may exchange those shares for Class Y
shares of other funds in the Trusts or for the Class A shares of the
Money Market Funds. These options are summarized in the prospectus.
An exchange may be effected, provided that neither the registered
name nor address of the accounts are different and provided that a
certificate representing the shares being exchanged has not been
issued to the shareholder, by (1) a telephone request to New England
Funds, L.P. at (800) 223-7124 or (2) a written exchange request to
New England Funds, P.O. Box 8551, Boston, MA 02266-8551. You must
acknowledge receipt of a current prospectus for a Fund before an
exchange for that Fund can be effected.
The investment objectives of the other funds (besides the Fund) in
the Trusts and the Money Market Funds are as follows:
Stock Funds:
New England Growth Fund seeks long-term growth of capital
through investments in equity securities of companies whose earnings
are expected to grow at a faster rate than the United States economy.
New England Capital Growth Fund seeks long-term growth of
capital.
New England Value Fund seeks a reasonable long-term investment
return from a combination of market appreciation and dividend income
from equity securities.
New England Balanced Fund seeks a reasonable long-term
investment return from a combination of long-tern capital
appreciation and moderate current income.
New England Growth Opportunities Fund seeks opportunities for
long-term growth of capital and income.
New England International Equity Fund seeks total return from
long-term growth of capital and dividend income primarily through
investment in a diversified portfolio of marketable international
equity securities.
New England Star Advisers Fund seeks long-term growth of
capital.
New England Star Worldwide Fund seeks long-term growth of
capital.
Bond Funds:
New England Government Securities Fund seeks a high level of
current income consistent with safety of principal by investing in
U.S. Government securities and engaging in transactions involving
related options, futures and options on futures.
New England Limited Term U.S. Government Fund seeks a high
current return consistent with preservation of capital.
New England Adjustable Rate U.S. Government Fund seeks a high
level of current income consistent with low volatility of principal.
New England Strategic Income Fund seeks high current income with
a secondary objective of capital growth.
New England Bond Income Fund seeks a high level of current
income consistent with what the Fund considers reasonable risk. The
Bond Income Fund invests primarily in corporate and U.S. Government
bonds.
New England High Income Fund seeks high current income plus the
opportunity for capital appreciation to produce a high total return.
New England Tax Exempt Income Fund seeks as high a level of
current income exempt from federal income taxes as is consistent with
reasonable risk and protection of shareholder's' capital. The Tax
Exempt Income Fund invests primarily in debt securities, the interest
of which is, in the opinion of the debt issuer's counsel, exempt from
federal income tax ("tax exempt bonds"), and may engage in
transactions in financial futures contracts and options on futures.
New England Massachusetts Tax Free Income Fund seeks as high a
level of current income exempt from federal income tax and
Massachusetts personal income taxes as Back Bay Advisors, the Fund's
investment adviser, believes is consistent with preservation of
capital.
New England Intermediate Term Tax Free Fund of California seeks
as high a level of current income exempt from federal income tax and
its state personal income tax as is consistent with preservation of
capital.
New England Intermediate Term Tax Free Fund of New York seeks as
high a level of current income exempt from federal income tax and its
state personal income tax and New York City personal income tax as is
consistent with preservation of capital.
Money Market Funds:
New England Cash Management Trust -
Money Market Series -- seeks maximum current income consistent
with preservation of capital and liquidity.
U.S. Government Series -- seeks highest current income
consistent with preservation of capital and liquidity.
New England Tax Exempt Money Market Trust seeks current income exempt
from federal income taxes consistent with preservation of capital and
liquidity.
As of December 15, 1995, the net assets of the funds in the
Trusts and the Money Market Funds totaled over $5 billion.
An exchange constitutes a sale of shares for federal income tax
purposes in which the investor may realize a long- or short-term
capital gain or loss.
Automatic Exchange Plan (Class A, B and C Shares)
As described in the prospectus following the caption "Owning
Fund Shares", a shareholder may establish an Automatic Exchange Plan
under which shares of the Fund are automatically exchanged each month
for shares of the same class of one or more of the other funds in the
Trusts. Registration on all accounts must be identical. The
exchanges are made on the 15th of each month or the first business
day thereafter if the 15th is not a business day until the account is
exhausted or until New England Funds, L.P. is notified in writing to
terminate the plan. Exchanges may be made in amounts of $500 or over
($1000 for spousal IRAs). The Service Options Form is available from
New England Funds, L.P. or your financial representative to establish
an Automatic Exchange Plan.
REDEMPTIONS
The procedures for redemption of shares of a Fund are summarized
in the prospectus. As described in the prospectus, a contingent
deferred sales charge (a "CDSC") may be imposed on certain purchases
of Class A shares and on purchases of Class B shares. For purposes
of the CDSC, an exchange of shares from the Fund to another series of
the Trusts is not considered a redemption or a purchase. For federal
tax purposes, however, such an exchange is considered a sale and a
purchase and, therefore, would be considered a taxable event on which
you may recognize a gain or loss. In determining whether a CDSC is
applicable to a redemption of Class B shares, the calculation will be
determined in the manner that results in the lowest rate being
charged. Therefore, it will be assumed that the redemption is first
of any Class A shares in the shareholder's Fund account, second of
shares held for over five years, third of shares issued in connection
with dividend reinvestment and fourth of shares held longest during
the five-year period. The charge will not be applied to dollar
amounts representing an increase in the net asset value of shares
since the time of purchase or reinvested distributions associated
with such shares. Unless you request otherwise at the time of
redemption, the CDSC is deducted from the redemption, not the amount
remaining in the account.
To illustrate, assume an investor purchased 100 shares at $10
per share (at a cost of $1,000) and in the second year after
purchase, the net asset value per share is $12 and, during such time,
the investor has acquired 10 additional shares under dividend
reinvestment. If at such time the investor makes his or her first
redemption of 50 shares (proceeds of $600), 10 shares will not be
subject to the CDSC because of dividend reinvestment. With respect
to the remaining 40 shares, the CDSC is applied only to the original
cost of $10 per share and not to the increase in the asset value of
$2 per share. Therefore, $400 of the $600 redemption proceeds will
be charged at a rate of 3% (the applicable rate in the second year
after purchase).
Signatures on redemption requests must be guaranteed by an
"Eligible Guarantor Institution," as defined in Rule 17Ad-15 under
the Securities Exchange Act of 1934. However, a signature guarantee
will not be required if the proceeds of the redemption do not exceed
$100,000 and the proceeds check is made payable to the registered
owner(s) and mailed to the record address.
If you select the telephone redemption service in the manner
described in the next paragraph, shares of the Fund may be redeemed
by calling toll free (800) 225-5478. A wire fee, currently $5.00,
will be deducted from the proceeds. Telephone redemption requests
must be received by the close of regular trading on the New York
Stock Exchange. Requests made after that time or on a day when the
New York Stock Exchange is not open for business cannot be accepted
and a new request on a later day will be necessary. The proceeds of
a telephone withdrawal will normally be sent on the first business
day following receipt of a proper redemption request.
In order to redeem shares by telephone, a shareholder must
either select this service when completing the Fund application or
must do so subsequently on the Service Options Form, available from
your investment dealer. When selecting the service, a shareholder
must designate a bank account to which the redemption proceeds should
be sent. Any change in the bank account so designated may be made by
furnishing to your investment dealer a completed Service Options Form
with a signature guarantee. Whenever the Service Options Form is
used, the shareholder's signature must be guaranteed as described
above. Telephone redemptions may only be made if the designated bank
is a member of the Federal Reserve System or has a correspondent bank
that is a member of the System. If the account is with a savings
bank, it must have only one correspondent bank that is a member of
the System.
The redemption price will be the net asset value per share (less
any applicable CDSC) next determined after the redemption request and
any necessary special documentation are received by State Street Bank
or your investment dealer in proper form. Payment normally will be
made by State Street Bank on behalf of the Fund within seven days
thereafter. However, in the event of a request to redeem shares for
which the Fund has not yet received good payment, the Fund reserves
the right to withhold payments of redemption proceeds if the purchase
of shares was made by a check which was deposited less than fifteen
days prior to the redemption request (unless the Fund is aware that
the check has cleared).
The CDSC may be waived on redemptions made from IRA accounts due
to attainment of age 59 1/2 for IRA shareholders who established
accounts prior to January 3, 1995. The CDSC may also be waived on
redemptions made from IRA accounts due to death, disability, return
of excess contribution, required minimum distributions at age 70 1/2
(waivers apply only to amounts necessary to meet the required minimum
amount), certain withdrawals pursuant to a systematic withdrawal
plan, not to exceed 10% annually of the value of the account, and
redemptions made from the account to pay custodial fees.
The CDSC may be waived on redemptions made from 403(b)(7)
custodial accounts due to attainment of age 59 1/2 for shareholders who
established custodial accounts prior to January 3, 1995.
The CDSC may also be waived on redemptions necessary to pay plan
participants or beneficiaries from qualified retirement plans under
Section 401 of the Code, including profit sharing plans, money
purchase plans, 401(k) and custodial accounts under Section 403(b)(7)
of the Code. Distributions necessary to pay plan participants and
beneficiaries include payments made due to death, disability,
separation from service, normal or early retirement as defined in the
plan document, loans from the plan and hardship withdrawals, return
of excess contributions, required minimum distributions at age 70 1/2
(waivers only apply to amounts necessary to meet the required minimum
amount), certain withdrawals pursuant to a systematic withdrawal
plan, not to exceed 10% annually of the value of your account, and
redemptions made from qualified retirement accounts or Section
403(b)(7) custodial accounts necessary to pay custodial fees.
A CDSC will apply in the event of plan level transfers,
including transfers due to changes in investment where assets are
transferred outside of New England Funds, including IRA and 403(b)(7)
participant-directed transfers of assets to other custodians (except
for the reasons given above) or qualified transfers of assets due to
trustee-directed movement of plan assets due to merger, acquisition
or addition of additional funds to the plan.
The Fund will normally redeem shares for cash; however, the Fund
reserves the right to pay the redemption price wholly or partly in
kind if the Trust's board of trustees determines it to be advisable
and in the interest of the remaining shareholders of the Fund. If
portfolio securities are distributed in lieu of cash, the shareholder
will normally incur brokerage commissions upon subsequent disposition
of any such securities. However, the Fund has elected to be governed
by Rule 18f-1 under the 1940 Act, pursuant to which the Fund is
obligated to redeem shares solely in cash for any shareholder during
any 90-day period up to the lesser of $250,000 or 1% of the total net
asset value of the Trust at the beginning of such period. The Fund
does not currently intend to impose any redemption charge (other than
the CDSC imposed by the Distributor), although it reserves the right
to charge a fee not exceeding 1% of the redemption price. A
redemption constitutes a sale of shares for federal income tax
purposes on which the investor may realize a long- or short-term
capital gain or loss. See also "Income Dividends, Capital Gain
Distributions and Tax Status," below.
Reinstatement Privilege (Class A shares only)
The prospectus describes redeeming shareholders' reinstatement
privileges for Class A shares. Written notice and the investment
check from persons wishing to exercise this reinstatement privilege
must be received by your investment dealer within 120 days after the
date of the redemption. The reinstatement or exchange will be made
at net asset value next determined after receipt of the notice and
the investment check and will be limited to the amount of the
redemption proceeds or to the nearest full share if fractional shares
are not purchased.
Even though an account is reinstated, the redemption will
constitute a sale for federal income tax purposes. Investors who
reinstate their accounts by purchasing shares of the Fund should
consult with their tax advisers with respect to the effect of the
"wash sale" rule if a loss is realized at the time of the redemption.
STANDARD PERFORMANCE MEASURES
Calculation of Total Return. Total return is a measure of the
change in value of an investment in the Fund over the period covered,
which assumes that any dividends or capital gains distributions are
automatically reinvested in shares of the same class of the Fund
rather than paid to the investor in cash. The formula for total
return used by the Fund is prescribed by the Securities and Exchange
Commission and includes three steps: (1) adding to the total number
of shares of the particular class that would be purchased by a
hypothetical $1,000 investment in the Fund (with or without giving
effect to the deduction of sales charge or CDSC, if applicable) all
additional shares that would have been purchased if all dividends and
distributions paid or distributed during the period had been
automatically reinvested; (2) calculating the value of the
hypothetical initial investment as of the end of the period by
multiplying the total of shares owned at the end of the period by the
net asset value per share of the relevant class on the last trading
day of the period; (3) dividing this account value for the
hypothetical investor by the amount of the initial investment, and
annualizing the result for periods of less than one year. Total
return may be stated with or without giving effect to any expense
limitations in effect for the Fund.
Performance Comparisons
Total Return. Total returns will generally be higher for Class
A shares than for Class B and C shares of the Fund, because of the
higher levels of expenses borne by the Class B and C shares. Because
of its lower operating expenses, Class Y shares of the Fund can be
expected to achieve a higher total return than the Fund's Class A, B
and C shares. The Fund may from time to time include total return in
advertisements or in information furnished to present or prospective
shareholders. The Funds may from time to time include in
advertisements its total return and the ranking of those performance
figures relative to such figures for groups of mutual funds
categorized by Lipper Analytical Services as having similar
investment objectives.
Total return may also be used to compare the performance of the
Fund against certain widely acknowledged standards or indices for
stock and bond market performance or against the U.S. Bureau of Labor
Statistics' Consumer Price Index.
The Standard & Poor's Composite Index of 500 Stocks (the "S&P
500") is a market value-weighted and unmanaged index showing the
changes in the aggregate market value of 500 stocks relative to the
base period 1941-43. The S&P 500 is composed almost entirely of
common stocks of companies listed on the New York Stock Exchange,
although the common stocks of a few companies listed on the American
Stock Exchange or traded over-the-counter are included. The 500
companies represented include 400 industrial, 60 transportation and
40 financial services concerns. The S&P 500 represents about 80% of
the market value of all issues traded on the New York Stock Exchange.
The Salomon Brothers World Government Bond Index includes a
broad range of institutionally-traded fixed-rate government
securities issued by the national governments of the nine countries
whose securities are most actively traded. The index generally
excludes floating- or variable-rate bonds, securities aimed
principally at non-institutional investors (such as U.S. Savings
Bonds) and private-placement type securities.
The Shearson Lehman Government Bond Index (the "SL Government
Index") is a measure of the market value of all public obligations of
the U.S. Treasury; all publicly issued debt of all agencies of the
U.S. Government and all quasi-federal corporations; and all corporate
debt guaranteed by the U.S. Government. Mortgage backed securities,
flower bonds and foreign targeted issues are not included in the SL
Government Index.
The Shearson Lehman Government/Corporate Bond Index (the "SL
Government/Corporate Index") is a measure of the market value of
approximately 5,300 bonds with a face value currently in excess of
$1.3 trillion. To be included in the SL Government/Corporate Index,
an issue must have amounts outstanding in excess of $1 million, have
at least one year to maturity and be rated "Baa" or higher
("investment grade") by a nationally recognized rated agency.
The Dow Jones Industrial Average is a market value-weighted and
unmanaged index of 30 large industrial stocks traded on the New York
Stock Exchange.
The Merrill Lynch High Yield Index includes over 750 issues and
represents public debt greater than $10 million (original issuance
rated BBB/BB and below), and the First Boston High Yield Index
includes over 350 issues and represents all public debt greater than
$100 million (original issuance and rated BBB/BB and below).
The Salomon Brothers Broad Investment Grade Bond Index is a
price composite of a broad range of institutionally based U.S.
Government mortgage-backed and corporate debt securities of
investment outstanding of at least $1 million and with a remaining
period to maturity of at least one year.
The Consumer Price Index, published by the U.S. Bureau of Labor
Statistics, is a statistical measure of changes, over time, in the
prices of goods and services in major expenditure groups.
Lipper Analytical Services, Inc. is an independent service that
monitors the performance of over 1,300 mutual funds, and calculates
total return for the funds grouped by investment objective.
The Morgan Stanley Capital International Europe, Australia and
Far East (Gross Domestic Product) Index (the "EAFE Index") is a
market-value weighted and unmanaged index of common stocks traded
outside the U.S. The stocks in the index are selected with reference
to national and industry representation and weighted in the EAFE
Index according to their relative market value (market price per
share times the number of shares outstanding).
The Morgan Stanley Capital International Europe, Australia and
Far East Index (the "EAFE [GDP] Index") is a market-value weighted
and unmanaged index of common stocks traded outside the U.S. The
stocks in the index are selected with reference to national and
industry representation and weighted in the EAFE (GDP) Index
according to their relative market values. The relative market value
of each country is further weighted with reference to the country's
relative gross domestic product.
The Mishtanim is an unmanaged index of the 100 most liquid
securities on the Tel Aviv Stock Exchange. The Maof is an unmanaged
index of the 30 largest securities traded on the Tel Aviv Stock
Exchange. The Karam is an unmanaged index of smaller or less liquid
securities traded on the Tel Aviv Stock Exchange.
The Fund may compare its performance to the Salomon-Russell
Broad Market Index Global X-US and to universes of similarly managed
investment pools compiled by Frank Russell Company and Intersec
Research Corporation.
Articles and releases, developed by the Fund and other parties,
about the Fund regarding performance, rankings, statistics and
analyses of the Fund's and the fund group's asset levels and sales
volumes, numbers of shareholders by fund or in the aggregate for New
England Funds, statistics and analyses of industry sales volumes and
asset levels, and other characteristics may appear in advertising,
promotional literature, publications, including, but not limited to,
those publications listed in Appendix B to this Statement and on
various computer networks, for example, the Internet. In particular,
some or all of these publications may publish their own rankings or
performance reviews of mutual funds, including the Fund. References
to or reprints of such articles may be used in the Funds' advertising
and promotional literature. Such advertising and promotional
material may refer to NEIC, its structure, goals and objectives and
the advisory subsidiaries of NEIC, including their portfolio
management responsibilities, portfolio managers and their categories
and background; their tenure, styles and strategies and their shared
commitment to fundamental investment principles and may identify
specific clients, as well as discuss the types of institutional
investors who have selected the advisers to manage their investment
portfolios and the reasons for that selection. The references may
discuss the independent, entrepreneurial nature of each advisory
organization and allude to or include excerpts from articles
appearing in the media regarding NEIC, its advisory subsidiaries and
their personnel. For additional information about the Fund's
advertising and promotional literature, see Appendix C.
The Fund may enter into arrangements with banks exempted from
registration under the Securities Exchange Act of 1934. Advertising
and sales literature developed to publicize such arrangements will
explain the relationship of the bank to New England Funds and New
England Funds, L.P. as well as the services provided by the bank
relative to the Fund. The material may identify the bank by name and
discuss the history of the bank including, but not limited to, the
type of bank, its asset size, the nature of its business and services
and its status and standing in the industry.
The Fund may use the accumulation charts below in their
advertisements to demonstrate the benefits of monthly savings at an
8% and 10% rate of return, respectively.
Investments At 8% Rate of Return
5 yrs. 10 15 20 25 30
$ 50 3,698 9,208 17,417 29,647 47,868 75,015
75 5,548 13,812 26,126 44,471 71,802 112,522
100 7,396 18,417 34,835 59,295 95,737 150,029
150 11,095 27,625 52,252 88,942 143,605 225,044
200 14,793 36,833 69,669 118,589 191,473 300,059
500 36,983 92,083 174,173 296,474 478,683 750,148
Investments At 10% Rate of Return
5 yrs. 10 15 20 25 30
$ 50 3,904 10,328 20,896 38,285 66,895 113,966
75 5,856 15,491 31,344 57,427 100,342 170,949
100 7,808 20,655 41,792 76,570 133,789 227,933
150 11,712 30,983 62,689 114,855 200,684 341,899
200 15,616 41,310 83,585 153,139 267,578 455,865
500 39,041 103,276 208,962 382,848 668,945 1,139,663
The Fund's advertising and sales literature may refer to
historical, current and prospective political, social, economic and
financial trends and developments that affect domestic and
international investment as it relates to any of the New England
Funds. For example, the advertising and sales literature of any of
the New England Funds, but particularly that of Growth Fund of
Israel, New England Star Worldwide Fund and New England International
Equity Fund, may discuss all of the above international developments,
including but not limited to, international developments involving
Europe, North and South America, Asia, the Middle East and Africa, as
well as events and issues affecting specific countries, including but
not limited to, the United States and Israel, that directly or
indirectly may have had consequences for the New England Funds or may
have influenced past performance or may influence current or
prospective performance of the New England Funds. The Fund's
advertising and sales literature may also include historical and
current performance and total returns of investment alternatives to
the New England Funds. Articles, releases, advertising and
literature may discuss the range of services offered by the Trusts
and New England Funds, L.P., as distributor and transfer agent of the
Trusts, with respect to investing in shares of the Trusts and
customer service. Such materials may discuss the multiple classes of
shares available through the Trusts and their features and benefits,
including the details of the pricing structure.
New England Funds, L.P. will make reference in its advertising
and sales literature to awards, citations and honors bestowed on it
by industry organizations and other observers and rathers including,
but not limited to, Dalbar's Quality Tested Service Seal and Key
Honors Award. Such references may explain the criteria for the
award, indicate the nature and significance of the honor and provide
statistical and other information about the award and New England
Funds, L.P.'s selection including, but not limited to, the scores and
categories in which New England Funds, L.P. excelled, the names of
funds and fund companies that have previously won the award and
comparative information and data about those against whom New England
Funds, L.P. competed for the award, honor or citation.
New England Funds, L.P. may publish, allude to or incorporate in
its advertising and sales literature testimonials from shareholders,
clients, brokers who sell or own shares, distributing broker-dealers,
industry organizations and officials and other members of the public,
including, but not limited to, fund performance, features and
attributes, or service and assistance provided by departments within
the organization, employees or associates of New England Funds, L.P.
Also, New England Funds may incorporate testimonials and endorsements
of officials of Israel and the U.S. governments, B'nai B'rith
officials and spokespersons, brokers, members of the Jewish community
and other individuals and persons in the general public.
Advertising and sales literature may also refer to the beta
coefficient of the New England Funds. A beta coefficient is a
measure of systematic or undiversifiable risk of a stock. A beta
coefficient of more than 1 means that the company's stock has shown
more volatility than the market index (e.g. the S&P 500) to which it
is being related. If the beta is less than 1, it is less volatile
than the market average to which it is being compared. If it equals
1, its risk is the same as the market index. High variability in
stock price may indicate greater business risk, instability in
operations and low quality of earnings. The beta coefficients of the
New England Funds may be compared to the beta coefficients of other
funds.
In addition, sales literature may be published concerning topics
of general investor interest for the benefit of registered
representatives and the Fund's prospective shareholders. These
materials may include, but are not limited to, discussions of college
planning, retirement planning, reasons for investing and historical
examples of the investment performance of various classes of
securities, securities markets and indices.
INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS
As described in the Fund's prospectus, it is the policy of the
Fund to pay its shareholders, as dividends, substantially all net
investment income and to distribute annually all net realized long-
term capital gains, if any, after offsetting any capital loss
carryovers.
Income dividends and capital gain distributions are payable in
full and fractional shares of the relevant class of the Fund based
upon the net asset value determined as of the close of the New York
Stock Exchange on the record date for each dividend or distribution.
Shareholders, however, may elect to receive their income dividends or
capital gain distributions, or both, in cash. The election may be
made at any time by submitting a written request directly to New
England Funds. In order for a change to be in effect for any
dividend or distribution, it must be received by New England Funds on
or before the record date for such dividend or distribution.
As required by federal law, detailed federal tax information
will be furnished to each shareholder for each calendar year on or
before January 31 of the succeeding year.
The Fund intends to qualify each year as a regulated investment
company under Subchapter M of the Code. In order to qualify, the
Fund must, among other things (i) derive at least 90% of its gross
income from dividends, interest, payments with respect to certain
securities loans, gains from sale of securities or foreign
currencies, or other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its
business of investing in such stock, securities or currencies; (ii)
derive less than 30% of its gross income from gains from the sale or
other disposition of securities held for less than three months;
(iii) distribute at least 90% of its dividend, interest and certain
other taxable income each year; and (iv) at the end of each fiscal
quarter maintain at least 50% of the value of its total assets in
cash, government securities, securities of other regulated investment
companies, other securities of issuers which represent, with respect
to each issuer, no more than 5% of the value of the Fund's total
assets and 10% of the outstanding voting securities of such issuer,
and with no more than 25% of its assets invested in the securities
(other than those of the U.S. government or other regulated
investment companies) of any one issuer or of two or more issuers
which the Fund controls and which are engaged in the same, similar or
related trades and businesses. So long as it qualifies for treatment
as a regulated investment company, the Fund will not be subject to
federal income tax on income paid to its shareholders in the form of
dividends or capital gains distributions.
An excise tax at the rate of 4% will be imposed on the excess,
if any, of the Fund's "required distribution" over its actual
distributions in any calendar year. Generally, the "required
distribution" is 98% of the Fund's ordinary income for the calendar
year plus 98% of its capital gain net income recognized during the
one-year period ending on October 31 (or December 31, if the Fund so
elects) plus undistributed amounts from prior years. The Fund
intends to make distributions sufficient to avoid imposition of the
excise tax. Distributions declared by the Fund during October,
November or December to shareholders of record on a date in any such
month and paid by the Fund during the following January will be
treated for federal tax purposes as paid by the Fund and received by
shareholders on December 31 of the year in which declared.
Shareholders of the Fund will be subject to federal income taxes
on distributions made by the Fund whether received in cash or
additional shares of the Fund. Distributions by the Fund of net
income and short-term capital gains, if any, will be taxable to
shareholders as ordinary income. Distributions of long-term capital
gains, if any, will be taxable to shareholders as long-term capital
gains, without regard to how long a shareholder has held shares of
the Fund. A loss on the sale of shares held for 6 months or less
will be treated as a long-term capital loss to the extent of any long-
term capital gain dividend paid to the shareholder with respect to
such shares.
Dividends and distributions on Fund shares received shortly
after their purchase, although in effect a return of capital, are
subject to federal income taxes.
The Fund may be eligible to make and, if eligible, may make an
election under Section 853 of the Code so that its shareholders will
be able to claim a credit or deduction on their income tax returns
for, and will be required to treat as part of the amounts distributed
to them, their pro rata portion of qualified taxes paid by the Fund
to Israel and other foreign countries. The ability of shareholders
of the Fund to claim a foreign tax credit is subject to certain
limitations imposed by Section 904 of the Code, which in general
limit the amount of foreign tax that may be used to reduce a
shareholder's U.S. tax liability to that amount of U.S. tax which
would be imposed on the amount and type of income in respect of which
the foreign tax was paid. A shareholder who for U.S. income tax
purposes claims a foreign tax credit in respect of Fund distributions
may not claim a deduction for foreign taxes paid by the Fund,
regardless of whether the shareholder itemizes deductions. Also,
under Section 63 of the Code, no deduction in respect of income taxes
paid by the Fund to foreign countries may be claimed by shareholders
who do not itemize deductions on their federal income tax returns.
The Fund will notify shareholders each year of the amount for
dividends and distributions and the shareholder's pro rata share of
qualified taxes paid by the Fund to foreign countries.
The Fund's transactions, if any, in foreign currencies are
likely to result in a difference between the Fund's book income and
taxable income. This difference may cause a portion of the Fund's
income distributions to constitute a return of capital for tax
purposes or require the Fund to make distributions exceeding book
income to avoid excise tax liability and to qualify as a regulated
investment company.
The Fund may own shares in certain foreign investment entities,
referred to as "passive foreign investment companies." In order to
avoid U.S. federal income tax, and an additional charge on a portion
of any "excess distribution" from such companies or gain from the
disposition of such shares, the Fund may elect to "mark to market"
annually its investments in such entities and to distribute any
resulting net gain to shareholders. As a result, the Fund may be
required to sell securities it would have otherwise continued to hold
in order to make distributions to shareholders in order to avoid any
Fund-level tax.
Redemptions and exchanges of the Fund's shares are taxable
events and, accordingly, shareholders may realize gains and losses on
these transactions. If shares have been held for more than one year,
gain or loss realized will be long-term capital gain or loss,
provided the shareholder holds the shares as a capital asset.
Furthermore, no loss will be allowed on the sale of Fund shares to
the extent the shareholder acquired other shares of the Fund within
30 days prior to the sale of the loss shares or 30 days after such
sale.
The foregoing is a general and abbreviated summary of the
applicable provisions of the Code and related regulations currently
in effect. For the complete provisions, reference should be made to
the pertinent Code sections and regulations. The Code and
regulations are subject to change by legislative or administrative
actions.
Dividends and distributions also may be subject to state and
local taxes. Shareholders are urged to consult their tax advisers
regarding specific questions as to federal, state or local taxes.
The foregoing discussion relates solely to U.S. federal income
tax law. Non-U.S. investors should consult their tax advisers
concerning the tax consequences of ownership of shares of the Fund,
including the possibility that distributions may be subject to a 30%
United States withholding tax (or a reduced rate of withholding
provided by treaty).
Israeli Taxes
The following is a short summary of the tax structure applicable
to corporations in Israel with reference to its effect on the Fund.
The following discussion is partially based on enacted Israeli
legislation that has not been subjected to judicial or administrative
interpretation. There can be no assurance that views expressed
herein will be accepted by the courts or by the Israeli Tax
Commission.
Capital Gains Tax. The Israeli Income Tax Ordinance [New
Version] (the "Ordinance") imposes a tax on capital gains derived by
residents of Israel, or by non-residents of Israel who sell assets
which represent a direct or an indirect interest in Israeli assets.
The Fund, however, will generally be exempt from such capital gains
tax, as discussed below.
The Ordinance distinguishes between the "Real Gain" and the
"Inflationary Surplus." The Real Gain is the excess of the total
capital gain over the Inflationary Surplus, computed on the basis of
the increase in the Consumer Price Index (the "CPI"), or in the case
of foreign residents, on the basis of the devaluation of the New
Israel Shekel against the currency of the purchase, between the date
of purchase and the date of sale. The Inflationary Surplus
accumulated until December 31, 1993 is taxed at a rate of 10% for
residents of Israel, and is reduced to no tax for non-residents if
calculated according to the exchange rate of the foreign currency
lawfully invested in shares of an Israeli resident company. The Real
Gain is added to ordinary income which is taxed at ordinary rates of
30% to 50% for individuals and 37% for corporations (declining to 36%
in 1996 and thereafter). Inflationary Surplus accumulated from and
after December 31,1993 is exempt from any capital gains tax.
Pursuant to the Convention between the Government of the United
States of America and the Government of Israel with Respect to Taxes
on Income (the "Treaty"), the sale, exchange or disposition of
securities by a person, such as the Fund, qualifying as a resident of
the United States within the meaning of the U.S.-Israel Tax Treaty
and entitled to claim the benefits afforded to such resident by the
Treaty (a "Treaty U.S. Resident") will not be subject to the Israeli
capital gains tax unless such Treaty U.S. Resident holds, directly or
indirectly, shares representing 10% or more of the voting power of
the corporation whose securities the Treaty U.S. Resident sells,
exchanges or disposes of, during any part of the 12-month period
preceding such sale, exchange or disposition. It is expected that
the Fund will rarely, if ever, hold 10% or more than 10% of the
outstanding voting securities of any issuer.) A Treaty U.S. Resident
who is not exempt from Israeli capital gains tax would be permitted
to claim a credit for such taxes against the U.S. income tax imposed
with respect to such sale, exchange or disposition, subject to the
limitation in U.S. laws applicable to foreign tax credits.
Israeli law currently provides for an exemption from capital
gains tax on gains from the sale of securities (including shares,
debt securities and warrants) that are traded on the TASE, provided
that the seller did not hold the securities prior to their listing on
the TASE. In addition, gains from the sale of shares of Israeli
corporations defined as "Industrial Companies" or "Industrial Holding
Companies" that are traded on certain non-Israeli (including U.S.)
exchanges or through NASDAQ are exempted from capital gains tax,
provided that the shares were not acquired by the seller prior to
their listing. The securities to which the exemption currently
applies are referred to in this section as "Exchange-Listed
Securities"
The current exemptions apply only where the gains from the sale
of securities are deemed "capital gains." Persons who are engaged in
the business of buying and selling securities in Israel are subject
to ordinary income tax, and therefore the exemptions from capital
gains tax are inapplicable to such investors. Pursuant to the
Treaty, business profits of Treaty U.S. Residents, including those of
Treaty U.S. Residents engaged in the business of buying and selling
securities in Israel, are exempt from Israeli income tax, unless such
Treaty U.S. Resident has a permanent establishment in Israel within
the meaning of the Treaty. The Fund has been advised it will qualify
as a Treaty U.S. Resident and that its activities will not cause the
Fund to be deemed to have a permanent establishment in Israel
pursuant to the Treaty, and thus the Fund anticipates that it will
not be subject to Israeli income tax on gains from the purchase and
sale of securities.
Withholding Tax on Payments of Dividends and Interest. Non-
residents of Israel, including the Fund, are subject to Israeli
income tax on income accrued or derived from sources in Israel or
received in Israel. Generally, on distributions of dividends other
than bonus shares (stock dividends), income tax at a rate of 25% is
withheld at the source. This tax is reduced to 15% with respect to
dividends distributed from income generated by an "Approved
Enterprise" (i.e. from those portions of a company's operations which
have been granted such status under Israel's Law for the
Encouragement of Capital Investments) to a corporation (which would
include the Fund for this purpose) that holds 10% or more of the
voting stock interests in the paying corporation. (As noted above,
it is expected that the Fund will rarely, if ever, hold 10% or more
of a corporation's voting stock.) Interest paid on debt securities
is generally subject to income tax a rate of 25%. However, pursuant
to the Treaty, such rate is reduced to 17.5% for Treaty U.S.
Residents.
APPENDIX A
DESCRIPTION OF BOND RATINGS
STANDARD & POOR'S CORPORATION
AAA
This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest
and repay principal.
AA
Bonds rated AA also qualify as high quality debt obligations.
Capacity to pay interest and repay principal is very strong, and in
the majority of instances they differ from AAA issues only in small
degree.
A
Bonds rated A have a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
BBB
Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to repay
principal and pay interest for bonds in this category than for bonds
in higher rated categories.
BB, B, CCC, CC, C
Bonds rated BB, B, CCC, CC and C are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation.
BB indicates the lowest degree of speculation and C the highest
degree of speculation. While such bonds will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
CI
The rating CI is reserved for income bonds on which no interest is
being paid.
D
Bonds rated D are in default, and payment of interest and/or
repayment of principal is in arrears.
Plus (+) or Minus (-); The ratings from "AA" to "B" may be modified
by the addition of a plus or minus sign to show relative standing
within the major rating categories.
MOODY'S INVESTORS SERVICE, INC.
Aaa
Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a
large, or by an exceptionally stable, margin, and principal is
secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa
Bonds that are rated Aa are judged to be high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present that make
the long-term risks appear somewhat larger than in Aaa securities.
A
Bonds that are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate,
but elements may be present that suggest a susceptibility to
impairment sometime in the future.
Baa
Bonds that are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and, if fact, have
speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate,
and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this
class.
B
Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long period
of time may be small.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be
in default of there may be present elements of danger with respect to
principal or interest.
Ca
Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other
marked shortcomings.
C
Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Should no rating be assigned by Moody's, the reason may be one of the
following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not
rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or
issuer.
4. The issue was privately placed in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances
arise, the effects of which preclude satisfactory analysis; if there
is not longer available reasonable up-to-date data to permit a
judgment to be formed; if a bond is called for redemption; or for
other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated
by the symbols Aa1, A1, Baa1, and B1.
APPENDIX B
PUBLICATIONS THAT MAY CONTAIN FUND INFORMATION
ABC and affiliates
Adam Smith's Money World
America On Line
Anchorage Daily News
Atlanta Constitution
Atlanta Journal
Arizona Republic
Austin American Statesman
Baltimore Sun
Bank Investment Marketing
Barron's
Bergen County Record (NJ)
Bloomberg Business News
Bond Buyer
Boston Business Journal
Boston Globe
Boston Herald
Broker World
Business Radio Network
Business Week
CBS and affiliates
CFO
Changing Times
Chicago Sun Times
Chicago Tribune
Christian Science Monitor
Christian Science Monitor News Service
Cincinnati Enquirer
Cincinnati Post
CNBC
CNN
Columbus Dispatch
CompuServe
Dallas Morning News
Dallas Times-Herald
Denver Post
Des Moines Register
Detroit Free Press
Donoghues Money Fund Report
Dorfman, Dan (syndicated column)
Dow Jones News Service
Economist
FACS of the Week
Fee Adviser
Financial News Network
Financial Planning
Financial Planning on Wall Street
Financial Research Corp.
Financial Services Week
Financial World
Fitch Insights
Forbes
Fort Worth Star-Telegram
Fortune
Fox Network and affiliates
Fund Action
Fund Decoder
Global Finance
(the) Guarantor
Hartford Courant
Houston Chronicle
INC
Indianapolis Star
Individual Investor
Institutional Investor
International Herald Tribune
Investment Advisor
Investment Company Institute
Investment Dealers Digest
Investment Profiles
Investment Vision
Investor's Daily
IRA Reporter
Journal of Commerce
Kansas City Star
KCMO (Kansas City)
KOA-AM (Denver)
LA Times
Leckey, Andrew (syndicated column)
Lear's
Life Association News
Lifetime Channel
Miami Herald
Milwaukee Sentinel
Money
Money Maker
Money Management Letter
Morningstar
Mutual Fund Market News
Mutual Funds Magazine
National Public Radio
National Underwriter
NBC and affiliates
New England Business
New England Cable News
New Orleans Times-Picayune
New York Daily News
New York Times
Newark Star Ledger
Newsday
Newsweek
Nightly Business Report
Orange County Register
Orlando Sentinel
Palm Beach Post
Pension World
Pensions and Investments
Personal Investor
Philadelphia Inquirer
Porter, Sylvia (syndicated column)
Portland Oregonian
Prodigy
Public Broadcasting Service
Quinn, Jane Bryant (syndicated column)
Registered Representative
Research Magazine
Resource
Reuters
Rocky Mountain News
Rukeyser's Business (syndicated column)
Sacramento Bee
San Diego Tribune
San Francisco Chronicle
San Francisco Examiner
San Jose Mercury
Seattle Post-Intelligencer
Seattle Times
Securities Industry Management
Smart Money
St. Louis Post Dispatch
St. Petersburg Times
Standard & Poor's Outlook
Standard & Poor's Stock Guide
Stanger's Investment Advisor
Stockbroker's Register
Strategic Insight
Tampa Tribune
Time
Tobias, Andrew (syndicated column)
Toledo Blade
UPI
US News and World Report
USA Today
USA TV Network
Value Line
Wall St. Journal
Wall Street Letter
Wall Street Week
Washington Post
WBZ
WBZ-TV
WCVB-TV
WEEI
WHDH
Worcester Telegram
Worth Magazine
WRKO
APPENDIX C
ADVERTISING AND PROMOTIONAL LITERATURE
References may be included in New England Funds' advertising and
promotional literature to New England Investment Companies ("NEIC")
and its affiliates that perform advisory functions for New England
Funds including, but not limited to: Back Bay Advisors, L.P., Harris
Associates L.P., Loomis, Sayles and Company, L.P., Westpeak Investment
Advisors, L.P., Capital Growth Management Limited Partnership and
Draycott Partners, Ltd.
References may be included in New England Funds' advertising and
promotional literature to NEIC affiliates that do not perform advisory
or subadvisory functions for the Funds including, but not limited to,
New England Investment Associates, L.P., Copley Real Estate Advisors,
L.P., Marlborough Capital Advisors, L.P., Reich & Tang Capital
Management and Reich and Tang Mutual Funds Group.
References to subadvisers unaffiliated with NEIC that perform
subadvisory functions on behalf of New England Funds may be contained
in New England Funds' advertising and promotional literature
including, but not limited to, Berger Associates, Inc., Janus Capital
Corporation and Founders Asset Management, Inc.
New England Funds' advertising and promotional material will
include, but is not limited to, discussions of the following
information about the above entities:
Specific and general investment emphasis, specialties,
competencies, operations and functions
Specific and general investment philosophies, strategies,
processes and techniques
Specific and general sources of information, economic models,
forecasts and data services utilized, consulted or considered in the
course of providing advisory or other services
The corporate histories, founding dates and names of founders of
the entities
Awards, honors and recognition given to the firms
The names of those with ownership interest and the percentage of
ownership
Current capitalization, levels of profitability and other
financial information
Identification of portfolio managers, researchers, economists,
principals and other staff members and employees
The specific credentials of the above individuals, including but
not limited to, previous employment, current and past positions,
titles and duties performed, industry experience, educational
background and degrees, awards and honors
Specific identification of, and general reference to, current
individual, corporate and institutional clients, including pension and
profit sharing plans
Current and historical statistics about:
-total dollar amount of assets managed
-New England Funds' assets managed in total and by Fund
-the growth of assets
-asset types managed
-numbers of principal parties and employees, and the length of their
tenure, including officers, portfolio managers, researchers,
economists, technicians and support staff
-the above individuals' total and average number of years of
industry experience and the total and average length of their
service to the adviser or the subadviser
Specific and general references to portfolio managers and funds that
they serve as portfolio manager of, other than New England Funds, and
those families of funds, other than New England Funds, including but
not limited to, New England Star Advisers Fund (the "Star Advisers
Fund") portfolio manager Rodney L. Linafelter of Berger Associates,
Inc. and Berger Funds, who also serves as portfolio manager of the
Berger 100 Fund; Star Advisers Fund portfolio manager Warren B.
Lammert of Janus Capital Corporation and Janus Funds, who also serves
as portfolio manager of Janus Mercury Fund, and New England Star
Worldwide Fund (the "Star Worldwide Fund") portfolio manager Helen
Young Hayes, also of Janus Capital Corporation and Janus Funds, who
serves as portfolio manager of the Janus Worldwide Fund, IDEX II
Series Fund - IDEX II Global Portfolio and Janus Aspen Series -
Worldwide Growth Portfolio; Star Worldwide Fund portfolio managers
Josephine S. Jimenez and Bryan L. Sudweeks of Montgomery Asset
Management, L.P., who also serve as portfolio managers of Montgomery
Emerging Markets Fund; Star Advisers Fund portfolio manager Edward F.
Keely and Star Worldwide Fund portfolio manager Michael W. Gerding of
Founders Asset Management, Inc. and Founders Funds, who also serve as
portfolio managers of Founders Growth Fund and Founders Worldwide
Growth Fund, respectively; and Star Advisers Fund portfolio managers
Jeffrey C. Petherick and Mary Champagne of Loomis, Sayles & Company,
L.P. and Loomis Sayles Funds, who also serve as portfolio managers of
the Loomis Sayles Small Cap Fund. Specific and general references may
be made to the Loomis Sayles Funds, the Loomis Sayles Bond Fund and
Daniel Fuss, who serves as portfolio manager of New England Strategic
Income Fund and the Loomis Sayles Bond Fund; and Star Worldwide Fund
portfolio manager Robert J. Sanborn and Fund and Star Worldwide Fund
portfolio manager David G. Herro of Harris Associates L.P. and Oakmark
Funds, who also serve as portfolio managers of The Oakmark Fund and
The Oakmark International Fund, respectively. Any such references
will indicate that New England Funds and the other funds of the
managers differ as to performance, objectives, investment restrictions
and limitations, portfolio composition, asset size and other
characteristics, including fees and expenses. References may also be
made to industry rankings and ratings of the Star Worldwide Fund and
other funds managed by that fund's subadvisers, including but not
limited to those provided by Morningstar, Lipper Analytical Services,
Forbes and Worth.
The Growth Fund of Israel's advertising, sales literature and
promotional material will include discussions of current, or
prospective programs for the liquidation of Israeli bond issues
including, but not limited to, references to communications from the
bond issuer and/or its financial agents and the details of those
communications; descriptions of the bonds eligible for redemption,
their characteristics and conditions applicable to redemption;
liquidation procedures and requirements of the bond issuer and/or
financial agent with respect to liquidation; instructions for
directing proceeds to broker-dealers and/or New England Funds for
investment; and the comparative merits, features, benefits and
distinctions to be made between investments in Israeli bonds and the
Growth Fund of Israel, including, but not limited to, the lack of
governmental guarantee and fluctuation of net asset value associated
with Growth Fund of Israel and the differences in income generation,
appreciation potential and other features of the investments. The
material may identify benefits to investing redemption proceeds in the
Fund including but not limited to advancing Israel's privatization
effort, furthering its economic growth, and diminishing its reliance
on governmental ownership while lowering Israel's debt level and may
state that the Growth Fund of Israel is the only open-ended mutual
fund investing in the securities of Israeli issuers.
In addition, communications and materials developed by New
England Funds will make reference to the following information about
NEIC and its affiliates:
NEIC is the fifth largest publicly traded manager in the U.S.
listed on the New York Stock Exchange. NEIC maintains over $78
billion in assets under management. Clients serviced by NEIC and its
affiliates, besides New England Funds, are wealthy individuals, major
corporations and large institutions.
Back Bay Advisors, L.P. employs a conservative style of
management emphasizing short and intermediate term securities to
reduce volatility, adds value through careful continuous credit
analysis and has expertise in government, corporate and tax-free
municipal bonds and equity securities. Among its clients are Boston
City Retirement System, Public Service Electric and Gas of New Jersey,
Petrolite Corp. and General Mills.
Draycott Partners, Ltd. specializes in international stocks and
tracks key world markets and economic trends from offices in London
and Boston. Its investment approach is based on concentration on
"blue chip" companies in stable, growing economies and is guided by
independent, non-consensus thinking. It monitors country weightings
with strict attention to risk control to promote long-term returns.
Capital Growth Management, L.P. seeks to deliver exceptional
growth for its clients through the selection of stocks with the
potential to outperform the market and grow at a faster rate than the
U.S. economy. Among its approaches are pursuit of growth 50% above
the Standard & Poor's Index of 500 Common Stocks, prompt responses to
changes in the market or economy and aggressive, highly concentrated
portfolios.
Loomis, Sayles & Company, L.P. is one of the oldest and largest
investment firms in the U.S. and has provided investment counseling to
individuals and institutions since 1926. Characteristic of Loomis
Sayles is that it has one of the largest staffs of research analysts
in the industry, practices strict buy and sell disciplines and focuses
on sound value in stock and bond selection. Among its clients are
large corporations such as Chrysler, Mobil Oil and Revlon.
Westpeak Investment Advisors, L.P. ("Westpeak") employs
proprietary research and a disciplined stock selection process that
seeks rigorously to control unnecessary risk. Its investment process
is designed to evaluate when value and growth styles - two primary
approaches to stock investing - hold potential for reward. Over
seventy fundamental attributes are continuously analyzed by Westpeak's
experienced analysts and sophisticated computer systems. The results
are assessed against Wall Street's consensus thinking, in pursuit of
returns in excess of appropriate benchmarks. The value/growth
strategy is a unique blend of investment styles, seeking opportunities
for increased return with reduced risk. Among the keys to Westpeak's
investment process are continuous review of timely, accurate data on
over 3600 companies, analysis of dozens of factors for excess return
potential and identification of overvalued and undervalued stocks.
Harris Associates L.P. is a Chicago-based investment management
company with more than $7.6 billion in assets under management,
comprised of the $4 billion Oakmark Fund Group and $3.6 billion in
individual and institutional assets.
Harris Associates L.P.'s investment philosophy is predicated on
the belief that over time market price and value coverage and that
investment in securities priced significantly below long-term value
presents that best opportunity to achieve long-term growth of capital.
On June 30, 1995, NEIC purchased the assets of Graystone
Partners, L.P. ("Graystone"), a Chicago-based consulting firm focusing
exclusively on working with the wealthiest families in the country.
Founded in 1993, Graystone specializes in assisting high net worth
families in developing asset allocation strategies, identifying
appropriate portfolio managers and the monitoring of investment
performance.
References may be included in New England Funds' advertising and
promotional literature about its 401(k) and retirement plans. The
information may include, but is not limited to:
Specific and general references to industry statistics regarding
401(k) and retirement plans including historical information and
industry trends and forecasts regarding the growth of assets, numbers
of plans, funding vehicles, participants, sponsors and other
demographic data relating to plans, participants and sponsors, third
party and other administrators, benefits consultants and firms
including, but not limited to, DC Xchange, William Mercer and other
organizations involved in 401(k) and retirement programs with whom New
England Funds may or may not have a relationship.
Specific and general reference to comparative ratings, rankings
and other forms of evaluation as well as statistics regarding the New
England Funds as a 401(k) or retirement plan funding vehicle produced
by, including, but not limited to, Access Research, Dalbar, Investment
Company Institute and other industry authorities, research
organizations and publications.
Specific and general discussion of economic, legislative, and
other environmental factors affecting 401(k) and retirement plans,
including but not limited to, statistics, detailed explanations or
broad summaries of:
-past, present and prospective tax regulation, IRS requirements and
rules, including, but not limited to reporting standards, minimum
distribution notices, Form 5500, Form 1099R and other relevant forms
and documents, Department of Labor rules and standards and other
regulation. This includes past, current and future initiatives,
interpretive releases and positions of regulatory authorities about
the past, current or future eligibility, availability, operations,
administration, structure, features, provisions or benefits of
401(k) and retirement plans
-information about the history, status and future trends of Social
Security and similar government benefit programs including, but not
limited to, eligibility and participation, availability, operations
and administration, structure and design, features, provisions,
benefits and costs
-current and prospective ERISA regulation and requirements.
Specific and general discussion of the benefits of 401(k)
investment and retirement plans, and, in particular, the New England
Funds 401(k) and retirement plans, to the participant and plan
sponsor, including explanations, statistics and other data, about:
-increased employee retention
-reinforcement or creation of morale
-deductibility of contributions for participants
-deductibility of expenses for employers
-tax deferred growth, including illustrations and charts
-loan features and exchanges among accounts
-educational services materials and efforts, including, but not
limited to, videos, slides, presentation materials, brochures, an
investment calculator, payroll stuffers, quarterly publications,
releases and information on a periodic basis and the availability of
wholesalers and other personnel.
Specific and general reference to the benefits of investing in
mutual funds for 401(k) and retirement plans, and, in particular, New
England Funds and investing in its 401(k) and retirement plans,
including but not limited to:
-the significant economies of scale experienced by mutual fund
companies in the 401(k) and retirement benefits arena
-broad choice of investment options and competitive fees
-plan sponsor and participant statements and notices
-the plan prototype, summary descriptions and board resolutions
-plan design and customized proposals
-trusteeship, record keeping and administration
-the services of State Street Bank, including but not limited to,
trustee services and tax reporting
-the services of DST and BFDS, including but not limited to, mutual
fund processing support, participant 800 numbers and participant
401(k) statements
-the services of Trust Consultants Inc. (TCI), including but not
limited to, sales support, plan record keeping, document service
support, plan sponsor support, compliance testing and Form 5500
preparation.
Specific and general reference to the role of the investment
dealer and the benefits and features of working with a financial
professional including:
-access to expertise on investments
-assistance in interpreting past, present and future market trends
and economic events
-providing information to clients including participants during
enrollment and on an ongoing basis after participation
-promoting and understanding the benefits of investing, including
mutual fund diversification and professional management.
