<PAGE>
Registration Nos. 2-11101
811-242
- - - - - - - - - - - - - - -
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
- - - - - - - - - - - - - - -
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. ____ [ ]
Post-Effective Amendment No. 105 [ X ]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY [ X ]
ACT OF 1940
Amendment No. 39 [ X ]
(Check appropriate box or boxes)
- - - - - - - - - - - - - - -
NEW ENGLAND FUNDS TRUST II
(Exact Name of Registrant as Specified in Charter)
399 Boylston Street, Boston, Massachusetts 02116
(Address of Principal Executive Offices, including Zip Code)
(617) 578-1388
(Registrant's Telephone Number, including Area Code)
- - - - - - - - - - - - - - -
Robert P. Connolly, Esq.
New England Funds, L.P.
399 Boylston Street
Boston, Massachusetts 02116
(Name and address of agent for service)
Copy to:
Edward A. Benjamin, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
- - - - - - - - - - - - - - -
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ X ] on August 15, 1996 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has registered an indefinite number of securities under the
Securities Act of 1933 in accordance with Rule 24f-2 under the Investment
Company Act of 1940, as amended. Registrant filed on February 28, 1996 the Rule
24f-2 Notice for the Registrant's fiscal year ended December 31, 1995.
<PAGE>
NEW ENGLAND FUNDS TRUST II
(Prospectus and Statement of Additional Information)
CROSS-REFERENCE SHEET
Items required by Form N-1A
<TABLE>
<CAPTION>
Item No. of
Form N-1A Caption in Prospectus
--------- ---------------------
<S> <C> <C>
1 . . . . . . . . . Cover page
2 . . . . . . . . . Schedule of Fees
3 . . . . . . . . . Financial Highlights
4 . . . . . . . . . Cover page; Additional Facts About the Fund;
Investment Objectives; How the Fund Pursues Its
Investment Objective; Fund Investments; Investment Risks
5 . . . . . . . . . Fund Management; Back cover page
6 . . . . . . . . . Cover page; Additional Facts About the Fund; 6 Ways to
Buy Fund Shares; Fund Dividend Payments; Income Tax
Considerations
7 . . . . . . . . . Cover page; Schedule of Fees; 6 Ways to Buy Fund
Shares; How Fund Share Price is Determined; Sales
Charges; Reduced Sales Charges; Back cover page
8 . . . . . . . . . 4 Ways to Sell Fund Shares; Repurchase Option;
Exchanging Among New England Funds
9 . . . . . . . . . None
<PAGE>
<CAPTION>
Item No. of Caption in Statement of
Form N-1A Additional Information
--------- ----------------------
<S> <C> <C>
10 . . . . . . . . . Cover page
11 . . . . . . . . . Table of Contents
12 . . . . . . . . . Description of the Trust and Ownership of Shares
13 . . . . . . . . . Miscellaneous Investment Practices; Investment
Restrictions
14 . . . . . . . . . Management of the Trust
15 . . . . . . . . . Management of the Trust
16 . . . . . . . . . Fund Charges and Expenses; Management of the Trusts
17 . . . . . . . . . Fund Charges and Expenses; Portfolio Transactions and
Brokerage
18 . . . . . . . . . Description of the Trusts and Ownership of Shares
19 . . . . . . . . . How to Buy Shares; Net Asset Value and Public Offering
Price; Reduced Sales Charges; Shareholder Services;
Redemptions
20 . . . . . . . . . Income Dividends, Capital Gain Distributions and Tax
Status
21 . . . . . . . . . Fund Charges and Expenses; Management of the Trusts
22 . . . . . . . . . Performance Criteria (in Prospectus); Investment
Performance of the Funds; Standard Performance Measures
23 . . . . . . . . . Financial Statements
</TABLE>
<PAGE>
GROWTH FUND OF ISRAEL
SUPPLEMENT DATED AUGUST 15, 1996 TO
PROSPECTUS DATED DECEMBER 29, 1995
Effective July 1, 1996, until further notice to the Fund, New England Funds
Management, L.P. ("NEFM"), the Fund's adviser, has agreed to voluntarily waive
its entire management fee. Accordingly, in the Schedule of Fees section on page
3 of the prospectus, the tables appearing under the captions "Annual Fund
Operating Expenses" and "Example" are replaced with the following:
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------
<S> <C> <C> <C> <C>
Management Fees (after voluntary fee waiver)*.............................. 0.00% 0.00% 0.00% 0.00%
12b-1 Fees................................................................. 0.25% 1.00%** 1.00%** None
Other Expenses***.......................................................... 2.59% 2.59% 2.59% 2.59%
Total Expenses (after voluntary fee waiver)*............................... 2.84% 3.59% 3.59% 2.59%
<FN>
* Without the voluntary fee waiver by the Fund's adviser, Management Fees would be 1.10% for all classes and Total
Fund Operating Expenses would be 3.94% for Class A shares, 4.69% for Class B shares, 4.69% for Class C shares and
3.69% for Class Y shares. This voluntary limitation can be terminated by the Fund's adviser at any time.
** Because of the higher 12b-1 fees, long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charge permitted by rules of the National Association of Securities Dealers, Inc.
*** Other Expenses are based on estimated amounts for the Fund's first fiscal year.
</TABLE>
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) a 5%
annual return and (2) unless otherwise noted, redemption at period end. The 5%
return and expenses in the Example should not be considered indicative of actual
or expected Fund performance or expenses, both of which will vary.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------
<C> <C> <C> <C> <C> <C>
(1) (2)
1 Year........................................................... $ 85 $ 76 $ 36 $ 36 $26
3 Years.......................................................... $140 $140 $110 $110 $81
<FN>
(1) Assumes redemption at end of period
(2) Assumes no redemption at end of period
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
(unaudited)
The Financial Highlights presented below are for Class A, B and C shares of the
Fund outstanding throughout the indicated period. The Financial Highlights
should be read in conjunction with the financial statements of the Fund and the
notes thereto incorporated by reference in Part II of the Fund's Statement of
Additional Information dated August 15, 1996. (the "Financial Statements").
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------ ----------------- ------------------
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
MARCH 15 (a) MARCH 15 (a) MARCH 15 (a)
THROUGH THROUGH THROUGH
JUNE 30, JUNE 30, JUNE 30,
------------------ ----------------- ------------------
1996 1996 1996
---- ---- ----
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 12.50 $ 12.50 $ 12.50
------- ------- -------
Income From Investment Operations
Net Investment Income (Loss) (0.03) (0.05) (0.05)
Net Realized and Unrealized Gain (Loss)
on Investments (0.04) (0.04) (0.02)
------- ------- -------
Total from Investment Operations (0.07) (0.08) (0.06)
------- ------- -------
Net Asset Value, End of Period $ 12.43 $ 12.41 $ 12.43
======= ======= =======
Total Return (%)(b) (0.6) (0.7) (0.6)
Ratio of Operating Expenses to Average
Net Assets (%)(d) 2.95 (c) 3.70 (c) 3.70 (c)
Ratio of Net Investment Income (Loss) to Average
Net Assets (%) (0.78)(c) (1.53)(c) (1.53)(c)
Portfolio Turnover Rate (%) 7 (c) 7 (c) 7 (c)
Average Commission Rate 0.0086 0.0086 0.0086
Net Assets, End of Period (000) $ 9,250 $ 1,451 $ 150
<FN>
(a) Commencement of operations.
(b) A sales charge in the case of Class A shares and a contingent deferred sales charge in the case of Class B
shares are not reflected in total return calculations. Not annualized.
(c) Computed on an annualized basis.
(d) The ratio of operating expenses to average net assets without giving effect to the
waiver of management fee described in note 3a to the Financial Statements would have
been (%) 4.05 (c) 4.80 (c) 4.80 (c)
</TABLE>
In addition, the following changes and made to the Fund's prospectus:
o On page 14, the fifth bullet under the caption "Minimum Investments --
Classes A, B and C" is deleted.
o On page 14 the paragraph under the caption "Minimum Investment --
Class Y is deleted and replaced with the following paragraph:
Class Y shares of the Fund may be purchased by endowments, foundations,
bank trust departments or trust companies. The minimum initial investment
is $1 million for these entities and the minimum for each subsequent
investment is $10,000. Class Y shares may also be purchased by plan
sponsors of 401(a), 401(k), 457 or 403(b) plans ("Plans") that have total
investment assets in these plans of at least $10 million, and by The New
England and any other insurance company affiliated with The New England or
any of their successor entities ("Insurance Company Accounts"). Plan
sponsors' investment assets in multiple Plans can be aggregated for
purposes of meeting this minimum. Class Y shares may also be purchased by
any separate account of The New England or of any other insurance company
affiliated with The New England ("Separate Accounts"), and by investment
companies registered under the 1940 Act. Class Y shares may also be
purchased by wrap fee programs of certain broker-dealers as to which no
service or marketing fees are paid to broker-dealers by the Fund, NEFM or
the Distributor ("Wrap Fee Programs"). There is no minimum initial or
subsequent investment amount for Plans, Insurance Company Accounts, Wrap
Fee Programs, Separate Accounts or registered investment companies.
Investments in Class Y shares may also be made by certain individual
retirement accounts if the amounts invested represent rollover
distributions from investments by any of the foregoing Plans of amounts
invested in Class Y shares.
o Also on page 14, the last paragraph is replaced with the following:
All purchases made by check should be in U.S. dollars and made payable to
New England Funds, or, in the case of a retirement account, the custodian
or trustee. Third party checks will not be accepted. When purchases are
made by check or periodic account investment, redemptions will not be
allowed until the investment being redeemed has been in the account for ten
calendar days.
o On page 15, the second paragraph under the caption "By electronic purchase
through ACH" is deleted and replaced with the following paragraph:
To purchase through ACH, call 1-800-225-5478 between 8:00 a.m. and 7:00
p.m. (Eastern time). You may purchase shares through ACH by calling
Tele#Facts at 1-800-346-5984 twenty-four hours a day. Under normal
circumstances, the New York Stock Exchange (the "Exchange") closes at 4:00
p.m. (Eastern time). Purchase orders through ACH or Tele#Facts will be
complete only upon receipt by New England Funds of funds from your bank
and, on the day that funds are received, will be processed at the net asset
value next determined at the close of regular trading on the Exchange on
days that the Exchange is open. Proceeds of redemptions of Fund shares
purchased through ACH may not be available for up to ten days after the
purchase date.
o On page 16, the footnote under the chart in the "Sales Charges" section
is replaced with the following:
The Distributor may, at its discretion, pay investment dealers who initiate
and are responsible for such purchases (except investment by plans under
Sections 401(a) and 401(k) of the Internal Revenue Code whose total
investments amount to $1 million or more or that have 100 or more eligible
employees ["Retirement Plans"]) a commission of up to the following
amounts: 1% on the first $3 million invested; 0.50% on the next $2 million;
and 0.25% on the excess over $5 million. For investments by Retirement
Plans, the Distributor may, at its discretion, pay investment dealers who
initiate and are responsible for such purchases a commission of up to the
following amounts: 1% on the first $3 million invested; and 0.50% on
amounts over $3 million and up to $10 million. These commissions are not
payable if the purchase represents the reinvestment of a redemption made
during the previous 12 calendar months.
o On page 19, in the carryover paragraph in the top right-hand column, the
language "including, but not limited to, those defined in Section 401(a),
403(b) or 457 of the Internal Revenue Code" is deleted and replaced with
the following:
including, but not limited to, those defined in Section 401(a), 401(k),
403(b) or 457 of the Internal Revenue Code.
o The following paragraphs are added to the list appearing on page 19:
o Shares of the Fund are available at net asset value for investments by
non-discretionary and non-retirement accounts of bank trust departments or
trust companies, but are unavailable if the trust department or institution
is part of an organization not principally engaged in banking or trust
activities.
o Shares of the Fund are available at net asset value for investments in
participant-directed 401(a) and 401(k) plans that have 100 or more eligible
employees.
o Shares of the Fund also may be purchased at net asset value through
certain broker-dealers and/or financial services organizations without any
transaction fee. Such organizations may receive compensation, in an amount
of up to 0.35% annually of the average value of the Fund shares held by
their customers. This compensation may be paid by NEFM and/or the Fund's
subadviser out of their own assets, or may be paid indirectly by the Fund
in the form of servicing, distribution or transfer agent fees.
o On page 27, the fourth full paragraph in the right hand column is amended
to read as follows:
o The Fund's annual report contains additional performance information and is
available upon request and without charge. The Fund will send a single copy
of its annual and semi-annual reports to an address at which more than one
shareholder of record with the same last name has indicated that mail is to
be delivered. Shareholders may request additional copies of any annual or
semi-annual report in writing or by telephone.
o The following paragraph is added to the list appearing on pages 27-28:
o The Trust's trustees have the authority without shareholder approval to
issue other classes of shares of the Fund that represent interests in the
Fund's portfolio but that have different sales load and fee arrangements.
<PAGE>
NEW ENGLAND FUNDS
"Where The Best Minds Meet(TM)"
- --------------------------------------------------------------------------------
GROWTH FUND OF ISRAEL
PROSPECTUS AND APPLICATION
DECEMBER 29, 1995
Growth Fund of Israel (the "Fund") is a newly organized, non-diversified mutual
fund. The Fund is a series of New England Funds Trust II (the "Trust"), a
registered open-end management investment company. Other series of the Trust are
described in separate prospectuses.
The Fund's investment objective is long-term growth of capital. The Fund will
seek to achieve its objective by investing primarily in Israeli equity
securities. There can be no assurance that the Fund will achieve its objective,
which may be changed without shareholder approval.
Investments in Israel involve substantial risks that are not typically
associated with investments in the United States. An investment in the Fund
should be considered speculative. See "Investment Risks" for a description of
certain material factors that should be considered in connection with an
investment in the Fund.
Harris Associates L.P. ("Harris Associates") is the Fund's investment subadviser
and Batucha Securities & Investments Ltd. ("Batucha") provides information to
Harris Associates relating to Israel and its markets and industries. Batucha is
a wholly-owned subsidiary of Clal (Israel) Ltd. ("Clal") and the major
shareholders of Clal are Bank Hapoalim B.M. ("Bank Hapoalim"), Israel's largest
bank, and I.D.B. Development Corporation Ltd. See "Fund Management."
B'nai B'rith, an international fraternal and philanthropic organization, has
entered into an arrangement whereby it provides consultation and assistance to
New England Funds, L.P. (the "Distributor") with respect to the design and
marketing of the Fund and with respect to matters of particular interest to
B'nai B'rith, its members and others in the Jewish community in the United
States. B'nai B'rith's broker-dealer affiliate receives compensation for this
role. See "Sales Charges - General" for further information.
The Fund offers three classes of shares to the general public (Classes A, B and
C). The offering price is based on the net asset value per share next determined
after an order is received. Class A share purchases generally involve a sales
charge at the time of purchase. No initial sales charge applies to Class B share
purchases. A contingent deferred sales charge ("CDSC"), however, is imposed upon
certain redemptions of Class B shares. Class B shares automatically convert to
Class A shares eight years after purchase. No initial sales charge or CDSC
applies to purchases or redemptions of Class C shares, which do not have a
conversion feature. Class B and Class C shares bear higher annual 12b-1 fees
than Class A shares. See "Buying Fund Shares -- Sales Charges."
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY FINANCIAL INSTITUTION, ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND
INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
[FOR GENERAL INFORMATION ON THE FUND OR ANY OF ITS SERVICES AND FOR ASSISTANCE
IN OPENING AN ACCOUNT, CONTACT YOUR INVESTMENT DEALER OR CALL THE DISTRIBUTOR
TOLL FREE AT 1-800-225-5478.]
An additional class of shares (Class Y) is not currently available for purchase,
but may be offered for sale to qualified institutional investors at net asset
value at a later date. Class Y shares bear no sales charges or 12b-1 fees. If
and when Class Y shares of the Fund are offered for sale, the Fund will
supplement its prospectus.
This prospectus sets forth information you should know before investing in the
Fund. Please read it carefully and keep it for future reference. A statement of
additional information (the "SAI") about the Fund dated December 29, 1995 has
been filed with the Securities and Exchange Commission (the "SEC") and is
available free of charge. Write to the Distributor, SAI Fulfillment Desk, 399
Boylston Street, Boston, MA 02116 or call toll free at 1-800-225-5478. The SAI
contains more detailed information about the Fund and is incorporated into this
prospectus by reference.
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------------
TABLE OF CONTENTS
- -------------------------------------------------------------------------------------------------------------------------------
Page
<S> <C>
2 NEW ENGLAND INVESTMENT COMPANIES
AND THE FUND'S ADVISER AND
SUBADVISERS
- -------------------------------------------------------------------------------------------------------------------------------
3 SCHEDULE OF FEES Sales charges, yearly operating expenses.
- -------------------------------------------------------------------------------------------------------------------------------
INVESTMENT STRATEGY
4 How the Fund Pursues Its Investment Objective
- -------------------------------------------------------------------------------------------------------------------------------
7 INVESTMENT RISKS It is important to understand the risks inherent
in the Fund before you invest.
- -------------------------------------------------------------------------------------------------------------------------------
12 FUND MANAGEMENT
- -------------------------------------------------------------------------------------------------------------------------------
BUYING FUND SHARES
14 Minimum Investment -- Classes A, B and C Everything you need to know to open and add to
14 Minimum Investment -- Class Y a Growth Fund of Israel account
14 6 Ways to Buy Fund Shares
* Through your investment dealer
* By mail
* By wire transfer of Federal Funds
* By Investment Builder
* By electronic purchase through ACH
* By exchange from another New England Fund
16 Sales Charges
18 Reduced Sales Charges (Class A Shares Only)
- -------------------------------------------------------------------------------------------------------------------------------
OWNING FUND SHARES
20 Exchanging Among New England Funds New England Funds offers three convenient
21 Fund Dividend Payments ways to exchange Fund shares.
- -------------------------------------------------------------------------------------------------------------------------------
SELLING FUND SHARES
22 4 Ways to Sell Fund Shares How to withdraw money or close your account.
* Through your investment dealer
* By telephone
* By mail
* By Systematic Withdrawal Plan
23 Repurchase Option (Class A Shares Only) An opportunity to reinvest your redemption
proceeds within 120 days for no sales charge.
- -------------------------------------------------------------------------------------------------------------------------------
FUND DETAILS Additional information you may find important.
24 How Fund Share Price Is Determined
24 Income Tax Considerations
26 The Fund's Expenses
26 Performance Criteria
27 Additional Facts About the Fund
- -------------------------------------------------------------------------------------------------------------------------------
29 GLOSSARY OF TERMS
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
NEW ENGLAND INVESTMENT COMPANIES AND THE FUND'S ADVISER AND SUBADVISERS
- -------------------------------------------------------------------------------
The investment adviser and investment subadviser of the Fund are
independently-operated subsidiaries of New England Investment Companies, L.P.
("NEIC"), the fifth-largest publicly traded investment management firm in the
United States. NEIC is listed on the New York Stock Exchange and through its
subsidiaries or an affiliate manages over $78 billion in assets for individuals
and institutions. The adviser and investment subadviser operate independently
and are staffed by experienced investment professionals. The adviser and
investment subadviser apply specialized knowledge and careful analysis to the
pursuit of the Fund's objectives. NEIC's sole general partner, New England
Investment Companies, Inc. ("NEIC Inc."), is a wholly-owned subsidiary of New
England Mutual Life Insurance Company ("The New England"). The New England and
Metropolitan Life Insurance Company ("MetLife") have entered into an agreement
to merge, with MetLife to be the survivor of the merger. The merger is
conditioned upon, among other things, approval by the policy holders of The New
England and MetLife and receipt of certain regulatory approvals. After such
merger, NEIC Inc. will be a wholly-owned subsidiary of MetLife.
NEW ENGLAND FUNDS MANAGEMENT, L.P. ("NEFM") is the Fund's investment adviser.
NEFM also serves as investment adviser to certain of the New England Funds.
HARRIS ASSOCIATES L.P., investment subadviser to the Fund, has advised and
managed mutual funds since 1970. Harris Associates also serves as investment
adviser to other mutual funds and to individuals, trusts, retirement plans,
endowments and foundations, and manages several private partnerships. Harris
Associates has extensive experience in managing international equity portfolios.
BATUCHA SECURITIES & INVESTMENTS LTD. serves as special economic and market
subadviser for the Fund. In this capacity, Batucha provides Harris Associates
with information, advice and assistance regarding economic, financial,
political, technological and social matters, trends or changes relating to or
affecting Israel and information on markets and industries in Israel. Batucha,
based in Tel Aviv, Israel, is an indirect subsidiary of Clal, a publicly traded
Israeli conglomerate, and is not affiliated with NEIC.
B'NAI B'RITH has entered into an arrangement whereby it provides consultation
and assistance to the Distributor with respect to the design and marketing of
the Fund and with respect to matters of particular interest to B'nai B'rith, its
members and others in the Jewish community in the United States. B'nai B'rith's
broker-dealer affiliate receives compensation for this role. See "Sales Charges
- - General" for further information.
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF FEES
- --------------------------------------------------------------------------------
Expenses are one of several factors to consider when you invest in the Fund. The
following table summarizes your maximum transaction costs from investing in the
Fund and estimated annual expenses for each class of the Fund's shares. The
Example shows the cumulative expenses attributable to a hypothetical $1,000
investment in each class of shares of the Fund for the periods specified.
<TABLE>
SHAREHOLDER TRANSACTION EXPENSES
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------
<S> <C> <C> <C> <C>
Maximum Initial Sales Charge Imposed on a Purchase (as a percentage of
offering price) (1)(2) .................................................. 5.75% None None None
Maximum Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) (2).................. (3) 4.00% None None
Redemption Fee............................................................. None None None None
Exchange Fee............................................................... None None None None
<FN>
(1) Reduced sales charges on Class A shares apply in some cases. See "Buying Fund Shares - Reduced Sales Charges
(Class A Shares Only)."
(2) Does not apply to reinvested distributions.
(3) A 1.00% contingent deferred sales charge applies with respect to any portion of certain purchases of Class A shares
greater than $1,000,000 redeemed within approximately 1 year after purchase, but not to any other purchases or
redemptions of Class A shares. See "Buying Fund Shares - Sales Charges."
</FN>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------
<S> <C> <C> <C> <C>
Management Fees............................................................ 1.10% 1.10% 1.10% 1.10%
12b-1 Fees................................................................. 0.25% 1.00%* 1.00%* None
Other Expenses**........................................................... 0.85% 0.85% 0.85% 0.85%
Total Expenses............................................................. 2.20% 2.95% 2.95% 1.95%
<FN>
* Because of the higher 12b-1 fees, long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charge permitted by rules of the National Association of Securities Dealers, Inc.
** Other Expenses are based on estimated amounts for the Fund's first fiscal year.
</TABLE>
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) a 5%
annual return and (2) unless otherwise noted, redemption at period end. The 5%
return and expenses in the Example should not be considered indicative of actual
or expected Fund performance or expenses, both of which will vary.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
(1) (2)
1 Year........................................................... $ 79 $ 70 $30 $30 $20
3 Years.......................................................... $122 $121 $91 $91 $61
<FN>
(1) Assumes redemption at end of period
(2) Assumes no redemption at end of period
</TABLE>
The purpose of this fee schedule is to assist you in understanding the various
costs and expenses that you will bear directly or indirectly if you invest in
the Fund.
Please keep in mind that the Example shown above is hypothetical. The
information above should not be considered a representation of past or future
return or expenses; actual return or expenses may be more or less than those
shown.
A wire fee (currently $5.00) will be deducted from your proceeds if you elect to
transfer redemption proceeds by wire.
For additional information about the Fund's fees and other expenses, please see
"Fund Management," "The Fund's Expenses," and "Additional Facts About the Fund."
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT STRATEGY
- --------------------------------------------------------------------------------
The Fund's investment objective is long-term growth of capital.
HOW THE FUND PURSUES ITS INVESTMENT OBJECTIVE
The Fund seeks to attain its objective by investing primarily in equity
securities (1) of issuers organized under the laws of the State of Israel, (2)
of issuers that derive at least 50% of their revenues or profits from goods or
services sold or produced in Israel or (3) whose principal securities trading
market is Israel (collectively, "Israeli Equity Securities"). The Fund may also
invest in other securities, as described below. Under normal market conditions,
however, at least 65% of the Fund's total assets will be invested in Israeli
Equity Securities. The Fund may invest up to 15% of its assets in unlisted,
private Israeli Equity Securities.
Under normal conditions, up to 35% of the Fund's assets may be invested in
fixed-income securities, including U.S. or foreign government securities,
obligations of U.S. or foreign corporate issuers rated in the top four rating
categories by at least two major rating agencies or, if unrated, determined to
be of comparable quality by the investment subadviser, and repurchase agreements
that are fully collateralized by U.S. Government securities. Under unusual
market conditions as determined by the investment subadviser, all or any portion
of the Fund's assets may be invested, for temporary, defensive purposes, in such
securities or in cash (including foreign currency).
The Fund's investment adviser and investment subadviser believe that shares of
the Fund could provide an attractive opportunity for investors seeking long term
capital growth by investing in Israeli Equity Securities. While it is possible
for investors to purchase equity securities of certain Israeli issuers in the
United States, most such equity securities are traded on the Tel Aviv Stock
Exchange (the "TASE") and relatively few U.S. investment firms follow or provide
research on these securities. Batucha, as special economic and market
subadviser, will provide Harris Associates with information, advice and
assistance regarding economic, financial, political, technological and social
matters, trends or changes relating to or affecting Israel and information on
markets and industries in Israel. (Batucha will not, however, generally furnish
advice or make recommendations regarding the purchase or sale of securities for
the Fund's portfolio.) See "Fund Management." The Fund's investment adviser and
investment subadviser expect the Fund to benefit from research and information
about the Israeli economy and financial markets provided by Batucha that are not
ordinarily available to investors other than Israeli institutional investors.
The Fund's investment adviser and investment subadviser believe that during the
next three to five years the Israeli economy could be favorably affected by
several factors. Despite certain adverse conditions prevailing in Israel in
recent years, including the negative effects of political uncertainty and high
inflation, which are described elsewhere in this prospectus, the Israeli gross
domestic product ("GDP") has increased in real terms in each of the last five
years and a significant number of companies engaged in scientific and
technological activities (including computer software and components,
biotechnology, civil and military electronics, communications, aviation and
space technology) have been funded and have grown during such period. The
substantial immigration into Israel from the former Soviet Union, which has
brought to Israel a significant number of educated and trained people, and the
prospect for continued immigration (although potentially at reduced levels),
enhance the prospects for further growth of the Israeli economy, especially in
the areas of science and technology. Real wages have also been declining since
1989, aiding competitiveness and profitability. Israel also has preferential
trade arrangements with the United States and the European Community, such as
favorable tariff rates. In addition, the recent success of a number of Israeli
companies, particularly in the area of high technology, along with the increase
in daily trading on the TASE generally experienced in recent years and
relaxation of restrictions on foreign investment, has prompted the potential
entry of a number of investors in search of investment opportunities in Israel.
The Fund's investment adviser and investment subadviser also believe that
greater investment in listed shares by "provident" (e.g., pension) funds and
savings plans in Israel may increase liquidity and demand for TASE-listed
shares.
Although the Fund's investment adviser and investment subadviser cannot predict
whether recent negotiations among Israel, certain of its neighboring Arab
countries and Palestinian representatives will result in a significant
improvement in Israel's relations with such parties, should such a development
occur, the Fund's investment adviser and investment subadviser believe that
Israel's economy could potentially benefit in a number of respects, including
the potential opening of new markets in and economic cooperation with such
neighboring states, the attraction of new investments if the Arab boycott should
end and partial relief of the burden on Israel's economy and manpower of
military defense obligations. There can be no assurance that investment
opportunities will be available at valuations and on terms that the Fund
considers appropriate. See "Investment Risks".
The government of Israel has announced a major privatization program and has
privatized either wholly or partially several large and mid-sized
government-owned companies, including the state telephone company, a chemical
company and an oil marketing company. The government has announced its intention
to continue to privatize many of the companies it now owns or controls in
industries such as shipping, telecommunications, airlines, chemicals and banking
(including some of the largest companies in Israel), through public issuance of
shares on the TASE and other foreign exchanges or by private placements. Each
privatization transaction is subject to its own political and economic factors
which may vary the terms upon which investors, such as the Fund, may
participate. No assurance can be given that privatizations will continue to
occur or that the Fund will be able or will desire to participate in them.
Companies in which the Fund may invest may have small, medium or large market
capitalizations, and their equity securities may or may not pay dividends. When
selecting industries and companies for investment by the Fund, Harris Associates
will consider factors such as overall growth prospects, competitive position in
domestic and export markets, technology, research and development, productivity,
labor costs, raw material costs and sources, profit margins, return on
investment, capital resources, governmental regulation and the experience of
management. Consideration will also be given to companies that could benefit
from the economic development of Israel and the West Bank and from the possible
opening of the borders between Israel and its neighbors.
* HEDGING TRANSACTIONS
The Fund may, for hedging purposes only, engage in derivatives
transactions, such as options, futures or forward transactions, designed to
manage its exposure to changing security prices and currency exchange
rates. The Fund may, subject to specified limitations, buy put and call
options and write covered call options based on any type of security or
index related to the Fund's investments, including options traded on
foreign exchanges and in the over-the-counter markets. Buying puts and
writing covered calls tends to hedge the Fund's investments against price
fluctuations, whereas buying calls tends to increase the Fund's market
exposure. The Fund will hedge no more than 25% of its total assets by
buying puts and writing covered calls. In addition, the Fund will not
purchase a put or call option if, as a result, more than 10% of the Fund's
total assets would be committed to premiums for such options. The Fund may
invest in options and futures contracts on various stock indices to hedge
against changes in the value of securities it holds or expects to acquire.
The Fund may also invest in options on stock index futures. The Fund will
not invest more than 25% of its net assets in stock index futures or
options on stock index futures.
The Fund's ability to use derivatives successfully requires skills
different from those needed to select the Fund's portfolio securities and
involves Harris Associates' judgment as to the potential risks and rewards
of these different types of strategies. Derivatives can be volatile
investments and may not perform as expected. If the Fund applies a hedge at
an inappropriate time or Harris Associates judges market trends
incorrectly, derivatives strategies may lower the Fund's return. The Fund
could also experience losses if the prices of its derivatives were poorly
correlated with its other investments, or if it could not close out its
positions because of an illiquid secondary market. When required by
guidelines established by the SEC, the Fund will place the required amount
of liquid, high-quality debt securities in a segregated custodial account
to provide for payment of its obligations in connection with derivatives
transactions. Derivatives transactions in which the Fund may engage are
described in further detail in the SAI.
* LENDING OF PORTFOLIO SECURITIES
The Fund is permitted to lend up to 33 1/3% of the total value of its
securities. These loans must be secured continuously by cash or equivalent
collateral or by a letter of credit in an amount at least equal to the
market value of the securities loaned plus accrued income. By lending its
securities, the Fund may increase its income by continuing to receive
income on the loaned securities as well as the opportunity to receive
interest on the collateral. Any gain or loss in the market price of the
borrowed securities which occurs during the term of the loan belongs to the
Fund rather than to the borrower of the securities. The risks of lending
portfolio securities, as with other extensions of credit, include possible
delay in the recovery of the securities or possible loss of rights in the
collateral should the borrower fail financially. In considering whether the
Fund will lend securities, Harris Associates will consider all relevant
factors and circumstances, including the creditworthiness of the borrower.
* OTHER INVESTMENTS AND INVESTMENT TECHNIQUES
The Fund may also utilize the following investments and investment
techniques and practices: securities not registered under the Securities
Act of 1933 (the "Securities Act"), but that can be sold to qualified
institutional buyers in accordance with Rule 144A under the Securities Act
("Rule 144A Securities"), sponsored or unsponsored American Depository
Receipts ("ADRs") or European Depository Receipts ("EDRs"), and when-issued
and delayed-delivery securities. See "Investment Risks - Miscellaneous"
below and Part II of the SAI for further information regarding these
investments and investment techniques.
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT RISKS
- --------------------------------------------------------------------------------
It is important to understand the following risks inherent in the Fund before
you invest.
* EQUITY SECURITIES
Equity securities are securities that represent an ownership interest (or
the right to acquire such an interest) in a company, and include common and
preferred stocks and securities exercisable for or convertible into common
or preferred stocks (such as warrants, convertible debt securities and
convertible preferred stock).
While offering greater potential for long-term growth, equity securities
are more volatile and more risky than some other forms of investment.
Therefore, the value of your investment in the Fund may sometimes decrease
instead of increase. The Fund may invest in equity securities of companies
with relatively small market capitalization. Securities of such companies
may be more volatile than the securities of larger, more established
companies and the broad equity market indices. See "Small Companies" below.
The Fund's investments may include securities traded "over-the-counter" as
well as those traded on a securities exchange. Some over-the-counter
securities may be more difficult to sell under some market conditions.
The Fund may invest in convertible securities, including corporate bonds,
notes or preferred stocks that can be converted into common stocks or other
equity securities. Convertible securities also include other securities,
such as warrants, that provide an opportunity for equity participation.
Because convertible securities can be converted into equity securities,
their values will normally increase or decrease as the values of the
underlying equity securities increase or decrease. The movements in the
prices of convertible securities, however, may be smaller than the
movements in the value of the underlying equity securities. The value of
convertible securities that pay dividends or interest, like the value of
other fixed-income securities, generally fluctuates inversely with changes
in interest rates. Warrants have no voting rights, pay no dividends and
have no rights with respect to the assets of the corporation issuing them.
They do not represent ownership of the securities for which they are
exercisable, but only the right to buy such securities at a particular
price. The credit risk associated with convertible securities is generally
reflected by their being rated, if at all, below investment grade by
organizations such as Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's Ratings Group ("S&P"). Less than 35% of the Fund's assets
will be invested in convertible securities rated below investment grade and
unrated convertible securities of comparable quality. For a detailed
description of the ratings assigned by S&P and Moody's, please refer to
Appendix A of the SAI.
* FIXED-INCOME SECURITIES
Fixed-income securities include debt obligations of governmental and
corporate issuers. Because interest rates vary, it is impossible to predict
the income of a fund that invests in fixed-income securities for any
particular period. Fluctuations in the value of the Fund's investments in
fixed-income securities will cause the Fund's net asset value to increase
or decrease.
Fixed-income securities are subject to market and credit risk. Market risk
relates to changes in a security's value as a result of changes in interest
rates generally. Credit risk relates to the ability of the issuer to make
payments of principal and interest.
* REPURCHASE AGREEMENTS
In repurchase agreements, the Fund buys securities from a seller, usually a
bank or brokerage firm, with the understanding that the seller will
repurchase the securities at a higher price at a later date. Such
transactions afford an opportunity for the Fund to earn a return on
available cash at minimal market risk, although the Fund may be subject to
various delays and risks of loss if the seller is unable to meet its
obligation to repurchase.
* SHORT-TERM TRADING
Although the Fund seeks long-term growth or return, the Fund may,
consistent with its investment objective, engage in portfolio trading in
anticipation of, or in response to, changing economic or market conditions
and trends. These policies may result in higher turnover rates in the
Fund's portfolio, which may produce higher transaction costs and a higher
level of taxable capital gains. Portfolio turnover considerations will not
limit the investment subadviser's investment discretion in managing the
Fund's assets.
* SMALL COMPANIES
The Fund, in the discretion of the investment subadviser, may invest
without limit in the securities of companies with smaller capitalization.
Investments in companies with relatively small capitalization may involve
greater risk than is usually associated with more established companies.
These companies often have sales and earnings growth rates which exceed
those of companies with larger capitalization. Such growth rates may in
turn be reflected in more rapid share price appreciation. However,
companies with smaller capitalization often have limited product lines,
markets or financial resources and they may be dependent upon a relatively
small management group. The securities may have limited marketability and
may be subject to more abrupt or erratic movements in price than securities
of companies with larger capitalization or the market averages in general.
The net asset value of funds that invest in companies with smaller
capitalization therefore may fluctuate more widely than market averages.
* ISRAELI AND OTHER FOREIGN SECURITIES
Investments in Israeli and other foreign securities present risks not
typically associated with investments in comparable securities of U.S.
issuers.
There may be less information publicly available about an Israeli or other
foreign corporate or governmental issuer than about a U.S. issuer, and
Israeli and other foreign issuers are not generally subject to accounting,
auditing and financial reporting standards and practices comparable to
those in the United States. The securities of some Israeli and other
foreign issuers are less liquid and at times more volatile than securities
of comparable U.S. issuers. Foreign brokerage commissions and securities
custody costs are often higher than those in the United States, and
judgments against foreign entities may be more difficult to obtain and
enforce. With respect to certain foreign countries, including Israel, there
is a possibility of confiscatory taxation, political or financial
instability and diplomatic developments that could affect the value of
investments in those countries. The receipt of interest on foreign
government securities may depend on the availability of tax or other
revenues to satisfy the issuer's obligations.
* FOREIGN CURRENCY
Most securities in the Fund's portfolio will be denominated in Israeli
shekels or traded in securities markets in which settlements are made in
shekels. Similarly, any income on such securities is generally paid to the
Fund in shekels. The value of the shekel and other foreign currencies
relative to the U.S. dollar varies continually, causing changes in the
dollar value of the Fund's portfolio investments (even if the local market
price of the investments is unchanged) and changes in the dollar value of
the Fund's income available for distribution to its shareholders. The
effect of changes in the dollar value of foreign currencies on the dollar
value of the Fund's assets and on the net investment income available for
distribution may be favorable or unfavorable.
The Fund may incur costs in connection with conversions between dollars and
shekels or other foreign currencies. In addition, the Fund may be required
to liquidate portfolio assets, or may incur increased currency conversion
costs, to compensate for a decline in the dollar value of the shekel or
other foreign currencies occurring between the time when the Fund declares
and pays a dividend, or between the time when the Fund accrues and pays an
operating expense in U.S. dollars.
* ISRAELI SECURITIES MARKET CHARACTERISTICS
The Israeli securities market is substantially smaller, less liquid and
more volatile than the major securities markets in the United States.
Brokerage commissions and other transaction costs on the TASE are
individually negotiated and are also generally somewhat higher than in the
United States.
Due to the relatively small equity market capitalization and small number
of company listings in comparison to the U.S. securities markets, the
Israeli equity market is subject to greater short-term price volatility and
a relatively limited secondary trading environment. The securities listed
on the TASE and various TASE indices have been subject to sharp declines in
the recent past and no assurance can be given as to the future performance
of TASE-listed securities. In addition, this market may be subject to
greater influence from adverse events generally affecting the Israeli
economy and may be more affected when a few investors trade significant
blocks of securities than would the U.S. market.
The regulations of the TASE may at times limit the maximum price swing for
a specific security on a specific day. The limits vary depending on several
factors, but they are typically 10% in the case of equity shares,
convertible securities and warrants and 3% in the case of other debt
securities. Among the factors that may affect the limits are whether there
has been a suspension of trading in the securities and whether a
convertible security is about to expire. As a result of the limits, the
Fund may experience difficulties in liquidating certain assets.
Trading on the TASE has been subject to disruption in the past. For
example, in August 1994, upon the announcement by the Minister of Finance
of the intention of the Israeli government to seek to eliminate the
exemption from tax on capital gains realized on the sale of equity
securities listed on the TASE, trading on the TASE was suspended for two
days and, when trading resumed, limits on share price movement ordinarily
in place were removed for one day. In March 1994, a strike by the personnel
of the TASE interfered with trading on the TASE to the extent that trading
time was slightly curtailed. Similarly, the TASE was closed briefly as a
result of a strike by its personnel in 1990. Early in 1983, prices on the
TASE experienced severe declines, and, in October 1983, following the
termination by the major banks of their activities in support of their
share prices, the TASE was closed for two weeks. The Israeli government
intervened with a substantial bail-out by offering to purchase certain
securities over a period of time at specified prices. No assurances can be
given that the Israeli government would intervene in the market in any
manner in the future. In the event a strike or other similar interruption
were to occur again, the Fund's ability to effect transactions on the TASE
could be materially affected. Disruption in trading on the TASE may also
make it difficult to determine the value of shares of the Fund during
periods of such disruption. There is less government supervision and
regulation of the Israeli securities market, brokers, dealers and companies
with respect to certain matters than exists in the United States. Foreign
investment is regulated and controlled by the Bank of Israel and
regulations could be imposed from time to time precluding foreign
investment in certain types of securities, although the current trend is
toward liberalizing such restrictions.
The factors described above result in a limited supply of available equity
investments, and may adversely affect the Fund's ability to become fully
invested in accordance with its investment objective, as well as the Fund's
performance.
The relatively limited liquidity of the Israeli equity securities market
may also affect the Fund's ability to acquire or dispose of securities at a
desirable price when it wishes to do so. Accordingly, in periods of rising
market prices, the Fund may be unable to participate fully in such price
increases to the extent that it is unable to acquire desired portfolio
positions quickly; conversely, the Fund's inability to dispose fully and
promptly of positions in declining markets could cause its net asset value
to decline as the market value of unsold positions declines.
* ECONOMIC FACTORS
Israel's economy has been subject to many destabilizing factors, including
military conflicts and tension, a period of hyper-inflation in the early to
mid-1980s, civil unrest in the West Bank and Gaza Strip since 1987, the
closing of the TASE in 1983 for two weeks due to a collapse in the prices
of the shares in the banking sector, large government deficits, recurring
weaknesses in state-owned enterprises, low foreign exchange reserves and
fluctuations in world commodity prices. For these and other reasons, the
Israeli government has intervened in all sectors of the economy employing,
among other means, fiscal, monetary and trade policies, import duties,
foreign currency restrictions and controls of wages, prices and exchange
rates, and other measures to pursue its various economic policies and
goals. The Israeli government is in the process of reducing its direct
involvement in economic activity, but there can be no assurance that this
trend will continue. Foreign investment in Israel is regulated and
controlled by the Bank of Israel, primarily through its regulation of
currency exchange, although there are no current restrictions on the
purchase and sale of securities that trade on the TASE. These regulations
may at times limit or preclude foreign investment in certain types of
equity securities. The repatriation of both investment income and capital
from Israel is currently controlled to a limited degree under regulations
of the Bank of Israel, although the Fund believes it can, generally, when
acting in compliance with foreign currency regulations, convert and remit
into dollars the proceeds of the sale of listed and non-listed securities
as well as dividend and interest income, subject to the payment of
applicable Israeli taxes.
* REGIONAL POLITICAL FACTORS
Many Israeli companies are heavily dependent upon sales of their products
outside of Israel and upon imported components, primarily from the United
States, Europe and Japan. Accordingly, operations of these companies could
be adversely affected if major hostilities involving Israel should occur in
the Middle East or if trade between Israel and its present trading partners
should be curtailed. Certain countries participate in a boycott of Israeli
firms and firms that do business in Israel or with Israeli companies.
Despite measures to counteract the boycott, including anti-boycott
legislation in the United States, and the recent increased willingness of
certain countries and companies to commence diplomatic and trade relations
with Israel and Israeli firms, the boycott has not officially ended and has
had an indeterminate negative impact on trade and foreign investment in
Israel.
* CONCENTRATION OF CONTROL
The Israeli economy is subject to a substantial amount of concentrated
control. In addition to the government's direct involvement in and
influence over the private sector, the government owns or controls numerous
government corporations and other entities representing in the aggregate a
substantial portion of the Israeli economy by measure of gross domestic
product in 1994. A substantial portion of the Israeli private sector is
controlled by relatively few companies. Many of the companies traded on the
TASE are closely held by families that founded these companies.
* FOREIGN AID
It is uncertain whether the economy of Israel could sustain increases in
gross domestic product without the continued receipt of external capital
inflows, particularly from the United States. Direct foreign assistance
from the U.S. government, in the form of grants for economic and military
assistance, has totaled approximately $3 billion annually over the past
several years. In addition, the State of Israel has received approximately
$10 billion of U.S. Government loan guarantees. There can be no assurance
that such capital inflows or loan guarantees will continue. A significant
reduction in capital inflows or loan guarantees could have a material
adverse effect on the Israeli economy and the Fund.
* MISCELLANEOUS
The Fund will not invest more than 15% of its net assets in illiquid
securities, that is, securities which are not readily resalable, which
include securities whose disposition is restricted by federal securities
laws.
The Fund may purchase Rule 144A Securities. These are privately offered
securities that can be resold only to certain qualified institutional
buyers. Rule 144A Securities are treated as illiquid, unless Harris
Associates has determined, under guidelines established by the Trust's
trustees, that the particular issue of Rule 144A Securities is liquid.
Investment in restricted or other illiquid securities involves the risk
that the Fund may be unable to sell such a security at the desired time.
Also, the Fund may incur expenses, losses or delays in the process of
registering restricted securities prior to resale.
The Fund may purchase securities on a when-issued or delayed-delivery
basis. This means that the Fund enters into a commitment to buy the
security before the security has been issued, or, in the case of a security
that has already been issued, to accept delivery of the security on a date
beyond the usual settlement period. If the value of a security purchased on
a when-issued or delayed delivery basis falls or, in the case of a
fixed-income security, market rates of interest increase, between the time
the Fund commits to buy the security and the delivery date, the Fund may
sustain a loss in value of or yield on the security. For more information
on when-issued and delayed delivery securities, see Part II of the SAI.
The Fund is a non-diversified fund and as such is not required to meet any
diversification requirements under the Investment Company Act of 1940 (the
"1940 Act"), although the Fund must meet certain diversification standards
to qualify as a regulated investment company under the Internal Revenue
Code (the "Code"). Since the Fund may invest a relatively high percentage
of its assets in the obligations of a limited number of issuers, the Fund
may be more susceptible than a more widely-diversified fund to any single
economic, political or regulatory occurrence.
Although it is not possible to predict the portfolio turnover rate with
certainty, the Fund's investment subadviser does not expect the Fund's
annual portfolio turnover rate to exceed approximately 25%.
<PAGE>
- --------------------------------------------------------------------------------
FUND MANAGEMENT
- --------------------------------------------------------------------------------
NEW ENGLAND FUNDS MANAGEMENT, L.P., 399 Boylston Street, Boston, Massachusetts
02116, serves as the Fund's adviser. NEFM oversees, evaluates and monitors the
subadvisers' provision of subadvisory services to the Fund and provides general
business management and administration to the Fund. The Fund pays NEFM a
management fee at the annual rate of 1.10% of the Fund's average daily net
assets. This fee rate is higher than that paid by most other mutual funds, but
is believed to be appropriate for the services received by the Fund and to be
comparable to fees paid by other mutual funds investing in a manner similar to
the Fund. For the services that Harris Associates provides to the Fund, NEFM
pays Harris Associates a fee at the annual rate of 0.70% of the first $50
million of the Fund's average daily net assets, and 0.60% of such assets in
excess of $50 million. For the services that Batucha provides to the Fund, NEFM
pays Batucha a fee at the annual rate of 0.10% of the Fund's average daily net
assets.
Subject to the supervision of NEFM, Harris Associates manages the Fund's
portfolio in accordance with the Fund's investment objective and policies, makes
investment decisions for the portfolio, places orders to purchase and sell
securities for the portfolio, and employs professional advisers and securities
analysts who provide research services to the portfolio. Batucha provides Harris
Associates with statistical and other factual information, advice and assistance
regarding economic, financial, political, technological or social matters,
trends or changes relating to or affecting Israel and information on markets and
industries in Israel, but does not generally furnish advice or make
recommendations regarding the purchase or sale of securities for the Fund's
portfolio. The Fund pays no direct fees to either Harris Associates or Batucha.
Below is a brief description of the subadvisers.
HARRIS ASSOCIATES L.P., Two North LaSalle Street, Chicago, Illinois 60602,
investment subadviser to the Fund, has advised and managed mutual funds since
1970. Harris Associates also serves as investment adviser to individuals,
trusts, retirement plans, endowments and foundations, and manages several
private partnerships. Harris Associates has extensive experience managing
international equity portfolios. David G. Herro, C.F.A., one of the Fund's
co-managers, joined Harris Associates in 1992 from the State of Wisconsin
Investment Board, where he managed a $700 million international equity fund from
1989 through July 1992. Adam Schor, the Fund's other co-manager, has been a
portfolio manager and analyst with Harris Associates since 1993; from 1992-1993
he was an analyst with American Family Insurance Group; prior to that time he
was an analyst with the State of Wisconsin Investment Board.
BATUCHA SECURITIES AND INVESTMENTS LTD, 8 Karl Netter Street, Tel Aviv, Israel,
special economic and market subadviser for the Fund, is organized under the laws
of the State of Israel and is a wholly-owned subsidiary of Clal (Israel) Ltd.
Batucha and its subsidiaries had in excess of $600 million of assets under
management as of November 30, 1995. The major shareholders of Clal are I.D.B.
Development Corporation Ltd. and Bank Hapoalim, Israel's largest bank, which
serves as the Fund's custodian in Israel, subject to the supervision of State
Street Bank and Trust Company.
B'nai B'rith has entered into an arrangement whereby it provides consultation
and assistance to the Distributor with respect to the design and marketing of
the Fund and with respect to matters of particular interest to B'nai B'rith, its
members and others in the Jewish community in the United States. B'nai B'rith's
broker-dealer affiliate receives compensation for this role. See "Sales Charges
- - General" for further information.
The general partners of NEFM, Harris Associates and the Distributor are special
purpose corporations. These corporations are indirect wholly-owned subsidiaries
of NEIC.
The Trust's Board of Trustees supervises the affairs of the Trust as conducted
by NEFM and Harris Associates.
ADVISORY COUNCIL. NEFM has established an Advisory Council to provide assistance
and consultation to NEFM on certain matters relating to Israel and the Fund,
including advising on economic and other trends, the Fund's image, Israeli
affairs and other matters that may enhance the success of the Fund. The names
and background of Advisory Council members may be identified in advertising and
sales literature created, published or used in promoting the Fund.
The Advisory Council does not generally furnish advice or make recommendations
regarding the purchase or sale of securities for the Fund's portfolio.
Subject to applicable regulatory restrictions and such policies as the Trust's
trustees may adopt, Harris Associates may consider sales of shares of the Fund
and other mutual funds that it manages as a factor in the selection of
broker-dealers to effect portfolio transactions for the Fund. Subject to
procedures adopted by the Trust's Board of Trustees, Fund brokerage transactions
may be executed by brokers that are affiliated with NEFM or Harris Associates.
See "Portfolio Transactions and Brokerage" in Part II of the SAI.
<PAGE>
- --------------------------------------------------------------------------------
BUYING FUND SHARES
- --------------------------------------------------------------------------------
[USING TELE#FACTS 1-800-346-5984
TELE#FACTS IS NEW ENGLAND FUNDS' AUTOMATED SERVICE SYSTEM THAT GIVES YOU 24-HOUR
ACCESS TO YOUR ACCOUNT. THROUGH YOUR TOUCH-TONE TELEPHONE, YOU CAN RECEIVE YOUR
CURRENT ACCOUNT BALANCE, YOUR LAST FIVE TRANSACTIONS, FUND PRICES AND RECENT
PERFORMANCE INFORMATION. YOU CAN ALSO PURCHASE, SELL OR EXCHANGE SHARES OF ANY
NEW ENGLAND FUND. FOR A FREE BROCHURE ABOUT TELE#FACTS INCLUDING A CONVENIENT
WALLET CARD, CALL US AT 1-800-225-5478.]
MINIMUM INVESTMENT -- CLASSES A, B AND C
$2,500 is the minimum for an initial investment in Class A, Class B and Class C
shares of the Fund and $50 is the minimum for each subsequent investment. There
are special initial investment minimums for the following plans:
* $25 (for initial and subsequent investments) for payroll deduction
investment programs for 401(k), SARSEP, 403(b) retirement plans and certain
other retirement plans.
* $50 for automatic investing through the Investment Builder program.
* $250 for retirement plans with tax benefits such as corporate pension and
profit sharing plans, IRAs and Keogh plans.
* $1,000 for accounts registered under the Uniform Gifts to Minors Act or the
Uniform Transfers to Minors Act.
* $1,000 (per Fund) for Portfolio 1,2,3 investment programs. Subsequent
investment minimums are $50 per Fund. See Part II of the SAI.
MINIMUM INVESTMENT -- CLASS Y
Class Y shares of the Fund may be purchased by endowments and foundations. The
minimum initial investment is $1 million for these entities and the minimum for
each subsequent investment is $100,000. Class Y shares may also be purchased by
plan sponsors of 401(a), 401(k), 457 or 403(b) plans ("Retirement Plans") that
have total investment assets in these plans of at least $10 million. Plan
sponsors' investment assets in multiple Retirement Plans can be aggregated for
purposes of meeting this minimum. Class Y shares may also be purchased by any
separate account of The New England or of any other insurance company affiliated
with The New England ("Separate Accounts"), and by investment companies
registered under the 1940 Act. There is no minimum initial or subsequent
investment amount for Retirement Plans, Separate Accounts or registered
investment companies. Investments in Class Y shares may also be made by certain
individual retirement accounts if the amounts invested represent rollover
distributions from investments by any of the foregoing Retirement Plans of
amounts invested in Class Y shares.
6 WAYS TO BUY FUND SHARES
You may purchase Class A, Class B and Class C shares of the Fund in the
following ways:
[] THROUGH YOUR INVESTMENT DEALER:
Many investment dealers have a sales agreement with the Distributor and would be
pleased to accept your order.
[] BY MAIL:
For an initial investment, simply complete an application and return it, with a
check payable to New England Funds, P.O. Box 8551, Boston, MA 02266-8551.
Proceeds of redemptions of Fund shares purchased by check may not be available
for up to ten days after the purchase date.
FOR SUBSEQUENT INVESTMENTS, please mail your check to New England Funds, P.O.
Box 8551, Boston, MA 02266-8551 along with a letter of instruction or an
additional deposit slip from your statements. To make investing even easier, you
can also order personalized investment slips by calling 1-800-225-5478 between
8:00 a.m. and 7:00 p.m. (Eastern time).
Investment checks should be made payable to New England Funds. New England Funds
will accept second-party checks (up to $10,000) for investments into existing
accounts only. (A second-party is a check made payable to a Fund shareholder
which the shareholder has endorsed to New England Funds for deposit into an
account registered to the shareholder.) New England Funds will NOT accept
third-party checks, except certain third-party checks issued by other mutual
fund companies, broker dealers or banks representing the transfer of retirement
assets. (A third-party check is a check made payable to a party which is not a
Fund shareholder, but which has been ultimately endorsed to New England Funds
for deposit into an account.)
[] BY WIRE TRANSFER OF FEDERAL FUNDS:
For an initial investment, call us at 1-800-225-5478 between 8:00 a.m. and 7:00
p.m. (Eastern time) to obtain an account number and wire transfer instructions.
FOR SUBSEQUENT INVESTMENTS, direct your bank to transfer funds to State Street
Bank and Trust Company, ABA #011000028, DDA #99011538, Credit Growth Fund of
Israel, Class of shares, Shareholder Name, Shareholder Account Number. Funds may
be transferred between 9:00 a.m. and 4:00 p.m. (Eastern time). Your bank may
charge a fee for this service.
[] BY INVESTMENT BUILDER:
Investment Builder is New England Funds' automatic investment plan. You may
authorize automatic monthly transfers of $50 or more from your bank checking or
savings account to purchase shares of one or more New England Funds.
FOR AN INITIAL INVESTMENT, please indicate that you would like to begin an
automatic investment plan through Investment Builder on the enclosed
application. Indicate the amount of the monthly investment and enclose a check
marked "Void" or a deposit slip from your bank account.
TO ADD INVESTMENT BUILDER TO AN EXISTING ACCOUNT, please call us at
1-800-225-5478 for a Service Options form.
[] BY ELECTRONIC PURCHASE THROUGH ACH:
You may purchase additional shares electronically through the Automated Clearing
House ("ACH") system as long as your bank or credit union is a member of the ACH
system and you have a completed, approved ACH application on file with the Fund.
To purchase through ACH, call us at 1-800-225-5478 between 8:00 a.m. and 7:00
p.m. (Eastern time) for instructions on a day when the Fund is open for
business. You may also purchase shares through ACH by calling Tele#Facts at
1-800-346-5984 twenty-four hours a day. Under normal circumstances, the New York
Stock Exchange (the "Exchange") closes at 4:00 p.m. (Eastern time). Purchase
orders accepted through ACH or Tele#Facts after 4:00 p.m. (Eastern time), or
after the Exchange closes if it closes earlier than 4:00 p.m., will be processed
at the net asset value determined at the close of regular trading on the next
day that the Exchange is open. Proceeds of redemptions of Fund shares purchased
through ACH may not be available for up to ten days after the purchase date.
[] BY EXCHANGE FROM ANOTHER NEW ENGLAND FUND:
You may also purchase shares of the Fund by exchanging shares from another New
England Fund. Please see "Exchanging Among New England Funds" for complete
details.
GENERAL
All purchase orders are subject to acceptance by the Fund and will be effected
at the net asset value next determined after the order is received in proper
form by State Street Bank and Trust Company ("State Street Bank") (except orders
received by your investment dealer before the close of trading on the Exchange
and transmitted to the Distributor by 5:00 p.m. [Eastern time] on the same day,
which will be effected at the net asset value determined on that day). Although
the Fund does not anticipate doing so, it reserves the right to suspend or
change the terms of sales of shares.
Class B shares and certain shareholder features may not be available to persons
whose shares are held in street name accounts.
You will not receive any certificates for your Class A shares unless you request
them in writing from New England Funds, L.P. The Fund's open account system for
recording your investment eliminates the problems and expense of handling and
safekeeping certificates. Certificates will not be issued for Class B or Class C
shares. If you wish transactions in your account to be effected by another
person under a power of attorney from you, special rules apply. Please contact
your investment dealer or the Distributor for details.
An eligible investor may purchase Class Y shares of the Fund by mail, by wire
transfer of federal funds or by exchange from another New England Fund, as set
forth above.
SALES CHARGES
CLASS A SHARES
Shares are offered at net asset value plus a sales charge which varies depending
on the size of your purchase. They are also subject to a 0.25% annual service
fee.
Class A shares are offered subject to the following initial sales charges:
<TABLE>
<CAPTION>
SALES CHARGE AS A % OF
----------------------
DEALER'S
CONCESSION
PUBLIC AS A % OF
VALUE OF TOTAL OFFERING AMOUNT OFFERING
INVESTMENT PRICE INVESTED PRICE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 5.75% 6.10% 5.00%
- -------------------------------------------------------------------------------------------------------------------------------
$50,000 - $99,999 4.50% 4.71% 4.00%
- -------------------------------------------------------------------------------------------------------------------------------
$100,000 - $249,999 3.50% 3.63% 3.00%
- -------------------------------------------------------------------------------------------------------------------------------
$250,000 - $499,999 2.50% 2.56% 2.15%
- -------------------------------------------------------------------------------------------------------------------------------
$500,000 - $999,999 2.00% 2.04% 1.70%
- -------------------------------------------------------------------------------------------------------------------------------
$1,000,000 or more None None *
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
* The Distributor may, at its discretion, pay investment dealers who initiate and are responsible for such purchases a
commission of up to the following amounts: 1% on the first $2 million invested; .80% on the next $1 million; .20% on
the next $2 million; and .08% on the excess over $5 million. These commissions are not payable if the purchase represents
the reinvestment of a redemption made during the previous 12 calendar months.
</TABLE>
CONTINGENT DEFERRED SALES CHARGE (CLASS A SHARES ONLY). For purchases of
$1,000,000 or more of Class A shares of the Fund, a CDSC, at the rate of 1% of
the lesser of the purchase price or the net asset value at the time of
redemption, applies to redemptions of shares within one year after purchase. If
an exchange is made to Class A shares of any of New England Cash Management
Trust Money Market Series or U.S. Government Series or New England Tax Exempt
Money Market Trust (the "Money Market Funds"), then the one-year holding period
for purposes of determining the expiration of the CDSC will stop and will resume
only when an exchange is made back into Class A shares of a series of New
England Funds Trust I or New England Funds Trust II (the "Trusts"). If the Money
Market Fund shares are redeemed rather than exchanged back into the Trusts, then
a CDSC applies to the redemptions. For purposes of the CDSC, it is assumed that
the shares held the longest are the first to be redeemed. No CDSC applies to a
redemption of shares followed by a reinvestment effected within 30 days after
the date of the redemption.
CLASS B SHARES
Class B shares are offered at net asset value, without an initial sales charge,
subject to a 0.25% annual service fee, a 0.75% annual distribution fee for 8
years (at which time they automatically convert to Class A shares) and a CDSC if
they are redeemed within 5 years of purchase. The holding period for purposes of
timing the conversion to Class A shares and determining the CDSC will continue
to run after an exchange to Class B shares of any series of the Trusts. If the
exchange is made to Class B shares of a Money Market Fund, then the holding
period stops and will resume only when an exchange is made back into Class B
shares of a series of the Trusts. If the Money Market Fund shares are redeemed
rather than exchanged back into the Trusts, then a CDSC applies on the
redemptions, at the same rate as if the Class B shares of the Fund had been
redeemed at the time they were exchanged for Money Market Fund shares. For
purposes of the CDSC, it is assumed that the shares held the longest are the
first to be redeemed.
The CDSC will be assessed on an amount equal to the lesser of the cost of the
shares being redeemed or their net asset value at the time of redemption.
Accordingly, no CDSC will be imposed on increases in net asset value above the
initial purchase price. In addition, no CDSC will be assessed on shares of the
Fund purchased with reinvested dividends or capital gains distributions.
[TO MAKE INVESTING EVEN EASIER, YOU CAN ALSO ORDER PERSONALIZED INVESTMENT SLIPS
BY CALLING 1-800-225-5478 BETWEEN 8:00 A.M. AND 7:00 P.M. (EASTERN TIME).]
The amount of the CDSC, if any, will vary depending on the number of years from
the time of payment for the purchase of Class B shares until the time of
redemption of such shares. The CDSC equals the following percentages of the
dollar amounts subject to the charge:
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF DOLLAR
YEAR SINCE PURCHASE AMOUNT SUBJECT TO CHARGE
------------------- ------------------------
1st........................ 4%
2nd........................ 3%
3rd........................ 3%
4th........................ 2%
5th........................ 1%
thereafter................. 0%
Year one ends one year after the day on which the purchase was accepted, and so
on.
The CDSC is deducted from the proceeds of the redemption, unless otherwise
requested, and is paid to the Distributor. The CDSC may be eliminated for
certain persons and organizations. See "Sales Charges - General" below. At the
time of sale, the Distributor pays investment dealers a commission of up to
3.75% and advances the first year's service fee (up to 0.25%) on purchases of
Class B shares.
CLASS C SHARES
Class C shares are offered at net asset value, without an initial sales charge
or CDSC; are subject to a 0.25% annual service fee and a 0.75% annual
distribution fee; and do not convert into another class.
CLASS Y SHARES
Class Y shares are offered to eligible investors at net asset value, without an
initial sales charge or CDSC, and are not subject to a service fee or
distribution fee.
DECIDING WHICH CLASS TO PURCHASE
The decision as to whether Class A, Class B or Class C shares are more
appropriate for an investor depends on the amount and intended length of the
investment. Investors making large investments, qualifying for a reduced initial
sales charge, might consider Class A shares because Class A shares have lower
12b-1 fees and pay correspondingly higher dividends per share. For these
reasons, the Distributor will treat any order of $1 million or more for Class B
shares as a Class A order. Any order of $1 million or more for Class C shares
will be treated as an order for Class A shares, unless you indicate on the
relevant section of your application that you have been informed of the relative
advantages and disadvantages of Class A and Class C shares. Investors making
smaller investments might consider Class B or Class C shares because 100% of the
purchase is invested immediately. Investors making smaller investments who
anticipate redeeming their shares within five years may find Class C shares more
favorable than Class B shares, because Class B shares are subject to a CDSC on
redemptions made within five years after purchase. Class B shares are more
favorable than Class C shares for investors who anticipate holding their
investment for more than eight years, since Class B shares convert to Class A
shares (and thus bear lower ongoing fees) after eight years. In general,
investors who are eligible to purchase Class Y shares should do so in preference
over other Classes, because Class Y shares do not bear the sales loads, CDSCs or
12b-1 fees that apply to other classes. Consult your investment dealer for
advice applicable to your particular circumstances.
[A, B OR C SHARES -- WHICH SHOULD YOU CHOOSE?
YOUR CHOICE OF SHARE CLASS DEPENDS ON THE SIZE OF YOUR INVESTMENT AND HOW LONG
YOU INTEND TO HOLD YOUR SHARES. IN GENERAL, THERE ARE ONLY MINOR DIFFERENCES IN
PERFORMANCE RESULTS FOR THE DIFFERENT CLASSES IF HELD FOR THE LONG TERM. CONSULT
YOUR FINANCIAL REPRESENTATIVE FOR HELP IN DECIDING WHICH CLASS IS APPROPRIATE
FOR YOU.]
GENERAL
NO CDSC ON ANY CLASS OF SHARES APPLIES in connection with (1) redemptions by
retirement plans qualified under Code Sections 401(a) or 403(b)(7) when such
redemptions are necessary to make distributions to plan participants; (2)
distributions from an IRA due to death, disability or a tax-free return of an
excess contribution; (3) distributions by other employee benefit plans to pay
benefits; and (4) distributions by a Section 401(a) plan due to death. For
403(b)(7) and IRA accounts established before January 3, 1995, the CDSC is
waived for redemptions made after attainment of age 59 1/2. The CDSC is waived
for redemptions made to make required minimum distributions after attainment of
age 70 1/2 for 403(b)(7) and IRA accounts established on or after January 3,
1995. There is also no CDSC on redemptions following the death or disability (as
defined in Section 72(m)(7) of the Code) of a shareholder if the redemption is
made within one year after the shareholder's death or disability. Also, there is
no CDSC on certain withdrawals pursuant to a Systematic Withdrawal Plan. See
"Selling Fund Shares -- 4 Ways to Sell Fund Shares -- By Systematic Withdrawal
Plan" below.
The Fund receives the net asset value next determined after an order is received
on sales of each class of shares. The sales charge is allocated between the
investment dealer and the Distributor. The Distributor receives the CDSC. For
purposes of the CDSC, an exchange from one series of one of the Trusts to
another series of one of the Trusts is not considered a redemption or a
purchase. For federal tax purposes, however, such an exchange is considered a
redemption and a purchase and, therefore, would be considered a taxable event on
which you may recognize a gain or a loss.
The Distributor may, at its discretion, reallow the entire sales charge imposed
on the sale of Class A shares to investment dealers from time to time. The staff
of the SEC is of the view that dealers receiving all or substantially all of the
sales charge may be deemed underwriters of a fund's shares.
For new amounts invested, the Distributor may, at its expense, pay investment
dealers who sell shares of the Fund at net asset value to an eligible
governmental authority .025% of the average daily net assets of an account at
the end of each calendar quarter for up to one year. These commissions are not
payable if the purchase represents the reinvestment of redemption proceeds from
any series of the Trusts or if the account is registered in street name.
The Distributor may, at its expense, provide additional promotional incentives
or payments to dealers who sell shares of the Fund. In some instances these
incentives are provided to certain dealers who achieve sales goals or who have
sold or may sell significant amounts of shares. The Distributor from time to
time may provide financial assistance programs to dealers in connection with
conferences, sales or training programs, seminars, advertising and sales
campaigns and/or shareholder services arrangements. Certain dealers who have
sold or may sell significant amounts of shares also may receive compensation in
the form of payment for travel expenses, including lodging, incurred in
connection with trips taken by invited registered representatives to locations,
within or outside of the U.S., for educational seminars or meetings of a
business nature.
The Distributor may provide non-cash incentives for achievement of specified
sales levels by representatives of participating broker-dealers and financial
institutions. Such incentives include, but are not limited to, merchandise from
gift catalogues or other sources. The participation of representatives in such
incentive programs is at the discretion of the broker-dealer or financial
institution with which the representative is associated.
The New England has entered into an arrangement (the "Program") with B'nai
B'rith relating to the marketing of certain insurance and investment products of
The New England and its affiliates to members of B'nai B'rith and certain other
purchasers. New England Securities Corporation ("NES"), a broker-dealer
subsidiary of The New England, may pay a broker-dealer affiliate of B'nai B'rith
("BBBD") an amount equal to 10% of the dealer concession or reallowance and
servicing fees received by NES from the Distributor with respect to shares of
the Fund and other series of the Trusts sold by NES under the Program. The
Distributor has agreed to compensate BBBD to the extent that the foregoing
payments by NES to BBBD fall short of 0.10% annually of the average daily net
asset value of shares of the series of the Trusts sold under the Program that
remain outstanding.
REDUCED SALES CHARGES (CLASS A SHARES ONLY)
* LETTER OF INTENT -- if aggregate purchases of all series and classes of
the Trusts over a 13-month period will reach a breakpoint (a dollar amount
at which a lower sales charge applies), smaller individual amounts can be
invested at the sales charge applicable to that breakpoint.
* COMBINING ACCOUNTS -- purchases by all qualifying accounts of all series
and classes of the Trusts (which do not include the Money Market Funds
unless the shares were purchased through an exchange from a series of the
Trusts) may be combined with purchases of qualifying accounts of a spouse,
parents, children, siblings, grandparents or grandchildren, individual
fiduciary accounts, sole proprietorships and/or single trust estates. The
values of all accounts are combined to determine the sales charge.
* ENDOWMENTS, FOUNDATIONS AND CHARITABLE ORGANIZATIONS -- no sales charge
applies to purchases of Class A shares by endowments, foundations and
charitable organizations. (Note that endowments and foundations investing
more than $1 million will be eligible to purchase Class Y shares when such
shares become available for purchase. Class Y shares have a lower expense
ratio than Class A shares because of the absence of 12b-1 fees.)
* UNIT HOLDERS OF UNIT INVESTMENT TRUSTS -- unit investment trust
distributions of less than $1 million 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).
* ELIGIBLE GOVERNMENTAL AUTHORITIES -- no sales charge or CDSC applies to
investments by any state, county or city or any instrumentality,
department, authority or agency thereof that has determined that 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.
* CLIENTS OF AN ADVISER OR SUBADVISER -- no sales charge or CDSC applies to
investments in the Fund by (1) clients of an adviser or subadviser to any
series of the Trusts; any director, officer or partner of a client of an
adviser or subadviser to any series of the Trusts; and the parents, spouses
and children of the foregoing; (2) any individual who is a participant in a
Keogh or IRA Plan under a prototype Plan document of an adviser or
subadviser to any series of the Trusts if at least one participant in the
plan qualifies under category (1) above; and (3) an individual who invests
through an IRA and is a participant in an employee benefit plan that is a
client of an adviser or subadviser to any series of the Trusts. Any
investor eligible for these arrangements should so indicate in writing at
the time of the purchase.
* Shares of 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
Internal Revenue Code and rabbi trusts. Investors may be charged a fee if
they effect transactions through a broker or agent.
* There is no sales charge, CDSC or initial investment minimum related to
investments by certain current and retired employees of the Trusts'
investment advisers or subadvisers, the Distributor or any other company
affiliated with The New England; current and former directors and trustees
of the Trusts or their predecessor companies; 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 the Distributor; the
spouse, parents, children, siblings, grandparents or grandchildren of the
persons listed above; any trust, pension, profit sharing or other benefit
plan for any of the foregoing persons; and any separate account of The New
England or of any insurance company affiliated with The New England.
* Shareholders of Reich & Tang Government Securities Trust may exchange
their shares of that fund for Class A shares of any series of the Trusts at
net asset value and without the 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.
<PAGE>
- --------------------------------------------------------------------------------
Owning Fund Shares
- --------------------------------------------------------------------------------
EXCHANGING AMONG NEW ENGLAND FUNDS
[AUTOMATIC EXCHANGE PLAN
THE FUND HAS AN AUTOMATIC EXCHANGE PLAN UNDER WHICH SHARES OF A CLASS OF THE
FUND ARE AUTOMATICALLY EXCHANGED EACH MONTH FOR SHARES OF THE SAME CLASS OF
OTHER SERIES OF THE TRUSTS (OTHER THAN NEW ENGLAND GROWTH FUND, WHICH IS
AVAILABLE ONLY TO CERTAIN ELIGIBLE INVESTORS). THE MINIMUM MONTHLY EXCHANGE
AMOUNT UNDER THE PLAN IS $50. THERE IS NO FEE FOR EXCHANGES MADE PURSUANT TO
THIS PROGRAM, BUT THERE MAY BE A SALES CHARGE AS DESCRIBED ON THIS PAGE.]
CLASS A SHARES
Except as indicated in the next two sentences, you may exchange Class A shares
of any series of the Trusts (and Class A shares of the Money Market Funds
acquired through exchanges from any of the series of the Trusts) for Class A
shares of any other series of the Trusts (except New England Growth Fund, which
is subject to special eligibility restrictions) without paying a sales charge;
such exchanges will be made at the next-determined net asset value of the
shares. Class A shares of New England Intermediate Term Tax Free Fund of
California and New England Intermediate Term Tax Free Fund of New York (and
shares of the Money Market Funds acquired through exchanges of such shares) may
be exchanged for Class A shares of another series of the Trusts at net asset
value (or at a reduced sales charge) only if you have held them for at least six
months; otherwise, sales charges apply to the exchange. If you exchange your
Class A shares of New England Adjustable Rate U.S. Government Fund (the
"Adjustable Rate Fund") for shares of another series of the Trusts that has a
higher sales charge, you will pay the difference between any sales charge you
have already paid on your Adjustable Rate Fund shares and the higher sales
charge of the series into which you are exchanging. In addition, you may redeem
Class A shares of any Money Market Fund that were not acquired through exchanges
from any series of the Trusts and have the proceeds directly applied to the
purchase of shares of a series of the Trusts at the applicable sales charge.
CLASS B SHARES
You may exchange Class B shares of the Fund or any series of the Trusts (and
Class B shares of the Money Market Funds or Class A shares of the Money Market
Funds which have not been subject to a previous sales charge) for Class B shares
of any other series of the Trusts (except New England Growth Fund, which does
not offer Class B shares). Such exchanges will be made at the next determined
net asset value of the shares. Class B shares will automatically convert on a
tax-free basis to Class A shares eight years after they are purchased (excluding
the time the shares are held in a Money Market Fund). See "Sales Charges - Class
B Shares" above.
CLASS C SHARES
You may exchange Class C shares of the Fund or any other series of the Trusts
for Class C shares of any other series of the Trusts which offers Class C shares
or for Class A shares of the Money Market Funds.
CLASS Y SHARES
A shareholder may exchange Class Y shares of the Fund or any other series of the
Trusts for Class Y shares of any other series of the Trusts which offers Class Y
shares or for Class A shares of the Money Market Funds.
TO MAKE AN EXCHANGE, please call 1-800-225-5478 between 8:00 a.m. and 7:00 p.m.
(Eastern time), call Tele#Facts at 1-800-346-5984 twenty-four hours a day or
write to New England Funds. Exchange requests accepted after 4:00 p.m. (Eastern
time), or after the Exchange closes if it closes earlier than 4:00 p.m., will be
processed at the net asset value determined at the close of regular trading on
the next day that the Exchange is open. The exchange must be for a minimum of
$500 (or the total net asset value of your account, whichever is less), except
that under the Automatic Exchange Plan the minimum is $50. All exchanges are
subject to the minimum investment and eligibility requirements of the series
into which you are exchanging. In connection with any exchange, you must receive
a current prospectus of the series into which you are exchanging. The exchange
privilege may be exercised only in those states where shares of such other
series may be legally sold. You have the automatic privilege to exchange your
Fund shares by telephone. New England Funds, L.P. will employ reasonable
procedures to confirm that your telephone instructions are genuine, and, if it
does not, it may be liable for any losses due to unauthorized or fraudulent
instructions. New England Funds, L.P. will require a form of personal
identification prior to acting upon your telephone instructions, will provide
you with written confirmations of such transactions and will record your
instructions.
Except as otherwise permitted by SEC rule, shareholders will receive at least 60
days' advance notice of any material change to the exchange privilege.
FUND DIVIDEND PAYMENTS
The Fund pays dividends annually. The Fund pays as dividends substantially all
net investment income (other than long-term capital gains) each year and
distributes annually all net realized long-term capital gains (after applying
any available capital loss carryovers). The trustees of the Trust may adopt a
different schedule as long as payments are made at least annually. If you intend
to purchase shares of the Fund shortly before it declares a dividend, you should
be aware that a portion of the purchase price may be returned to you as a
taxable dividend.
You have the option to reinvest all distributions in additional shares of the
same class of the Fund or in shares of the same class of other series of the
Trusts, to receive distributions from dividends and interest in cash while
reinvesting distributions from capital gains in additional shares of the same
class of the Fund or the same class of shares of other series of the Trusts, or
to receive all distributions in cash. Income distributions and capital gains
distributions will be reinvested in shares of the same class of the Fund at net
asset value (without a sales charge or CDSC) unless you select another option.
You may change your distribution option by notifying New England Funds in
writing or by calling 1-800-225-5478. If you elect to receive your dividends in
cash and the dividend checks sent to you are returned undeliverable to the Fund
or remain uncashed for six months, your cash election will automatically be
changed and your future dividends will be reinvested.
- --------------------------------------------------------------------------------
DIVIDEND DIVERSIFICATION PROGRAM
- --------------------------------------------------------------------------------
You may also establish a dividend diversification program that allows you to
have all dividends and any other distributions automatically invested in
shares of the same class of another New England Fund, subject to the investor
eligibility requirements of that other fund and to state securities law
requirements. Shares will be purchased at the selected fund's net asset value
(without a sales charge or CDSC) on the dividend record date. A dividend
diversification account must be in the same registration (shareholder name) as
the distributing fund account and, if a new account in the purchased fund is
being established, the purchased fund's minimum investment requirements must
be met. Before establishing a dividend diversification program into any other
New England Fund, you must obtain a copy of that fund's prospectus.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Selling Fund Shares
- --------------------------------------------------------------------------------
4 WAYS TO SELL FUND SHARES
You may sell shares of the Fund in the following ways:
[] THROUGH YOUR INVESTMENT DEALER (CLASS A, CLASS B AND CLASS C ONLY):
Call your authorized investment dealer for information.
[] BY TELEPHONE:
You or your investment dealer may redeem (sell) shares by telephone using any of
the three methods described below:
WIRED TO YOUR BANK ACCOUNT -- If you have previously selected the telephone
redemption privilege on your account, shares may be redeemed by calling
1-800-225-5478 between 8:00 a.m. and 7:00 p.m. (Eastern time) or by calling
Tele#Facts at 1-800-346-5984 twenty-four hours a day. The proceeds (less any
applicable CDSC) generally will be wired on the next business day to the bank
account previously chosen by you on your application. A wire fee (currently
$5.00) will be deducted from the proceeds.
Your bank must be a member of the Federal Reserve System or have a correspondent
bank that is a member. If your account is with a savings bank, it must have only
one correspondent bank that is a member of the System.
MAILED TO YOUR ADDRESS OF RECORD -- Shares may be redeemed by calling
1-800-225-5478 between 8:00 a.m. and 7:00 p.m. (Eastern time) and requesting
that a check for the proceeds (less any applicable CDSC) be mailed to the
address on your account, provided that the address has not changed over the
previous month and that the proceeds are for $100,000 or less. Generally, the
check will be mailed to you on the business day after your redemption request is
received.
THROUGH ACH -- Class A, Class B and Class C shares may be redeemed
electronically through the ACH system, provided that you have an approved ACH
application on file with the Fund. To redeem through ACH, call 1-800-225-5478
between 8:00 a.m. and 7:00 p.m. (Eastern time) on a day when the Fund is open
for business or call Tele#Facts at 1-800-346-5984 twenty-four hours a day. The
proceeds (less any applicable CDSC) generally will arrive at your bank within
three business days; their availability will depend on your bank's particular
rule.
Redemption requests accepted after 4:00 p.m. (Eastern time), or after the
Exchange closes if it closes earlier than 4:00 p.m., will be processed at the
net asset value determined at the close of regular trading on the next day that
the Exchange is open.
[] BY MAIL:
You may redeem your shares at their net asset value (less any applicable CDSC)
next determined after receipt of your request in good order by sending a written
request (including any necessary special documentation) to New England Funds,
P.O. Box 8551, Boston, MA 02266-8551.
The request must include the name of the Fund, your account number, the exact
name(s) in which your shares are registered, the number of shares or the dollar
amount to be redeemed and whether you wish the proceeds mailed to your address
of record, wired to your bank account or transmitted through ACH. All owners of
the shares must sign the request in the exact names in which the shares are
registered (this appears on your confirmation statement) and indicate any
special capacity in which you are signing (such as trustee, custodian, under
power of attorney or on behalf of a partnership, corporation or other entity).
If you are redeeming shares worth less than $100,000 and the proceeds check is
made payable to the registered owner(s) and mailed to the record address, no
signature guarantee is required. Otherwise, you generally must have your
signature guaranteed by an eligible guarantor institution in accordance with
procedures established by New England Funds, L.P. Signature guarantees by
notaries public are not acceptable.
Additional written information may be required for redemptions by certain
benefit plans and IRAs. Contact the Distributor or your investment dealer for
details.
If you hold certificates for your Class A shares, you must enclose them with
your redemption request or your request will not be honored. The Fund recommends
that certificates be sent by registered mail.
[] BY SYSTEMATIC WITHDRAWAL PLAN (CLASS A, CLASS B AND CLASS C ONLY):
You may establish a Systematic Withdrawal Plan that allows you to redeem shares
and receive payments on a regular schedule. In the case of shares subject to a
CDSC, the amount or percentage you specify may not exceed, on an annualized
basis, 10% of the value of your Fund account. Redemption of shares pursuant to
the Plan will not be subject to a CDSC. For information, contact the Distributor
or your investment dealer. Since withdrawal payments may have tax consequences,
you should consult your tax adviser before establishing such a plan.
GENERAL. Redemption requests will be effected at the net asset value next
determined after your redemption request is received in proper form by State
Street Bank or your investment dealer (except that orders received by your
investment dealer before the close of regular trading on the Exchange and
transmitted to the Distributor by 5:00 p.m. (Eastern time) on the same day will
receive that day's net asset value). Redemption proceeds (LESS ANY APPLICABLE
CDSC) will normally be mailed to you within seven days after State Street Bank
or the Distributor receives your request in good order. However, in those cases
where you have recently purchased your shares by check or an electronic funds
transfer through the ACH system and you make a redemption request within 10 days
after such purchase or transfer, the Fund may withhold redemption proceeds until
the Fund knows that the check or funds have cleared.
During periods of substantial economic or market change, telephone redemptions
may be difficult to implement. If you are unable to contact the Distributor by
telephone, shares may be redeemed by delivering the redemption request in person
to the Distributor or by mail as described above. Requests are processed at the
net asset value next determined after the request is received.
Special rules apply with respect to redemptions under powers of attorney. Please
call your investment dealer or the Distributor for more information.
Telephone redemptions are not available for tax qualified retirement plans or
for Fund shares held in certificate form. If certificates have been issued for
your investment, you must send them to New England Funds along with your request
before a redemption request can be honored. See the instructions for redemption
by mail above.
The Fund may suspend the right of redemption and may postpone payment for more
than seven days when the Exchange is closed for other than weekends or holidays,
or if permitted by the rules of the SEC when trading on the Exchange is
restricted or during an emergency which makes it impracticable for the Fund to
dispose of its securities or to determine fairly the value of its net assets, or
during any other period permitted by the SEC for the protection of investors.
REPURCHASE OPTION
(CLASS A SHARES ONLY)
You may apply your Class A share redemption proceeds (without a sales charge) to
the repurchase of Class A shares of any series of the Trusts. To qualify, you
must reinvest some or all of the proceeds within 120 days after your redemption
and notify New England Funds or your investment dealer at the time of
reinvestment that you are taking advantage of this privilege. You may reinvest
the proceeds either by returning the redemption check or by sending your check
for some or all of the redemption amount. Please note: For federal income tax
purposes, a redemption is a sale that involves tax consequences (even if the
proceeds are later reinvested). Please consult your tax adviser.
<PAGE>
- --------------------------------------------------------------------------------
Fund Details
- --------------------------------------------------------------------------------
HOW FUND SHARE PRICE IS DETERMINED
The net asset value of the Fund's shares is determined as of the close of
regular trading (normally 4:00 p.m. Eastern time) on the Exchange on each day
that the Exchange is open for trading.
A security that is primarily traded on a domestic or foreign securities exchange
will be valued at the last sale price on that exchange or, if no sales occurred
during the day, at the last quoted bid price. Securities traded primarily on an
exchange outside the United States which closes before the close of the
Exchange, such as the TASE, generally will be valued for purposes of calculating
the Fund's net asset value at the last sale or bid price on that non-U.S.
exchange, except that when an occurrence after the closing of that exchange is
likely to have materially changed such a security's value, such security will be
valued at fair value as of the close of regular trading on the Exchange. An
option that is written by the Fund generally will be valued at the last sale
price or, in the absence of the last sale price, the last offer price. An option
that is purchased by the Fund is generally valued at the last sale price or, in
the absence of the last sale price, at the last bid price. The value of a
futures contract will be equal to the unrealized gain or loss on the contract
that is determined by marking the contract to the current settlement price. A
settlement price may not be used if the market makes a limit move with respect
to a particular futures contract or if the securities underlying the futures
contract experience significant price fluctuations after the determination of
the settlement price. When a settlement price cannot be used, futures contracts
will be valued at their fair value as determined by or under the direction of
the Trust's Board of Trustees. Any assets initially expressed in terms of
shekels or other foreign currency will be translated into U.S. dollars at the
prevailing market rate on the date of net asset value computation, or, if no
such rate is quoted at such time, at such other appropriate rate as may be
determined by or under the direction of the Trust's Board of Trustees.
The TASE trades on Sundays and certain other customary U.S. business holidays on
which the Exchange is not open for trading. Even though the Fund's assets traded
on the TASE may continue to trade on these days, the Fund will not accept orders
and the net asset value of the Fund's shares will not be determined on these
days. As a result, investors will not be able to purchase, sell or exchange
shares on these days even though the TASE is open for trading on those days and
the net asset value may be significantly affected by trading on the TASE.
The net asset value per share of each class is determined by dividing the value
of each class's securities (the current U.S. dollar value, in the case of
securities principally traded outside the United States) plus any cash and other
assets (including dividends and interest receivable but not collected) less all
liabilities (including accrued expenses), by the number of shares of such class
outstanding. The public offering price of the Fund's Class A shares is
determined by adding the applicable sales charge to the net asset value. See
"Buying Fund Shares - Sales Charges" above. The public offering price of Class
B, Class C and Class Y shares is the net asset value per share.
The price you pay for a share will be determined using the next set of
calculations made after your order is accepted by New England Funds, L.P. In
other words, if, on a Tuesday morning, your properly completed application is
received, your wire is received or your dealer places your trade for you, the
price you pay will be determined by the calculations made as of the close of
regular trading on the Exchange on Tuesday. If you buy shares through your
investment dealer, the dealer must receive your order by the close of regular
trading on the Exchange and transmit it to the Distributor by 5:00 p.m. (Eastern
time) to receive that day's public offering price.
INCOME TAX CONSIDERATIONS
The Fund intends to meet all requirements of the Code necessary to qualify as a
regulated investment company and thus does not expect to pay any U.S. federal
income tax on investment income and capital gains distributed to shareholders in
cash or in additional shares. Unless you are a tax-exempt entity, your
distributions derived from the Fund's short-term capital gains and ordinary
income are taxable to you as ordinary income. (These distributions are unlikely
to qualify for the dividends-received deduction for corporations.) Distributions
derived from the Fund's long-term capital gains ("capital gains distributions"),
if designated as such by the Fund, are taxable to you as long-term capital
gains, regardless of how long you have owned shares in the Fund. Both income
distribution and capital gains distributions are taxable whether you elected to
receive them in cash or additional shares.
To avoid an excise tax, the Fund intends to distribute prior to calendar year
end virtually all the Fund's ordinary income and net capital gains earned during
that calendar year. If declared in December to shareholders of record in that
month, and paid the following January, these distributions will be considered
for federal income tax purposes to have been received by shareholders on
December 31.
The Fund is required to withhold 31% of all income dividends and capital gains
distributions it pays to you if you do not provide a correct, certified taxpayer
identification number, if the Fund is notified that you have underreported
income in the past or if you fail to certify to the Fund that you are not
subject to such withholding. In addition, the Fund will be required to withhold
31% of the gross proceeds of Fund shares you redeem if you have not provided a
correct, certified taxpayer identification number. If you are a tax-exempt
shareholder, however, these back-up withholding rules will not apply so long as
you furnish the Fund with an appropriate certification.
Annually, if you earn more than $10 in taxable income from the Fund, you will
receive a Form 1099 to assist you in reporting the prior calendar year's
distributions on your federal income tax return. You should consult your tax
adviser about any state or local taxes that may apply to such distributions. Be
sure to keep the Form 1099 as a permanent record.
A fee may be charged for any duplicate information requested.
The Fund may be liable to foreign governments for taxes relating primarily to
investment income or capital gains on foreign securities in the Fund's
portfolio. See "Israeli Taxes" below. The Fund may in some circumstances be
eligible to, and in its discretion may, make an election under the Code which
would allow Fund shareholders who are U.S. citizens or U.S. corporations to
claim a foreign tax credit or deduction (but not both) on their U.S. income tax
return. If the Fund makes the election, the amount of each shareholder's
distribution reported on the information returns filed by the Fund with the
Internal Revenue Service must be increased by the amount of the shareholder's
portion of the Fund's foreign tax paid.
The foregoing is a summary of certain federal income tax consequences of an
investment in the Fund for shareholders who are U.S. citizens or corporations.
Shareholders should consult a competent tax adviser as to the effect of an
investment in the Fund on their particular federal, state and local tax
situations and about consequences of their investment under Israeli tax law.
[AVERAGE COST STATEMENT
IF YOU HAVE EXCHANGED OR REDEEMED SHARES DURING THE YEAR, YOU WILL RECEIVE A
STATEMENT THAT SHOWS THE COST BASIS OF THOSE SHARES, WHICH SHOULD HELP YOU
DETERMINE YOUR GAIN OR LOSS FOR TAX PURPOSES.]
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
relates in part to 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] 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.
Pursuant to the tax treaty between the United States and Israel (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 Treaty
and entitled to claim the benefits afforded to such resident by the Treaty will
generally not be subject to the Israeli capital gains tax. See the SAI for
further details.
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. 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 U.S. residents.
OTHER TAXATION
Distributions also may be subject to additional state, local and foreign taxes
depending on each shareholder's particular situation.
This discussion is limited only to U.S. federal income tax and Israeli income
tax. Moreover, the U.S. federal income tax and Israeli income tax discussion set
forth above is a summary included for general information purposes only. In view
of the individual nature of tax consequences, each investor is advised to
consult its own tax adviser with respect to the specific tax consequences to it
of participation in the Fund, including the effect and applicability of state,
local, foreign and other tax laws and the possible effects of changes in federal
or other tax laws.
THE FUND'S EXPENSES
In addition to the management fee paid to NEFM, the Fund pays all expenses not
borne by NEFM, the subadvisers or the Distributor, including, but not limited
to, the charges and expenses of the Fund's custodian and transfer agent,
independent auditors and legal counsel for the Fund and the Trust's independent
trustees, 12b-1 fees, 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 federal and state
securities laws, all expenses of shareholders' and trustees' meetings,
preparing, printing and mailing prospectuses and reports to shareholders and the
compensation of trustees of the Trust who are not directors, officers or
employees of The New England or its affiliates, other than affiliated registered
investment companies.
Under a Service Plan in the case of Class A shares, and a Service and
Distribution Plan in the case of Class B and Class C shares, adopted pursuant to
Rule 12b-1 under the Investment Company Act of 1940, the Fund pays the
Distributor a monthly service fee at an annual rate not to exceed 0.25% of the
Fund's average daily net assets attributable to the Class A, Class B and Class C
shares. The Distributor may pay up to the entire amount of this fee to
securities dealers who are dealers of record with respect to the Fund's shares,
for providing personal services to investors in shares of the Fund and/or the
maintenance of shareholder accounts. In the case of the Class B shares, the
Distributor pays investment dealers at the time of the sale the first year's
service fee, in the amount of up to 0.25% of the amount invested. The Class A
service fee is payable only to reimburse the Distributor for amounts it pays or
expends in connection with the provision of personal services to investors
and/or the maintenance of shareholder accounts. To the extent that the
Distributor's reimbursable expenses in any year exceed the maximum amount
payable under the relevant Service Plan for that year, such expenses may be
carried forward for reimbursement in future years in which the Plan remains in
effect. The Class B and Class C service fees are payable regardless of the
amount of the Distributor's related expenses.
The Fund's Class B and Class C shares also pay the Distributor a monthly
distribution fee at an annual rate not to exceed 0.75% of the average net assets
of the Fund's Class B and Class C shares. The Distributor may pay up to the
entire amount of this fee to securities dealers who are dealers of record with
respect to the Fund's shares, as distribution fees in connection with the sale
of the Fund's shares. The Distributor retains the balance of the fee as
compensation for its services as distributor of the Class B and Class C shares.
PERFORMANCE CRITERIA
The Fund may include total return information for each class of shares in
advertisements or other written sales material. The Fund may show each class's
average annual total return for the one-, five- and ten-year periods (or the
life of the class, if shorter) through the end of the most recent calendar
quarter. Total return is measured by comparing the value of a hypothetical
$1,000 investment in a class at the beginning of the relevant period to the
value of the investment at the end of the period (assuming deduction of the
current maximum sales charge on Class A shares, automatic reinvestment of all
dividends and capital gains distributions and, in the case of Class B shares,
imposition of the CDSC relevant to the period quoted). Total return may be
quoted with or without giving effect to any voluntary expense limitations in
effect for the class in question during the relevant period. The class may also
show total return over other periods, on an aggregate basis for the period
presented, or without deduction of a sales charge. If a sales charge is not
deducted in calculating total return, the class's total return will be higher.
Total return will generally be higher for Class A shares than for Class B and
Class C shares, because of the higher levels of expenses borne by Class B and
Class C shares. An investor should balance this expected lower total return
against the benefit gained by 100% immediate investment of the purchase price of
Class B or Class C shares. As a result of lower operating expenses, Class Y
shares can be expected to achieve a higher investment return than Class A, Class
B or Class C shares.
All performance information is based on past results and is not an indication of
likely future performance.
ADDITIONAL FACTS ABOUT THE FUND
* New England Funds Trust II was organized in 1931 as a Massachusetts
business trust and is authorized to issue an unlimited number of full and
fractional shares in multiple series. The Fund is a newly organized series
of the Trust.
* When you invest in the Fund, you acquire freely transferable shares of
beneficial interest that entitle you to receive dividends as determined by
the Trust's trustees and to cast a vote for each share you own at
shareholder meetings. Shares of the Fund vote separately from shares of
other series of the Trust, except as otherwise required by law. Shares of
all classes of the Fund vote together, except as to matters relating to the
Rule 12b-1 plan that applies to the Class A, Class B or Class C shares, on
which only shares of that class are entitled to vote. No Rule 12b-1 plan
applies to the Class Y shares of the Fund.
* Except for matters that are explicitly identified as "fundamental" in this
prospectus or the SAI, the investment policies of the Fund may be changed
without shareholder approval or, in most cases, prior notice. The
investment objective of the Fund is not fundamental. If there is a change
in the Fund's objective, shareholders should consider whether the Fund
remains an appropriate investment in light of their current financial
position and needs.
* The Trust does not generally hold regular shareholder meetings and will do
so only when required by law. Shareholders of the Trust may remove the
trustees of the Trust from office by votes cast at a shareholder meeting or
by written consent.
* The transfer and dividend paying agent for the Fund is New England Funds,
L.P., 399 Boylston Street, Boston, MA 02116. New England Funds, L.P. has
subcontracted certain of its obligations as such to State Street Bank, 225
Franklin Street, Boston, MA 02110.
* If the balance in your account with the Fund is less than a minimum amount
set by the trustees of the Trust from time to time (currently $500 for all
accounts, except for those indicated below and for Individual Retirement
Accounts, which have a $25 minimum), the Fund may close your account and
send the proceeds to you. Shareholders who are affected by this policy will
be notified of the Fund's intention to close the account and will have 60
days immediately following the notice to bring the account up to the
minimum. The minimum does not apply to Keogh, pension and profit sharing
plans, automatic investment plans or accounts that have fallen below the
minimum solely because of fluctuations in the Fund's net asset value per
share.
* The Fund's annual report contains additional performance information and
will be made available upon request and without charge.
* The Class A, Class B, Class C and Class Y structure could be terminated
should certain IRS rulings be rescinded.
* Summit Cash Reserves Fund (the "Cash Fund"), a series of Financial
Institutions Series Trust, is related to the Fund for purposes of
investment and investor services. Shares of all classes of the Fund may be
exchanged for shares of the Cash Fund at net asset value. If shares of the
Fund that are exchanged for shares of the Cash Fund are subject to a CDSC,
the holding period for purposes of determining the expiration of the CDSC
will stop and resume only when an exchange is made back into shares of the
Fund. If Fund shares subject to a CDSC are exchanged for Cash Fund shares
and the Cash Fund shares are later redeemed rather than being exchanged
back into shares of any series of the Trusts, then a CDSC will apply at the
same rate as if the Fund shares were redeemed at the time of the exchange.
<PAGE>
- --------------------------------------------------------------------------------
Glossary of Terms
- --------------------------------------------------------------------------------
CAPITAL GAIN DISTRIBUTIONS -- Payments to shareholders of profits earned from
selling securities in a fund's portfolio. Capital gain distributions are usually
paid once a year.
CONTINGENT DEFERRED SALES CHARGE (CDSC) -- A fee that may be charged when a
shareholder sells fund shares.
DISTRIBUTION FEE -- An annual asset-based sales charge that is used to pay for
sales-related expenses.
INCOME DISTRIBUTIONS -- Payments to shareholders resulting from interest or
dividend income earned by a fund's portfolio.
MUTUAL FUND -- The pooled assets of a group of investors, professionally managed
in pursuit of a specific objective.
NET ASSET VALUE (NAV) -- The market value of one share of a mutual fund on any
given day without sales charge or CDSC. Determined by dividing the fund's total
net assets by the number of fund shares outstanding.
NEW ENGLAND FUNDS, L.P. -- The distributor and transfer agent of the New England
Funds.
OPEN END INVESTMENT MANAGEMENT COMPANY -- A mutual fund that allows investors to
redeem fund shares directly from the fund company on any business day.
PUBLIC OFFERING PRICE -- The price of one share of a mutual fund, including its
initial sales charge, if there is one.
RECORD DATE -- The date on which mutual fund investors must own a fund's shares
to be eligible to receive specific income or capital gain distributions.
SERVICE FEE -- Payments by a fund for personal services to investors and/or for
maintenance of shareholder accounts by the fund's distributor or a financial
representative.
TOTAL RETURN -- The change in value of an investment in a fund investment over a
specific time period, assuming all earnings are reinvested in additional shares
of the fund. Expressed as a percentage.
12B-1 FEES -- Fees paid by a mutual fund under a plan adopted under 1940 Act
Rule 12b-1. Can include both distribution fees and service fees.
<PAGE>
[LOGO]
NEW ENGLAND FUNDS
Where The Best Minds Meet(TM)
- --------------------------------------------------------------------------------
GROWTH FUND OF ISRAEL
STATEMENT OF ADDITIONAL INFORMATION
December 29, 1995
As revised August 15, 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, as supplemented from time
to time (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 Shares 18
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 and Tax Status 34
Financial Statements 37
Appendix A - Description of Bond Ratings 38
Appendix B - Publications That May Contain Fund Information 40
Appendix C - Advertising and Promotional Literature 43
<PAGE>
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 (excluding Rule 144A securities deemed to be liquid under
guidelines established by the Trust's trustees and certain Section 4(2)
commercial paper);
(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:
o 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.
o 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.
o "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.
o "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.
o "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
and CEO, 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 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.
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.
- ----------------------------
* Trustee deemed an "interested person" of the Trust, as defined in the
Investment Company Act of 1940 (the "1940 Act").
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).
<TABLE>
<CAPTION>
Pension or Total Compensation
Aggregate Retirement Benefits from the New
Compensation Accrued as Part of Estimated Annual England Funds
from the Trust Fund Expenses Benefits Trusts, Zenith and
Name of Trustee in 1994 in 1994 Upon Retirement NEVA in 1994
- --------------- ------- ------- --------------- ------------
<S> <C> <C> <C> <C>
Graham T. Allison, Jr.(a) $ 0 $0 $0 $ 0
Daniel M. Cain(b) $ 0 $0 $0 $ 0
Kenneth J. Cowan $18,244 $0 $0 $59,375
Richard Darman(b) $ 0 $0 $0 $ 0
Joseph M. Hinchey(c) $17,507 $0 $0 $56,875
Richard S. Humphrey, Jr.(c) $17,507 $0 $0 $56,875
Robert B. Kittredge(c) $17,951 $0 $0 $89,279(e)
Laurens MacLure(c) $18,688 $0 $0 $91,779(e)
Sandra O. Moose $16,326 $0 $0 $52,875
James H. Scott(d) $17,507 $0 $0 $56,875
John A. Shane $17,211 $0 $0 $55,875
Joseph F. Turley(c) $17,951 $0 $0 $58,375
Pendleton P. White $17,951 $0 $0 $58,375
<FN>
(a) Became a trustee of the Trust effective April 1, 1995.
(b) Became a trustee of the Trust effective February 23, 1996.
(c) Resigned as a trustee of the Trust effective May 1, 1995.
(d) Resigned as a trustee of the Trust effective March 5, 1996.
(e) 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.
</TABLE>
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 MUNICIPAL INCOME FUND seeks as high a level of current
income exempt from federal income taxes as is consistent with reasonable risk
and protection of shareholders' capital. The Municipal Income Fund invests
primarily in debt securities of municipal issuers, the interest of which is
exempt from federal income tax but may be subject to the federal alternative
minimum tax, and may engage in transactions in financial futures contracts and
options on futures.
NEW ENGLAND MASSACHUSETTS TAX FREE INCOME FUND seeks as high a level of
current income exempt from federal income tax and Massachusetts personal income
taxes as Back Bay Advisors, the Fund's subadviser, believes is consistent with
preservation of capital.
NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA seeks as high
a level of current income exempt from federal income tax and its state personal
income tax as is consistent with preservation of capital.
NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF NEW YORK seeks as high a
level of current income exempt from federal income tax and its state personal
income tax and New York City personal income tax as is consistent with
preservation of capital.
MONEY MARKET FUNDS:
NEW ENGLAND CASH MANAGEMENT TRUST -
Money Market Series -- 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.
<TABLE>
INVESTMENTS AT 8% RATE OF RETURN
<CAPTION>
5 YRS. 10 15 20 25 30
<S> <C> <C> <C> <C> <C> <C> <C>
$ 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
<CAPTION>
INVESTMENTS AT 10% RATE OF RETURN
5 YRS. 10 15 20 25 30
<S> <C> <C> <C> <C> <C> <C> <C>
$ 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
</TABLE>
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.
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The financial statements of Growth Fund of Israel included in its
semi-annual report for the period ended June 30, 1996 are incorporated herein by
reference.
<PAGE>
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.
<PAGE>
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
B'nai B'rith Jewish Monthly
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
Internet
Investment Advisor
Investment Company Institute
Investment Dealers Digest
Investment Profiles
Investment Vision
Investor's Daily
IRA Reporter
Journal of Commerce
Kansas City Star
KCMO (Kansas City)
KOA-AM (Denver)
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
World Wide Web
Worth Magazine
WRKO
<PAGE>
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, Founders Asset
Management, Inc. and Montgomery Asset Management, L.P.
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.
<PAGE>
NEW ENGLAND FUNDS TRUST II
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Highlights for the Registrant's Growth Fund of Israel are
included in Part A hereof. The following financial statements are
incorporated in Part II of the statement of additional information
filed as Part B hereof by reference to the semi-annual report to
shareholders of Growth Fund of Israel listed below for the semi-annual
period ended June 30, 1996, which was filed with the Commission on
August 14, 1996:
(1) Growth Fund of Israel (August 14, 1996)
(i) Portfolio Composition
(ii) Statement of Assets & Liabilities
(iii) Statement of Operations
(iv) Statement of Changes in Net Assets
(v) Per Share Data and Ratios
(b) Exhibits:
1. (a) Second Amended and Restated Agreement and Declaration of
Trust of the Registrant is incorporated herein by reference
to Post-Effective Amendment No. 104 to this Registration
Statement filed on April 19, 1996.
(b) Amendment No. 5 to Second Amended and Restated Agreement and
Declaration of Trust of the Registrant is incorporated
herein by reference to Post-Effective Amendment No. 104 to
this Registration Statement filed on April 19, 1996.
(c) Amendment No. 6 to Second Amended and Restated Agreement and
Declaration of Trust of the Registrant is incorporated
herein by reference to Post-Effective Amendment No. 104 to
this Registration Statement filed on April 19, 1996.
2. (a) Amended and Restated By-Laws of the Registrant are filed
herein.
(b) Amendment to the By-Laws of the Registrant is filed herein.
3. Not applicable.
4. Rights of shareholders are described in Article III, Section 6 of
the Second Amended and Restated Agreement and Declaration of
Trust of the Registrant filed as Exhibit 1(a) to this
Registration Statement.
5. (a) Advisory Agreement between the Registrant and New England
Funds Management, L.P. ("NEFM") relating to the High Income
series of the Registrant is filed herewith.
(b) Advisory Agreements between the Registrant and NEFM relating
to the following series of the Registrant are incorporated
herein by reference to Post-Effective Amendment No. 104 to
this Registration Statement filed on April 19, 1996:
(i) New England Growth Opportunities Fund
(ii) Growth Fund of Israel
(iii) New England Limited Term U.S. Government Fund
(iv) New England Adjustable Rate U.S. Government Fund
(v) New England Massachusetts Tax Free Income Fund
(vi) New England Intermediate Term Tax Free Fund of
California
(vii) New England Intermediate Term Tax Free Fund of
New York
(c) Sub-Advisory Agreement relating to the High Income series of
the Registrant between NEFM and Loomis, Sayles & Co., L.P.
is filed herein.
(d) Sub-Advisory Agreements relating to the following series of
the Registrant between NEFM and the subadvisers indicated in
parentheses are incorporated herein by reference to
Post-Effective Amendment No. 104 to this Registration
Statement filed on April 19, 1996:
(i) New England Growth Opportunities Fund (Westpeak
Investment Advisors, L.P. ("Westpeak"))
(ii) Growth Fund of Israel (Harris Associates L.P.
("Harris"))
(iii) New England Limited Term U.S. Government Fund
(Back Bay Advisors, L.P. ("Back Bay Advisors"))
(iv) New England Adjustable Rate U.S. Government Fund
(Back Bay Advisors)
(v) New England Massachusetts Tax Free Income Fund
(Back Bay Advisors)
(vi) New England Intermediate Term Tax Free Fund of
California (Back Bay Advisors)
(vii) New England Intermediate Term Tax Free Fund of
New York (Back Bay Advisors)
6. (a) Form of Distribution Agreement between the Registrant, on
behalf of each of its series, and New England Funds, L.P. is
incorporated herein by reference to Post-Effective Amendment
No. 104 to this Registration Statement filed on April 19,
1996.
7. Not applicable.
8. (a) Letter Agreement between the Registrant and State Street
Bank and Trust Company relating to the applicability of the
Custodian Contract and the Transfer and Service Agency
Agreement to New England Adjustable Rate U.S. Government
Fund is incorporated herein by reference to Exhibit 8(A) to
Post-Effective Amendment No. 91 to this Registration
Statement, filed on December 14, 1992.
(b) Form of Letter Agreement between the Registrant and State
Street Bank and Trust Company relating to the applicability
of the Custodian Contract and the Transfer Agency and
Service Agreement to New England Intermediate Term Tax Free
Fund of California and New England Intermediate Term Tax
Free Fund of New York is incorporated herein by reference to
Exhibit 8(B) to Post-Effective Amendment No. 91 to this
Registration Statement, filed on December 14, 1992.
(c) Form of Letter Agreement between the Registrant and State
Street Bank and Trust Company relating to the applicability
of the Custodian Contract and the Transfer Agency and
Service Agreement to Growth Fund of Israel is incorporated
herein by reference to Post-Effective Amendment No. 100 to
this Registration Statement, filed on October 11, 1995.
(d) Custodian Agreement between the Registrant and State Street
Bank and Trust Company is filed herein.
9. (a) Form of Service Agreement between Back Bay Advisors and the
Distributor is incorporated herein by reference to
Post-Effective Amendment No. 83 to this Registration
Statement, filed on November 4, 1988.
(b) Form of Transfer Agency Agreement between the Registrant and
State Street Bank and Trust Company is incorporated herein
by reference to Post-Effective Amendment No. 83 to this
Registration Statement, filed on November 4, 1988.
(c) Form of Dealer Agreement of New England Funds, L.P., the
Registrant's principal underwriter, is incorporated herein
by reference to Post-Effective Amendment No. 88 to this
Registration Statement, filed on August 2, 1991.
(d) Organizational Expense Reimbursement Agreement between the
Registrant, on behalf of its New England Adjustable Rate
U.S. Government Fund, and New England Funds, L.P. is
incorporated herein by reference to Post-Effective Amendment
No. 89 to this Registration Statement, filed on January 30,
1992.
(e) Form of Organizational Expense Reimbursement Agreement
between the Registrant, on behalf of its New England
Intermediate Term Tax Free Fund of California and New
England Intermediate Term Tax Free Fund of New York, and New
England Funds, L.P. is incorporated herein by reference to
Post-Effective Amendment No. 91 to this Registration
Statement, filed December 14, 1992.
(f) Form of Class B Shares Remittance Agreement between the
Registrant and New England Funds, L.P., relating to each
series of the Registrant, is incorporated by reference to
Post-Effective Amendment No. 104 to this Registration
Statement filed on April 19, 1996.
(g) Organizational Expense Reimbursement Agreement between the
Registrant, on behalf of its Growth Fund of Israel, and New
England Funds, L.P. is incorporated by reference to
Post-Effective Amendment No. 104 to this Registration
Statement filed on April 19, 1996.
(h) Form of Economic and Market Subadvisory Agreement relating
to the Registrant's Growth Fund of Israel, between NEFM and
Batucha Securities & Investments, Ltd. is incorporated by
reference to Post-Effective Amendment No. 104 to this
Registration Statement filed on April 19, 1996.
10. (a) Opinion and consent of counsel with respect to the
Registrant's New England Growth Opportunities Fund, New
England High Income Fund, New England Limited Term U.S.
Government Fund, and New England Massachusetts Tax Free
Income Fund is incorporated herein by reference to
Post-Effective Amendment No. 84 to this Registration
Statement, filed on January 3, 1989.
(b) Opinion and consent of counsel with respect to the
Registrant's New England Adjustable Rate U.S. Government
Fund is incorporated by reference to Post-Effective
Amendment No. 88 to this Registration Statement, filed on
August 2, 1991.
(c) Opinions and consents of counsel with respect to the
Registrant's New England Intermediate Term Tax Free Fund of
California and New England Intermediate Term Tax Free Fund
of New York are incorporated herein by reference to
Post-Effective Amendment No. 92 to this Registration
Statement, filed on March 2, 1993.
(d) Opinion and consent of counsel with respect to offering
multiple classes of shares for all series of the Registrant
is incorporated herein by reference to Post-Effective
Amendment No. 95 to this Registration Statement, filed on
December 2, 1993.
(e) Opinion and consent of counsel with respect to the
Registrant's Rule 24e-2 Notice is incorporated herein by
reference to Exhibit 10(E) to Post-Effective Amendment No.
98 to this Registration Statement, filed on March 2, 1995.
(f) Opinion and consent of counsel with respect to the
Registrant's Growth Fund of Israel is incorporated herein to
Post-Effective Amendment No. 104 to this Registration
Statement filed on April 19, 1996.
(g) Opinion and consent of counsel with respect to the
Registrant's Rule 24e-2 Notice is incorporated herein to
Post-Effective Amendment No. 104 to this Registration
Statement filed on April 19, 1996.
11. None.
12. None.
13. Not applicable.
14. Model Retirement Plans.
(a) Keogh Plan is incorporated herein by reference to Exhibit
14(a) to Post-Effective Amendment No. 78 to this
Registration Statement, filed on August 1, 1985.
(b) IRA Plan is incorporated herein by reference to Exhibit
14(b) to Post-Effective Amendment No. 78 to this
Registration Statement, filed on August 1, 1985.
15. (a) Rule 12b-1 Plans relating to Class A shares of the
Registrant's New England Massachusetts Tax Free Income Fund,
New England Intermediate Term Tax Free Fund of California,
New England Intermediate Term Tax Free Fund of New York, New
England High Income Fund, New England Growth Opportunities
Fund, New England Limited Term U.S. Government Fund and New
England Adjustable Rate U.S. Government Fund are filed
herein.
(b) Form of Rule 12b-1 Plan relating to the Class B shares of
each series of the Registrant is incorporated by reference
to Post-Effective Amendment No. 104 to this Registration
Statement filed on April 19, 1996.
(c) Rule 12b-1 Plan relating to the Class C shares of New
England Limited Term U.S. Government Fund is filed herein.
(d) Rule 12b-1 Plan relating to Class C shares of New England
Growth Opportunities Fund is filed herein.
(e) Forms of Rule 12b-1 Plans relating to the Class A and Class
C shares of Growth Fund of Israel are incorporated herein by
reference to Post-Effective Amendment No. 100 to this
Registration Statement, filed on October 11, 1995.
16. Schedule for computation of performance quotations is
incorporated herein by reference to Exhibit 16 to Post-Effective
Amendment No. 83 to this Registration Statement, filed on
November 4, 1988.
17. Financial Data Schedule is filed herewith.
18. Plan adopted pursuant to Rule 18f-3 under the 1940 Act is
incorporated herein by reference to Exhibit 18 to Post-Effective
Amendment No. 99 to this Registration Statement, filed on May 1,
1995.
19. (a) Powers of Attorney designating Edward A. Benjamin, Frank
Nesvet, Henry L. P. Schmelzer and Robert P. Connolly as
attorneys to sign for Kenneth J. Cowan, Peter S. Voss, Henry
L.P. Schmelzer, Graham T. Allison, Jr., Pendleton P. White,
John A. Shane and Sandra O. Moose are incorporated herein by
reference to Exhibit 19 to Post-Effective Amendment No. 100
to this Registration Statement, filed on October 11, 1995.
(b) Powers of Attorney designating Edward A. Benjamin, Frank
Nesvet, Henry L. P. Schmelzer and Robert P. Connolly as
attorneys to sign for Daniel M. Cain and Richard Darman are
incorporated by reference to Post-Effective Amendment No.
104 to this Registration Statement filed on April 19, 1996.
Item 25. Persons Controlled by or under Common Control with Registrant
None.
Item 26. Number of Holders of Securities
The following table sets forth the number of record holders of each
class of securities of the Registrant as of May 31, 1996.
<TABLE>
<CAPTION>
Number of Record Holders
------------------------
Title of Series Class A Class B Class C Class Y
- --------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
New England Adjustable Rate U.S. Government Fund 3,886 264 --- N/A
New England Growth Opportunities Fund 9,373 4,593 254 N/A
New England Limited Term U.S. Government Fund 15,102 1,401 200 3
New England High Income Fund 2,240 778 --- ---
New England Massachusetts Tax Free Income Fund 5,847 295 --- ---
New England Intermediate Term Tax Free Fund of
California 581 143 --- ---
New England Intermediate Term Tax Free Fund of
New York 566 108 --- ---
Growth Fund of Israel 580 245 --- ---
</TABLE>
Item 27. Indemnification
See Article 4 of the Trust's Amended and Restated By-Laws, filed as
Exhibit 2(B) to Post-Effective Amendment No. 83 to Registration
Statement, filed on November 4, 1988, which is incorporated herein
by reference.
In addition, New England Mutual Life Insurance Company ("The New
England"), the parent company of the Registrant's adviser and
distributor, maintains a directors and officers liability insurance
policy with maximum coverage of $15 million, under which the
trustees and officers of the Registrant are named insured.
Item 28. Business and Other Connections of Investment Adviser
(a) Back Bay Advisors, the subadviser of the Registrant's New
England Massachusetts Tax Free Income Fund, New England
Intermediate Term Tax Free Fund of California, New England
Intermediate Term Tax Free Fund of New York, New England
Limited Term U.S. Government Fund and New England Adjustable
Rate U.S. Government Fund, is wholly owned by NEIC. Back Bay
Advisors serves as investment adviser to a number of other
registered investment companies. Back Bay Advisors' general
partner, directors and officers have been engaged during the
past two fiscal years in the following businesses,
professions, vocations or employments of a substantial nature
(former affiliations are marked with an asterisk):
<TABLE>
<CAPTION>
Name and Office with Name and Address of Nature of
Back Bay Advisors Other Affiliations Connection
----------------- ------------------ ----------
<S> <C> <C>
Back Bay Advisors, Inc. None None
General Partner
Charles T. Wallis, NEF Corporation Director
President and Chief Executive Officer 399 Boylston Street
Boston, MA 02116
Back Bay Advisors, Inc. President, Chief Executive
399 Boylston Street Officer and Director
Boston, MA 02116
Charles G. Glueck, None None
Senior Vice President
Scott A. Millimet, Chicago Board of Trade* Senior Vice President and
Executive Vice President 141 West Jackson Boulevard Manager of Carroll, McEntee &
Chicago, IL 60604 McGinley
Edgar M. Reed, Aetna Capital Management* Head of Fixed Income Management
Executive Vice President and Chief 151 Farmington Avenue Group
Investment Officer Hartford, CT 06156
J. Scott Nicholson, None None
Senior Vice President
Nathan R. Wentworth, None None
Vice President
Paul Zamagni, None None
Vice President and Treasurer
Peter Hanson, NEIC Counsel and Senior Vice
Secretary and Clerk President, Assistant Secretary
and Assistant Clerk
Draycott Partners, Ltd* ("Draycott") Assistant Secretary and
8 City Road Assistant Clerk
London EC2Y 1HE, England
Harold B. Bjornson, None None
Vice President
Peter Palfrey, None None
Vice President
Eric Gutterson, None None
Vice President
</TABLE>
(b) NEFM, a registered investment adviser that is wholly owned by
NEIC, serves as investment adviser to each of the series of
the Registrant. NEFM, organized in 1995, also serves as
investment adviser to most of the series of New England Funds
Trust I and to New England Cash Management Trust, New England
Tax Exempt Money Market Trust and New England Equity Income
Fund. NEFM's general partner, directors and officers have been
engaged during the past two fiscal years in the following
businesses, professions, vocations or employments of a
substantial nature (former affiliations are marked with an
asterisk):
<TABLE>
<CAPTION>
Name and Office with Name and Address of Nature of
NEFM Other Affiliations Connection
<S> <C> <C>
NEF Corporation New England Funds, L.P. General Partner
General Partner 399 Boylston Street
Boston, MA 02116
Henry L.P. Schmelzer, New England Funds, L.P. President and Chief Executive Officer
President and Chief Executive Officer
NEF Corporation President, Chief Executive Officer and
Director
Back Bay Advisors, Inc. Director
New England Securities* Director
399 Boylston Street
Boston, MA 02116
Frank Nesvet, New England Funds, L.P. Senior Vice President and Chief
Senior Vice President, Chief Financial Financial Officer
Officer and Treasurer
NEF Corporation Senior Vice President, Chief Financial
Officer and Treasurer
Robert P. Connolly, NEF Corporation Senior Vice President, General
Senior Vice President, General Counsel, Counsel, Secretary and Clerk
Assistant Secretary and Clerk
New England Funds, L.P. Senior Vice President, General
Counsel, Secretary and Clerk
Kroll Associates, Inc.* Managing Director and General Counsel
900 3rd Avenue
New York, NY 10022
Bruce R. Speca, NEF Corporation Executive Vice President
Executive Vice President
New England Funds, L.P. Executive Vice President
Peter H. Duffy, NEF Corporation Vice President
Vice President
New England Funds, L.P. Vice President
Martin G. Dyer NEF Corporation Vice President
New England Funds, L.P. Vice President
Ralph M. Greggs NEF Corporation Vice President
New England Funds, L.P. Vice President
Beatriz A. Pina-Smith NEF Corporation Assistant Controller
New England Funds, L.P. Assistant Controller
</TABLE>
(c) Westpeak serves as subadviser to the Registrant's New England
Growth Opportunities Fund, and is wholly owned by NEIC.
Organized in 1991, Westpeak provides investment management
services to other mutual funds and institutional clients.
Westpeak's general partner, directors and officers have been
engaged during the past two fiscal years in the following
businesses, professions, vocations or employments of a
substantial nature (former affiliations are marked with an
asterisk):
<TABLE>
<CAPTION>
Name and Office with Name and Address of Nature of
Westpeak Other Affiliations Connection
-------- ------------------ ----------
<S> <C> <C>
Westpeak Investment Advisors, Inc. None None
General Partner
Gerald H. Scriver None None
President, Chief Executive Officer and
Chief Investment Officer
Edward N. Wadsworth NEIC Executive Vice President, Clerk,
Clerk, Secretary, Chief Legal Officer Secretary and General Counsel
NEIC Inc. Executive Vice President, Clerk,
Secretary and General Counsel
Marlborough Capital Advisors, Inc. Assistant Clerk
399 Boylston Street
Boston, MA 02116
New England Investment Associates, Secretary
Inc. ("NEIA")
399 Boylston Street
Boston, MA 02116
Draycott* General Counsel, Clerk and Secretary
Robert A. Franz None None
Senior Vice President
Philip J. Cooper None None
Vice President Portfolio Management
Beverly J. DeWitt The New England Attorney and Assistant Secretary
Assistant Secretary and Assistant Clerk
TNE Advisers, Inc. Chief Legal Officer, Secretary and Clerk
501 Boylston Street
Boston, MA 02117
</TABLE>
(d) Harris serves as subadviser to the Registrant's Growth Fund of
Israel. Harris, which is wholly owned by NEIC, serves as
investment adviser to mutual funds, individuals, trusts,
retirement plans, endowments and foundations, and manages
several private partnerships, and is a registered commodity
trading adviser and commodity pool operator. Harris's general
partner, directors and officers have been engaged during the
past two fiscal years in the following businesses,
professions, vocations or employments of a substantial nature:
<TABLE>
<CAPTION>
Name and Office with Name and Address of Nature of
Harris Other Affiliations Connection
------ ------------------ ----------
<S> <C> <C>
Harris Associates Inc. Harris Associates Securities, L.P. General Partner
General Partner Two North LaSalle Street
Chicago, IL 60602
Victor Morgenstern None None
President and Chief Executive
Officer
Donald Terao None None
Chief Financial Officer,
Treasurer and Secretary
Robert M. Levy None None
Vice President
Roxanne M. Martino None None
Vice President
Anita Nagler None None
Vice President
</TABLE>
Item 29. Principal Underwriter
(a) New England Funds, L.P., the Registrant's principal underwriter,
also serves as principal underwriter for:
New England Funds Trust I
New England Funds Trust III
New England Tax Exempt Money Market Trust
New England Cash Management Trust
(b) The general partner and officers of the Registrant's principal
underwriter, New England Funds, L.P., and their address are as
follows:
<TABLE>
<CAPTION>
Positions and Offices with Principal Positions and Offices
Name Underwriter with Registrant
---- ----------- ---------------
<S> <C> <C>
NEF Corporation General Partner None
Henry L.P. Schmelzer President and Chief Executive Officer President and Trustee
Bruce R. Speca Executive Vice President Executive Vice President
Robert P. Connolly Senior Vice President, General Counsel, Secretary
Secretary and Clerk
Frank Nesvet Senior Vice President and Chief Financial Treasurer
Officer
Munish Agrawal Vice President None
Elizabeth P. Burns Vice President None
James H. Davis Vice President None
Peter H. Duffy Vice President None
Martin G. Dyer Vice President None
Tracy A. Fagan Vice President None
William H. Finnegan Vice President None
Raymond K. Girouard Vice President, Treasurer and Controller None
Ralph M. Greggs Vice President None
Lynne H. Johnson Vice President None
Caren I. Leedom Vice President None
Marie G. McKenzie Vice President None
Bernard M. Shavelson Vice President None
Christine L. Swanson Vice President None
Kristine E. Swanson Vice President None
Beatriz A. Pina-Smith Assistant Controller None
</TABLE>
The principal business address of all the above persons or entities
is 399 Boylston Street, Boston, MA 02116.
(c) Not applicable.
Item 30. Location of Accounts and Records
The following companies maintain possession of the documents required by
the specified rules:
(a) Registrant
Rule 31a-1(b)(4)
Rule 31a-2(d)
(b) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Rule 31a-1(a)
Rule 31a(b)(1), (2), (3), (5), (6), (7), (8)
Rule 31a-2(d)
(c) (i) For series of the Registrant managed by Back Bay Advisors:
New England Funds Management, L.P.
399 Boylston Street
Boston, Massachusetts 02116
Rule 31a-1(a); Rule 31a-1(b)(9), (10), (11); Rule 31a-1(f)
Rule 31a-2(d), (e)
Back Bay Advisors, L.P.
New England Funds Management L.P.
399 Boylston Street
Boston, Massachusetts 02116
Rule 31a-1(a); 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(d); and 31a-2(e)
(ii) For New England Growth Opportunities Fund:
New England Funds Management, L.P.
399 Boylston Street
Boston, Massachusetts 02116
Rule 31a-1(a); Rule 31a-1(b)(9), (10), (11); Rule 31a-1(f)
Rule 31a-2(d), (e)
Westpeak Investment Advisors, L.P.
1011 Walnut Street
Boulder, Colorado 80302
Rule 31a-1(b)(9), (10), (11); Rule 31a-1(f)
Rule 31a-2(d), 31a-2(e)
(iii) For Growth Fund of Israel:
New England Funds Management, L.P.
399 Boylston Street
Boston, Massachusetts 02116
Rule 31a-1(a); Rule 31a-1(b)(9), (10), (11); Rule 31a-1(f)
Rule 31a-2(d), (e)
Harris Associates L.P.
Two North LaSalle Street
Chicago, Illinois 60602
Rule 31a-1(b)(9), (10), (11); Rule 31a-1(f);
Rule 31a-2(d), (e)
(d) New England Funds, L.P.
399 Boylston Street
Boston, Massachusetts 02116
Rule 31a-1(d)
Rule 31a-2(c)
Item 31. Management Services
None.
Item 32. Undertakings
The Registrant undertakes to provide the annual report of any of its series
to any person who receives a prospectus for such series and who requests the
annual report.
<PAGE>
NEW ENGLAND FUNDS TRUST II
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that this
Post-Effective Amendment No. 105 to its Registration Statement meets all the
requirements for effectiveness under paragraph (b) of Rule 485 under the
Securities Act of 1933, and that it has duly caused this Post-Effective
Amendment No. 105 to its Registration Statement to be signed on its behalf by
the undersigned, thereto duly authorized, in the City of Boston, in the
Commonwealth of Massachusetts on the 15th day of August, 1996.
New England Funds Trust II
By: PETER S. VOSS*
-------------------------
Peter S. Voss
Chief Executive Officer
*By:/s/ROBERT P. CONNOLLY
-------------------------
Robert P. Connolly
Attorney-in-fact
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
Signature
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
PETER S. VOSS* Chairman of the Board; Chief Executive August 15, 1996
- ----------------------- Officer; Principal Executive Officer;
Peter S. Voss Trustee
/s/FRANK NESVET Treasurer August 15, 1996
- -----------------------
Frank Nesvet
HENRY L. P. SCHMELZER* Trustee August 15, 1996
- -----------------------
Henry L. P. Schmelzer
GRAHAM T. ALLISON, JR.* Trustee August 15, 1996
- -----------------------
Graham T. Allison, Jr.
DANIEL M. CAIN* Trustee August 15, 1996
- -----------------------
Daniel M. Cain
KENNETH J. COWAN* Trustee August 15, 1996
- -----------------------
Kenneth J. Cowan
RICHARD DARMAN* Trustee August 15, 1996
- -----------------------
Richard Darman
SANDRA O. MOOSE* Trustee August 15, 1996
- -----------------------
Sandra O. Moose
JOHN A. SHANE* Trustee August 15, 1996
- -----------------------
John A. Shane
PENDLETON P. WHITE* Trustee August 15, 1996
- -----------------------
Pendleton P. White
*By: /s/ROBERT P. CONNOLLY
----------------------
Robert P. Connolly
Attorney-In-Fact
August 15, 1996
</TABLE>
<PAGE>
NEW ENGLAND FUNDS TRUST II
EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT
-------------- -------
2(a) Amended and Restated By-Laws of the Registrant
2(b) Amendment to the By-Laws of the Registrant
5(a) Advisory Agreement between the Registrant and NEFM relating
to the High Income series
5(c) Sub-Advisory Agreement relating to the High Income series of
the Registrant between NEFM and Loomis Sayles
8(d) Custodian Agreement between the Registrant and State Street
Bank
15(a) Rule 12b-1 Plans relating to Class A shares of the
Registrant's Massachusetts Tax Free Income Fund,
Intermediate Term Tax Free Fund of California, Intermediate
Term Tax Free Fund of New York, High Income Fund, Growth
Opportunities Fund, Limited Term U.S. Government Fund and
Adjustable Rate U.S. Government Fund
15(c) Rule 12b-1 Plan relating to Class C shares of Limited Term
U.S. Government Fund
15(d) Rule 12b-1 Plan relating to Class C shares of Growth
Opportunities Fund
17 Financial Data Schedule
<PAGE>
EXHIBIT 99.2(A)
BY-LAWS
OF
INVESTMENT TRUST OF BOSTON FUNDS
ARTICLE I
Agreement and Declaration
of Trust and Principal Office
1.1 Agreement and Declaration of Trust. These By-Laws shall be subject to the
Agreement and Declaration of Trust, as from time to time in effect (the
"Declaration of Trust"), of Investment Trust of Boston Funds (the "Trust"), the
Massachusetts business trust established by the Declaration of Trust.
1.2 Principal Office of the Trust. The principal office of the Trust shall be
located in Boston, Massachusetts.
ARTICLE 2
Meetings of Trustees
2.1 Regular Meetings. Regular meetings of the Trustees may be held without call
or notice at such places and at such times as the Trustees may from time to time
determine, provided that notice of the first regular meeting following any such
determination shall be given to absent Trustees.
2.2 Special Meetings. Special meetings of the Trustees may be held, at any time
and at any place designated in the call of the meeting, when called by the
Chairman of the Board, if any, the President or the Treasurer or by two or more
Trustees, sufficient notice thereof being given to each Trustee by the Clerk or
an Assistant Clerk or by the officer or the Trustees calling the meeting.
2.3 Notice. It shall be sufficient notice to a Trustee of a special meeting to
send notice by mail at least forty-eight hours or by telegram at least
twenty-four hours before the meeting addressed to the Trustee at his usual or
last known business or residence address or to give notice to him in person or
by telephone at least twenty-four hours before the meeting. Notice of a meeting
need not be given to any Trustee if a written waiver of notice, executed by him
before or after the meeting, is filed with the records of the meeting, or to any
Trustee who attends the meeting without protesting prior thereto or as its
commencement the lack of notice to him. Neither notice of a meeting nor a waiver
of a notice need specify the purposes of the meeting.
2.4 Quorum. At any meeting of the Trustees a majority of the Trustees then in
office shall constitute a quorum. Any meeting may be adjourned from time to time
by a majority of the votes cast upon the question, whether or not a quorum is
present, and the meeting may be held as adjourned without further notice.
2.5 Action by Vote. When a quorum is present at any meeting, a majority of
Trustees present may take any action, except when a larger vote is expressly
required by law, by the Declaration of Trust or by these By-Laws.
2.6 Action by Writing. Except as required by law, any action required or
permitted to be taken at any meeting of the Trustees may be taken without a
meeting if a majority of the Trustees (or such larger proportion thereof as
shall be required by any express provision of the Declaration of Trust or these
By-Laws) consent to the action in writing and such written consents are filled
with the records of the meetings of the Trustees. Such consent shall be treated
for all purposes as a vote taken at a meeting of Trustees.
2.7 Presence through Communications Equipment. Except as required by law, the
Trustees may participate in a meeting of Trustees by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time and
participation by such means shall constitute presence in person at a meeting.
ARTICLE 3
Officers
3.1 Enumeration; Qualification. The officers of the Trust shall be a President,
a Treasurer, a Clerk, and such other officers, if any, as the Trustees from time
to time may in their discretion effect. The Trust may also have such agents as
the Trustees from time to time may in their discretion appoint. If a Chairman of
the Board is elected, he shall be a Trustee and may but none need by a Trustee
or Shareholder. Any two or more offices may be held by the same person.
3.2 Election and Tenure. The President, the Treasurer, the Clerk and such other
officers as the Trustees may in their discretion from time to time elect shall
each be elected by the Trustees to serve until his successor is elected or
qualified, or until he sooner dies, resigns, is removed or becomes disqualified.
Each officer shall hold office and each agent shall retain authority at the
pleasure of the Trustees.
3.3 Powers. Subject to the other provisions of these By-Laws, each officer shall
have, in addition to the duties and powers herein and in the Declaration of
Trust set forth, such duties and powers as are commonly incident to the office
occupied by him or her as if the Trust were organized as a Massachusetts
business corporation and such other duties and powers as the Trustees may from
time to time designate.
3.4 President and Vice Presidents. The President shall have the duties and
powers specified in these By-Laws and shall have such other duties and powers as
may be determined by the Trustees.
Any Vice Presidents shall have such duties and powers as shall be designated
from time to time by the Trustees.
3.5 Chief Executive Officer. The Chief Executive Officer of the Trust shall be
the Chairman of the Board, the President or such other officer as is designated
by the Trustees and shall, subject to the control of the Trustees, have general
charge and supervision of the business of the Trust and, except as the Trustees
shall otherwise determine, preside at all meetings of the stockholders and of
the Trustees. If no such designation is made, the President shall be the Chief
Executive Officer.
3.6 Chairman of the Board. If a Chairman of the Board of Trustees is elected, he
shall have the duties and powers specified in these By-Laws and shall have such
other duties and powers as may be determined by the Trustees.
3.7 Treasurer. The Treasurer shall be the chief financial and accounting officer
of the Trust, and shall, subject to the provisions of the Declaration of Trust
and to any arrangement made by the Trustees with a custodian, investment adviser
or manager or transfer, shareholder servicing or similar agent, be in charge of
the valuable papers, books of account and accounting records of the Trust, and
shall have such other duties and powers as may be designated from time to time
by the Trustees or by the President.
3.8 Clerk. The Clerk shall record all proceedings of the Shareholders and the
Trustees in books to be kept therefor, which books or a copy thereof shall be
kept at the principal office of the Trust. In the absence of the Clerk from any
meeting of the Shareholders or Trustees, an assistant Clerk, or if there be none
or if he is absent, a temporary clerk chosen at such meeting shall record the
proceedings thereof in the aforesaid books.
3.9 Resignations and Removals. Any officer may resign at any time by written
instrument signed by him and delivered to the President or the Clerk or to a
meeting of the Trustees. Such resignation shall be effective upon receipt unless
specified to be effective at some other time. The Trustees may remove any
officer with or without cause. Except to the extent expressly provided in a
written agreement with the Trust, no officer resigning and no officer removed
shall have any right to any compensation for any period following his
resignation or removal, or any right to damages on account on such removal.
ARTICLE 4
Indemnification
4.1 Trustees, Officers, etc. The Trust shall indemnify each of its Trustees and
officers (including persons who serve at the Trust's request as directors,
officers or trustees of another organization in which the Trust has any interest
as a shareholder, creditor or otherwise) (hereinafter referred to as a "Covered
Person") against all liabilities and expenses, including but not limited to
amounts paid in satisfaction of judgments, in compromise or as fines and
penalties, and counsel fees reasonably incurred by any Covered Person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may have been involved
as a party or otherwise or with which such person may be or may have been
threatened, while in office or thereafter, by reason of any alleged act or
omission as a Trustee or officer or by reason of his being or having been such a
Trustee or officer, except with respect to any matter as to which such Covered
Person shall have been finally adjudicated in any such action, suit or other
proceeding not to have acted in good faith in the reasonable belief that such
Covered Person's action was in the best interest of the Trust and except that no
Covered Person shall be indemnified against any liability to the Trust or its
Shareholders to which such Covered Person would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's office. Expenses,
including counsel fees so incurred by any such Covered Person, may be paid from
time to time by the Trust in advance of the final disposition of any such
action, suit or proceeding on the condition that the amounts so paid shall be
repaid to the Trust if it is ultimately determined that indemnification of such
expenses is not authorized under this Article.
4.2 Compromise Payment. As to any matter disposed of by a compromise payment by
any such Covered Person referred to in Section 4.1 above, pursuant to a consent
decree or otherwise, no such indemnification either for said payment or for any
other expenses shall be provided unless such compromise shall be approved as in
the best interests of the Trust, after notice that it involved such
indemnification, (a) by a disinterested majority of the Trustees then in office;
or (b) by a majority of the disinterested person or persons to whom the question
may be referred by the Trustees, provided that in the case of approval pursuant
to clause (b) or (c) there has been obtained an opinion in writing of
independent legal counsel to the effect that such Covered Person appears to have
acted in good faith in the reasonable belief that his or her action was in the
best interests of the Trust and that such indemnification would not protect such
person against any liability to the Trust or its Shareholders to which such
person would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
office; or (d) by vote of Shareholders holding a majority of the Shares entitled
to vote thereon, exclusive of any Shares beneficially owned by any interested
Covered Person. Approval by the Trustees pursuant to clause (a) or (b) or by any
disinterested person or persons pursuant to clause (c) of this Section shall not
prevent the recovery from any Covered Person of any amount paid to such Covered
Person in accordance with any of such clauses as indemnification if such Covered
Person is subsequently adjudicated by a court of competent jurisdiction not to
have acted in good faith in the reasonable belief that such Covered Person's
action was in the best interests of the Trust or to have been liable to the
Trust or its Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
Covered Person's office.
4.3 Indemnification Not Exclusive. The right of indemnification hereby provided
shall not be exclusive of or affect any other rights to which any such Covered
Person may be entitled. As used in this Article 4, the term "Covered Person"
shall include such person's heirs, executors and administrators; an "interested
Covered Person" is one against whom the action, suit or other proceeding in
question or another action, suit or other proceeding on the same or similar
grounds is then or has been pending; and a "disinterested Trustee" or
"disinterested person" is a Trustee or a person against whom none of such
actions, suits or other proceedings or another action, suit or other proceeding
on the same or similar grounds is then or has been pending. Nothing contained in
this Article shall affect any rights to indemnification to which personnel of
the Trust, other than Trustees and officers, and other persons may be entitled
by contract or otherwise under law, nor the power of the Trust to purchase and
maintain liability insurance on behalf of any such person.
ARTICLE 5
Reports
5.1 General. The Trustees and officers shall render reports at the time and in
the manner required by the Declaration of Trust or any applicable law. Officers
shall render such additional reports as they may deem desirable or as may from
time to time be required by the Trustees.
ARTICLE 6
Fiscal Year
6.1 General. Except as from time to time otherwise provided by the Trustees,
fiscal year of the Trust shall end on December 31 in each year.
ARTICLE 7
Seal
7.1 General. The seal of the Trust shall consist of a flat-faced die with the
word "Massachusetts", together with the name of the Trust and the year of its
organization out or engraved thereon, but, unless otherwise required by the
Trustees, the seal shall not be necessary to be placed on, and its absence shall
not impair the validity of, any document, instrument or other paper executed and
delivered by or on behalf of the Trust.
ARTICLE 8
Execution of Papers
8.1 General. Except as the Trustees may generally or in particular cases
authorize the execution thereof in some other manner, all checks, notes, drafts
and other obligations and all registration statements and amendments thereto and
all applications and amendments thereto to the Securities and Exchange
Commission shall be signed by the Chairman, if any, the President, any Vice
President or the Treasurer or any of such other officers or agents as shall be
designated for that purpose by a vote of the Trustees.
ARTICLE 9
Provisions Relating to the
Conduct of the Trust's Business
9.1 Certain Definitions. When used herein the following words shall have the
following meanings: "Distributor" shall mean any one or more corporations, firms
or associations which have distributor's or principal underwriter's contracts in
effect with the Trust providing that redeemable shares of any class or series
issued by the Trust shall be offered and sold by such Distributor. "Adviser"
shall mean any corporation, firm or association which may at the time have an
advisory or management contract with the Trust.
9.2 Limitation on Dealings with Officers or Trustees. The Trust will not lend
any of its assets to the Distributor or Adviser or to any officer or director of
the Distributor or Adviser or any officer or Trustee of the Trust and shall not
permit any officer or Trustee or any officer or director of the Distributor or
Adviser, to deal for or on behalf of the Trust with himself as principal or
agent, or with any partnership, association or corporation in which he has a
financial interest; provided that the foregoing provisions shall not prevent (a)
officers and Trustees of the Trust or officers and directors of or otherwise
financially interested in the Distributor or the Adviser; (b) a purchase or sale
of securities or other property if such transaction is permitted by or is exempt
of exempted from the provisions of the Investment Company Act of 1940 and does
not involve any commission or profit to any securities dealer who is, or one or
more of whose partners, shareholders, officers or directors is, an officer or
Trustee of the Trust or an officer or director of the Distributor or Adviser;
(c) employment of legal counsel, registrars, transfer agents, shareholder
servicing agents, dividend disbursing agents or custodians who are, or any one
of which has a partner, shareholder, officer or director who is, an officer or
Trustee of the Trust or an officer or director of the Distributor or Adviser if
only customary fees are charged for services to the Trust; (d) sharing of
statistical, research, legal and management expenses and office hire and
expenses with any other investment company in which an officer or Trustee of the
Trust or an officer or director of the Distributor or Adviser is an officer or
director or otherwise financially interested.
9.3 Limitation on Dealing in Securities of the Trust by Certain Officers,
Trustees, Distributor or Adviser. Neither the Distributor nor Adviser, nor any
officer or Trustee of the Trust or officer or director of the Distributor or
Adviser shall take long or short positions in securities issued by the Trust;
provided, however, that:
(a) The Distributor may purchase from the Trust and otherwise deal in shares
issued by the Trust pursuant to the terms of its contract with the Trust;
(b) Any officer or Trustee of the Trust or officer or director of the
Distributor or Adviser or any trustee or fiduciary for the benefit of any of
them may at any time, or from time to time, purchase from the Trust or from the
Distributor shares issued by the Trust at the price available to the public or
to such officer, Trustee, director or fiduciary, no such purchase to be in
contravention of any applicable state or federal requirement; and
(c) The Distributor or the Adviser may at any time, or from time to time,
purchase for investment shares issued by the Trust.
9.4 Securities and Cash of the Trust to be Held by Custodian Subject to Certain
Terms and Conditions.
(a) All securities and cash owned by the Trust shall, as hereinafter provided,
be held by or deposited with one or more banks or trust companies having
(according to its last published report) not less than $2,000,000 aggregate
capital, surplus and undivided profits (any such bank or trust company being
hereby designated as "Custodian"), provided such a Custodian can be found ready
and willing to act. The Trust may, or may permit any Custodian to, deposit all
or any part of the securities owned by any class or series of shares of the
Trust in a system for the central handling of securities established by a
national securities exchange or national securities association registered with
the Securities and Exchange Commission under the Securities Exchange Act of
1934, or such other person as may be permitted by said Commission, including,
without limitation, a clearing agency registered under Section 17A of said
Securities and Exchange Act of 1934, pursuant to which system all securities of
any particular class or series of any issue deposited within the system are
treated as fungible and may be transferred or pledged by bookkeeping entry,
without physical delivery of such securities.
(b) The Trust shall enter into a written contract with each Custodian regarding
the powers, duties and compensation of such Custodian with respect to the cash
and securities of the Trust held by such Custodian. Said contract and all
amendments thereto shall be approved by the Trustees.
(c) The Trust shall upon the resignation or inability to serve of any Custodian
or upon change of any Custodian:
(i) in case of such resignation or inability to serve, use its best efforts to
obtain a successor Custodian;
(ii) require that the cash and securities owned by any class of series of
shares of the Trust and in the possession of the resigning or disqualified
Custodian be delivered directly to the successor Custodian; and
(iii) in the event that no successor Custodian can be found, submit to the
shareholders, before permitting delivery of the cash and securities owned by any
class or series of shares of the Trust and in the possession of the resigning or
disqualified Custodian otherwise than to a successor Custodian, the question
whether that class or series shall be liquidated or shall function without a
Custodian.
9.5 Limitations on Investment by the Trust in Securities of Any One Issuer. The
Trust may not purchase for its portfolio or for the portfolio of any class or
series of the Trust's shares the securities of any issuer if immediately after
such purchase the Trust or that class or series would thereupon hold securities
representing more than 10% of the voting securities of such issuer as disclosed
in the last available financial statements of such issuer. This limitation shall
not apply to obligations issued or guaranteed by the government of the United
States of America or to obligations of any corporation organized under a general
Act of Congress if such corporation is an instrumentality of the United States.
For purposes of this limitation, each state and each political subdivision,
agency, authority or instrumentality thereof and each multistate agency and
authority shall be considered a separate issuer.
9.6 Determination of Net Asset Value. The Trustees or any officer or officers or
agent or agents of the Trust designated from time to time for this purpose by
the Trustees shall determine at least once daily the net income and the value of
all the assets attributable to any class or series of shares of the Trust on
each day upon which the New York Stock Exchange is open for unrestricted trading
and at such other times as the Trustees shall designate. In determining asset
values, all securities for which representative market quotations are readily
available shall be valued at market value and other securities and assets shall
be valued at fair value, all as determined in good faith by the Trustees or an
officer or officers or agent or agents, as aforesaid, in accordance with
accounting principles generally accepted at the time. Notwithstanding the
foregoing, the assets belonging to any class or series of shares of the Trust
may, if so authorized by the Trustees, be valued in accordance with the
amortized cost method, subject to the power of the Trustees to alter the assets
so determined, less total liabilities belonging to that class or series of
shares (exclusive of capital stock and surplus) shall be the net asset value
until a new asset value is determined by the Trustees or such officers or
agents. In determining the net asset value the Trustees or such officers or
agents may include in liabilities such reserves for taxes, estimated accrued
expenses and contingencies in accordance with accounting principles generally
accepted at the time as the Trustees or such officers or agents may in their
best judgment deem fair and reasonable under the circumstances. The manner of
determining net asset value may from time to time be altered as necessary or
desirable in the judgment of the Trustees to conform it to any other method
prescribed or permitted by applicable law or regulation. Determinations of net
asset value made by the Trust or such officers or agents in good faith shall be
binding on all parties concerned. The foregoing sentence shall not be construe
to protect any Trustee, officer or agent of the Trust against any liability to
the Trust or its security holders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office.
ARTICLE 10
Amendments to the By-Laws
10.1 General. These By-Laws may be amended or repealed, in whole or in part, by
a majority of the Trustees then in office at any meeting of the Trustees.
<PAGE>
EXHIBIT 99.2(B)
NEW ENGLAND FUNDS TRUST II
Amendment to the By-Laws (adopted January 27, 1995)
The following Article 11 is hereby added to the By-Laws:
ARTICLE 11
11.1 Proxy Instructions Transmitted by Telephonic or Electronic Means. The
placing of a shareholder's name on a proxy pursuant to telephonic or
electronically transmitted instructions obtained pursuant to procedures
reasonably designed to verify that such instructions have been authorized by
such shareholder shall constitute execution of such proxy by or on behalf of
such shareholder.
<PAGE>
EXHIBIT 99.5(A)
NEW ENGLAND HIGH INCOME FUND
ADVISORY AGREEMENT (AMENDED JULY 1, 1996)
AGREEMENT made the 2nd day of January, 1996, and amended July 1, 1996,
by and between NEW ENGLAND FUNDS TRUST II, a Massachusetts business trust (the
"Fund"), with respect to its New England High Income Fund series (the "Series"),
and NEW ENGLAND FUNDS MANAGEMENT, L.P., a Delaware limited partnership (the
"Manager").
WITNESSETH:
WHEREAS, the Fund and the Manager originally entered into its Agreement
setting forth the terms upon which the Manager (or certain other parties acting
pursuant to delegation from the Manager) performs certain services for the
Series, effective January 2, 1996;
WHEREAS, the Fund and the Manager wish to amend this Agreement,
effective July 1, 1996, the sole purpose of such amendment being to reduce the
rate of fees payable by the Fund to the Manager hereunder;
NOW, THEREFORE, in consideration of the premises and covenants
hereinafter contained, the parties agree as follows:
1. (a) The Fund hereby employs the Manager to furnish the Fund with
Portfolio Management Services (as defined in Section 2 hereof) and
Administrative Services (as defined in Section 3 hereof), subject to the
authority of the Manager to delegate any or all of its responsibilities
hereunder to other parties as provided in Sections 1(b) and (c) hereof. The
Manager hereby accepts such employment and agrees, at its own expense, to
furnish such services (either directly or pursuant to delegation to other
parties as permitted by Sections 1(b) and (c) hereof) and to assume the
obligations herein set forth, for the compensation herein provided. The Manager
shall, unless otherwise expressly provided or authorized, have no authority to
act for or represent the Fund in any way or otherwise be deemed an agent of the
Fund.
(b) The Manager may delegate any or all of its responsibilities
hereunder with respect to the provision of Portfolio Management Services (and
assumption of related expenses) to one or more other parties (each such party, a
"Sub-Adviser"), pursuant in each case to a written agreement with such
Sub-Adviser that meets the requirements of Section 15 of the Investment Company
Act of 1940 and the rules thereunder (the "1940 Act") applicable to contracts
for service as investment adviser of a registered investment company (including
without limitation the requirements for approval by the trustees of the Fund and
the shareholders of the Series), subject, however, to such exemptions as may be
granted by the Securities and Exchange Commission. Any Sub-Adviser may (but need
not) be affiliated with the Manager. If different Sub-Advisers are engaged to
provide Portfolio Management Services with respect to different segments of the
portfolio of the Series, the Manager shall determine, in the manner described in
the prospectus of the Series from time to time in effect, what portion of the
assets belonging to the Series shall be managed by each Sub-Adviser.
(c) The Manager may delegate any or all of its responsibilities
hereunder with respect to the provision of Administrative Services to one or
more other parties (each such party, an "Administrator") selected by the
Manager. Any Administrator may (but need not) be affiliated with the Manager.
2. As used in this Agreement, "Portfolio Management Services" means
management of the investment and reinvestment of the assets belonging to the
Series, consisting specifically of the following:
(a) obtaining and evaluating such economic, statistical and
financial data and information and undertaking such additional investment
research as shall be necessary or advisable for the management of the investment
and reinvestment of the assets belonging to the Series in accordance with the
Series' investment objectives and policies;
(b) taking such steps as are necessary to implement the investment
policies of the Series by purchasing and selling of securities, including the
placing of orders for such purchase and sale; and
(c) regularly reporting to the Board of Trustees of the Fund with
respect to the implementation of the investment policies of the Series.
3. As used in this Agreement, "Administrative Services" means the
provision to the Fund, by or at the expense of the Manager, of the following:
(a) office space in such place or places as may be agreed upon from
time to time by the Fund and the Manager, and all necessary office supplies,
facilities and equipment;
(b) necessary executive and other personnel for managing the affairs
of the Series (exclusive of those related to and to be performed under contract
for custodial, transfer, dividend and plan agency services by the entity or
entities selected to perform such services and exclusive of any managerial
functions described in Section 4);
(c) compensation, if any, of trustees of the Fund who are directors,
officers or employees of the Manager, any Sub-Adviser or any Administrator or of
any affiliated person (other than a registered investment company) of the
Manager, any Sub-Adviser or any Administrator; and
(d) supervision and oversight of the Portfolio Management Services
provided by each Sub-Adviser, and oversight of all matters relating to
compliance by the Fund with applicable laws and with the Series' investment
policies, restrictions and guidelines, if the Manager has delegated to one or
more Sub-Advisers any or all of its responsibilities hereunder with respect to
the provision of Portfolio Management Services.
4. Nothing in section 3 hereof shall require the Manager to bear, or to
reimburse the Fund for:
(a) any of the costs of printing and mailing the items referred to
in sub-section (n) of this section 4;
(b) any of the costs of preparing, printing and distributing sales
literature;
(c) compensation of trustees of the Fund who are not directors,
officers or employees of the Manager, any Sub-Adviser or any Administrator or of
any affiliated person (other than a registered investment company) of the
Manager, any Sub-Adviser or any Administrator;
(d) registration, filing and other fees in connection with
requirements of regulatory authorities;
(e) the charges and expenses of any entity appointed by the Fund for
custodial, paying agent, shareholder servicing and plan agent services;
(f) charges and expenses of independent accountants retained by the
Fund;
(g) charges and expenses of any transfer agents and registrars
appointed by the Fund;
(h) brokers' commissions and issue and transfer taxes chargeable to
the Fund in connection with securities transactions to which the Fund is a
party;
(i) taxes and fees payable by the Fund to federal, state or other
governmental agencies;
(j) any cost of certificates representing shares of the Fund;
(k) legal fees and expenses in connection with the affairs of the
Fund, including registering and qualifying its shares with Federal and State
regulatory authorities;
(l) expenses of meetings of shareholders and trustees of the Fund;
(m) interest, including interest on borrowings by the Fund;
(n) the costs of services, including services of counsel, required
in connection with the preparation of the Fund's registration statements and
prospectuses, including amendments and revisions thereto, annual, semiannual and
other periodic reports of the Fund, and notices and proxy solicitation material
furnished to shareholders of the Fund or regulatory authorities; and
(o) the Fund's expenses of bookkeeping, accounting, auditing and
financial reporting, including related clerical expenses.
5. All activities undertaken by the Manager or any Sub-Adviser or
Administrator pursuant to this Agreement shall at all times be subject to the
supervision and control of the Board of Trustees of the Fund, any duly
constituted committee thereof or any officer of the Fund acting pursuant to like
authority.
6. The services to be provided by the Manager and any Sub-Adviser or
Administrator hereunder are not to be deemed exclusive and the Manager and any
Sub-Adviser or Administrator shall be free to render similar services to others,
so long as its services hereunder are not impaired thereby.
7. As full compensation for all services rendered, facilities furnished
and expenses borne by the Manager hereunder, the Fund shall pay the Manager
compensation at the annual rate of 0.70% of the first $200 million of the
Series' average daily net assets and 0.65% of the excess of such assets over
$200 million (or such lesser amount as the Manager may from time to time agree
to receive). Such compensation shall be payable monthly in arrears or at such
other intervals, not less frequently than quarterly, as the Board of Trustees of
the Fund may from time to time determine and specify in writing to the Manager.
The Manager hereby acknowledges that the Fund's obligation to pay such
compensation is binding only on the assets and property belonging to the Series.
8. If the total of all ordinary business expenses of the Fund as a
whole (including investment advisory fees but excluding interest, taxes,
portfolio brokerage commissions, distribution-related expenses and extraordinary
expenses) for any fiscal year exceeds the lowest applicable percentage of
average net assets or income limitations prescribed by any state in which shares
of the Series are qualified for sale, the Manager shall pay such excess. Solely
for purposes of applying such limitations in accordance with the foregoing
sentence, the Series and the Fund shall each be deemed to be a separate fund
subject to such limitations. Should the applicable state limitation provisions
fail to specify how the average net assets of the Fund or belonging to the
Series are to be calculated, that figure shall be calculated by reference to the
average daily net assets of the Fund or the Series, as the case may be.
9. It is understood that any of the shareholders, trustees, officers,
employees and agents of the Fund may be a shareholder, director, officer,
employee or agent of, or be otherwise interested in, the Manager, any affiliated
person of the Manager, any organization in which the Manager may have an
interest or any organization which may have an interest in the Manager; that the
Manager, any such affiliated person or any such organization may have an
interest in the Fund; and that the existence of any such dual interest shall not
affect the validity hereof or of any transactions hereunder except as otherwise
provided in the Agreement and Declaration of Trust of the Fund, the partnership
agreement of the Manager or specific provisions of applicable law.
10. This Agreement, as amended, shall become effective as of July 1,
1996, and
(a) unless otherwise terminated, this Agreement shall continue in
effect until January 2, 1998, and from year to year thereafter so long as such
continuance is specifically approved at least annually (i) by the Board of
Trustees of the Fund or by vote of a majority of the outstanding voting
securities of the Series, and (ii) by vote of a majority of the trustees of the
Fund who are not interested persons of the Fund or the Manger, cast in person at
a meeting called for the purpose of voting on, such approval;
(b) this Agreement may at any time be terminated on sixty days'
written notice to the Manager either by vote of the Board of Trustees of the
Fund or by vote of a majority of the outstanding voting securities of the
Series;
(c) this Agreement shall automatically terminate in the event of its
assignment;
(d) this Agreement may be terminated by the Manager on ninety days'
written notice to the Fund;
(e) if New England Funds, L.P., the Fund's principal underwriter,
requires the Fund or the Series to change its name as to eliminate all
references to the words "New England" or the letters "TNE" pursuant to the
provisions of the Fund's Distribution Agreement relating to the Series with said
principal underwriter, this Agreement shall automatically terminate at the time
of such change unless the continuance of this Agreement after such change shall
have been specifically approved by vote of a majority of the outstanding voting
securities of the Series and by vote of a majority of the trustees of the Fund
who are not interested persons of the Fund or the Manger, cast in person at a
meeting called for the purpose of voting on such approval.
Termination of this Agreement pursuant to this Section 10 shall be
without the payment of any penalty.
11. This Agreement may be amended at any time by mutual consent of the
parties, provided that such consent on the part of the Fund shall have been
approved by vote of a majority of the outstanding voting securities of the
Series and by vote of a majority of the trustees of the Fund who are not
interested persons of the Fund or the Manager, cast in person at a meeting
called for the purpose of voting on such approval.
12. For the purpose of this Agreement, the terms "vote of a majority of
the outstanding voting securities," "interested person," "affiliated person" and
"assignment" shall have their respective meanings defined in the 1940 Act,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under the 1940 Act. References in this Agreement to any
assets, property or liabilities "belonging to" the Series shall have the meaning
defined in the Fund's Agreement and Declaration of Trust as amended from time to
time.
13. In the absence of willful misfeasance, bad faith or gross
negligence on the part of the Manger, or reckless disregard of its obligations
and duties hereunder, the Manager shall not be subject to any liability to the
Fund, to any shareholder of the Fund or to any other person, firm or
organization, for any act or omission in the course of, or connected with,
rendering services hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this amended
Agreement.
NEW ENGLAND FUNDS TRUST II NEW ENGLAND FUNDS MANAGEMENT, L.P.
on behalf of its New England
High Income Fund series By NEF Corporation, its general partner
By: /s/ Henry L.P. Schmelzer By: /s/ Bruce R. Speca
---------------------------- ---------------------------------
Henry L.P. Schmelzer Bruce R. Speca
President Executive Vice President
NOTICE
A copy of the Agreement and Declaration of Trust establishing New
England Funds Trust II (the "Fund") is on file with the Secretary of The
Commonwealth of Massachusetts, and notice is hereby given that this Agreement is
executed with respect to the Fund's New England High Income Fund series (the
"Series") on behalf of the Fund by officers of the Fund as officers and not
individually and that the obligations of or arising out of this Agreement are
not binding upon any of the trustees, officers or shareholders individually but
are binding only upon the assets and property belonging to the Series.
<PAGE>
EXHIBIT 99.5(C)
NEW ENGLAND HIGH INCOME FUND
SUB-ADVISORY AGREEMENT
(LOOMIS SAYLES)
This Sub-Advisory Agreement (this "Agreement") is entered into as of
July 1, 1996 by and between New England Funds Management, L.P., a Delaware
limited partnership (the "Manager"), and Loomis, Sayles & Company, L.P., a
Delaware limited partnership (the "Sub-Adviser").
WHEREAS, the Manager has entered into an Advisory Agreement dated
January 2, 1996 (as amended July 2, 1996, the "Advisory Agreement") with New
England Funds Trust II (the "Trust"), pursuant to which the Manager provides
portfolio management and administrative services to New England High Income
Fund, a series of the Trust (the "Series").
WHEREAS, the Advisory Agreement provides that the Manager may delegate
any or all of its portfolio management responsibilities under the Advisory
Agreement to one or more sub-advisers;
WHEREAS, the Manager and the trustees of the Trust desire to retain the
Sub-Adviser to render portfolio management services in the manner and on the
terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, the Manager and the Sub-Adviser agree as follows:
1. Sub-Advisory Services:
a. The Sub-Adviser shall, subject to the supervision of the
Manager and of any administrator appointed by the Manager (the
"Administrator"), manage the investment and reinvestment of the assets
of the Series, and have the authority on behalf of the Series to vote
all proxies and exercise all other rights of the Series as a security
holder of companies in which the Series from time to time invests. The
Sub-Adviser shall manage the Series in conformity with (1) the
investment objective, policies and restrictions of the Series set forth
in the Trust's prospectus and statement of additional information
relating to the Series, (2) any additional policies or guidelines
established by the Manager or by the Trust's trustees that have been
furnished in writing to the Sub-Adviser, and (3) the provisions of the
Internal Revenue Code (the "Code") applicable to "regulated investment
companies" (as defined in Section 851 of the Code), all as from time to
time in effect (collectively, the "Policies"), and with all applicable
provisions of law, including without limitation all applicable
provisions of the Investment Company Act of 1940 (the "1940 Act") and
the rules and regulations thereunder. Subject to the foregoing, the
Sub-Adviser is authorized, in its discretion and without prior
consultation with the Manager, to buy, sell, lend and otherwise trade
in any stocks, bonds and other securities and investment instruments on
behalf of the Series, without regard to the length of time the
securities have been held and the resulting rate of portfolio turnover
or any tax considerations; and the majority or the whole of the Series
may be invested in such proportions of stocks, bonds, other securities
or investment instruments, or cash, as the Sub-Adviser shall determine.
b. The Sub-Adviser shall furnish the Manager and the
Administrator monthly, quarterly and annual reports concerning
portfolio transactions and performance of the Series in such form as
may be mutually agreed upon, and agrees to review the Series and
discuss the management of it. The Sub-Adviser shall permit all books
and records with respect to the Series to be inspected and audited by
the Manager and the Administrator at all reasonable times during normal
business hours, upon reasonable notice. The Sub-Adviser shall also
provide the Manager with such other information and reports as may
reasonably be requested by the Manager from time to time, including
without limitation all material requested by or required to be
delivered to the Trustees of the Trust.
c. The Sub-Adviser shall provide to the Manager a copy of the
Sub-Adviser's Form ADV as filed with the Securities and Exchange
Commission and a list of the persons whom the Sub-Adviser wishes to
have authorized to give written and/or oral instructions to custodians
of assets of the Series.
2. Obligations of the Manager.
a. The Manger shall provide (or cause the Series' Custodian
(as defined in Section 3 hereof) to provide) timely information to the
Sub-Adviser regarding such matters as the composition of assets of the
Series, cash requirements and cash available for investment in the
Series, and all other information as may be reasonably necessary for
the Sub-Adviser to perform its responsibilities hereunder.
b. The Manager has furnished the Sub-Adviser a copy of the
prospectus and statement of additional information of the Series and
agrees during the continuance of this Agreement to furnish the
Sub-Adviser copies of any revisions or supplements thereto at, or, if
practicable, before the time the revisions or supplements become
effective. The Manager agrees to furnish the Sub-Adviser with minutes
of meetings of the trustees of the Trust applicable to the Series to
the extent they may affect the duties of the Sub-Adviser, and with
copies of any financial statements or reports made by the Series to its
shareholders, and any further materials or information which the
Sub-Adviser may reasonably request to enable it to perform its
functions under this Agreement.
3. Custodian. The Manager shall provide the Sub-Adviser with a copy of
the Series' agreement with the custodian designated to hold the assets of the
Series (the "Custodian") and any modifications thereto (the "Custody
Agreement"), copies of such modifications to be provided to the Sub-Adviser a
reasonable time in advance of the effectiveness of such modifications. The
assets of the Series shall be maintained in the custody of the Custodian
identified in, and in accordance with the terms and conditions of, the Custody
Agreement (or any sub-custodian properly appointed as provided in the Custody
Agreement). The Sub-Adviser shall have no liability for the acts or omissions of
the Custodian, unless such act or omission is taken in reliance upon instruction
given to the Custodian by a representative of the Sub-Adviser properly
authorized to give such instruction under the Custody Agreement. Any assets
added to the Series shall be delivered directly to the Custodian.
4. Proprietary Rights. The Manager agrees and acknowledges that the
Sub-Adviser is the sole owner of the name "Loomis, Sayles & Company, L.P." and
that all use of any designation consisting in whole or part of "Loomis, Sayles &
Company, L.P." under this Agreement shall inure to the benefit of the
Sub-Adviser. The Manager on its own behalf and on behalf of the Series agrees
not to use any such designation in any advertisement or sales literature or
other materials promoting the Series, except with the prior written consent of
the Sub-Adviser. Without the prior written consent of the Sub-Adviser, the
Manager shall not, and the Manager shall use its best efforts to cause the
Series not to, make representations regarding the Sub-Adviser in any disclosure
document, advertisement or sales literature or other materials relating to the
Series. Upon termination of this Agreement for any reason, the Manager shall
cease, and the Manager shall use its best efforts to cause the Series to cease,
all use of any such designation as soon as reasonably practicable.
5. Expenses. Except for expenses specifically assumed or agreed to be
paid by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be liable for
any organizational, operational or business expenses of the Manager or the Trust
including, without limitation, (a) interest and taxes, (b) brokerage commissions
and other costs in connection with the purchase or sale of securities or other
investment instruments with respect to the Series, and (c) custodian fees and
expenses. Any reimbursement of advisory fees required by any expense limitation
provision of any law shall be the sole responsibility of the Manager. The
Manager and the Sub-Adviser shall not be considered as partners or participants
in a joint venture. The Sub-Adviser will pay its own expenses incurred in
furnishing the services to be provided by it pursuant to this Agreement. Neither
the Sub-Adviser nor any affiliated person thereof shall be entitled to any
compensation from the Manager or the Trust with respect to service by any
affiliated person of the Sub-Adviser as an officer or trustee of the Trust
(other than the compensation to the Sub-Adviser payable by the Manager pursuant
to Section 7 hereof).
6. Purchase and Sale of Assets. The Sub-Adviser shall place all orders
for the purchase and sale of securities for the Series with brokers or dealers
selected by the Sub-Adviser, which may include brokers or dealers affiliated
with the Sub-Adviser, provided such orders comply with Rule 17e-1 under the 1940
Act in all respects. To the extent consistent with applicable law, purchase or
sell orders for the Series may be aggregated with contemporaneous purchase or
sell orders of other clients of the Sub-Adviser. The Sub-Adviser shall use its
best efforts to obtain execution of transactions for the Series at prices which
are advantageous to the Series and at commission rates that are reasonable in
relation to the benefits received. However, the Sub-Adviser may select brokers
or dealers on the basis that they provide brokerage, research or other services
or products to the Series and/or other accounts serviced by the Sub-Adviser. To
the extent consistent with applicable law, the Sub-Adviser may pay a broker or
dealer an amount of commission for effecting a securities transaction in excess
of the amount of commission or dealer spread another broker or dealer would have
charged for effecting that transaction if the Sub-Adviser determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research products and/or services provided by such broker or
dealer. This determination, with respect to brokerage and research services or
products, may be viewed in terms of either that particular transaction or the
overall responsibilities which the Sub-Adviser and its affiliates have with
respect to the Series or to accounts over which they exercise investment
discretion. Not all such services or products need be used by the Sub-Adviser in
managing the Series.
7. Compensation of the Sub-Adviser. As full compensation for all
services rendered, facilities furnished and expenses borne by the Sub-Adviser
hereunder, the Manager shall pay the Sub-Adviser compensation at the annual rate
of 0.350% of the first $200 million of the average daily net assets of the
Series and 0.300% of any excess of such assets over $200 million (or such lesser
amount as the Sub-Adviser may from time to time agree to receive). Such
compensation shall be payable monthly in arrears or at such other intervals, not
less frequently than quarterly, as the Manager is paid by the Series pursuant to
the Advisory Agreement.
8. Non-Exclusivity. The Manager and the Series agree that the services
of the Sub-Adviser are not to be deemed exclusive and that the Sub-Adviser and
its affiliates are free to act as investment manager and provide other services
to various investment companies and other managed accounts, except as the
Sub-Adviser and the Manager or the Administrator may otherwise agree from time
to time in writing before or after the date hereof. This Agreement shall not in
any way limit or restrict the Sub-Adviser or any of its directors, officers,
employees or agents from buying, selling or trading any securities or other
investment instruments for its or their own account or for the account of others
for whom it or they may be acting, provided that such activities do not
adversely affect or otherwise impair the performance by the Sub-Adviser of its
duties and obligations under this Agreement. The Manager and the Series
recognize and agree that the Sub-Adviser may provide advice to or take action
with respect to other clients, which advice or action, including the timing and
nature of such action, may differ from or be identical to advice given or action
taken with respect to the Series. The Sub-Adviser shall for all purposes hereof
be deemed to be an independent contractor and shall, unless otherwise provided
or authorized, have no authority to act for or represent the Series or the
Manager in any way or otherwise be deemed an agent of the Series or the Manager.
9. Liability. Except as may otherwise be provided by the 1940 Act or
other federal securities laws, neither the Sub-Adviser nor any of its officers,
directors, partners, employees or agents (the `Indemnified Parties") shall be
subject to any liability to the Manager, the Trust, the Series or any
shareholder of the Series for any error of judgment, any mistake of law or any
loss arising out of any investment or other act or omission in the course of,
connected with, or arising out of any service to be rendered under this
Agreement, except by reason of willful misfeasance, bad faith or gross
negligence in the performance of the Sub-Adviser's duties or by reason of
reckless disregard by the Sub-Adviser of its obligations and duties hereunder.
The Manager shall hold harmless and indemnify the Sub-Adviser for any loss,
liability, cost, damage or expense (including reasonable attorneys fees and
costs) arising from any claim or demand by any past or present shareholder of
the Series that is not based upon the obligations of the Sub-Adviser under this
Agreement.
10. Effective Date and Termination. The Agreement shall become
effective as of the date of its execution, and
a. unless otherwise terminated, this Agreement shall continue
in effect for two years from the date of execution, and from year to
year thereafter so long as such continuance is specifically approved at
least annually (i) by the Board of Trustees of the Trust or by vote of
a majority of the outstanding voting securities of the Series, and (ii)
by vote of a majority of the trustees of the Trust who are not
interested persons of the Trust, the Manager or the Sub-Adviser, cast
in person at a meeting called for the purpose of voting on such
approval;
b. this Agreement may at any time be terminated on sixty days'
written notice to the Sub-Adviser either by vote of the Board of
Trustees of the Trust or by vote of a majority of the outstanding
voting securities of the Series;
c. this Agreement shall automatically terminate in the event
of its assignment or upon the termination of the Advisory Agreement;
d. this Agreement may be terminated by the Sub-Adviser on
ninety days' written notice to the Manager and the Trust, or by the
Manager on ninety days' written notice to the Sub-Adviser.
Termination of this Agreement pursuant to this Section 10 shall be
without the payment of any penalty.
11. Amendment. This Agreement may be amended at any time by mutual
consent of the Manager and the Sub-Adviser, provided that, if required by law,
such amendment shall also have been approved by vote of a majority of the
outstanding voting securities of the Series and by vote of a majority of the
trustees of the Trust who are not interested persons of the Trust, the Manager
or the Sub-Adviser, cast in person at a meeting called for the purpose of voting
on such approval.
12. Certain Definitions. For the purpose of this Agreement, the terms
"vote of a majority of the outstanding voting securities," "interested person,"
"affiliated person" and "assignment" shall have their respective meanings
defined in the 1940 Act, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under the 1940 Act.
13. General.
a. The Sub-Adviser may perform its services through any
employee, officer or agent of the Sub-Adviser, and the Manager shall
not be entitled to the advice, recommendation or judgment of any
specific person; provided, however, that the persons identified in the
prospectus of the Series shall perform the day-to-day portfolio
management duties described therein until the Sub-Adviser notifies the
Manager that one or more other employees, officers or agents of the
Sub-Adviser, identified in such notice, shall assume such duties as of
a specific date.
b. If any term or provision of this Agreement or the
application thereof to any person or circumstances is held to be
invalid or unenforceable to any extent, the remainder of this Agreement
or the application of such provision to other persons or circumstances
shall not be affected thereby and shall be enforced to the fullest
extent permitted by law.
c. The Agreement shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Massachusetts.
NEW ENGLAND FUNDS LOOMIS, SAYLES & COMPANY, L.P.
MANAGEMENT, L.P.
By NEF Corporation, its general partner By Loomis, Sayles & Company, Inc.,
its general partner
By: /s/ Bruce R. Speca By: /s/ Jeffrey L. Meade
------------------------------- -------------------------------
Name: Bruce R. Speca Name: Jeffrey L. Meade
Title: Executive Vice President Title: Chief Operating Officer
<PAGE>
EXHIBIT 99.8(D)
CUSTODIAN CONTRACT
Between
INVESTMENT TRUST OF BOSTON FUNDS
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held By It............. 2
2. Duties of the Custodian with Respect to Property of
the Fund Held by the Custodian in the United States............. 3
2.1 Holding Securities......................................... 3
2.2 Delivery of Securities..................................... 3
2.3 Registration of Securities................................. 9
2.4 Bank Accounts.............................................. 9
2.5 Availability of Federal Funds.............................. 10
2.6 Collection of Income....................................... 10
2.7 Payment of Fund Monies..................................... 11
2.8 Liability for Payment in Advance of
Receipt of Securities Purchased.......................... 14
2.9 Appointment of Agents...................................... 15
2.10 Deposit of Fund Assets in Securities System................ 15
2.10A Fund Assets Held in the Custodian's Direct Paper System.... 18
2.11 Segregated Account......................................... 20
2.12 Ownership Certificates for Tax Purposes.................... 21
2.13 Proxies.................................................... 21
2.14 Communications Relating to Portfolio Securities............ 22
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States...................... 23
3.1 Appointment of Foreign Sub-Custodians...................... 23
3.2 Assets to be Held.......................................... 23
3.3 Foreign Securities Depositories............................ 24
3.4 Segregation of Securities.................................. 24
3.5 Agreements with Foreign Banking Institutions............... 25
3.6 Access of Independent Accountants of the Fund.............. 25
3.7 Reports by Custodian....................................... 26
3.8 Transactions in Foreign Custody Account.................... 26
3.9 Liability of Foreign Sub-Custodians........................ 27
3.10 Liability of Custodian..................................... 28
3.11 Reimbursement for Advances................................. 29
3.12 Monitoring Responsibilities................................ 30
3.13 Branches of U.S. Banks..................................... 31
4. Payments for Sales or Repurchase or Redemptions of Shares of the
Fund............................................................ 32
5. Proper Instructions............................................... 33
6. Actions Permitted Without Express Authority....................... 33
7. Evidence of Authority............................................. 34
8. Duties of Custodian With Respect to the Books of Account
and Calculation of Net Asset Value and Net Income............... 35
9. Records........................................................... 35
10. Opinion of Fund's Independent Accountants......................... 36
11. Reports to Fund by Independent Public Accountants................. 36
12. Compensation of Custodian......................................... 37
13. Responsibility of Custodian....................................... 37
14. Effective Period, Termination and Amendment....................... 40
15. Successor Custodian............................................... 42
16. Interpretive and Additional Provisions............................ 43
17. Additional Funds.................................................. 44
18. Massachusetts Law to Apply........................................ 44
19. Prior Contracts................................................... 44
<PAGE>
CUSTODIAN CONTRACT
This Contract between Investment Trust of Boston Funds, a business
trust organized and existing under the laws of Massachusetts, having its
principal place of business at 399 Boylston Street, Boston, Massachusetts
hereinafter called the "Fund", and State Street Bank and Trust Company, a
Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund intends to offer shares in six series, the Growth
Opportunities Portfolio, High Income Portfolio, Premium Income Portfolio, Liquid
Reserves Portfolio, and World Income Portfolio (such series together with all
other series subsequently established by the Fund and made subject to this
Contract in accordance with paragraph 17, being herein referred to as the
"Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolio(s), including securities which the Fund, on behalf of the
applicable Portfolio, desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Fund's
Declaration of Trust. The Fund on behalf of the Portfolio(s) agrees to deliver
to the Custodian all securities and cash of the Portfolios, and all payments of
income, payments of principal or capital distributions received by it with
respect to all securities owned by the Portfolio(s) from time to time, and the
cash consideration received by it for such new or treasury shares of beneficial
interest of the Fund representing interests in the Portfolios ("Shares") as may
be issued or sold from time to time. The Custodian shall not be responsible for
any property of a Portfolio held or received by the Portfolio and not delivered
to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article
5), the Custodian shall on behalf of the applicable Portfolio(s) from time to
time employ one or more sub-custodians located in the United States, but only in
accordance with an applicable vote by the Board of Trustees of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodian
for the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held By the
Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate for
the account of each Portfolio all non-cash property to be held by it in the
United States including all domestic securities owned by such Portfolio,
other than (a) securities which are maintained pursuant to Section 2.10 in
a clearing agency registered with the Securities and Exchange Commission
under Section 17A of the Securities and Exchange Act of 1934 which acts as
a securities depository or in a book-entry System authorized by the U.S.
Department of the Treasury and certain federal agencies, collectively
referred to herein as "Securities System", and (b) commercial paper of an
issuer for which State Street Bank and Trust Company acts as issuing and
paying agent ("Direct Paper") which is deposited and/or maintained in the
Direct Paper System of the Custodian pursuant to Section 2.10A.
2.2 Delivery of Securities. The Custodian shall release and deliver domestic
securities owned by a Portfolio held by the Custodian or in a Securities
System account of the Custodian or in the Custodian's Direct Paper book
entry system account ("Direct Paper System Account") only upon receipt of
Proper Instructions from the Fund on behalf of the applicable Portfolio,
which may be continuing instructions when deemed appropriate by the
parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Portfolio;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other similar
offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in
any such case, the cash or other consideration is to be delivered
to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the name of
the Portfolio or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent appointed
pursuant to Section 2.9 or into the name or nominee name of any
sub-custodian appointed pursuant to Article 1; or for exchange for
a different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units;
provided that, in any such case, the new securities are to be
delivered to the Custodian;
7) Upon the sale of such securities for the amount of the Portfolio,
to the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery" custom; provided
that in any such case, the Custodian shall have no responsibility
or liability for any loss arising from the delivery of such
securities prior to receiving payment for such securities except as
may arise from the Custodian's own negligence or willful
misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of
the securities of the issuer of such securities, or pursuant to
provisions for conversion contained in such securities, or pursuant
to any deposit agreement; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that, in
any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
10) For delivery in connection with any loans of securities made by the
Portfolio, but only against receipt of adequate collateral as
agreed upon from time to time by the Custodian and the Fund on
behalf of the Portfolio, which may be in the form of cash or
obligations issued by the United States government, its agencies or
instrumental ities, except that in connection with any loans for
which collateral is to be credited to the Custodian's account in
the book-entry system authorized by the U.S. Department of the
Treasury, the Custodian will not be held liable or responsible for
the delivery of securities owned by the Portfolio prior to the
receipt of such collateral;
11) For delivery as security in connection with any borrowings by the
Fund on behalf of the Portfolio requiring a pledge of assets by the
Fund on behalf of the Portfolio, but only against receipt of
amounts borrowed;
12) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Securities Exchange Act of 1934
(the "Exchange Act") and a member of The National Association of
Securities Dealers, Inc. ("NASD"), relating to compliance with the
rules of The Options Clearing Corporation and of any registered
national securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in connection
with transactions by the Portfolio;
13) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian and a
Futures Commission Merchant registered under the Commodity Exchange
Act, relating to compliance with the rules of the Commodity Futures
Trading Commission and/or any Contract Market, or any similar
organization or organizations, regarding account deposits in
connection with transactions by the Portfolio;
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to the
holders of shares in connection with distributions in kind, as may
be described from time to time in the currently effective
prospectus and statement of additional information of the Fund,
related to the Portfolio ("Prospectus"), in satisfaction of
requests by holders of Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt of,
in addition to Proper Instructions from the Fund on behalf of the
applicable Portfolio, a certified copy of a resolution of the Board
of Trustees or of the Executive Committee signed by an officer of
the Fund and certified by the Secretary or an Assistant Secretary,
specifying the securities of the Portfolio to be delivered, setting
forth the purpose for which such delivery is to be made, declaring
such purpose to be a proper corporate purpose, and naming the
person or persons to whom delivery of such securities shall be
made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized in
writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as the
Portfolio, or in the name or nominee name of any agent appointed pursuant
to Section 2.9 or in the name or nominee name of any sub-custodian
appointed pursuant to Article 1. All securities accepted by the Custodian
on behalf of the Portfolio under the terms of this Contract shall be in
"street name" or other good delivery form.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio of
the Fund, subject only to draft or order by the Custodian acting pursuant
to the terms of this Contract, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or for the
account of the Portfolio, other than cash maintained by the Portfolio in a
bank account established and used in accordance with Rule 17f-3 under the
Investment Company Act of 1940. Funds held by the Custodian for a Portfolio
may be deposited by it to its credit as Custodian in the Banking Department
of the Custodian or in such other banks or trust companies as it may in its
discretion deem necessary or desirable; provided, however, that every such
bank or trust company shall be qualified to act as a custodian under the
Investment Company Act of 1940 and that each such bank or trust company and
the funds to be deposited with each such bank or trust company shall on
behalf of each applicable Portfolio be approved by vote of a majority of
the Board of Trustees of the Fund. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund on
behalf of each applicable Portfolio and the Custodian, the Custodian shall,
upon the receipt of Proper Instructions from the Fund on behalf of a
Portfolio, made federal funds available to such Portfolio as of specified
times agreed upon from time to time by the Fund and the Custodian in the
amount of checks received in payment for Shares of such Portfolio which are
deposited into the Portfolio's account.
2.6 Collection of Income. The Custodian shall collect on a timely basis all
income and other payments with respect to registered domestic securities
held hereunder to which each Portfolio shall be entitled either by law or
pursuant to custom in the securities business, and shall collect on a
timely basis all income and other payments with respect to bearer domestic
securities if, on the date of payment by the issuer, such securities are
held by the Custodian or its agent thereof and shall credit such income, as
collected, to such Portfolio's custodian account. Without limiting the
generality of the foregoing, the Custodian shall detach and present for
payment all coupons and other income items requiring presentation as and
when they become due and shall collect interest when due on securities held
hereunder. Income due each Portfolio on securities loaned pursuant to the
provisions of Section 2.2 (10) shall be the responsibility of the Fund. The
Custodian will have no duty or responsibility in connection therewith,
other than to provide the Fund with such information or data as may be
necessary to assist the Fund in arranging for the timely delivery to the
Custodian of the income to which the Portfolio is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the Fund
on behalf of the applicable Portfolio, which may be continuing instructions
when deemed appropriate by the parties, the Custodian shall pay out monies
of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of the
Portfolio but only (a) against the delivery of such securities or
evidence of title to such options, futures contracts or options on
futures contracts to the Custodian (or any bank, banking firm or
trust company doing business in the United States or abroad which
is qualified under the Investment Company Act of 1940, as amended,
to act as a custodian and has been designated by the Custodian as
its agent for this purpose) registered in the name of the Portfolio
or in the name of a nominee of the Custodian referred to in Section
2.3 hereof or in proper form for transfer; (b) in the case of a
purchase effected through a Securities System, in accordance with
the conditions set forth in Section 2.10 hereof; (c) in the case of
a purchase involving the Direct Paper System, in accordance with
the conditions set forth in Section 2.10A; (d) in the case of
repurchase agreements entered into between the Fund on behalf of
the Portfolio and the Custodian, or another bank, or a
broker-dealer which is a member of NASD, (i) against delivery of
the securities either in certificate form or through an entry
crediting the Custodian's account at the Federal Reserve Bank with
such securities or (ii) against delivery of the receipt evidencing
purchase by the Portfolio of securities owned by the Custodian
along with written evidence of the agreement by the Custodian to
repurchase such securities from the Portfolio or (e) for transfer
to a time deposit account of the Fund in any bank, whether domestic
or foreign; such transfer may be effected prior to receipt of a
confirmation from a broker and/or the applicable bank pursuant to
Proper Instructions from the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of securities
owned by the Portfolio as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued by the Portfolio
as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments for
the account of the Portfolio: interest, taxes, management,
accounting, transfer agent and legal fees, and operating expenses
of the Fund whether or not such expenses are to be in whole or part
capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in addition
to Proper Instructions from the Fund on behalf of the Portfolio, a
certified copy of a resolution of the Board of Trustees or of the
Executive Committee of the Fund signed by an officer of the Fund
and certified by its Secretary or an Assistant Secretary,
specifying the amount of such payment, setting forth the purpose
for which such payment is to be made, declaring such purpose to be
a proper purpose, and naming the person or persons to whom such
payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased. Except
as specifically stated otherwise in this Contract, in any and every case
where payment for purchase of domestic securities for the account of a
Portfolio is made by the Custodian in advance of receipt of the securities
purchased in the absence of specific written instructions from the Fund on
behalf of such Portfolio to so pay in advance, the Custodian shall be
absolutely liable to the Fund for such securities to the same extent as if
the securities had been received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or time in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of 1940,
as amended, to act as a custodian, as its agent to carry out such of the
provisions of this Article 2 as the Custodian may from time to time direct;
provided, however, that the appointment of any agent shall not relieve the
Custodian of its responsibilities or liabilities hereunder.
2.10 Deposit of Fund Assets in Securities Systems. The Custodian may deposit
and/or maintain securities owned by a Portfolio in a clearing agency
registered with the Securities and Exchange Commission under Section 17A of
the Securities Exchange Act of 1934, which acts as a securities depository,
or in the book-entry system authorized by the U.S. Department of the
Treasury and certain federal agencies, collectively referred to herein as
"Securities System", in accordance with applicable Federal Reserve Board
and Securities and Exchange Commission rules and regulations, if any, and
subject to the following provisions:
1) The Custodian may keep securities of the Portfolio in a Securities
System provided that such securities are represented in an account
("Account") of the Custodian in the Securities System which shall
not include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a Securities System shall
identify by book-entry those securities belonging to the Portfolio;
3) The Custodian shall pay for securities purchased for the account of
the Portfolio upon (i) receipt of advice from the Securities System
that such securities have been transferred to the Account, and (ii)
the making of an entry on the records of the Custodian to reflect
such payment and transfer for the account of the Portfolio. The
Custodian shall transfer securities sold for the account of the
Portfolio upon (i) receipt of advice from the Securities System
that payment for such securities has been transferred to the
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account of
the Portfolio. Copies of all advices from the Securities System of
transfers of securities for the account of the Portfolio shall
identify the Portfolio, be maintained for the Portfolio by the
Custodian and be provided to the Fund at its request. Upon request,
the Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the
Portfolio in the form of a written advice or notice and shall
furnish to the Fund on behalf of the Portfolio copies of daily
transaction sheets reflecting each day's transactions in the
Securities System for the account of the Portfolio.
4) The Custodian shall provide the Fund for the Portfolio with any
report obtained by the Custodian on the Securities System's
accounting system, internal accounting control and procedures for
safeguarding securities deposited in the Securities System;
5) The Custodian shall have received from the Fund on behalf of the
Portfolio the initial or annual certificate, as the case may be,
required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting from
use of the Securities System by reason of any negligence,
misfeasance or misconduct of the Custodian or any of its agents or
of any of its or their employees or from failure of the Custodian
or any such agent to enforce effectively such rights as it may have
against the Securities System; at the election of the Fund, it
shall be entitled to be subrogated to the rights of the Custodian
with respect to any claim against the Securities System or any
other person which the Custodian may have as a consequence of any
such loss or damage if and to the extent that the Portfolio has not
been made whole for any such loss or damage.
2.10A Fund Assets Held in the Custodian's Direct Paper System. The Custodian may
deposit and/or maintain securities owned by a Portfolio in the Direct
Paper System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper System
will be effected in the absence of Proper Instructions from the
Fund on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the Direct
Paper System only if such securities are represented in an account
("Account") of the Custodian in the Direct Paper System which shall
not include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the Portfolio;
4) The Custodian shall pay for securities purchased for the account of
the Portfolio upon the making of an entry on the records of the
Custodian to reflect such payment and transfer of securities to the
account of the Portfolio. The Custodian shall transfer securities
sold for the account of the Portfolio upon the making of an entry
on the records of the Custodian to reflect such transfer and
receipt of payment for the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the
Portfolio, in the form of a written advice or notice, of Direct
Paper on the next business day following such transfer and shall
furnish to the Fund on behalf of the Portfolio copies of daily
transaction sheets reflecting each day's transaction in the
Securities System for the account of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the Portfolio
with any report on its system of internal accounting control as the
Fund may reasonably request from time to time.
2.11 Segregated Account. The Custodian shall upon receipt of Proper Instructions
from the Fund on behalf of each applicable Portfolio establish and maintain
a segregated account or accounts for and on behalf of each such Portfolio,
into which account or accounts may be transferred cash and/or securities,
including securities maintained in an account by the Custodian pursuant to
Section 2.10 hereof, (i) in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Exchange Act and a member of the NASD
(or any futures commission merchant registered under the Commodity Exchange
Act), relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract market), or
of any similar organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Portfolio, (ii) for
purposes of segregating cash or government securities in connection with
options purchased, sold or written by the Portfolio or commodity futures
contracts or options thereon purchased or sold by the Portfolio, (iii) for
the purposes of compliance by the Portfolio with the procedures required by
Investment Company Act Release No. 10666, or any subsequent release or
releases of the Securities and Exchange Commission relating to the
maintenance of segregated accounts by registered investment companies and
(iv) for other proper corporate purposes, but only, in the case of clause
(iv), upon receipt of, in addition to Proper Instructions from the Fund on
behalf of the applicable Portfolio, a certified copy of a resolution of the
Board of Trustees or of the Executive Committee signed by an officer of the
Fund and certified by the Secretary or an Assistant Secretary, setting
forth the purpose or purposes of such segregated account and declaring such
purposes to be proper purposes.
2.12 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other payments with
respect to domestic securities of each Portfolio held by it and in
connection with transfers of securities.
2.13 Proxies. The Custodian shall, with respect to the domestic securities held
hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of
the Portfolio or a nominee of the Portfolio, all proxies, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Portfolio such proxies, all proxy soliciting
materials and all notices relating to such securities.
2.14 Communications Relating to Portfolio Securities. The Custodian shall
transmit promptly to the Fund for each Portfolio all written information
(including, without limitation, pendency of calls and maturities of
domestic securities and expirations of rights in connection therewith and
notices of exercise of call and put options written by the Fund on behalf
of the Portfolio and the maturity of futures contracts purchased or sold by
the Portfolio) received by the Custodian from issuers of the securities
being held for the Portfolio. With respect to tender or exchange offers,
the Custodian shall transmit promptly to the Portfolio all written
information received by the Custodian from issuers of the securities whose
tender or exchange is sought and from the party (or his agents) making the
tender or exchange offer. If the Portfolio desires to take action with
respect to any tender offer, exchange offer or any other similar
transaction, the Portfolio shall notify the Custodian at least three
business days prior to the date on which the Custodian is to take such
action.
3. Duties of the Custodian with Respect to Property of the Fund Held Outside of
the United States
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Portfolio's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories designated
on Schedule A hereto ("foreign sub-custodians"). Upon receipt of "Proper
Instructions", as defined in Section 5 of this Contract, together with a
certified resolution of the Fund's Board of Trustees, the Custodian and the
Fund may agree to amend Schedule A hereto from time to time to designate
additional foreign banking institutions and foreign securities depositories
to act as sub-custodian. Upon receipt of Proper Instructions, the Fund may
instruct the Custodian to cease the employment of any one or more such
sub-custodians for maintaining custody of the Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5 under
the Investment Company Act of 1940, and (b) cash and cash equivalents in
such amounts as the Custodian or the Fund may determine to be reasonably
necessary to effect the Portfolio's foreign securities transactions.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Portfolio(s) shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as sub-custodians
pursuant to the terms hereof. Where possible, such arrangements shall
include entry into agreements containing the provisions set forth in
Section 3.5 hereof.
3.4 Segregation of Securities. The Custodian shall identify on its books as
belonging to each applicable Portfolio of the Fund, the foreign securities
of such Portfolios held by each foreign sub-custodian. Each agreement
pursuant to which the Custodian employs a foreign banking institution shall
require that such institution establish a custody account for the Custodian
on behalf of the Fund for each applicable Portfolio of the Fund and
physically segregate in each account, securities and other assets of the
Portfolios, and, in the event that such institution deposits the securities
of one or more of the Portfolios in a foreign securities depository, that
it shall identify on its books as belonging to the Custodian, as agent for
each applicable Portfolio, the securities so deposited.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a foreign
banking institution shall be substantially in the form set forth in Exhibit
1 hereto and shall provide that: (a) the assets of each Portfolio will not
be subject to any right, charge, security interest, lien or claim of any
kind in favor of the foreign banking institution or its creditors or agent,
except a claim of payment for their safe custody or administration; (b)
beneficial ownership for the assets of each Portfolio will be freely
transferable without the payment of money or value other than for custody
or administration; (c) adequate records will be maintained identifying the
assets as belonging to each applicable Portfolio; (d) officers of or
auditors employed by, or other representatives of the Custodian, including
to the extent permitted under applicable law the independent public
accountants for the Fund, will be given access to the books and records of
the foreign banking institution relating to its actions under its agreement
with the Custodian; and (e) assets of the Portfolios held ny the foreign
sub-custodian will be subject only to the instructions of the Custodian or
its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the Fund,
the Custodian will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of
any foreign banking institution enjoyed as a foreign sub-custodian insofar
as much books and records relate to the performance of such foreign banking
institution under its agreement with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time to
time, as mutually agreed upon, statements in respect of the securities and
other assets of the Portfolio(s) held by foreign sub-custodians, including
but not limited to an identification of entities having possession of the
securities of the Portfolio(s) and other assets and advices or
notifications of any transfers of securities to or from each custodial
account maintained by a foreign banking institution for the Custodian on
behalf of each applicable Portfolio indicating, as to securities acquired
for a Portfolio, the identity of the entity having physical possession of
such securities.
3.8 Transactions in Foreign Custody Account. (a) Except as otherwise provided
in paragraph (b) of this Section 3.8, the provisions of Sections 2.2 and
2.7 of this Contract shall apply, mutatis mutandis, to the foreign
securities of the Fund held outside the United States by foreign
sub-custodians. (b) Notwithstanding any provision of this Contract to the
contrary, settlement and payment for securities received for the account of
each applicable Portfolio and delivery of securities maintained for the
account of each applicable Portfolio may be effected in accordance with the
customary established securities trading or securities processing practices
and procedures in the jurisdiction or market in which the transaction
occurs, including, without limitation, delivering securities to the
purchaser thereof or to a dealer therefor (or an agent for such purchaser
or dealer) against a receipt with the expectation of receiving later
payment for such securities from such purchaser or dealer. (c) Securities
maintained in the custody of a foreign sub-custodian may be maintained in
the name of such entity's nominee to the same extent as set forth in
Section 2.3 of this Contract, and the Fund agrees to hold any such nominee
harmless from any liability as a holder of record of such securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which the
Custodian employs a foreign banking institution as a foreign sub-custodian
shall require the institution to exercise reasonable care in the
performance of its duties and to indemnify, and hold harmless, the
Custodian and the Fund from and against any loss, damage, cost, expense,
liability or claim arising out of or in connection with the institution's
performance of such obligations. At the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with respect to
any claims against a foreign banking institution as a consequence of any
such loss, damage, cost, expense, liability or claim if and to the extent
that the Fund has not been made whole for any such loss, damage, cost,
expense, liability or claim.
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as such
foreign banking institution is liable for such acts and omissions pursuant
to the agreement pursuant to which the Custodian employs each foreign
banking institution as foreign sub-custodian. Regardless of whether assets
are maintained in the custody of a foreign banking institution, a foreign
securities depository or a branch of a U.S. bank as contemplated by
paragraph 3.13 hereof, the Custodian shall not be liable for any loss,
damage, cost, expense, liability or claim resulting from nationalization,
expropriation, currency restrictions or acts of war or terrorism or any
similar act or event beyond the Custodian's control or any loss where the
sub-custodian has otherwise exercised reasonable care. Notwithstanding the
foregoing provisions of this paragraph 3.10, in delegating custody duties
to State Street London Ltd., the Custodian shall not be relieved of any
responsibility to the Fund for any loss due to such delegation, except such
loss as may result from (a) political risk (including, but not limited to,
exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or (b)
other losses (excluding a bankruptcy or insolvency of State Street London
Ltd. not caused by political risk) due to Acts of God, nuclear incident or
other losses under circumstances where the Custodian and State Street
London Ltd. have exercised reasonable care.
3.11 Reimbursement for Advances. The Fund agrees to indemnify and hold harmless
the Custodian and its nominee from and against all taxes, charges,
expenses, assessments, claims and liabilities (including counsel fees)
incurred or assessed against it or its nominee in connection with the
performance of this Contract, except such as may arise from it or its
nominee's own negligent action, negligent failure to act or willful
misconduct. The Custodian is authorized to charge any account of the Fund
for such items and its fees. To secure any such authorized charges and any
advances of cash or securities made by the Custodian to or for the benefit
of the Fund for any purposes which result in the Fund incurring an
overdraft at the end of any business day or for extraordinary or emergency
purposes during any business day, the Fund hereby grants to the Custodian a
security interest in and pledges to the Custodian securities held for it by
the Custodian, in an amount not to exceed the lesser of the dollar amounts
borrowed or ten percent of the Fund's gross assets, the specific securities
to be designated in writing from time to time by the Fund or its investment
adviser; provided, however, that (1) if from time to time neither the Fund
nor its investment adviser shall have designated in writing specific
securities in an amount at least equal to the lesser of the dollar amounts
borrowed or ten percent of the Fund's gross assets, or (2) if as a result
of the delivery by the Custodian out of its custody, pursuant to Proper
Instructions, of any securities previously so designated, the remaining
amount of securities so designated shall be less than the lesser of the
dollar amounts borrowed or ten percent of the Fund's gross assets then the
Custodian shall have a security interest in the Fund's securities; in an
amount that, taken together with amounts of securities from time to time
designated in writing by the Fund or its investment adviser that have not
been delivered out of the custody of the Custodian pursuant to Proper
Instructions, does not exceed the lesser of the dollar amounts borrowed or
ten percent of the Fund's gross assets. Should the Fund fail to repay
promptly any advances of cash or securities, the Custodian shall be
entitled to use available cash and to dispose of pledged securities and
property as is necessary to repay any such advances.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to the
Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be similar
in kind and scope to that furnished to the Fund in connection with the
initial approval of this Contract. In addition, the Custodian will promptly
inform the Fund in the event that the Custodian learns of a material
adverse change in the financial condition of a foreign sub-custodian or any
material loss of the assets of the Fund or, in the case of any foreign
sub-custodian not the subject of an exemptive order from the Securities and
Exchange Commission permitting it to serve as a foreign sub-custodian
notwithstanding that its shareholders' equity is less than $300 million, is
notified by such foreign sub-custodian that there appears to be a
substantial likelihood that its shareholders' equity will decline below
$200 million (U.S. dollars or the equivalent thereof) or that its
shareholders' equity has declined below $200 million (in each case computed
in accordance with generally accepted U.S. accounting principles).
3.13 Branches of U.S. Banks.
(a) Except as otherwise set forth in this Contract, the provisions of this
Article III shall not apply where the custody of the assets of the
Portfolio(s) are maintained in a foreign branch of a banking institution
which is a "bank" as defined by Section 2(a)(5) of the Investment Company
Act of 1940 meeting the qualification set forth in Section 26(a) of said
Act. The appointment of any such branch as a sub-custodian shall be
governed by the third paragraph of Article 1 of this Contract.
(b) Cash held for each Portfolio of the Fund in the United Kingdom shall be
maintained in an interest bearing account established for the Fund with the
Custodian's London branch, which account shall be subject to the direction
of the Custodian, State Street London Ltd. Or both.
4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund. The
Custodian shall receive from the distributor for the Shares or from the Transfer
Agent of the Fund and deposit into the account of the appropriate Portfolio such
payments as are received for Shares of that Portfolio issued or sold from time
to time by the Fund. The Custodian will provide timely notification to the Fund,
on behalf of each such Portfolio, and the Transfer Agent of any receipt by it of
payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board of
Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares of a Portfolio, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholder. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on
the Custodian by a holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the Custodian in accordance with
such procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
5. Proper Instructions. Proper Instructions as used throughout this Contract
means a writing signed or initialed by one or more person or persons as the
Board of Trustees of the Fund shall have from time to time authorized. Each such
writing shall set forth the specific transaction or type of transaction
involved, including a specific statement of the purpose for which such action is
requested. Oral instructions will be considered Proper Instructions if the
Custodian reasonably believes them to have been given by a person authorized to
give such instructions with respect to the transaction involved. The Fund shall
cause all oral instructions to be confirmed in writing. Upon receipt of a
certificate of the Secretary or an Assistant Secretary as to the authorization
by the Board of Trustees of the Fund accompanied by a detailed description of
procedures approved by the Board of Trustees, Proper Instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Board of Trustees and the Custodian are satisfied that
such procedures afford adequate safeguards for the assets of the Portfolio(s).
For purposes of this Section, Proper Instructions shall include instructions
received by the Custodian pursuant to any three - party agreement which requires
a segregated asset account in accordance with Section 2.11.
6. Actions Permitted without Express Authority. The Custodian may in its
discretion, without express authority from the Fund, on behalf of each
applicable Portfolio:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this
Contract, provided that all such payments shall be accounted for to the
Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Portfolio, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of the Portfolio except as
otherwise directed by the Board of Trustees of the Fund.
7. Evidence of Authority. The Custodian shall be protected in acting upon any
instructions, notice, request, consent, certificate or other instrument or paper
reasonably believed by it to be genuine and to have been properly executed by or
on behalf of the Fund. The Custodian may receive and accept a certified copy of
a vote of the Board of Trustees of the Fund as conclusive evidence (a) of the
authority of any person to act in accordance with such vote or (b) of any
determination or of any action by the Board of Trustees pursuant to the
Declaration of Trust as described in such vote, and such vote may be considered
as in full force and effect until receipt by the Custodian of written notice to
the contrary.
8. Duties of Custodian with Respect to the Books of Account and Calculation of
Net Asset Value and Net Income.
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Trustees of the Fund to keep the
books of account of each Portfolio and/or compute the net asset value per share
of the outstanding shares of each Portfolio or, if directed in writing to do so
by the Fund on behalf of the Portfolio, shall itself keep such books of account
and/or compute such net asset value per share. If so directed, the Custodian
shall also calculate daily the net income of the Portfolio as described in the
Fund's currently effective prospectus related to such Portfolio and shall advise
the Fund and the Transfer Agent daily of the total amounts of such net income
and, if instructed in writing by an officer of the Fund to do so, shall advise
the Transfer Agent periodically of the division of such net income among its
various components. The calculations of the net asset value per share and the
daily income of each Portfolio shall be made at the time or times described from
time to time in the Fund's currently effective prospectus related to such
Portfolio.
9. Records
The Custodian shall with respect to each Portfolio create and maintain all
records relating to its activities and obligations under this Contract in such
manner as will meet the obligations of the Fund under the Investment Company Act
of 1940, with particular attention to Section 31 thereof and Rules 31a-1 and
31a-2 thereunder, applicable federal and state tax laws and any other law or
administrative rules or procedures which may be applicable to the Fund. All such
records shall be the property of the Fund and shall at all times during the
regular business hours of the Custodian be open for inspection by duly
authorized officers, employees or agents of the Fund and employees and agents of
the Securities and Exchange Commission. The Custodian shall, at the Fund's
request, supply the Fund with a tabulation of securities owned by each Portfolio
and held by the Custodian and shall, when requested to do so by the Fund and for
such compensation as shall be agreed upon between the Fund and the Custodian,
include certificate numbers in such tabulations.
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund on behalf of
each applicable Portfolio may from time to time request, to obtain from year to
year favorable opinions from the Fund's independent accountants with respect to
its activities hereunder in connection with the preparation of the Fund's Form
N-1A and Form N-SAR or other periodic reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
11. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, on behalf of each Portfolio, at such
times as the Fund may reasonably require, with reports by independent public
accountants on the accounting system, internal accounting control and procedures
for safeguarding securities, futures contracts and options on futures contracts,
including securities deposited and/or maintained in a Securities System,
relating to the services provided by the Custodian under this Contract; such
reports shall be of sufficient scope and in sufficient detail as may reasonably
be required by the Fund to provide reasonable assurance that any material
inadequacies would be disclosed by such examination, and, if there are no such
inadequacies, the reports shall so state.
12. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its services
and expenses as Custodian, as agreed upon from time to time between the Fund, on
behalf of each Portfolio, and the Custodian.
13. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Contract and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties, including any
futures commission merchant acting pursuant to the terms of a three - party
futures or options agreement. The Custodian shall be held to the exercise of
reasonable care in carrying out the provisions of this Contract, but shall be
kept indemnified by and shall be without liability to the Fund for any action
taken or omitted by it in good faith without negligence. It shall be entitled to
rely on and may act upon advice of counsel (who may be counsel for the Fund) on
all matters, and shall be without liability for any action reasonably taken or
omitted pursuant to such advice. Notwithstanding the foregoing, the
responsibility of the Custodian with respect to redemptions effected by check
shall be in accordance with a separate Agreement, if any, entered into between
the Custodian and the Fund.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as it is liable for the acts or omissions of sub-custodians located
in the United States set forth in Article 1 hereof (except as otherwise
specifically provided in Article 3.10) and, regardless of whether assets are
maintained in the custody of a foreign banking institution, a foreign securities
depository or a foreign branch of a U.S. bank as contemplated by paragraph 3.11
hereof, the Custodian shall not be liable for any loss, damage, cost, expense,
liability or claim resulting from, or caused by, the direction of or
authorization by the Fund to maintain custody or any securities or cash of the
Fund of a foreign country including, but not limited to, losses resulting from
nationalization, expropriation, currency restrictions, or acts of war or
terrorism and not resulting from the negligence of the Custodian or such foreign
banking institution, foreign securities depository or foreign branch of a U.S.
bank.
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Fund on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
The Fund agrees to indemnify and hold harmless the Custodian and its
nominee from and against all taxes, charges, expenses, assessments, claims and
liabilities (including counsel fees) incurred or assessed against it or its
nominee in connection with the performance of this Contract, except such as may
arise from it or its nominee's own negligent action, negligent failure to act or
willful misconduct. The Custodian is authorized to charge any account of the
Fund for such items and its fees. To secure any such authorized charges and any
advances of cash or securities made by the Custodian to or for the benefit of
the Fund for any purposes which result in the Fund incurring an overdraft at the
end of any business day or for extraordinary or emergency purposes during any
business day, the Fund hereby grants to the Custodian a security interest in and
pledges to the Custodian securities held for it by the Custodian, in an amount
not to exceed the lesser of the dollar amounts borrowed or ten percent of the
Fund's gross assets, the specific securities to be designated in writing from
time to time by the Fund or its investment adviser; provided, however, that (1)
if from time to time neither the Fund nor its investment adviser shall have
designated in writing specific securities in an amount at least equal to the
lesser of the dollar amounts borrowed or ten percent of the Fund's gross assets,
or (2) if as a result of the delivery by the Custodian out of its custody,
pursuant to Proper Instructions, of any securities previously so designated, the
remaining amount of securities so designated shall be less than the lesser of
the dollar amounts borrowed or ten percent of the Fund's gross assets then the
Custodian shall have a security interest in the Fund's securities; in an amount
that, taken together with amounts of securities from time to time designated in
writing by the Fund or its investment adviser that have not been delivered out
of the custody of the Custodian pursuant to Proper Instructions, does not exceed
the lesser of the dollar amounts borrowed or ten percent of the Fund's gross
assets. Should the Fund fail to repay promptly any advances of cash or
securities, the Custodian shall be entitled to use available cash and to dispose
of pledged securities and property as is necessary to repay any such advances.
14. Effective Period, Termination and Amendment
This Contract shall become effective as of the date as of which it is
executed, shall continue in full force and effect until terminated as
hereinafter provided, may be amended at any time by mutual agreement of the
parties hereto and may be terminated by either party by an instrument in writing
delivered or mailed, postage prepaid, to the other party, such termination to
take effect not sooner than thirty (30) days after the date of such delivery or
mailing; provided, however that the Custodian shall not with respect to a
Portfolio act under Section 2.10 hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary of the Fund that the
Board of Trustees of the Fund has approved the initial use of a particular
Securities System by such Portfolio and the receipt of an annual certificate of
the Secretary or an Assistant Secretary that the Board of Trustees has reviewed
the use by such Portfolio of such Securities System, as required in each case by
Rule 17f-4 under the Investment Company Act of 1940, as amended and that the
Custodian shall not with respect to a Portfolio act under Section 2.10A hereof
in the absence of receipt of an initial certificate of the Secretary or an
Assistant Secretary of the Fund that the Board of Trustees has approved the
initial use of the Direct Paper System by such Portfolio and the receipt of an
annual certificate of the Secretary or an Assistant Secretary of the Fund that
the Board of Trustees has reviewed the use by such Portfolio of the Direct Paper
System; provided further, however, that the Fund shall not amend or terminate
this Contract in contravention of any applicable federal or state regulations,
or any provision of the Declaration of Trust, and further provided that the Fund
on behalf of one or more of the Portfolios may at any time by action of its
Board of Trustees (i) substitute another bank or trust company for the Custodian
by giving notice as described above to the Custodian, or (ii) immediately
terminate this Contract in the event of the appointment of a conservator or
receiver for the Custodian by the Comptroller of the Currency or upon the
happening of a like event at the direction of an appropriate regulatory agency
or court of competent jurisdiction.
Upon termination of the Contract, the Fund on behalf of each Portfolio
shall pay to the Custodian such compensation as may be due as of the date of
such termination and shall likewise reimburse the Custodian for its costs,
expenses and disbursements reasonably incurred by the Custodian in the
performance of its duties under this Contract.
15. Successor Custodian
If a successor custodian for the assets of any Portfolio(s) shall be
appointed by the Board of Trustees of the Fund, the Custodian shall, upon the
effectiveness of such appointment, deliver to such successor custodian, at the
office of the Custodian, duly endorsed and in the form for transfer, all
securities of each applicable Portfolio then held by it hereunder and shall
transfer to an account of the successor custodian all of the securities of each
such Portfolio held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of Trustees
of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when a termination of this Contract as to
any Portfolio(s) shall become effective, then the Custodian shall have the right
to deliver to a bank or trust company, which is a "bank" as defined in the
Investment Company Act of 1940, doing business in Boston, Massachusetts, of its
own selection, having an aggregate capital, surplus, and undivided profits, as
shown by its last published report, of not less than $25,000,000, all
securities, funds and other properties held by the Custodian on behalf of each
applicable Portfolio and all instruments held by the Custodian relative thereto
and all other property held by it under this Contract on behalf of each
applicable Portfolio and to transfer to an account of such successor custodian
all of the securities of each such Portfolio held in any Securities System.
Thereafter, such bank or trust company shall be the successor of the Custodian
under this Contract.
In the event that securities, funds and other properties of any
Portfolio(s) remain in the possession of the Custodian after the date of the
termination of this Contract as to such Portfolio(s) owing to failure of the
Fund to procure the certified copy of the vote referred to above or of the Board
of Trustees to appoint a successor custodian, the Custodian shall be entitled to
fair compensation for its services during such period as the Custodian retains
possession of such securities, funds and other properties, and the provisions of
this Contract relating to the duties and obligations of the Custodian shall
remain in full force and effect.
16. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and the
Fund, on behalf of each Portfolio, may from time to time agree on such
provisions interpretive of or in addition to the provisions of this Contract as
may in their joint opinion be consistent with the general tenor of this
Contract. Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any applicable federal or
state regulations or any provision of the Declaration of Trust of the Fund. No
interpretive or additional provisions made as provided in the preceding sentence
shall be deemed to be an amendment of this Contract.
17. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to New England Global Government Fund with respect to which it desires
to have the Custodian render services as custodian under the terms hereof, it
shall so notify the Custodian in writing, and if the Custodian agrees in writing
to provide such services, such series of Shares shall become a Portfolio
hereunder.
18. Massachusetts Law to Apply
This Contract shall be construed and the provisions hereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
19. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund on behalf of each Portfolio and the Custodian
relating to the custody of the Fund's assets.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 3rd day of January, 1989.
ATTEST INVESTMENT TRUST OF BOSTON FUNDS
/s/ KATHARINE SANDERSON HEIDLAGE By /s/ HENRY L.P. SCHMELZER
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/ By /s/ W. J. HAYES
------------------------------ ------------------------------
Assistant Secretary Vice President
<PAGE>
EXHIBIT 99.15(A)
THE MASSACHUSETTS TAX FREE INCOME FUND
CLASS A SERVICE PLAN
(as amended effective September 13, 1993)
This Plan (the "Plan") constitutes the Service Plan relating to the
Class A shares of TNE MASSACHUSETTS TAX FREE INCOME FUND (the "Series"), a
series of TNE Funds Trust, a Massachusetts business trust (the "Trust").
Section 1. The Trust, on behalf of the Series, will pay to TNE
INVESTMENT SERVICES CORPORATION, a Massachusetts corporation which acts as the
Principal Distributor of the Series' shares, or such other entity as shall from
time to time act as the Principal Distributor of the Series' shares (the
"Distributor"), a fee (the "Service Fee") for expenses borne by the Distributor
in connection with the provision of personal services provided to investors in
Class A shares of the Series and/or the maintenance of shareholder accounts, at
an annual rate not to exceed .25% of the Series' average daily net assets
attributable to the Class A shares. Subject to such limit and subject to the
provisions of Section 7 hereof, the Service Fee shall be as approved from time
to time by (a) the Trustees of the Trust and (b) the Independent Trustees of the
Trust. The Service Fee shall be accrued daily and paid monthly or at such other
intervals as the Trustees shall determine. All payments under this Service Plan
are intended to qualify as "service fees" as defined in Section 26 of the Rules
of Fair Practice of the National Association of Securities Dealers, Inc. (or any
successor provision) as in effect from time to time.
Section 2. The Service Fee may be paid only to reimburse the
Distributor for expenses of providing personal services to investors in Class A
shares of the Series and/or in connection with the maintenance of shareholder
accounts (including such expenses incurred after the original adoption of this
Plan but prior to September 13, 1993 that have not previously been reimbursed
hereunder), including, but not limited to, (i) expenses (including overhead
expenses) of the Distributor for providing personal services to investors in
Class A shares of the Series or in connection with the maintenance of
shareholder accounts and (ii) payments made by the Distributor to any securities
dealer or other organization (including, but not limited to, any affiliate of
the Distributor) with which the Distributor has entered into a written agreement
for this purpose, for providing personal services to investors in Class A shares
of the Series and/or the maintenance of shareholder accounts, which payments to
any such organization may be in amounts in excess of the cost incurred by such
organization in connection therewith.
Section 3. This Plan shall continue in effect for a period of more than
one year after September 1, 1993 only so long as such continuance is
specifically approved at least annually by votes of the majority (or whatever
other percentage may, from time to time, be required by Section 12(b) of the
Investment Company Act of 1940 (the "Act") or the rules and regulations
thereunder) of both (a) the Trustees of the Trust, and (b) the Independent
Trustees of the Trust, cast in person at a meeting called for the purpose of
voting on this Plan or such agreement.
Section 4. Any person authorized to direct the disposition of monies
paid or payable by the Trust pursuant to this Plan or any related agreement
shall provide to the Trustees of the Trust, and the Trustees shall review, at
least quarterly, a written report of the amounts so expended and the purposes
for which such expenditures were made.
Section 5. This Plan may be terminated at any time by vote of a
majority of the Independent Trustees, or by vote of a majority of the
outstanding Class A shares of the Series.
Section 6. All agreements with any person relating to implementation of
this Plan shall be in writing, and any agreement related to this Plan shall
provide:
A. That such agreement may be terminated at any time, without payment
of any penalty, by vote of a majority of the Independent Trustees
or by vote of a majority of the outstanding Class A shares of the
Series, on not more than 60 days' written notice to any other party
to the agreement; and
B. That such agreement shall terminate automatically in the event of
its assignment.
Section 7. This Plan may not be amended to increase materially the
amount of expenses permitted pursuant to Section 1 hereof without approval by a
vote of at least a majority of the outstanding Class A shares of the Series, and
all material amendments of this Plan shall be approved in the manner provided
for continuation of this Plan in Section 4.
Section 8. As used in this Plan, (a) the term "Independent Trustees"
shall mean those Trustees of the Trust who are not interested persons of the
Trust, and have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it, and (b) the terms "assignment" and
"interested person" shall have the respective meanings specified in the Act and
the rules and regulations thereunder, and the term "majority of the outstanding
Class A shares of the Series" shall mean the lesser of the 67% or the 50% voting
requirements specified in classes (A) and (B), respectively, of the third
sentence of Section 2(a)(42) of the Act, all subject to such exemptions as may
be granted by the Securities and Exchange Commission.
<PAGE>
THE INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA
CLASS A SERVICE PLAN
(as amended effective September 13, 1993)
This Plan (the "Plan") constitutes the Service Plan relating to the
Class A shares of TNE INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA (the
"Series"), a series of TNE Funds Trust, a Massachusetts business trust (the
"Trust").
Section 1. The Trust, on behalf of the Series, will pay to TNE
INVESTMENT SERVICES CORPORATION, a Massachusetts corporation which acts as the
Principal Distributor of the Series' shares, or such other entity as shall from
time to time act as the Principal Distributor of the Series' shares (the
"Distributor"), a fee (the "Service Fee") for expenses borne by the Distributor
in connection with the provision of personal services provided to investors in
Class A shares of the Series and/or the maintenance of shareholder accounts, at
an annual rate not to exceed .25% of the Series' average daily net assets
attributable to the Class A shares. Subject to such limit and subject to the
provisions of Section 7 hereof, the Service Fee shall be as approved from time
to time by (a) the Trustees of the Trust and (b) the Independent Trustees of the
Trust. The Service Fee shall be accrued daily and paid monthly or at such other
intervals as the Trustees shall determine. All payments under this Service Plan
are intended to qualify as "service fees" as defined in Section 26 of the Rules
of Fair Practice of the National Association of Securities Dealers, Inc. (or any
successor provision) as in effect from time to time.
Section 2. The Service Fee may be paid only to reimburse the
Distributor for expenses of providing personal services to investors in Class A
shares of the Series and/or in connection with the maintenance of shareholder
accounts (including such expenses incurred after the original adoption of this
Plan but prior to September 13, 1993 that have not previously been reimbursed
hereunder), including, but not limited to, (i) expenses (including overhead
expenses) of the Distributor for providing personal services to investors in
Class A shares of the Series or in connection with the maintenance of
shareholder accounts and (ii) payments made by the Distributor to any securities
dealer or other organization (including, but not limited to, any affiliate of
the Distributor) with which the Distributor has entered into a written agreement
for this purpose, for providing personal services to investors in Class A shares
of the Series and/or the maintenance of shareholder accounts, which payments to
any such organization may be in amounts in excess of the cost incurred by such
organization in connection therewith.
Section 3. This Plan shall continue in effect for a period of more than
one year after September 1, 1993 only so long as such continuance is
specifically approved at least annually by votes of the majority (or whatever
other percentage may, from time to time, be required by Section 12(b) of the
Investment Company Act of 1940 (the "Act") or the rules and regulations
thereunder) of both (a) the Trustees of the Trust, and (b) the Independent
Trustees of the Trust, cast in person at a meeting called for the purpose of
voting on this Plan or such agreement.
Section 4. Any person authorized to direct the disposition of monies
paid or payable by the Trust pursuant to this Plan or any related agreement
shall provide to the Trustees of the Trust, and the Trustees shall review, at
least quarterly, a written report of the amounts so expended and the purposes
for which such expenditures were made.
Section 5. This Plan may be terminated at any time by vote of a
majority of the Independent Trustees, or by vote of a majority of the
outstanding Class A shares of the Series.
Section 6. All agreements with any person relating to implementation of
this Plan shall be in writing, and any agreement related to this Plan shall
provide:
A. That such agreement may be terminated at any time, without payment
of any penalty, by vote of a majority of the Independent Trustees
or by vote of a majority of the outstanding Class A shares of the
Series, on not more than 60 days' written notice to any other party
to the agreement; and
B. That such agreement shall terminate automatically in the event of
its assignment.
Section 7. This Plan may not be amended to increase materially the
amount of expenses permitted pursuant to Section 1 hereof without approval by a
vote of at least a majority of the outstanding Class A shares of the Series, and
all material amendments of this Plan shall be approved in the manner provided
for continuation of this Plan in Section 4.
Section 8. As used in this Plan, (a) the term "Independent Trustees"
shall mean those Trustees of the Trust who are not interested persons of the
Trust, and have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it, and (b) the terms "assignment" and
"interested person" shall have the respective meanings specified in the Act and
the rules and regulations thereunder, and the term "majority of the outstanding
Class A shares of the Series" shall mean the lesser of the 67% or the 50% voting
requirements specified in classes (A) and (B), respectively, of the third
sentence of Section 2(a)(42) of the Act, all subject to such exemptions as may
be granted by the Securities and Exchange Commission.
<PAGE>
TNE INTERMEDIATE TERM TAX FREE FUND OF NEW YORK
CLASS A SERVICE PLAN
(as amended effective September 13, 1993)
This Plan (the "Plan") constitutes the Service Plan relating to the
Class A shares of TNE INTERMEDIATE TERM TAX FREE FUND OF NEW YORK (the
"Series"), a series of TNE Funds Trust, a Massachusetts business trust (the
"Trust").
Section 1. The Trust, on behalf of the Series, will pay to TNE
INVESTMENT SERVICES CORPORATION, a Massachusetts corporation which acts as the
Principal Distributor of the Series' shares, or such other entity as shall from
time to time act as the Principal Distributor of the Series' shares (the
"Distributor"), a fee (the "Service Fee") for expenses borne by the Distributor
in connection with the provision of personal services provided to investors in
Class A shares of the Series and/or the maintenance of shareholder accounts, at
an annual rate not to exceed .25% of the Series' average daily net assets
attributable to the Class A shares. Subject to such limit and subject to the
provisions of Section 7 hereof, the Service Fee shall be as approved from time
to time by (a) the Trustees of the Trust and (b) the Independent Trustees of the
Trust. The Service Fee shall be accrued daily and paid monthly or at such other
intervals as the Trustees shall determine. All payments under this Service Plan
are intended to qualify as "service fees" as defined in Section 26 of the Rules
of Fair Practice of the National Association of Securities Dealers, Inc. (or any
successor provision) as in effect from time to time.
Section 2. The Service Fee may be paid only to reimburse the
Distributor for expenses of providing personal services to investors in Class A
shares of the Series and/or in connection with the maintenance of shareholder
accounts (including such expenses incurred after the original adoption of this
Plan but prior to September 13, 1993 that have not previously been reimbursed
hereunder), including, but not limited to, (i) expenses (including overhead
expenses) of the Distributor for providing personal services to investors in
Class A shares of the Series or in connection with the maintenance of
shareholder accounts and (ii) payments made by the Distributor to any securities
dealer or other organization (including, but not limited to, any affiliate of
the Distributor) with which the Distributor has entered into a written agreement
for this purpose, for providing personal services to investors in Class A shares
of the Series and/or the maintenance of shareholder accounts, which payments to
any such organization may be in amounts in excess of the cost incurred by such
organization in connection therewith.
Section 3. This Plan shall continue in effect for a period of more than
one year after September 1, 1993 only so long as such continuance is
specifically approved at least annually by votes of the majority (or whatever
other percentage may, from time to time, be required by Section 12(b) of the
Investment Company Act of 1940 (the "Act") or the rules and regulations
thereunder) of both (a) the Trustees of the Trust, and (b) the Independent
Trustees of the Trust, cast in person at a meeting called for the purpose of
voting on this Plan or such agreement.
Section 4. Any person authorized to direct the disposition of monies
paid or payable by the Trust pursuant to this Plan or any related agreement
shall provide to the Trustees of the Trust, and the Trustees shall review, at
least quarterly, a written report of the amounts so expended and the purposes
for which such expenditures were made.
Section 5. This Plan may be terminated at any time by vote of a
majority of the Independent Trustees, or by vote of a majority of the
outstanding Class A shares of the Series.
Section 6. All agreements with any person relating to implementation of
this Plan shall be in writing, and any agreement related to this Plan shall
provide:
A. That such agreement may be terminated at any time, without payment
of any penalty, by vote of a majority of the Independent Trustees
or by vote of a majority of the outstanding Class A shares of the
Series, on not more than 60 days' written notice to any other party
to the agreement; and
B. That such agreement shall terminate automatically in the event of
its assignment.
Section 7. This Plan may not be amended to increase materially the
amount of expenses permitted pursuant to Section 1 hereof without approval by a
vote of at least a majority of the outstanding Class A shares of the Series, and
all material amendments of this Plan shall be approved in the manner provided
for continuation of this Plan in Section 4.
Section 8. As used in this Plan, (a) the term "Independent Trustees"
shall mean those Trustees of the Trust who are not interested persons of the
Trust, and have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it, and (b) the terms "assignment" and
"interested person" shall have the respective meanings specified in the Act and
the rules and regulations thereunder, and the term "majority of the outstanding
Class A shares of the Series" shall mean the lesser of the 67% or the 50% voting
requirements specified in classes (A) and (B), respectively, of the third
sentence of Section 2(a)(42) of the Act, all subject to such exemptions as may
be granted by the Securities and Exchange Commission.
<PAGE>
TNE HIGH INCOME FUND
CLASS A DISTRIBUTION AND SERVICE PLAN
(as amended effective September 23, 1993)
This Plan (the "Plan") constitutes the Distribution and Service Plan
relating to the Class A shares of TNE HIGH INCOME FUND (the "Series"), a series
of TNE Funds Trust, a Massachusetts business trust (the "Trust").
Section 1. Service Fee. The Trust, on behalf of the Series, will pay to
TNE INVESTMENT SERVICES CORPORATION, a Massachusetts corporation which acts as
the Principal Distributor of the Series' shares, or such other entity as shall
from time to time act as the Principal Distributor of the Series' shares (the
"Distributor"), a fee (the "Service Fee") for expenses borne by the Distributor
in connection with the provision of personal services to investors in Class A
shares of the Series and/or the maintenance of shareholder accounts, at an
annual rate not to exceed .25% of the Series' average daily net assets
attributable to the Class A shares. Subject to such limit and subject to the
provisions of Section 7 hereof, the Service Fee shall be as approved from time
to time by (a) the Trustees of the Trust and (b) the Independent Trustees of the
Trust. The Service Fee shall be accrued daily and paid monthly or at such other
intervals as the Trustees shall determine. All payments under this Section 1 are
intended to qualify as "service fees" as defined in Section 26 of the Rules of
Fair Practice of the National Association of Securities Dealers, Inc. (or any
successor provision) as in effect from time to time (the "NASD Rule").
The Distributor may retain any or all of the amounts paid to it as
Service Fees hereunder or may use any or all of such amounts to make payments to
any securities dealer or other organization (including, but not limited to, any
affiliate of the Distributor) with which the Distributor has entered into a
written agreement for this purpose, for providing personal services to investors
in Class A shares of the Series and/or the maintenance of shareholder accounts,
which payments to any such organization may be in amounts in excess of the cost
incurred by such organization in connection therewith.
Section 2. Distribution Fee. In addition to the Service Fee, the Trust
will pay to the Distributor a fee (the "Distribution Fee") at an annual rate not
to exceed .10% of the Series' average daily net assets attributable to the Class
A shares, for acting as Principal Distributor with respect to the Class A
shares. Subject to such limit and subject to the provisions of Section 7 hereof,
the Distribution Fee shall be as approved from time to time by (a) the Trustees
of the Trust and (b) the Independent Trustees of the Trust. The Distribution Fee
shall be accrued daily and paid monthly or at such other intervals as the
Trustees shall determine. All payments under this Section 2 are intended to
qualify as "asset-based sales charges" as defined in the NASD Rules.
The Distributor may retain any or all of the amounts paid to it as
Distribution Fees hereunder or may use any or all of such amounts to defray its
costs of (i) payments to any securities dealer or other organization (including,
but not limited to, any affiliate of the Distributor) of asset-based sales
charges or "trail commissions" with respect to Class A shares of the Series,
(ii) compensation to and expenses, including overhead and telephone expenses, of
registered representatives or other employees of the Distributor relating to
activities which are primarily intended to result in the sale of Class A shares
of the Series, (iii) advertising, (iv) the printing and mailing of prospectuses
relating to the Series to other than current shareholders of the Series and (v)
the printing and mailing of sales literature relating to the Series.
Section 3. This Plan shall continue in effect for a period of more than
one year after September 1, 1993 only so long as such continuance is
specifically approved at least annually by votes of the majority (or whatever
other percentage may, from time to time, be required by Section 12(b) of the
Investment Company Act of 1940 (the "Act") or the rules and regulations
thereunder) of both (a) the Trustees of the Trust, and (b) the Independent
Trustees of the Trust, cast in person at a meeting called for the purpose of
voting on this Plan or such agreement.
Section 4. Any person authorized to direct the disposition of monies
paid or payable by the Trust pursuant to this Plan or any related agreement
shall provide to the Trustees of the Trust, and the Trustees shall review, at
least quarterly, a written report of the amounts so expended and the purposes
for which such expenditures were made.
Section 5. This Plan may be terminated at any time by vote of a
majority of the Independent Trustees, or by vote of a majority of the
outstanding Class A shares of the Series.
Section 6. All agreements with any person relating to implementation of
this Plan shall be in writing, and any agreement related to this Plan shall
provide:
A. That such agreement may be terminated at any time, without payment
of any penalty, by vote of a majority of the Independent Trustees
or by vote of a majority of the outstanding Class A shares of the
Series, on not more than 60 days' written notice to any other party
to the agreement; and
B. That such agreement shall terminate automatically in the event of
its assignment.
Section 7. This Plan may not be amended to increase materially the
amount of expenses permitted pursuant to Sections 1 or 2 hereof without approval
by a vote of at least a majority of the outstanding Class A shares of the
Series, and all material amendments of this Plan shall be approved in the manner
provided for continuation of this Plan in Section 3.
Section 8. As used in this Plan, (a) the term "Independent Trustees"
shall mean those Trustees of the Trust who are not interested persons of the
Trust, and have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it, and (b) the terms "assignment" and
"interested person" shall have the respective meanings specified in the Act and
the rules and regulations thereunder, and the term "majority of the outstanding
Class A shares of the Series" shall mean the lesser of the 67% or the 50% voting
requirements specified in clauses (A) and (B), respectively, of the third
sentence of Section 2(a)(42) of the Act, all subject to such exemptions as may
be granted by the Securities and Exchange Commission.
<PAGE>
NEW ENGLAND GROWTH OPPORTUNITIES FUND
CLASS A SERVICE PLAN
(AS AMENDED EFFECTIVE MAY 1, 1995)
This Plan (the "Plan") constitutes the Service Plan relating to the
Class A shares of NEW ENGLAND GROWTH OPPORTUNITIES FUND (the "Series"), a series
of New England Funds Trust II, a Massachusetts business trust (the "Trust").
Section 1. Service Fee. The Trust, on behalf of the Series, will pay to
New England Funds, L.P., a Massachusetts corporation which acts as the Principal
Distributor of the Series' shares, or such other entity as shall from time to
time act as the Principal Distributor of the Series' shares (the "Distributor"),
a fee (the "Service Fee") relating to the provision of personal services to
investors in Class A shares of the Series and/or the maintenance of shareholder
accounts, at an annual rate not to exceed .25% of the Series' average daily net
assets attributable to the Class A shares. Subject to such limit and subject to
the provisions of Section 6 hereof, the Service Fee shall be as approved from
time to time by (a) the Trustees of the Trust and (b) the Independent Trustees
of the Trust. The Service Fee shall be accrued daily and paid monthly or at such
other intervals as the Trustees shall determine. All payments under this Section
1 are intended to qualify as "service fees" as defined in Section 26 of the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
(or any successor provision) as in effect from time to time (the "NASD Rule").
The Distributor may retain any or all of the amounts paid to it as
Service Fees hereunder or may use any or all of such amounts to make payments to
any securities dealer or other organization (including, but not limited to, any
affiliate of the Distributor) with which the Distributor has entered into a
written agreement for this purpose, for providing personal services to investors
in Class A shares of the Series and/or the maintenance of shareholder accounts,
which payments to any such organization may be in amounts in excess of the cost
incurred by such organization in connection therewith.
Section 2. This Plan shall continue in effect for a period of more than
one year after May 1, 1995 only so long as such continuance is specifically
approved at least annually by votes of the majority (or whatever other
percentage may, from time to time, be required by Section 12(b) of the
Investment Company Act of 1940 (the "Act") or the rules and regulations
thereunder) of both (a) the Trustees of the Trust, and (b) the Independent
Trustees of the Trust, cast in person at a meeting called for the purpose of
voting on this Plan or such agreement.
Section 3. Any person authorized to direct the disposition of monies
paid or payable by the Trust pursuant to this Plan or any related agreement
shall provide to the Trustees of the Trust, and the Trustees shall review, at
least quarterly, a written report of the amounts so expended and the purposes
for which such expenditures were made.
Section 4. This Plan may be terminated at any time by vote of a
majority of the Independent Trustees, or by vote of a majority of the
outstanding Class A shares of the Series.
Section 5. All agreements with any person relating to implementation of
this Plan shall be in writing, and any agreement related to this Plan shall
provide:
A. That such agreement may be terminated at any time, without payment
of any penalty, by vote of a majority of the Independent Trustees
or by vote of a majority of the outstanding Class A shares of the
Series, on not more than 60 days' written notice to any other party
to the agreement; and
B. That such agreement shall terminate automatically in the event of
its assignment.
Section 6. This Plan may not be amended to increase materially the
amount of expenses permitted pursuant to Section 1 hereof without approval by a
vote of at least a majority of the outstanding Class A shares of the Series, and
all material amendments of this Plan shall be approved in the manner provided
for continuation of this Plan in Section 2.
Section 7. As used in this Plan, (a) the term "Independent Trustees"
shall mean those Trustees of the Trust who are not interested persons of the
Trust, and have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it, (b) the terms "assignment" and
"interested person" shall have the respective meanings specified in the Act and
the rules and regulations thereunder, and (c) the term "majority of the
outstanding Class A shares of the Series" shall mean the lesser of the 67% or
the 50% voting requirements specified in clauses (A) and (B), respectively, of
the third sentence of Section 2(a)(42) of the Act, all subject to such
exemptions as may be granted by the Securities and Exchange Commission.
<PAGE>
THE LIMITED TERM U.S. GOVERNMENT FUND
CLASS A SERVICE PLAN
(as amended effective September 13, 1993)
This Plan (the "Plan") constitutes the Service Plan relating to the
Class A shares of TNE LIMITED TERM U.S. GOVERNMENT FUND (the "Series"), a series
of TNE Funds Trust, a Massachusetts business trust (the "Trust").
Section 1. The Trust, on behalf of the Series, will pay to TNE
INVESTMENT SERVICES CORPORATION, a Massachusetts corporation which acts as the
Principal Distributor of the Series' shares, or such other entity as shall from
time to time act as the Principal Distributor of the Series' shares (the
"Distributor"), a fee (the "Service Fee") for expenses borne by the Distributor
in connection with the provision of personal services provided to investors in
Class A shares of the Series and/or the maintenance of shareholder accounts, at
an annual rate not to exceed .25% of the Series' average daily net assets
attributable to the Class A shares. Subject to such limit and subject to the
provisions of Section 7 hereof, the Service Fee shall be as approved from time
to time by (a) the Trustees of the Trust and (b) the Independent Trustees of the
Trust. The Service Fee shall be accrued daily and paid monthly or at such other
intervals as the Trustees shall determine. All payments under this Service Plan
are intended to qualify as "service fees" as defined in Section 26 of the Rules
of Fair Practice of the National Association of Securities Dealers, Inc. (or any
successor provision) as in effect from time to time.
Section 2. The Service Fee may be paid only to reimburse the
Distributor for expenses of providing personal services to investors in Class A
shares of the Series and/or in connection with the maintenance of shareholder
accounts (including such expenses incurred after the original adoption of this
Plan but prior to September 13, 1993 that have not previously been reimbursed
hereunder), including, but not limited to, (i) expenses (including overhead
expenses) of the Distributor for providing personal services to investors in
Class A shares of the Series or in connection with the maintenance of
shareholder accounts and (ii) payments made by the Distributor to any securities
dealer or other organization (including, but not limited to, any affiliate of
the Distributor) with which the Distributor has entered into a written agreement
for this purpose, for providing personal services to investors in Class A shares
of the Series and/or the maintenance of shareholder accounts, which payments to
any such organization may be in amounts in excess of the cost incurred by such
organization in connection therewith.
Section 3. This Plan shall continue in effect for a period of more than
one year after September 1, 1993 only so long as such continuance is
specifically approved at least annually by votes of the majority (or whatever
other percentage may, from time to time, be required by Section 12(b) of the
Investment Company Act of 1940 (the "Act") or the rules and regulations
thereunder) of both (a) the Trustees of the Trust, and (b) the Independent
Trustees of the Trust, cast in person at a meeting called for the purpose of
voting on this Plan or such agreement.
Section 4. Any person authorized to direct the disposition of monies
paid or payable by the Trust pursuant to this Plan or any related agreement
shall provide to the Trustees of the Trust, and the Trustees shall review, at
least quarterly, a written report of the amounts so expended and the purposes
for which such expenditures were made.
Section 5. This Plan may be terminated at any time by vote of a
majority of the Independent Trustees, or by vote of a majority of the
outstanding Class A shares of the Series.
Section 6. All agreements with any person relating to implementation of
this Plan shall be in writing, and any agreement related to this Plan shall
provide:
A. That such agreement may be terminated at any time, without payment
of any penalty, by vote of a majority of the Independent Trustees
or by vote of a majority of the outstanding Class A shares of the
Series, on not more than 60 days' written notice to any other party
to the agreement; and
B. That such agreement shall terminate automatically in the event of
its assignment.
Section 7. This Plan may not be amended to increase materially the
amount of expenses permitted pursuant to Section 1 hereof without approval by a
vote of at least a majority of the outstanding Class A shares of the Series, and
all material amendments of this Plan shall be approved in the manner provided
for continuation of this Plan in Section 4.
Section 8. As used in this Plan, (a) the term "Independent Trustees"
shall mean those Trustees of the Trust who are not interested persons of the
Trust, and have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it, and (b) the terms "assignment" and
"interested person" shall have the respective meanings specified in the Act and
the rules and regulations thereunder, and the term "majority of the outstanding
Class A shares of the Series" shall mean the lesser of the 67% or the 50% voting
requirements specified in classes (A) and (B), respectively, of the third
sentence of Section 2(a)(42) of the Act, all subject to such exemptions as may
be granted by the Securities and Exchange Commission.
<PAGE>
TNE ADJUSTABLE RATE U.S. GOVERNMENT FUND
CLASS A SERVICE PLAN
(as amended effective September 13, 1993)
This Plan (the "Plan") constitutes the Service Plan relating to the
Class A shares of TNE ADJUSTABLE RATE U.S. GOVERNMENT FUND (the "Series"), a
series of TNE Funds Trust, a Massachusetts business trust (the "Trust").
Section 1. The Trust, on behalf of the Series, will pay to TNE
INVESTMENT SERVICES CORPORATION, a Massachusetts corporation which acts as the
Principal Distributor of the Series' shares, or such other entity as shall from
time to time act as the Principal Distributor of the Series' shares (the
"Distributor"), a fee (the "Service Fee") for expenses borne by the Distributor
in connection with the provision of personal services provided to investors in
Class A shares of the Series and/or the maintenance of shareholder accounts, at
an annual rate not to exceed .25% of the Series' average daily net assets
attributable to the Class A shares. Subject to such limit and subject to the
provisions of Section 7 hereof, the Service Fee shall be as approved from time
to time by (a) the Trustees of the Trust and (b) the Independent Trustees of the
Trust. The Service Fee shall be accrued daily and paid monthly or at such other
intervals as the Trustees shall determine. All payments under this Service Plan
are intended to qualify as "service fees" as defined in Section 26 of the Rules
of Fair Practice of the National Association of Securities Dealers, Inc. (or any
successor provision) as in effect from time to time.
Section 2. The Service Fee may be paid only to reimburse the
Distributor for expenses of providing personal services to investors in Class A
shares of the Series and/or in connection with the maintenance of shareholder
accounts (including such expenses incurred after the original adoption of this
Plan but prior to September 13, 1993 that have not previously been reimbursed
hereunder), including, but not limited to, (i) expenses (including overhead
expenses) of the Distributor for providing personal services to investors in
Class A shares of the Series or in connection with the maintenance of
shareholder accounts and (ii) payments made by the Distributor to any securities
dealer or other organization (including, but not limited to, any affiliate of
the Distributor) with which the Distributor has entered into a written agreement
for this purpose, for providing personal services to investors in Class A shares
of the Series and/or the maintenance of shareholder accounts, which payments to
any such organization may be in amounts in excess of the cost incurred by such
organization in connection therewith.
Section 3. This Plan shall continue in effect for a period of more than
one year after September 1, 1993 only so long as such continuance is
specifically approved at least annually by votes of the majority (or whatever
other percentage may, from time to time, be required by Section 12(b) of the
Investment Company Act of 1940 (the "Act") or the rules and regulations
thereunder) of both (a) the Trustees of the Trust, and (b) the Independent
Trustees of the Trust, cast in person at a meeting called for the purpose of
voting on this Plan or such agreement.
Section 4. Any person authorized to direct the disposition of monies
paid or payable by the Trust pursuant to this Plan or any related agreement
shall provide to the Trustees of the Trust, and the Trustees shall review, at
least quarterly, a written report of the amounts so expended and the purposes
for which such expenditures were made.
Section 5. This Plan may be terminated at any time by vote of a
majority of the Independent Trustees, or by vote of a majority of the
outstanding Class A shares of the Series.
Section 6. All agreements with any person relating to implementation of
this Plan shall be in writing, and any agreement related to this Plan shall
provide:
A. That such agreement may be terminated at any time, without payment
of any penalty, by vote of a majority of the Independent Trustees
or by vote of a majority of the outstanding Class A shares of the
Series, on not more than 60 days' written notice to any other party
to the agreement; and
B. That such agreement shall terminate automatically in the event of
its assignment.
Section 7. This Plan may not be amended to increase materially the
amount of expenses permitted pursuant to Section 1 hereof without approval by a
vote of at least a majority of the outstanding Class A shares of the Series, and
all material amendments of this Plan shall be approved in the manner provided
for continuation of this Plan in Section 4.
Section 8. As used in this Plan, (a) the term "Independent Trustees"
shall mean those Trustees of the Trust who are not interested persons of the
Trust, and have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it, and (b) the terms "assignment" and
"interested person" shall have the respective meanings specified in the Act and
the rules and regulations thereunder, and the term "majority of the outstanding
Class A shares of the Series" shall mean the lesser of the 67% or the 50% voting
requirements specified in classes (A) and (B), respectively, of the third
sentence of Section 2(a)(42) of the Act, all subject to such exemptions as may
be granted by the Securities and Exchange Commission.
<PAGE>
EXHIBIT 99.15(C)
NEW ENGLAND LIMITED TERM U.S. GOVERNMENT FUND
CLASS C DISTRIBUTION AND SERVICE PLAN
This Plan (the "Plan") constitutes the Distribution and Service Plan
relating to the Class C shares of New England Limited Term U.S. Government Fund
(the "Series"), a series of New England Funds Trust II, a Massachusetts business
trust (the "Trust").
Section 1. Service Fee. The Trust, on behalf of the Series, will pay to
New England Funds, L.P., a Delaware limited partnership which acts as the
Principal Distributor of the Series' shares, or such other entity as shall from
time to time act as the Principal Distributor of the Series' shares (the
"Distributor"), a fee (the "Service Fee") at an annual rate not to exceed .25%
of the Series' average daily net assets attributable to the Class C shares.
Subject to such limit and subject to the provisions of Section 7 hereof, the
Service Fee shall be as approved from time to time by (a) the Trustees of the
Trust and (b) the Independent Trustees of the Trust. The Service Fee shall be
accrued daily and paid monthly or at such other intervals as the Trustees shall
determine. The Distributor may pay all or any portion of the Service Fee to
securities dealers or other organizations (including, but not limited to, any
affiliate of the Distributor) as service fees pursuant to agreements with such
organizations for providing personal services to investors in Class C shares of
the Series and/or the maintenance of shareholder accounts, and may retain all or
any portion of the Service Fee as compensation for providing personal services
to investors in Class C shares of the Series and/or the maintenance of
shareholder accounts. All payments under this Section 1 are intended to qualify
as "service fees" as defined in Section 26 of the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. (or any successor provision) as
in effect from time to time (the "NASD Rule").
Section 2. Distribution Fee. In addition to the Service Fee, the Trust
will pay to the Distributor a fee (the "Distribution Fee") at an annual rate not
to exceed .75% of the Series' average daily net assets attributable to the Class
C shares, as compensation for the Distributor's services as principal
underwriter of the Class C shares of the Series. Subject to such limit and
subject to the provisions of Section 7 hereof, the Distribution Fee shall be as
approved from time to time by (a) the Trustees of the Trust and (b) the
Independent Trustees of the Trust. The Distribution Fee shall be accrued daily
and paid monthly or at such other intervals as the Trustees shall determine. The
Distributor may pay all or any portion of the Distribution Fee to securities
dealers or other organizations (including, but not limited to, any affiliate of
the Distributor) as commissions, asset-based sales charges or other compensation
with respect to the sale of Class C shares of the Series, and may retain all or
any portion of the Distribution Fee as compensation for the Distributor's
services as principal underwriter of the Class C shares of the Series. All
payments under this Section 2 are intended to qualify as "asset-based sales
charges" as defined in the NASD Rules.
Section 3. This Plan shall continue in effect for a period of more than
one year after January 1, 1995 only so long as such continuance is specifically
approved at least annually by votes of the majority (or whatever other
percentage may, from time to time, be required by Section 12(b) of the
Investment Company Act of 1940 (the "Act") or the rules and regulations
thereunder) of both (a) the Trustees of the Trust, and (b) the Independent
Trustees of the Trust, cast in person at a meeting called for the purpose of
voting on this Plan or such agreement.
Section 4. Any person authorized to direct the disposition of monies
paid or payable by the Trust pursuant to this Plan or any related agreement
shall provide to the Trustees of the Trust, and the Trustees shall review, at
least quarterly, a written report of the amounts so expended and the purposes
for which such expenditures were made.
Section 5. This Plan may be terminated at any time by vote of a
majority of the Independent Trustees, or by vote of a majority of the
outstanding Class C shares of the Series.
Section 6. All agreements with any person relating to implementation of
this Plan shall be in writing, and any agreement related to this Plan shall
provide:
A. That such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the
Independent Trustees or by vote of a majority of the
outstanding Class C shares of the Series, on not more than 60
days' written notice to any other party to the agreement; and
B. That such agreement shall terminate automatically in the
event of its assignment.
Section 7. This Plan may not be amended to increase materially the
amount of expenses permitted pursuant to Sections 1 or 2 hereof without approval
by a vote of at least a majority of the outstanding Class C shares of the
Series, and all material amendments of this Plan shall be approved in the manner
provided for continuation of this Plan in Section 3.
Section 8. As used in this Plan, (a) the term "Independent Trustees"
shall mean those Trustees of the Trust who are not interested persons of the
Trust, and have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it, and (b) the terms "assignment" and
"interested person" shall have the respective meanings specified in the Act and
the rules and regulations thereunder, and the term "majority of the outstanding
Class C shares of the Series" shall mean the lesser of the 67% or the 50% voting
requirements specified in clauses (A) and (B), respectively, of the third
sentence of Section 2(a)(42) of the Act, all subject to such exemptions as may
be granted by the Securities and Exchange Commission.
<PAGE>
EXHIBIT 99.15(D)
NEW ENGLAND GROWTH OPPORTUNITIES FUND
CLASS C DISTRIBUTION AND SERVICE PLAN
This Plan (the "Plan") constitutes the Distribution and Service Plan
relating to the Class C shares of New England Growth Opportunities Fund (the
"Series"), a series of New England Funds Trust II, a Massachusetts business
trust (the "Trust").
Section 1. Service Fee. The Trust, on behalf of the Series, will pay to
New England Funds, L.P., a Delaware limited partnership which acts as the
Principal Distributor of the Series' shares, or such other entity as shall from
time to time act as the Principal Distributor of the Series' shares (the
"Distributor"), a fee (the "Service Fee") at an annual rate not to exceed .25%
of the Series' average daily net assets attributable to the Class C shares.
Subject to such limit and subject to the provisions of Section 7 hereof, the
Service Fee shall be as approved from time to time by (a) the Trustees of the
Trust and (b) the Independent Trustees of the Trust. The Service Fee shall be
accrued daily and paid monthly or at such other intervals as the Trustees shall
determine. The Distributor may pay all or any portion of the Service Fee to
securities dealers or other organizations (including, but not limited to, any
affiliate of the Distributor) as service fees pursuant to agreements with such
organizations for providing personal services to investors in Class C shares of
the Series and/or the maintenance of shareholder accounts, and may retain all or
any portion of the Service Fee as compensation for providing personal services
to investors in Class C shares of the Series and/or the maintenance of
shareholder accounts. All payments under this Section 1 are intended to qualify
as "service fees" as defined in Section 26 of the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. (or any successor provision) as
in effect from time to time (the "NASD Rule").
Section 2. Distribution Fee. In addition to the Service Fee, the Trust
will pay to the Distributor a fee (the "Distribution Fee") at an annual rate not
to exceed .75% of the Series' average daily net assets attributable to the Class
C shares, as compensation for the Distributor's services as principal
underwriter of the Class C shares of the Series. Subject to such limit and
subject to the provisions of Section 7 hereof, the Distribution Fee shall be as
approved from time to time by (a) the Trustees of the Trust and (b) the
Independent Trustees of the Trust. The Distribution Fee shall be accrued daily
and paid monthly or at such other intervals as the Trustees shall determine. The
Distributor may pay all or any portion of the Distribution Fee to securities
dealers or other organizations (including, but not limited to, any affiliate of
the Distributor) as commissions, asset-based sales charges or other compensation
with respect to the sale of Class C shares of the Series, and may retain all or
any portion of the Distribution Fee as compensation for the Distributor's
services as principal underwriter of the Class C shares of the Series. All
payments under this Section 2 are intended to qualify as "asset-based sales
charges" as defined in the NASD Rules.
Section 3. This Plan shall continue in effect for a period of more than
one year after January 1, 1995 only so long as such continuance is specifically
approved at least annually by votes of the majority (or whatever other
percentage may, from time to time, be required by Section 12(b) of the
Investment Company Act of 1940 (the "Act") or the rules and regulations
thereunder) of both (a) the Trustees of the Trust, and (b) the Independent
Trustees of the Trust, cast in person at a meeting called for the purpose of
voting on this Plan or such agreement.
Section 4. Any person authorized to direct the disposition of monies
paid or payable by the Trust pursuant to this Plan or any related agreement
shall provide to the Trustees of the Trust, and the Trustees shall review, at
least quarterly, a written report of the amounts so expended and the purposes
for which such expenditures were made.
Section 5. This Plan may be terminated at any time by vote of a
majority of the Independent Trustees, or by vote of a majority of the
outstanding Class C shares of the Series.
Section 6. All agreements with any person relating to implementation of
this Plan shall be in writing, and any agreement related to this Plan shall
provide:
A. That such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the
Independent Trustees or by vote of a majority of the
outstanding Class C shares of the Series, on not more than 60
days' written notice to any other party to the agreement; and
B. That such agreement shall terminate automatically in the
event of its assignment.
Section 7. This Plan may not be amended to increase materially the
amount of expenses permitted pursuant to Sections 1 or 2 hereof without approval
by a vote of at least a majority of the outstanding Class C shares of the
Series, and all material amendments of this Plan shall be approved in the manner
provided for continuation of this Plan in Section 3.
Section 8. As used in this Plan, (a) the term "Independent Trustees"
shall mean those Trustees of the Trust who are not interested persons of the
Trust, and have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it, and (b) the terms "assignment" and
"interested person" shall have the respective meanings specified in the Act and
the rules and regulations thereunder, and the term "majority of the outstanding
Class C shares of the Series" shall mean the lesser of the 67% or the 50% voting
requirements specified in clauses (A) and (B), respectively, of the third
sentence of Section 2(a)(42) of the Act, all subject to such exemptions as may
be granted by the Securities and Exchange Commission.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> CLASS A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 11,128,687
<INVESTMENTS-AT-VALUE> 11,007,436
<RECEIVABLES> 572,022
<ASSETS-OTHER> 120,097
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 692,119
<PAYABLE-FOR-SECURITIES> 887,018
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> (55,742)
<TOTAL-LIABILITIES> 831,276
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,328,917
<SHARES-COMMON-STOCK> 748,714
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (12,067)
<OVERDISTRIBUTION-NII> (12,067)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (121,252)
<NET-ASSETS> 10,868,279
<DIVIDEND-INCOME> 41,878
<INTEREST-INCOME> 21,220
<OTHER-INCOME> 207
<EXPENSES-NET> 75,371
<NET-INVESTMENT-INCOME> (12,067)
<REALIZED-GAINS-CURRENT> 39,050
<APPREC-INCREASE-CURRENT> (121,252)
<NET-CHANGE-FROM-OPS> (94,268)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 748,714
<NUMBER-OF-SHARES-REDEEMED> 4,370
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 30,308
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 113,727
<AVERAGE-NET-ASSETS> 9,421,391
<PER-SHARE-NAV-BEGIN> 12.50
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.45
<EXPENSE-RATIO> 2.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> CLASS B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 11,128,687
<INVESTMENTS-AT-VALUE> 11,007,436
<RECEIVABLES> 572,022
<ASSETS-OTHER> 120,097
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 692,119
<PAYABLE-FOR-SECURITIES> 887,018
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> (55,742)
<TOTAL-LIABILITIES> 831,276
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,481,289
<SHARES-COMMON-STOCK> 119,044
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (12,067)
<OVERDISTRIBUTION-NII> (12,067)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (121,252)
<NET-ASSETS> 10,868,279
<DIVIDEND-INCOME> 41,878
<INTEREST-INCOME> 21,220
<OTHER-INCOME> 207
<EXPENSES-NET> 75,371
<NET-INVESTMENT-INCOME> (12,067)
<REALIZED-GAINS-CURRENT> 39,050
<APPREC-INCREASE-CURRENT> (121,252)
<NET-CHANGE-FROM-OPS> (94,268)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 119,044
<NUMBER-OF-SHARES-REDEEMED> 2,107
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 30,308
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 113,727
<AVERAGE-NET-ASSETS> 9,421,391
<PER-SHARE-NAV-BEGIN> 12.50
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.42
<EXPENSE-RATIO> 3.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> CLASS C
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 11,128,687
<INVESTMENTS-AT-VALUE> 11,007,436
<RECEIVABLES> 572,022
<ASSETS-OTHER> 120,097
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 692,119
<PAYABLE-FOR-SECURITIES> 887,018
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> (55,742)
<TOTAL-LIABILITIES> 831,276
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 151,380
<SHARES-COMMON-STOCK> 12,087
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (12,067)
<OVERDISTRIBUTION-NII> (12,067)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (121,252)
<NET-ASSETS> 10,868,279
<DIVIDEND-INCOME> 41,878
<INTEREST-INCOME> 21,220
<OTHER-INCOME> 207
<EXPENSES-NET> 75,371
<NET-INVESTMENT-INCOME> (12,067)
<REALIZED-GAINS-CURRENT> 39,050
<APPREC-INCREASE-CURRENT> (121,252)
<NET-CHANGE-FROM-OPS> (94,268)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12,087
<NUMBER-OF-SHARES-REDEEMED> 41
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 30,308
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 113,727
<AVERAGE-NET-ASSETS> 9,421,391
<PER-SHARE-NAV-BEGIN> 12.50
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.44
<EXPENSE-RATIO> 3.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
