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NEW ENGLAND FUNDS
Where The Best Minds MeetTM
NEW ENGLAND CASH MANAGEMENT TRUST
MONEY MARKET SERIES
U.S. GOVERNMENT SERIES
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST (The "Funds," and each a "Fund")
Prospectus and Application
August 29, 1996
For general information on the Funds or any of their services and for assistance
in opening an account, contact your investment dealer or call the Distributor
toll free at 1-800-225-5478.
This prospectus concisely provides information that you should know about each
of the Funds before investing. Please read it carefully and keep it for future
reference.
Investments in the Funds are neither insured nor guaranteed by the U.S.
Government. There can be no assurance that the Funds will be able to maintain
a stable net asset value of $1.00 per share.
The Funds offer two classes of shares to the general public. Class A and Class B
shares are both offered at net asset value; however, under conditions described
below, a contingent deferred sales charge (a "CDSC") may be imposed upon
redemption of Fund shares originally acquired by exchange of shares from any of
the New England Stock or Bond Funds (the "Stock or Bond Funds"). See "Owning
Fund Shares -- Exchanging Among New England Funds" and "Selling Fund Shares --
Contingent Deferred Sales Charges."
You can find more detailed information about the Funds in the Statement of
Additional Information (the "Statement") dated August 29, 1996 which has been
filed with the Securities and Exchange Commission (the "SEC") and is available
free of charge. Write to New England Funds, L.P. (the "Distributor"), SAI
Fulfillment Desk, 399 Boylston Street, Boston, MA 02116 or call toll free at
1-800-225-5478. The Statement contains more detailed information about the Funds
and is incorporated into this prospectus by reference.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR OTHER 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.
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
<S> <C> <C>
Page FUND EXPENSES AND FINANCIAL INFORMATION
1 Schedule of Fees Sales charges, yearly operating expenses.
3 Financial Highlights Historical information on the Funds' performance.
---------------------------------------------------------------------------------------------------------------
INVESTMENT STRATEGY
6 Investment Objectives The investment goal for each Fund.
6 New England Investment The Funds' adviser and subadviser are affiliates of NEIC.
Companies and the Funds' Adviser and
Subadviser
6 How the Funds Pursue Their
Objectives
6 Fund Investments Descriptions of the types of securities in which each
Fund invests.
---------------------------------------------------------------------------------------------------------------
9 INVESTMENT RISKS Each Fund expects to maintain the net asset value of its
shares at $1.00, but it is important to understand the
risks inherent in a Fund before you invest.
---------------------------------------------------------------------------------------------------------------
9 FUND MANAGEMENT Information about the Funds' adviser and subadviser.
---------------------------------------------------------------------------------------------------------------
BUYING FUND SHARES
11 Minimum Investment Everything you need to know to open and add to
11 6 Ways to Buy Fund Shares a New England Funds account.
[ ] Through your investment dealer
[ ] By mail
[ ] By wire transfer
[ ] By Investment Builder
[ ] By electronic purchase through ACH
[ ] By exchange from another New
England Fund
---------------------------------------------------------------------------------------------------------------
OWNING FUND SHARES
13 Exchanging Among New England Funds New England Funds offer three convenient ways to
14 Fund Dividend Payments exchange Fund shares.
---------------------------------------------------------------------------------------------------------------
SELLING FUND SHARES
15 5 Ways to Sell Fund Shares How to withdraw money or close your account.
[ ] Through your investment dealer
[ ] By telephone
[ ] By mail
[ ] By check
[ ] By Systematic Withdrawal Plan
17 Contingent Deferred Sales Charges Class A and Class B shareholders who have exchanged from
the Stock or Bond Funds may be subject to a CDSC upon
redemption.
---------------------------------------------------------------------------------------------------------------
FUND DETAILS Additional information you may find important.
18 Fund Yields
18 Income Tax Considerations
19 Additional Facts About the Funds
</TABLE>
<PAGE>
Fund Expenses and Financial Information
Schedule of Fees
Expenses are one of several factors to consider when you invest in the Funds.
The following table summarizes your maximum transaction costs from investing in
the Funds and estimated annual expenses for each class of the Funds' shares. The
Example on the following page shows the cumulative expenses attributable to a
hypothetical $1,000 investment in each class of shares of the Funds for the
periods specified.
Shareholder transaction expenses
<TABLE>
<CAPTION>
New England
New England Cash Management
Cash Management Trust -- New England
Trust -- U.S. Government Tax Exempt
Money Market Series Series Money Market Trust
-------------------- -------------------- ----------------------
Class A Class B Class A Class B Class A Class B
-------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Maximum Initial Sales Charge
Imposed on a Purchase None None None None None None
Maximum Contingent Deferred Sales
Charge None* None* None* None* None* None*
</TABLE>
*Shares of each Class are sold without any sales charge. However, Class A and
Class B shares may be subject to a contingent deferred sales charge if the
shares were purchased by exchange from a Stock or Bond Fund. See "Selling
Fund Shares--Contingent Deferred Sales Charges."
Annual Fund operating expenses
(as a percentage of average net assets)
New England
Cash Management Trust
--
Money Market Series
----------------------
Class A Class B
-------- ----------
Management Fees 0.42% 0.42%
12b-1 Fees None None
Other Expenses 0.48% 0.48%
Total Fund Operating Expenses 0.90% 0.90%
New England
Cash Management Trust --
U.S. Government Series
------------------------
Class A Class B
--------- -----------
Management Fees 0.43% 0.43%
12b-1 Fees None None
Other Expenses (after voluntary fee waiver) 0.50%(1) 0.50%(1)
Total Fund Operating Expenses (after voluntary
fee waiver) 0.93%(1) 0.93%(1)
New England
Tax Exempt
Money Market Trust
------------------------
Class A Class B
--------- -----------
Management Fees (after voluntary fee waiver) 0.07%(2) 0.07%(2)
12b-1 Fees None None
Other Expenses 0.49% 0.49%
Total Fund Operating Expenses (after voluntary
fee waiver) 0.56%(2) 0.56%(2)
(1) Without a voluntary waiver of accounting and administrative fees by the
Distributor, Other Expenses would be 0.53% and Total Fund Operating Expenses
would be 0.96% for both Class A and Class B shares. These voluntary
limitations can be terminated by the Distributor at any time.
See "Fund Management."
(2) Without the voluntary fee waiver by the Fund's adviser and subadviser,
Management Fees would be 0.40% and Total Fund Operating Expenses would be
0.90% for both Class A and Class B shares. These voluntary limitations
can be terminated by the Fund's adviser or subadviser at any time. See
"Fund Management."
1
<PAGE>
Example
A $1,000 investment would incur the following expenses, assuming a 5% annual
return and redemption at the end of each time period. The 5% return and expenses
in the Example should not be considered indicative of actual or expected Fund
performance or expenses, both of which may be more or less than shown.
New England New England
Cash Management Trust Cash Management Trust New England
-- -- Tax Exempt
Money Market Series U.S. Government Series Money Market Trust
--------------------- ---------------------- -------------------
Class A Class B Class A Class B Class A Class B
(1) (1) (1)
- -------------------------------------------------------------------------------
1 year $ 9 $ 9 $ 9 $ 9 $ 6 $ 6
- -------------------------------------------------------------------------------
3 years $ 29 $ 29 $ 30 $ 30 $18 $18
- -------------------------------------------------------------------------------
5 years $ 50 $ 50 $ 51 $ 51 $31 $31
- -------------------------------------------------------------------------------
10 years $111 $111 $114 $114 $70 $70
- -------------------------------------------------------------------------------
(1) Assumes CDSC does not apply to the redemption.
The purpose of this fee schedule is to help you understand the various expenses
that you will bear directly or indirectly if you invest in one or more of the
Funds. For additional information about the Funds' fees and other expenses, see
"Fund Management."
A wire fee (currently $5.00) will be deducted from your proceeds if you elect
to transfer redemption proceeds by wire.
2
<PAGE>
Financial Highlights
(For a Class A and B share of each Fund outstanding throughout the indicated
periods.)
The Financial Highlights presented on pages 3 through 5 have been included in
financial statements for the Funds. The financial statements have been examined
by Price Waterhouse LLP, independent accountants, whose reports thereon were
unqualified. The Financial Highlights should be read in conjunction with the
financial statements and the notes thereto incorporated by reference in the
Statement. Each Fund's annual report contains additional performance information
and is available upon request and without charge.
NEW ENGLAND CASH MANAGEMENT TRUST -- MONEY MARKET SERIES
Year Ended June 30,
--------------------------------------------
1987 1988 1989 1990
- ------------------------------------------------------------------------
Net asset value,
beginning of period $1.00 $1.00 $1.00 $1.00
-----------------------------------------------------------------------
Income from investment
operations
-----------------------------------------------------------------------
Net investment income 0.0554 0.0643 0.0816 0.0801
Net gains or losses on
securities (both
realized and
unrealized) 0.0000 0.0000 0.0000 0.0000
-----------------------------------------------------------------------
Total income from
investment operations 0.0554 0.0643 0.0816 0.0801
-----------------------------------------------------------------------
Less distributions
-----------------------------------------------------------------------
Dividends (from net
investment income) (1) (0.0554) (0.0643) (0.0816) (0.0801)
Distributions (from net
realized capital
gains) 0.0000 0.0000 0.0000 0.0000
-----------------------------------------------------------------------
Total distributions (0.0554) (0.0643) (0.0816) (0.0801)
-----------------------------------------------------------------------
Net asset value,
end of period $1.00 $1.00 $1.00 $1.00
=======================================================================
Total return (%) 5.68 6.60 8.45 8.29
-----------------------------------------------------------------------
Ratios/Supplemental data
-----------------------------------------------------------------------
Net assets, end of
period (000) $685,026 $823,742 $984,246 $1,140,852
Ratio of expenses to
average net assets (%) 0.81 0.74 0.72 0.67
Ratio of net income to
average net assets (%) 5.54 6.44 8.21 8.00
(1) Including net realized gain on investments.
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1991 1992 1993 1994 1995 1996
---------------------------------------------------------------------------------------------
Net asset value,
beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
---------------------------------------------------------------------------------------------
Income from investment
operations
---------------------------------------------------------------------------------------------
Net investment income 0.0693 0.0450 0.0275 0.0264 0.0469 0.0482
Net gains or losses on
securities (both
realized and
unrealized) 0.0000 0.0000 0.0000 0.0000 0.0000 0.0002
---------------------------------------------------------------------------------------------
Total income from
investment operations 0.0693 0.0450 0.0275 0.0264 0.0469 0.0484
---------------------------------------------------------------------------------------------
Less distributions
---------------------------------------------------------------------------------------------
Dividends (from net
investment income) (1) (0.0693) (0.0450) (0.0275) (0.0264) (0.0469) (0.0484)
Distributions (from net
realized capital
gains) 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
---------------------------------------------------------------------------------------------
Total distributions (0.0693) (0.0450) (0.0275) (0.0264) (0.0469) (0.0484)
---------------------------------------------------------------------------------------------
Net asset value,
end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
=============================================================================================
Total return (%) 7.15 4.58 2.84 2.68 4.79 4.95
---------------------------------------------------------------------------------------------
Ratios/Supplemental data
---------------------------------------------------------------------------------------------
Net assets, end of
period (000) $1,150,963 $925,077 $775,914 $699,369 $649,808 $663,621
Ratio of expenses to
average net assets (%) 0.68 0.73 0.79 0.84 0.88 0.90
Ratio of net income to
average net assets (%) 6.92 4.56 2.78 2.65 4.67 4.85
(1) Including net realized gain on investments.
</TABLE>
3
<PAGE>
NEW ENGLAND CASH MANAGEMENT TRUST -- U.S. GOVERNMENT SERIES
Year Ended June 30,
------------------------------------------
1987 1988 1989 1990
---------------------------------------------------------------------
Net asset value,
beginning of period $1.00 $1.00 $1.00 $1.00
---------------------------------------------------------------------
Income from investment
operations
---------------------------------------------------------------------
Net investment income 0.0539 0.0585 0.0772 0.0762
Net gains or losses on
securities (both
realized and
unrealized) 0.0001 0.0001 0.0001 0.0001
---------------------------------------------------------------------
Total income from
investment operations 0.0540 0.0586 0.0773 0.0763
---------------------------------------------------------------------
Less distributions
---------------------------------------------------------------------
Dividends (from net
investment income) (1) (0.0540) (0.0586) (0.0773) (0.0763)
Distributions (from net
realized capital
gains) 0.0000 0.0000 0.0000 0.0000
---------------------------------------------------------------------
Total distributions (0.0540) (0.0586) (0.0773) (0.0763)
---------------------------------------------------------------------
Net asset value,
end of period $1.00 $1.00 $1.00 $1.00
=====================================================================
Total return (%) 5.53 6.00 7.99 7.88
---------------------------------------------------------------------
Ratios/Supplemental data
---------------------------------------------------------------------
Net assets, end of
period (000) $46,585 $57,183 $57,697 $61,746
Ratio of expenses to
average net assets (%) 0.84 0.83 0.81 0.79
Ratio of net income to
average net assets (%) 5.44 5.87 7.74 7.62
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1991 1992 1993 1994 1995 1996
-------------------------------------------------------------------------------------------
Net asset value,
beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
-------------------------------------------------------------------------------------------
Income from investment
operations
-------------------------------------------------------------------------------------------
Net investment income 0.0660 0.0449 0.0271 0.0257 0.0454 0.0465
Net gains or losses on
securities (both
realized and
unrealized) 0.0001 0.0000 0.0000 0.0000 0.0000 0.0010
-------------------------------------------------------------------------------------------
Total income from
investment operations 0.0661 0.0449 0.0271 0.0257 0.0454 0.0475
-------------------------------------------------------------------------------------------
Less distributions
-------------------------------------------------------------------------------------------
Dividends (from net
investment income) (1) (0.0661) (0.0449) (0.0271) (0.0257) (0.0454) (0.0475)
Distributions (from net
realized capital
gains) 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
-------------------------------------------------------------------------------------------
Total distributions (0.0661) (0.0449) (0.0271) (0.0257) (0.0454) (0.0475)
-------------------------------------------------------------------------------------------
Net asset value,
end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===========================================================================================
Total return (%) 6.80 4.57 2.80 2.60 4.64 4.86
-------------------------------------------------------------------------------------------
Ratios/Supplemental data
-------------------------------------------------------------------------------------------
Net assets, end of
period (000) $87,380 $79,218 $64,595 $58,963 $59,742 $52,547
Ratio of expenses to
average net assets (%) 0.74 0.73 0.78 0.84 0.92 0.93(2)
Ratio of net income to
average net assets (%) 6.50 4.50 2.73 2.54 4.53 4.80
</TABLE>
(1) Including net realized gain on investments.
(2) The ratio of expenses to average net assets without giving effect to the
voluntary fee waiver described in Note 3 to the Financial Statements
contained in the Statement would have been 0.96% for the year ended June 30,
1996.
4
<PAGE>
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST
Year Ended June 30,
------------------------------------------
1987 1988 1989 1990
---------------------------------------------------------------------
Net asset value,
beginning of period $1.00 $1.00 $1.00 $1.00
---------------------------------------------------------------------
Income from investment
operations
---------------------------------------------------------------------
Net investment income 0.0382 0.0427 0.0541 0.0544
---------------------------------------------------------------------
Net gains or losses on
securities (both
realized and
unrealized) 0.0000 0.0000 0.0000 0.0000
---------------------------------------------------------------------
Total income from
investment operations 0.0382 0.0427 0.0541 0.0544
---------------------------------------------------------------------
Less distributions
---------------------------------------------------------------------
Dividends (from net
investment income) (0.0382) (0.0427) (0.0541) (0.0544)
Distributions (from net
realized capital
gains) 0.0000 0.0000 0.0000 0.0000
---------------------------------------------------------------------
Total distributions (0.0382) (0.0427) (0.0541) (0.0544)
---------------------------------------------------------------------
Net asset value,
end of period $1.00 $1.00 $1.00 $1.00
=====================================================================
Total return (%) 3.89 4.34 5.53 5.56
---------------------------------------------------------------------
Ratios/Supplemental data
---------------------------------------------------------------------
Net assets, end of
period (000) $56,874 $65,721 $65,433 $68,287
Ratio of expenses to
average net assets (%)
(1) 0.56 0.56 0.56 0.56
Ratio of net income to
average net assets (%) 3.81 4.27 5.41 5.42
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1991 1992 1993 1994 1995 1996
-------------------------------------------------------------------------------------------
Net asset value,
beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
-------------------------------------------------------------------------------------------
Income from investment
operations
-------------------------------------------------------------------------------------------
Net investment income 0.0483 0.0337 0.0214 0.0208 0.0314 0.0327
-------------------------------------------------------------------------------------------
Net gains or losses on
securities (both
realized and
unrealized) 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
-------------------------------------------------------------------------------------------
Total income from
investment operations 0.0483 0.0337 0.0214 0.0208 0.0314 0.0327
-------------------------------------------------------------------------------------------
Less distributions
-------------------------------------------------------------------------------------------
Dividends (from net
investment income) (0.0483) (0.0337) (0.0214) (0.0208) (0.0314) (0.0327)
Distributions (from net
realized capital
gains) 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
-------------------------------------------------------------------------------------------
Total distributions (0.0483) (0.0337) (0.0214) (0.0208) (0.0314) (0.0327)
-------------------------------------------------------------------------------------------
Net asset value,
end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===========================================================================================
Total return (%) 4.93 3.41 2.20 2.10 3.18 3.32
-------------------------------------------------------------------------------------------
Ratios/Supplemental data
-------------------------------------------------------------------------------------------
Net assets, end of
period (000) $72,634 $65,753 $56,555 $66,620 $67,797 $64,897
Ratio of expenses to
average net assets (%)
(1) 0.56 0.56 0.56 0.56 0.56 0.56
Ratio of net income to
average net assets (%) 4.81 3.38 2.14 2.08 3.15 3.29
</TABLE>
(1) The ratio of expenses to average net assets without giving effect to the
expense limitation described in Note 3 to the Financial Statements contained
in the Statement would have been 0.76%, 0.75%, 0.74%, 0.76%, 0.76%, 0.76%,
0.83%, 0.89%, 0.85% and 0.90% for the years ended June 30, 1987, 1988, 1989,
1990, 1991, 1992, 1993, 1994, 1995 and 1996, respectively.
5
<PAGE>
Investment Strategy
Investment Objectives
NEW ENGLAND CASH MANAGEMENT TRUST -- MONEY MARKET SERIES
(the "Money Market Fund")
The Money Market Fund is a separate series of New England Cash Management Trust
that seeks maximum current income consistent with preservation of capital and
liquidity. The Money Market Fund invests in a variety of high quality money
market instruments.
NEW ENGLAND CASH MANAGEMENT TRUST -- U.S. GOVERNMENT SERIES
(the "Government Fund")
The Government Fund is a separate series of New England Cash Management Trust
that seeks the highest current income consistent with maximum safety of capital
and liquidity. The Government Fund invests only in obligations backed by the
full faith and credit of the U.S. Government and in related repurchase
agreements.
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST
(the "Tax Exempt Fund")
The Tax Exempt Fund is a separate trust that seeks current income exempt from
federal income taxes consistent with preservation of capital and liquidity. The
Tax Exempt Fund invests primarily in a diversified portfolio of high quality
short-term fixed, variable and floating rate municipal obligations.
New England Cash Management Trust and New England Tax Exempt Money Market
Trust are referred to in this prospectus as the "Trusts."
New England Investment Companies and the Funds' Adviser and Subadviser
The investment adviser and subadviser of each of the Funds are independently
operated subsidiaries of New England Investment Companies, L.P. ("NEIC"), the
5th-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 $87 billion in assets for individuals and institutions.
The adviser and subadviser operate independently and are staffed by experienced
investment professionals. The adviser and subadviser apply specialized knowledge
and careful analysis to the pursuit of each Fund's objectives.
New England Funds Management, L.P. ("NEFM") is investment adviser of each of
the Funds, as well as most of the other New England Funds.
Back Bay Advisors(R), L.P. ("Back Bay Advisors(R)"), subadviser of each of
the Funds, manages over $6 billion in assets, primarily mutual fund and
institutional fixed-income portfolios.
How the Funds Pursue Their Objectives
Investments in each Fund will be pooled with money from other investors in that
Fund to invest in a managed portfolio consisting of securities appropriate to
the Fund's investment objective and policies, as described below. There can be
no assurance that any Fund will achieve its objective.
Fund Investments
[ ] Money Market Fund
The Money Market Fund invests in certificates of deposit, bankers' acceptances
and other dollar-denominated obligations of banks whose net assets exceed $100
million. Up to 100% of the Fund's assets may be invested in these kinds of
obligations. These obligations may be issued by U.S. banks or their foreign
branches, or foreign banks (including their U.S. or London branches), subject to
the conditions set forth in the Statement.
The Fund may invest in commercial paper and other corporate debt obligations
that satisfy the Fund's quality and maturity standards.
The Fund may invest in "U.S. Government Securities," which term, as used in
this prospectus, includes all securities issued or guaranteed by the U.S.
Government or its agencies, authorities or instrumentalities. Some U.S.
Government Securities are backed by the full faith and credit of the United
States, some are supported by the discretionary authority of the U.S. Government
to purchase the issuer's obligations (e.g.,
6
<PAGE>
obligations of the Federal National Mortgage Association), some by the right of
the issuer to borrow from the U.S. Government (e.g., obligations of Federal Home
Loan Banks), while still others are supported only by the credit of the issuer
itself (e.g., obligations of the Student Loan Marketing Association).
The Fund may also invest in repurchase agreements of domestic banks or
broker-dealers relating to any of the above. In repurchase agreements, the Fund
buys a security from a seller, usually a bank or brokerage firm, with the
understanding that the seller will repurchase the security from the Fund at a
higher price at a later date.
All of the Fund's investments at the time of purchase (other than U.S.
Government Securities and repurchase agreements relating thereto) will be rated
in the highest rating category by a major rating agency or, if unrated, will be
of comparable quality as determined by the Fund's subadviser under guidelines
approved by the Trust's trustees.
[ ] Government Fund
The Government Fund invests in U.S. Government Securities, limited, however,
to obligations backed by the full faith and credit of the U.S. Government.
The Government Fund may also invest in repurchase agreements related to the
foregoing.
[ ] Tax Exempt Fund
The Tax Exempt Fund invests in notes, commercial paper and bonds which pay
interest that, in the opinion of the issuer's counsel, is exempt from federal
income tax ("Municipal Securities"). Municipal Securities are generally issued
by states and local governments and their agencies. The Fund will only invest in
Municipal Securities which are:
(bullet) short-term notes rated MIG-2 or better by Moody's Investors
Service, Inc. ("Moody's") or SP-2 or better by Standard & Poor's
Ratings Group ("S&P");
(bullet) municipal bonds rated Aa or better by Moody's or AA or better by S&P
with a remaining maturity of 397 days or less whose issuer has
comparable short-term obligations that are rated in the top rating
category by Moody's or S&P; or
(bullet) other types of Municipal Securities, including commercial paper,
rated P-2 by Moody's or A-2 by S&P or unrated Municipal Securities
determined to be of comparable quality by the Fund's subadviser
under guidelines approved by the Trust's trustees, subject to any
limitations imposed by Rule 2a-7 under the Investment Company Act
of 1940.
Some of these may be variable or floating rate Municipal Securities, which
pay a rate of interest adjusted on a periodic basis and determined by reference
to a prescribed formula. Such obligations may be subject to prepayment without
penalty, at the option of either the Fund or the issuer.
The interest on certain types of Municipal Securities, known as "private
activity" bonds, is an item of tax preference, subject to the federal
alternative minimum tax with a maximum rate of 28%. The Tax Exempt Fund has
instituted procedures to avoid investment in "private activity" Municipal
Securities in order to reduce the possibility that Fund dividends will
constitute an item of tax preference. However, there can be no assurance that
these procedures will be totally effective. The Tax Exempt Fund intends to
continue these procedures so long as it deems them necessary and prudent.
Shareholders should be aware that, while these procedures are in effect, the Tax
Exempt Fund will not be able to invest in the full range of issues available in
the Municipal Securities market. The Tax Exempt Fund's investments in Municipal
Securities that are subject to the federal alternative minimum tax, together
with other investments the interest on which is subject to the alternative
minimum tax, will not normally exceed 20% of Fund investments.
The interest on Municipal Securities issued after August 15, 1986 is
retroactively taxable from the date of issuance if the issuer does not comply
with certain requirements concerning the use of bond proceeds and the
application of earnings on bond proceeds.
The Tax Exempt Fund may also invest some of its assets in cash or taxable,
high-quality money market securities eligible for purchase by the Money
7
<PAGE>
Market Fund. However, unless it has adopted a temporary defensive position,
it is a fundamental policy of the Fund to invest at least 80% of its net
assets in Municipal Securities.
The Fund may buy Municipal Securities on a when-issued basis, and may buy
Municipal Securities from a broker-dealer with the right to sell them back at a
certain time and price (puts). These practices, as well as repurchase
agreements, may present risks in addition to those associated with Municipal
Securities.
The issuer of a Municipal Security may make payments from money raised
through a variety of sources, such as (1) the issuer's general taxing power, (2)
a specific type of tax such as a property tax or (3) a particular facility or
project such as a highway. The ability of an issuer to make these payments could
be affected by litigation, legislation or other political events or the
bankruptcy of the issuer.
[ ] All Funds
All investments of the Funds mature in 397 days or less, and the average
maturity of the investments of each Fund is 90 days or less. The maturity of
repurchase agreements is calculated by reference to the repurchase date, not by
reference to the maturity of the underlying security. All investments of each
Fund will be in U.S. dollars and will be determined to present minimal credit
risks by the subadviser under guidelines established by the Trust's trustees.
It is a fundamental policy of each Fund that no more than 10% of the net
assets of the Fund are to be invested in illiquid securities, including
repurchase agreements with maturities of more than seven days.
Note: Except for each Fund's investment objective and each Fund's policies
that are explicitly described as fundamental in this prospectus or in the
Statement, the investment policies of the Funds may be changed without
shareholder approval or prior notice.
The Funds will make all of their investments in a manner which complies with
Rule 2a-7 under the Investment Company Act of 1940.
8
<PAGE>
Investment Risks
It is important to understand the following risks inherent in investing in the
Funds before you invest.
By investing only in high-quality, short-term securities, each Fund seeks to
minimize risk. Although changes in interest rates can change the market value of
a security, the Funds expect those changes to be minimal and that each Fund will
be able to maintain the net asset value of its shares at $1.00, although this
value cannot be guaranteed. The price stability and liquidity of the Tax Exempt
Fund may not be equal to that of a taxable money market fund, because the market
for Municipal Securities is not as broad as the market for taxable money market
instruments and because the average portfolio maturity is likely to be greater
for the Fund than for a taxable money market fund.
All repurchase agreements entered into by the Funds provide that the seller's
obligations must be fully collateralized at all times. A Fund may, however, face
various delays and risks of loss if the seller defaults.
The Money Market Fund's holdings of obligations of foreign banks or of foreign
branches or subsidiaries of U.S. banks may be subject to different risks than
obligations of domestic banks, such as foreign economic, political and legal
developments and the fact that different regulatory requirements apply.
Fund Management
NEFM, 399 Boylston Street, Boston, Massachusetts 02116, serves as the adviser to
each of the Funds. NEFM oversees, evaluates and monitors the subadvisory
services provided to each Fund and furnishes general business management and
administration to each Fund. NEFM does not determine what investments will be
purchased by the Funds.
Back Bay Advisors(R), 399 Boylston Street, Boston, Massachusetts 02116, is the
subadviser of the Funds. Back Bay Advisors provides discretionary investment
management services to mutual funds and other institutional investors. Formed in
1986, Back Bay Advisors now manages 14 mutual fund portfolios and a total of
over $6 billion of assets.
The general partners of Back Bay Advisors, NEFM, and the Distributor are special
purpose corporations that are indirect, wholly-owned subsidiaries of NEIC.
NEIC's sole general partner, New England Investment Companies, Inc. is a
wholly-owned subsidiary of New England Mutual Life Insurance Company ("The New
England"), and is expected to become a wholly-owned subsidiary of Metropolitan
Life Insurance Company ("MetLife"), following the merger of The New England with
and into MetLife, which merger is expected to occur on or after August 30, 1996,
subject to the satisfaction of certain conditions.
Subject to the supervision of NEFM, Back Bay Advisors manages each Fund in
accordance with the Fund's investment objective and policies, makes investment
decisions for the Fund, places orders to purchase securities for the Fund and
employs professional advisers and securities analysts who provide research
services relating to the Fund.
In addition to overseeing the management of the Funds as conducted by Back Bay
Advisors, NEFM provides executive and other personnel for the management of the
Trusts. Each Trust's Board of Trustees supervises the affairs of that Trust as
conducted by NEFM and Back Bay Advisors.
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Each of the Funds pay NEFM a management fee at the annual rate set forth in
the following table:
Management fee payable by the Fund to NEFM
Fund (as a percentage of average daily net assets of the Fund)
- ------------------------------------------------------------------------------
Money Market Fund .425% of the first $500 million
.400% of the next $500 million
.350% of the next $500 million
.300% of the next $500 million
.250% of amounts in excess of $2 billion
Government Fund .425% of the first $500 million
.400% of the next $500 million
.350% of the next $500 million
.300% of the next $500 million
.250% of amounts in excess of $2 billion
Tax Exempt Fund .40% of the first $100 million
.30% of amounts in excess of $100 million
NEFM pays Back Bay Advisors a subadvisory fee at the annual rate set forth in
the following table:
Subadvisory fee payable by NEFM to Back Bay Advisors
Fund (as a percentage of average daily net assets of the Fund)
-----------------------------------------------------------------------------
Money Market Fund .205% of the first $500 million
.180% of the next $500 million
.160% of the next $500 million
.140% of the next $500 million
.120% of amounts in excess of $2 billion
Government Fund .2125% of the first $500 million
.2000% of the next $500 million
.1750% of the next $500 million
.1500% of the next $500 million
.1250% of amounts in excess of $2 billion
Tax Exempt Fund .20% of the first $100 million
.15% of amounts in excess of $100 million
The Funds pay no direct fees to Back Bay Advisors.
Prior to January 2, 1996, Back Bay Advisors served as adviser to each Fund.
In addition to management fees, each Fund pays the Distributor for providing
certain accounting and administrative services. The amount of the payments is
based on the allocated costs that the Distributor incurs in providing these
services.
Until further notice to the Tax Exempt Fund, NEFM and Back Bay Advisors have
agreed to reduce their fees and, if necessary, to bear certain expenses
associated with operating the Fund (not including fees payable to the trustees
who are not "interested persons" of the Trust) to the extent necessary in order
to limit those fees and expenses for Class A and B shares to an annual rate of
0.5625% of the Fund's average daily net assets. NEFM and Back Bay Advisors may
terminate these voluntary limitations at any time. In such event, the Fund would
supplement its prospectus. In addition, until further notice, the Distributor
has agreed to waive accounting and administrative fees for the Government Fund.
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Buying Fund Shares
Minimum Investment
$1,000 is the minimum for an initial investment in a 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)(7) 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.
6 Ways to Buy Fund Shares
The Funds offer two classes of shares, Class A and Class B, in order to enable
investors in either class of the Stock or Bond Funds to invest in money market
shares. The Stock Funds are: New England Growth Fund, New England International
Equity Fund, New England Star Advisers Fund, New England Star Worldwide Fund,
Growth Fund of Israel, New England Capital Growth Fund, New England Value Fund,
New England Growth Opportunities Fund and New England Balanced Fund. The Bond
Funds are: New England High Income Fund, New England Strategic Income Fund, New
England Government Securities Fund, New England Bond Income Fund, New England
Limited Term U.S. Government Fund, New England Adjustable Rate U.S. Government
Fund, New England Municipal 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.
To determine which class of shares is appropriate for you, see "Owning Fund
Shares--Exchanging Among New England Funds." You may purchase shares in the
following ways:
[Icon of Investment Dealer] Through your investment dealer:
Many investment dealers have a sales agreement with the Distributor and would be
pleased to accept your order.
[Icon of window envelope] 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.
Using Tele#Facts 1-800-346-5984
Tele#Facts, New England Funds' automated service system, 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 Class A 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.
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
(including your account number) 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.
All purchases made by check should be in U.S. dollars and made payable to New
England Funds, or, in the case of a retirement account, the custodian or
trustee. Third party checks will generally not be accepted except under certain
circumstances approved by the Distributor. When purchases are made by check or
periodic account investment, redemptions may not be allowed until the investment
being redeemed has been in the account for 10 calendar days.
[Icon of wire] 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) on a day when the Fund is open for business to
obtain an account number and wire transfer instructions.
For subsequent investments, direct your bank to transfer funds to State
Street Bank and Trust Company, ABA #011000028, DDA #99011538, Credit Fund (Fund
name and Class of shares), Shareholder Name, Shareholder Account Number. Funds
may be transferred between 9:00 a.m. and 4:00 p.m. (Eastern time) on a day when
the Fund is open for business. Your bank may charge a fee
for this service.
[Icon of building blocks] 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
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through Investment Builder. Indicate the amount of the monthly investment on
the enclosed application 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.
[Icon of wire plug] 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 make investing even easier, you can also order personalized investment
slips by calling 1-800-225-5478.
To purchase 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. 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 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.
[Icon of East-West arrows] By exchange from another New England Fund:
You may also purchase shares of a Fund by exchanging shares from another Fund
or a Stock or Bond Fund. Please see "Owning Fund Shares--Exchanging Among
New England Funds" for complete details.
General
All purchase orders are subject to acceptance by the Funds 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"). However,
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 will be effected at the net asset value determined on that day.
Although the Funds do not anticipate doing so, they reserve the right to suspend
or change the terms of sale of shares.
Class B shares and certain special services 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 "Servicing Agent").
The Funds' "open account" system for recording your investment eliminates the
problems of handling and safekeeping certificates. Certificates will not be
issued for Class B 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.
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Owning Fund Shares
Exchanging Among
New England Funds
Class A Shares
You or your investment dealer can exchange some or all of your Class A shares of
a Fund for Class A shares of any other Fund described in this prospectus with no
sales charge and exchange some or all of your Class A shares of a Fund which
have not previously been subject to a sales charge for Class B shares of any
other Fund described in this prospectus with no sales charge. Class A or Class B
shares of a Fund acquired by exchange from either another Fund or a Stock or
Bond Fund will be subject to a CDSC if, and to the same extent as, the shares
exchanged were subject to a CDSC.
Class A Fund shares on which no sales charge was previously paid may be
exchanged (i) for Class A shares of any of the Stock or Bond Funds except New
England Growth Fund, which is subject to special eligibility requirements, on
the basis of relative net asset value plus the sales charge applicable to
initial purchases of Class A shares of the Fund into which you are exchanging,
(ii) for Class B shares of any of the Stock or Bond Funds on the basis of
relative net asset value, subject to the CDSC schedule of the Stock or Bond Fund
into which you are exchanging, or (iii) for Class C shares of any of the Stock
or Bond Funds on the basis of relative net asset value.
Class A Fund shares which have previously been subject to a sales charge may
be exchanged on the basis of relative net asset value, without the payment of a
sales charge, for Class A shares of any of the Stock or Bond Funds except New
England Growth Fund, which is subject to special eligibility requirements, and
except as described in the remainder of this paragraph, but may not be exchanged
for Class B or Class C shares of the Stock or Bond Funds. The absence of sales
charges on exchanges described in the previous sentence is subject to two
exceptions: (i) Class A shares of a Fund acquired through exchange from Class A
shares of New England Intermediate Term Tax Free Fund of California or New
England Intermediate Term Tax Free Fund of New York (the "California and New
York Funds") may be exchanged for Class A shares of another Stock or Bond Fund
at net asset value only if you held the California or New York Fund shares for
at least six months; otherwise, sales charges apply to the exchange; and (ii) if
Class A shares of a Fund acquired through exchange from Class A shares of New
England Adjustable Rate U.S. Government Fund (the "Adjustable Rate Fund") are
exchanged for shares of another Stock or Bond Fund 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
Stock or Bond Fund into which you are exchanging.
Automatic Exchange Plan
The Funds have an Automatic Exchange Plan under which shares of a Fund are
automatically exchanged each month for shares of the same Class of any other
Fund or Stock or Bond Fund (other than New England Growth Fund, which is
available only to certain investors) subject to the appropriate sales charge or
CDSC. The minimum monthly exchange amount under the plan is $50. There is no fee
for exchanges made pursuant to this program.
Class B Shares
You can exchange some or all of your Class B shares of a Fund for Class B shares
of any other Fund described in this prospectus with no sales charge. Class B
shares of a Fund may be exchanged for Class B shares of any of the Stock or Bond
Funds on the basis of relative net asset value, subject to the CDSC schedule of
the Stock or Bond Fund acquired. For purposes of computing the CDSC payable upon
redemption of shares acquired by such exchange, and the conversion of such
shares to Class A shares, the holding period of any Class B Stock or Bond Fund
shares that were exchanged for Class B shares of a Fund is included, but the
holding period of the Class B shares of a Fund is not included. See "Selling
Fund Shares--Contingent Deferred Sales Charges."
To make an exchange, please 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, write to New
England Funds or call Tele#Facts at 1-800-346-5984 twenty-four hours a day. 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 eligibility requirements of the
Fund or Stock or Bond Fund into which you are exchanging. Also, see "Selling
Fund Shares--Contingent Deferred Sales Charges." In connection with any
exchange, you must receive a current prospectus of the Stock or Bond Fund into
which you are exchanging. The exchange privilege may be exercised only in those
states where shares of such Stock or Bond Fund may be legally sold.
You have the automatic privilege to exchange your Fund shares by telephone.
The Servicing Agent will employ reasonable procedures to confirm that your
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telephone instructions are genuine, and, if it does not, it may be liable for
losses due to unauthorized or fraudulent instructions. The Servicing Agent 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 tape 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
Each Fund pays out as dividends substantially all of the net investment income
from interest it receives from its investments. The dividends of each Fund are
declared daily and paid to you monthly. If all of your shares of a Fund are
redeemed at any time during a month, all dividends accrued to date will be paid
together with the redemption proceeds. Dividends are automatically reinvested in
more shares. If you prefer, you may receive them in cash by selecting that
option on your account application. 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 be automatically 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 from either class of the Funds
automatically invested in shares of the same class of a Stock or Bond Fund.
Class A shareholders may also have dividends and distributions automatically
invested in Class C shares of a Stock or Bond Fund. For Class A shareholders,
investments will be made at the appropriate public offering price, which may
include a sales charge. For Class B shareholders, shares acquired through this
program will be subject to a CDSC if they are redeemed from the account. For
both classes, this program is subject to the investor eligibility requirements
of the Stock or Bond Fund and to state securities law requirements. Dividends
will be invested in the selected Stock or Bond Fund's shares on the dividend
payable date. A dividend diversification account must be in the same
registration (shareholder name) as the distributing Fund account and, if a new
account in a Stock or Bond Fund is being established, the minimum investment
requirements of that fund must be met. Before establishing a dividend
diversification program into any Stock or Bond Fund, you must obtain and
carefully read a copy of that Stock or Bond Fund's prospectus.
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Selling Fund Shares
5 Ways to Sell Fund Shares
[Icon of Investment Dealer] Through your investment dealer:
Call your authorized investment dealer for information.
[Icon of Telephone Receiver] 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, you may redeem either class of shares by
calling 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. Class A shares only may also be redeemed by
calling Tele#Facts at 1-800-346-5984 twenty-four hours a day.
Redemption requests accepted after the Exchange has closed (4:00 p.m.
[Eastern time]) will be processed at the next determined net asset value. 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.
You may elect this service on your initial application or you may add it
later or change bank information by completing the Service Options Form (with a
signature guarantee), available through your investment dealer or by calling
1-800-225-5478. 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 Federal
Reserve System.
Mailed to Your Address of Record -- Both classes of shares may be redeemed by
calling 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 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 during the previous month and that the proceeds
are for $100,000 or less. Generally, the check will be mailed to your address of
record on the business day after your redemption request is received.
Through ACH -- Shares may be redeemed electronically through the ACH system,
provided that you have an approved ACH application on file with the Fund. To
redeem through ACH, call 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. 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. Class A
shareholders may also redeem shares by calling Tele#Facts at 1-800-346-5984
twenty-four hours a day.
Redemptions will be processed the day your telephone call is made if it is
made prior to 4:00 p.m. (Eastern time). Orders submitted through Tele#Facts or
ACH after 4:00 p.m. (Eastern time), or after the Exchange closes, if it closes
earlier than 4:00 p.m., will be accepted and processed the next business day.
[Icon of window envelope] 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 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 the confirmation statement) and indicate any special
capacity in which they are signing (such as trustee, custodian or under power of
attorney or on behalf of a partnership, corporation or other entity).
If you are redeeming shares worth less than $100,000 and the proceeds check
is made payable to the registered owner(s) and mailed to the record address, no
signature guarantee is required. Otherwise, you generally must have your
signature guaranteed by an eligible guarantor institution in accordance with
procedures established by the Servicing Agent. See the Statement. Signature
guarantees by notaries public are not acceptable.
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<PAGE>
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 Funds recommend
that certificates be sent by registered mail.
[Icon of pen writing] By check:
For Class A shares only, you may select the checkwriting option on your
application and complete the attached signature card. You may add checkwriting
to an existing account by completing the Service Options Form (with a signature
guarantee) available through your investment dealer or by calling
1-800-225-5478. The Fund will send you checks drawn on State Street Bank. You
will continue to earn dividends on shares redeemed by check until the check
clears. Each check must be written for $250 or more, except that qualified
corporate retirement plans and certain other corporate accounts may write checks
for any amount.
If you use withdrawal checks, you will be subject to State Street Bank's
rules governing checking accounts. The Funds and the Distributor are in no way
responsible for any checkwriting account established with State Street Bank.
You may not close your Fund account by withdrawal check, because the exact
balance of your account will not be known until after the check is received by
State Street Bank.
[Icon of calendar] By Systematic Withdrawal Plan:
You may establish a Systematic Withdrawal Plan (the "Plan") that allows you to
redeem shares and receive payments on a regular schedule. In the case of shares
subject to a CDSC, the amount or percentage you specify may not exceed, on an
annualized basis, 10% of the value of your Fund account (based on the day you
establish your Plan). Redemptions of shares pursuant to the Plan will not be
subject to a CDSC. For information, contact the Distributor or your investment
dealer.
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). In certain cases where shares were acquired
by exchanging shares of a Stock or Bond Fund, however, redemption proceeds will
be reduced by the amount of any applicable CDSC that would have been imposed on
a redemption of shares of the Stock or Bond Fund. See "Contingent Deferred Sales
Charges" below. Redemption proceeds will normally be mailed to you within seven
days after State Street Bank or the Distributor receives your request in good
order. However, in those cases where you have recently purchased your shares by
check or an electronic funds transfer through the ACH system and you make a
redemption request within 10 days after such purchase or transfer, a 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 to redemptions under powers of attorney. Please call the
Distributor or your investment dealer for more information.
Telephone redemptions are not available for tax qualified retirement plans or
for Fund shares 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 Funds may suspend the right of redemption and may postpone payment for
more than seven days when the Exchange is closed for other than weekends or
holidays, or if permitted by the rules of the SEC, when trading on the Exchange
is restricted or during an emergency which makes it impracticable for the Funds
to dispose of their securities or to determine fairly the value of their
16
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net assets, or during any other period permitted by the SEC for the
protection of investors.
Contingent Deferred Sales Charges
Shares of the Funds are sold without any sales charge at the time of purchase.
Class A -- Class A shares of a Fund acquired through exchange of Class A shares
of a Stock or Bond Fund that were subject to a CDSC of 1% at the time of the
exchange will be subject to a CDSC of 1% upon redemption. If such shares are
exchanged for Class A shares of a Stock or Bond Fund rather than redeemed, then
the Class A Stock or Bond Fund shares will be subject to a 1% CDSC if redeemed
within one year after the original purchase of the Stock and Bond Fund shares
exchanged for the Class A shares of a Fund; the time that Class A Fund shares
are held is not included in the holding period used to determine the
applicability of a Stock or Bond Fund's Class A CDSC. Class B -- Class B shares
of a Fund will be subject to a CDSC upon redemption if the shares were acquired
by exchange of Class B shares of a Stock or Bond Fund which were subject to a
CDSC at the time of the exchange, at the rate applicable to redemptions of the
Stock or Bond Fund at such time. The time that Class B shares of a Fund are held
is not included in the holding period used to determine the CDSC (and conversion
to Class A shares). The CDSC is calculated at the following rates, measured in
each case from the time the shares in the Stock or Bond Fund were purchased, and
without regard to the period during which Class B shares of the Fund were held:
4% during the first year, 3% in each of the second and third years, 2% in the
fourth year, 1% in the fifth year and 0% the sixth year and thereafter.
Investors are referred to the prospectus of the relevant Stock or Bond Fund for
a description of the applicable CDSC.
Shareholders may obtain copies of prospectuses of the New England Funds by
telephoning 1-800-255-5478 or by writing to:
New England Funds, L.P.
P.O. Box 8551
Boston, Massachusetts 02266-8551
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Fund Details
Fund Yields
The yield is different for each Fund because each invests in different types of
securities. For current yield information, shareholders or their investment
representatives may call Tele#Facts 24 hours a day at 1-800-346-5984.
Income Tax Considerations
As long as a Fund distributes substantially all its net investment income and
net short-term capital gains, if any, to its shareholders, it will not pay
federal income tax on the amounts distributed.
The Funds usually do not realize a substantial amount of long-term capital
gains. If a Fund does, it will distribute them annually and they will be taxable
to you as long-term capital gains, whether received in cash or additional shares
and regardless of how long you have held your shares. No distribution from any
Fund is expected to be eligible for the dividends-received deduction for
corporations.
To avoid certain excise taxes, each Fund must distribute by December 31 each
year virtually all of its ordinary income realized in that year, and all of any
previously undistributed capital gains it realized in the twelve months ended on
October 31 of that year. Certain dividends declared by a Fund in December, but
not actually received by you until January, will be treated for federal tax
purposes as though you had received them on December 31.
The Distributor will send you and the Internal Revenue Service an annual
statement detailing federal tax information, including information about
dividends and distributions paid to you during the preceding year. Be sure to
keep this statement as a permanent record. A fee may be charged for any
duplicate information requested.
The Money Market Fund and the Government Fund are each required to withhold 31%
of all income dividends and capital gain 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 federal back-up
withholding. In addition, each such Fund is required to withhold 31% of the
gross proceeds of Fund shares you redeem if you have not provided a correct,
certified taxpayer identification number. Similar withholding requirements apply
to the Tax Exempt Fund, but not to dividends from the Fund if at least 95% of
the Fund's dividends for any year are "exempt-interest dividends" (dividends
derived from interest on Municipal Securities).
[ ] Money Market Fund and Government Fund
Dividends and distributions of short-term capital gains, if any, are taxable to
you as ordinary income, whether paid in cash or in additional shares.
Dividends derived from interest on U.S. Government Securities may be exempt from
state and local taxes. Each Fund intends to advise shareholders of the
proportion of its dividends derived from such interest. Before investing in
either Fund, you should check the consequences of your local and state tax laws,
and of any retirement plan offering tax benefits.
[ ] Tax Exempt Fund
You may exclude from your gross income on your federal tax return any
"exempt-interest dividends" received from the Fund. However, if you receive
social security benefits, you may be taxed on a portion of those benefits as a
result of receiving tax exempt income. Also, if the Fund invests in private
activity Municipal Securities, a portion of the Fund's dividends may constitute
a tax preference item subject to the alternative minimum tax. In addition, all
exempt-interest dividends will constitute an item of "adjusted current earnings"
(although not taxable income) to corporate shareholders, which may in certain
circumstances give rise to alternative minimum tax liability.
Other dividends and short-term capital gains, if any, are taxable to you as
ordinary income, whether paid in cash or additional shares.
The federal exemption for "exempt-interest dividends" does not necessarily
result in an exemption from state and local taxes. Distributions of
"exempt-interest dividends" may be exempt from state and local taxation to the
extent they are derived from the state or locality in which you reside. The Fund
will report annually on a state-by-state basis the source of income the Fund
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<PAGE>
receives on Municipal Securities which was paid out as dividends during the
preceding year.
Note: The information above is only a summary of applicable tax law. You
should consult your own tax adviser for more information about the tax
consequences of an investment in the Funds.
Additional Facts About
the Funds
[ ] If the balance in your account with a Fund is less than a minimum dollar
amount set by the trustees of the Trusts (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 a Fund's
intention to close the account and will have 60 days immediately following the
notice in which to bring the account up to the minimum. The minimum does not
apply to Keogh, pension and profit sharing plans, or accounts established in
conjunction with New England Securities Brokerage Services.
[ ] The Distributor pays a service fee to investment dealers for services
provided and expenses incurred when establishing or servicing shareholder
accounts in any of the Funds. The fee is not a direct or indirect expense of the
Funds or their shareholders and does not affect a Fund's yield.
[ ] Each Trust offers only its own shares for sale. In some circumstances, a
Trust might be held liable to shareholders of the other for misstatements, if
any, contained in this combined prospectus. The trustees of each Trust have
considered this possible liability and have approved the use of a combined
prospectus.
[ ] Assets of each Fund normally are valued at amortized cost on each day that
the Exchange is open for trading. Net asset value per share is determined by
dividing each Fund's net assets by the total number of Fund shares outstanding.
Each Fund's net assets are equal to the value of its investments and its other
assets minus its liabilities.
[ ] Shares of each Fund are freely transferable and are entitled to be voted at
shareholder meetings. Each Fund holds shareholder meetings only when required
rather than on an annual basis.
[ ] The Money Market Fund and the Government Fund are separate series of New
England Cash Management Trust, a Massachusetts business trust organized on June
5, 1980. The Tax Exempt Fund is a Massachusetts business trust organized on
January 18, 1983. Each Fund is registered as a diversified open-end management
investment company under the Investment Company Act of 1940 and is authorized to
issue an unlimited number of full and fractional shares.
[ ] Each Fund may include its yield in advertisements or other written sales
material. Yield may be either the yield for a particular seven-day period
(stated on an annualized basis), or an "effective yield" calculated by assuming
that an investor reinvests all Fund dividends throughout a one-year period and
that the Fund earns net income for the entire year at the same rate as net
income is earned during a particular seven-day period. The Tax Exempt Fund may
also advertise its taxable-equivalent yield, which is the taxable yield an
investor would have to earn to receive the equivalent of the Fund's yield after
payment of federal income tax (assuming a particular federal income tax rate).
Each Fund may also show illustrations of how the value of an account with the
Fund would have grown over past time periods, assuming that all dividends paid
to that account were immediately reinvested in shares of the Fund.
[ ] New England Funds, L.P., 399 Boylston Street, Boston, MA 02116 is the
transfer and dividend paying agent for each Fund. It has subcontracted certain
of its obligations as such to State Street Bank, 225 Franklin Street, Boston, MA
02110.
[ ] Each Fund's annual report contains additional performance information and is
available upon request and without charge. Each Fund will send a single copy of
its annual and semi-annual reports to an address at which more than one
shareholder of record with the same last name has indicated that mail is to be
delivered. Shareholders may request additional copies of any annual or
semi-annual report in writing or by telephone.
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<PAGE>
[ ] The Class A and Class B structure could be terminated should certain IRS
rulings be rescinded.
[ ] Each Trust's trustees have the authority without shareholder approval to
issue other classes of shares of each Fund that represent interests in the
Funds' portfolios but that have different sales load and fee arrangements.
[ ] Back Bay Advisors(R) is a registered trademark of Back Bay Advisors, L.P.
20
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XM51-0896
<PAGE>
[New England Funds Logo]
- --------------------------------------------------------------------------------
NEW ENGLAND MONEY MARKET FUNDS
NEW ENGLAND CASH MANAGEMENT TRUST - MONEY MARKET SERIES
NEW ENGLAND CASH MANAGEMENT TRUST - U.S. GOVERNMENT SERIES
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST
Statement of Additional Information -- August 29, 1996
This Statement of Additional Information (the "Statement") is not a prospectus.
This Statement relates to the prospectus of New England Cash Management Trust
and New England Tax Exempt Money Market Trust dated August 29, 1996 (the
"Prospectus"), and should be read in conjunction therewith. A copy of the
Prospectus may be obtained from New England Funds, L.P. (the "Distributor"), 399
Boylston Street, Boston, Massachusetts 02116.
Table of Contents
Page
Investment Objectives and Policies 2
Investment Restrictions 5
Management of the Funds 8
Investment Advisory, Subadvisory,
Distribution and Other Services 11
Portfolio Transactions 15
Performance 16
Description of the Funds and Ownership of Shares 19
Purchase of Shares 22
Shareholder Services 22
Open Accounts 22
Automatic Investment Plans 22
Retirement Plans Offering Tax Benefits 23
Systematic Withdrawal Plans 23
Exchange Privilege 24
Automatic Exchange Plan 24
Redemptions 26
Net Income, Dividends and Valuation 27
Tax-Free Investing 28
Taxes 29
Financial Statements 30
Appendix A - Description Certain New England
Cash Management Trust Investments
A-1
Appendix B - Description of Certain New England
Tax-Exempt Money Market Trust Investments B-1
Appendix C - Ratings of Corporate and Municipal
Bonds, Commercial Paper and
Short-Term Tax Exempt Obligations C-1
Appendix D - Publications That May be Referred
to in Fund Advertisements or
Sales Literature D-1
Appendix E - Certain Information That May Be
Included in Advertising and
Promotional Literature E-1
1
<PAGE>
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INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
GENERAL
The investment objectives and policies of New England Cash Management
Trust Money Market Series (the "Money Market Fund"), New England Cash Management
Trust U.S. Government Series (the "Government Fund") and New England Tax Exempt
Money Market Trust (the "Tax Exempt Fund") (the "Funds," and each a "Fund") are
summarized in the Prospectus under "Investment Strategy" and "Investment Risks."
The investment policies and types of permitted investments of each Fund
set forth below and in the Prospectus may be changed without shareholder
approval except that the investment objective of each Fund, and any investment
policy expressly identified as fundamental, may not be changed without the
approval of a majority of the outstanding voting securities of that Fund.
The terms "shareholder approval" and "majority of the outstanding voting
securities" as used in the Prospectus and this Statement each refer to approval
by the lesser of (i) 67% or more of the shares of the applicable Fund
represented at a meeting at which more than 50% of the outstanding shares of
such Fund are represented or (ii) more than 50% of the outstanding shares of
such Fund.
New England Cash Management Trust and New England Tax Exempt Money
Market Trust are sometimes referred to hereinafter as the "Trusts," and each as
a "Trust."
MONEY MARKET FUND AND GOVERNMENT FUND
Each Fund will invest only in securities which the Funds' subadviser,
Back Bay Advisors(R), L.P. ("Back Bay Advisors(R)"), acting under guidelines
established by the relevant Trust's Board of Trustees, has determined are of
high quality and present minimal credit risk. For a description of certain of
the money market instruments in which each Fund may invest, and the related
descriptions of the ratings of Standard and Poor's Ratings Group ("S&P") and
Moody's Investors Service, Inc. ("Moody's"), see Appendices A and C to this
Statement. Money market instruments maturing in less than one year may yield
less than obligations of comparable quality having longer maturities.
Obligations in which the Government Fund invests generally yield less
than the obligations in which the Money Market Fund may invest. Therefore, the
Government Fund may generally be expected to have a lower yield than the Money
Market Fund.
As described in the Prospectus, the Money Market Fund's investments may
include certain U.S. dollar-denominated obligations of foreign banks or of
foreign branches and subsidiaries of U.S. banks, which may be subject to foreign
economic, political and legal risks. Such risks include foreign economic and
political developments, foreign governmental restrictions that may adversely
affect payment of principal and interest on the obligations, foreign withholding
and other taxes on interest income, difficulties in obtaining and enforcing a
judgment against a foreign obligor, exchange control regulations (including
currency blockage), and the expropriation or nationalization of assets or
deposits. Foreign branches of U.S. banks and foreign banks are not necessarily
subject to the same or similar regulatory requirements that apply to domestic
banks. For instance, such branches and banks may not be subject to the types of
requirements imposed on domestic banks with respect to mandatory reserves, loan
limitations, examinations, accounting, auditing, recordkeeping and the public
availability of information. Obligations of such branches or banks will be
purchased only when Back Bay Advisors(R) believes the risks are minimal.
The full faith and credit obligations of the U.S. Government in which the
Government Fund may invest include obligations issued by such government
agencies as the Government National Mortgage Association, the Farmer's Home
Administration and the Small Business Administration.
2
<PAGE>
Considerations of liquidity, safety and preservation of capital may
preclude the Funds from investing in money market instruments paying the highest
available yield at a particular time. Each Fund, consistent with its investment
objective, attempts to maximize yields by engaging in portfolio trading and by
buying and selling portfolio investments in anticipation of or in response to
changing economic and money market conditions and trends. Each Fund also invests
to take advantage of what are believed to be temporary disparities in the yields
of the different segments of the high quality money market or among particular
instruments within the same segment of the market. These policies, as well as
the relatively short maturity of obligations to be purchased by the Funds, may
result in frequent changes in the portfolio of each Fund. There are usually no
brokerage commissions as such paid by the Funds in connection with the purchase
of securities of the type in which they invest. See "Portfolio Transactions."
See also "Investment Restrictions" below.
TAX EXEMPT FUND
As described in the Prospectus, the Tax Exempt Fund seeks to achieve its
objective through investment in a diversified portfolio consisting primarily of
high quality short-term fixed, variable and floating rate debt securities the
interest on which is, in the opinion of bond counsel for the issuers of the
securities at the time of their issuance, exempt from federal income taxation
("Municipal Securities"). Municipal Securities are generally obligations issued
by or on behalf of states, territories and possessions of the United States and
the District of Columbia and their political subdivisions, agencies and
instrumentalities, or by or on behalf of multi-state agencies or authorities.
For a more complete description of various types of Municipal Securities and the
meanings of the Moody's and S&P ratings referred to in the Prospectus, see
Appendices B and C to this Statement. The Fund expects that at least 95% of all
dividends paid by the Fund in any given year will be exempt from federal income
tax. See "Taxes."
As described in the Prospectus, the Fund may elect on a temporary basis
to hold cash or to invest in obligations other than Municipal Securities when
such action is deemed advisable by Back Bay Advisors(R). For example, the Fund
might hold cash or make such temporary investments: (i) due to market
conditions; (ii) in the event of the scarcity of suitable Municipal Securities;
(iii) pending investment of proceeds from subscriptions for Fund shares or from
the sale of portfolio securities; or (iv) in anticipation of redemptions. The
Fund will limit its investments in obligations other than Municipal Securities
to "money market securities" such as (i) short-term obligations issued or
guaranteed by the United States Government or its agencies, authorities or
instrumentalities ("U.S. Government Securities"), (ii) high quality short-term
domestic certificates of deposit, commercial paper and domestic bankers'
acceptances and other high quality money market instruments, or (iii) repurchase
agreements with brokers, dealers and banks relating to Municipal or U.S.
Government Securities. The interest earned on money market securities is not
exempt from federal income tax and may be taxable to shareholders as ordinary
income. The ability of the Fund to invest in such taxable money market
securities is limited by a requirement of the Internal Revenue Code (the "Code")
that at least 50% of the Fund's total assets be invested in Municipal Securities
at the end of each quarter of the Fund's fiscal year (see "Taxes") and by a
fundamental policy of the Fund which requires that during periods of normal
market conditions the Fund will not purchase any security if, as a result, less
than 80% of the Fund's net assets would then be invested in Municipal
Securities.
As described in the Prospectus, the Fund may invest in variable or
floating rate Municipal Securities. These obligations pay a rate of interest
adjusted on a periodic basis and determined by reference to a prescribed
formula. Such obligations will be subject to prepayment without penalty, at the
option of either the Fund or the issuer, and may be backed by letters of credit
or similar arrangements where necessary to ensure that the obligations are of
appropriate investment quality. Back Bay Advisors(R) intends to evaluate the
credit of the issuers of these obligations and the providers of credit support
no less frequently than quarterly.
The price stability and liquidity of the Fund may not be equal to that
of a money market fund which invests exclusively in short-term taxable money
market securities, because the taxable money market is a broader and more liquid
market with a greater number of investors, issuers and market makers than the
short-term Municipal Securities market and because the average portfolio
maturity of a money market fund will generally be shorter than the average
portfolio maturity of a tax exempt money fund such as the Fund. Adverse
economic, business or political developments might affect all or a substantial
portion of the Fund's Municipal Securities in the same manner.
3
<PAGE>
When-Issued Securities
As described in the Prospectus, the Tax Exempt Fund may purchase
Municipal Securities on a when-issued basis, which means that delivery and
payment for the securities normally occurs 15 to 45 days after the date of the
commitment to purchase. The payment obligation and the interest rate that will
be received on the securities are each fixed at the time the buyer enters into
the commitment. Pending delivery of securities purchased on a when-issued basis,
the amount of the purchase price will be held in liquid assets such as cash or
high quality debt obligations. Such obligations and cash will be maintained in a
separate account with the Fund's custodian in an amount equal on a daily basis
to the amount of the Fund's when-issued commitments. By committing itself to
purchase Municipal Securities on a when-issued basis, the Fund subjects itself
to market and credit risks on such commitments as well as such risks otherwise
applicable to its portfolio securities. Therefore, to the extent the Fund
remains substantially fully invested at the same time that it has purchased
securities on a when-issued basis, there will be a greater possibility that the
market value of the Fund's assets will vary from $1.00 per share. (See "Net
Income, Dividends and Valuation.") The Fund will make commitments to purchase
such securities only with the intention of actually acquiring the securities.
However, the Fund may sell these securities before the settlement date if it is
deemed advisable as a matter of investment strategy. Such sales may result in
capital gains which are not exempt from federal income taxes. When the time
comes to pay for when-issued securities, the Fund will meet its obligations from
then available cash flow or the sale of securities, or, although it would not
normally expect to do so, from the sale of the when-issued securities themselves
(which may have a value greater or less than the Fund's payment obligation).
Purchase of Securities with Rights to Put Securities to Seller
The Fund has authority to purchase securities, including Municipal
Securities, at a price which would result in a yield to maturity lower than that
generally offered by the seller at the time of purchase if the Fund
simultaneously acquires the right to sell the securities back to the seller at
an agreed-upon price at any time during a stated period or on a certain date.
Such a right is generally called a "put." The purpose of engaging in
transactions involving puts is to maintain flexibility and liquidity and to
permit the Fund to meet redemptions while remaining as fully invested as
possible in Municipal Securities. The Fund will acquire puts only from
recognized securities dealers.
For the purposes of asset valuation, the Fund will never ascribe any
value to puts. The Fund will rarely pay specific consideration for them
(although typically the yield on a security that is subject to a put will be
lower than for an otherwise comparable security that is not subject to a put).
In no event will the specific consideration paid for puts held in the Fund's
portfolio at any time exceed 1/2 of 1% of the Fund's net assets. Puts purchased
by the Fund will generally not be marketable and the Fund's ability to exercise
puts will depend on the creditworthiness of the other party to the transaction.
ALL FUNDS
As noted in the Prospectus, each Fund may enter into repurchase
agreements, which are agreements by which the Fund purchases a security and
obtains a simultaneous commitment from the seller (a member bank of the Federal
Reserve or, to the extent permitted by the Investment Company Act of 1940 [the
"1940 Act"], a recognized securities dealer) to repurchase the security at an
agreed upon price and date (usually seven days or less from the date of original
purchase). The resale price is in excess of the purchase price and reflects an
agreed upon market rate unrelated to the coupon rate on the purchased security.
Such transactions afford each Fund the opportunity to earn a return on
temporarily available cash at relatively low market risk. While the underlying
security may be a U.S. Government Security (in the case of any Fund), a
Municipal Security (in the case of the Tax Exempt Fund) or another type of high
quality money market instrument, the obligation of the seller is not guaranteed
by the U.S. Government, the issuer of the Municipal Security, or the issuer of
any other high quality money market instrument underlying the agreement, and
there is a risk that the seller may fail to repurchase the underlying security.
In such event, the Fund would attempt to exercise rights with respect to the
underlying security, including possible disposition in the market. However, in
case of such a default, a Fund may be subject to various delays and risks of
loss, including (a) possible declines in the value of the underlying security
during the period while the Fund seeks to enforce its rights thereto, (b)
possible reduced levels of income and lack of access to income during this
period, and (c) inability to enforce rights and the expenses involved in
attempted enforcement. Each Fund will enter into repurchase agreements only
where the market
4
<PAGE>
value of the underlying security equals or exceeds the repurchase price, and
each Fund will require the seller to provide additional collateral if this
market value falls below the repurchase price at any time during the term of the
repurchase agreement.
As described in the Prospectus, all of each Fund's investments will, at
the time of investment, have remaining maturities of 397 days or less. The
average maturity of each Fund's portfolio securities based on their dollar value
will not exceed 90 days at the time of each investment. If the disposition of a
portfolio security results in a dollar-weighted average portfolio maturity in
excess of 90 days for any Fund, such Fund will invest its available cash in such
a manner as to reduce its dollar-weighted average portfolio maturity to 90 days
or less as soon as reasonably practicable. For the purposes of the foregoing
maturity restrictions, variable rate instruments which are scheduled to mature
in more than 397 days are treated as having a maturity equal to the longer of
(i) the period remaining until the next readjustment of the interest rate and
(ii) if the Fund is entitled to demand prepayment of the instrument, the notice
period remaining before the Fund is entitled to such prepayment; other variable
rate instruments are treated as having a maturity equal to the shorter of such
periods. Floating rate instruments which are scheduled to mature in more than
397 days are treated as having a maturity equal to the notice period remaining
before the Fund is entitled to demand prepayment of the instrument; other
floating rate instruments, and all such instruments which are U.S. Government
Securities, are treated as having a maturity of one day.
The value of the securities in each Fund can be expected to vary
inversely with changes in prevailing interest rates. Thus, if interest rates
increase after a security is purchased, that security, if sold, might be sold at
a loss. Conversely, if interest rates decline after purchase, the security, if
sold, might be sold at a profit. In either instance, if the security were held
to maturity, no gain or loss would normally be realized as a result of these
fluctuations. Substantial redemptions of the shares of any Fund could require
the sale of portfolio investments of that Fund at a time when a sale might not
be desirable.
After purchase by a Fund, a security may cease to be rated or its rating
may be reduced below the minimum required for purchase by such Fund. Neither
event will require a sale of such security by such Fund. However, such event
will be considered in determining whether the Fund should continue to hold the
security. To the extent that the ratings given by Moody's or S&P (or another
SEC-approved nationally recognized statistical rating organization ["NRSRO"])
may change as a result of changes in such organizations or their rating systems,
each Fund will, in accordance with standards approved by the relevant Board of
Trustees, attempt to use comparable ratings as standards for investments in
accordance with the investment policies contained in the Prospectus.
- --------------------------------------------------------------------------------
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The following is a list of each Fund's investment restrictions. Except
as otherwise specifically indicated, they are fundamental policies and,
accordingly, will not be changed without the consent of the holders of a
majority of the outstanding voting securities of the applicable Fund.
MONEY MARKET FUND AND GOVERNMENT FUND
Neither the Money Market Fund nor the Government Fund will:
(1) Purchase any security (other than U.S. Government Securities and
repurchase agreements relating thereto) if, as a result, more than 5% of the
Fund's total assets (taken at current value) would be invested in securities of
a single issuer. This restriction applies to securities subject to repurchase
agreements but not to the repurchase agreements themselves;
(2) Purchase any security if, as a result, more than 25% of the Fund's
total assets (taken at current value) would be invested in any one industry.
This restriction does not apply to U.S. Government Securities and bank
obligations. For purposes of this restriction, telephone, gas and electric
public utilities are each regarded as separate industries and finance companies
whose financing activities are related primarily to the activities of their
parent companies are classified in the industry of their parents;
5
<PAGE>
(3) Purchase securities on margin (but it may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities); or make short sales except where, by virtue of ownership of other
securities, it has the right to obtain, without payment of further
consideration, securities equivalent in kind and amount to those sold, and the
Fund will not deposit or pledge more than 10% of its total assets (taken at
current value) as collateral for such sales;
(4) Acquire more than 10% of the total value of any class of the
outstanding securities of an issuer or acquire more than 10% of the outstanding
voting securities of an issuer. This restriction does not apply to U.S.
Government Securities;
(5) Borrow money, except as a temporary measure for extraordinary or
emergency purposes (but not for the purpose of investment) up to an amount not
in excess of 10% of its total assets (taken at cost) or 5% of such total assets
(taken at current value), whichever is lower;
(6) Pledge, mortgage or hypothecate more than 10% of its total assets
(taken at cost);
(7) Invest more than 5% of its total assets (taken at current value) in
securities of businesses (including predecessors) less than three years old;
(8) Purchase or retain securities of any issuer if, to the knowledge of
the Fund, officers and Trustees of the Fund or officers and directors of any
investment adviser of the Fund who individually own beneficially more than 1/2
of 1% of the securities of that company, together own beneficially more than 5%;
(9) Make loans, except by purchase of debt obligations in which the Fund
may invest consistent with its objective and investment policies. This
restriction does not apply to repurchase agreements;
(10) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts, commodities or commodity contracts or real estate. This restriction
does not prevent the Fund from purchasing securities of companies investing in
real estate or of companies which are not principally engaged in the business of
buying or selling such leases, rights or contracts;
(11) Act as underwriter except to the extent that, in connection with
the disposition of portfolio securities, it may be deemed to be an underwriter
under the federal securities laws;
(12) Make investments for the purpose of exercising control or
management;
(13) Participate on a joint or joint and several basis in any trading
account in securities. (The "bunching" of orders for the purchase or sale of
portfolio securities with other accounts under the management of Back Bay
Advisors(R) to reduce acquisition costs, to average prices among them, or to
facilitate such transactions, is not considered participating in a trading
account in securities);
(14) Write or purchase puts, calls or combinations thereof; or
(15) Invest in the securities of other investment companies, except in
connection with a merger, consolidation or similar transaction.
Except as otherwise stated, the foregoing percentages and the percentage
limitations set forth in the Prospectus will apply at the time of the purchase
of a security and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of a purchase of
such security.
As a matter of operating policy and subject to change without
shareholder approval, the Funds will not purchase or sell real property,
including limited partnership interests.
6
<PAGE>
TAX EXEMPT FUND
The Tax Exempt Fund will not:
(1) Purchase any security if, as a result, more than 5% of the Fund's
total assets (based on current value) would then be invested in the securities
of a single issuer. This limitation does not apply to securities of the United
States Government, its agencies or instrumentalities or to any security
guaranteed thereby. The limitation applies to securities subject to credit
enhancement, but guarantors, insurers, issuers of puts and letters of credit and
other parties providing credit enhancement are not considered issuers for
purposes of the restriction, although investment in such securities may be
limited by applicable regulatory restrictions. The restriction also applies to
securities subject to repurchase agreements but not to the repurchase agreements
themselves. (The SEC staff currently takes the position that only fully
collateralized repurchase agreements may be excluded from such restriction);
(2) Purchase voting securities or make investments for the purpose of
exercising control or management;
(3) Invest more than 25% of its total assets in industrial development
bonds which are based, directly or indirectly, on the credit of private entities
in any one industry or in securities of private issuers in any one industry. (In
the utilities category, gas, electric, water and telephone companies will be
considered as being in separate industries.);
(4) Participate on a joint or joint and several basis in any trading
account in securities;
(5) Make short sales of securities, maintain a short position or
purchase securities on margin, except that the Fund may obtain short-term
credits as necessary for the clearance of securities transactions;
(6) Borrow money except for temporary or emergency purposes and then
only in an amount not exceeding 10% of its total assets taken at cost, except
that the Fund may enter into reverse repurchase agreements. The Fund will not,
however, borrow or enter into reverse repurchase agreements if the value of the
Fund's assets would be less than 300% of its borrowing and reverse repurchase
agreement obligations. In addition, when borrowings (other than reverse
repurchase agreements) exceed 5% of the Fund's total assets (taken at current
value), the Fund will not purchase additional portfolio securities. Permissible
borrowings and reverse repurchase agreements will be entered into solely for the
purpose of facilitating the orderly sale of portfolio securities to accommodate
redemption requests;
(7) Make loans, except that the Fund may purchase or hold debt
instruments in accordance with its investment objective and policies and may
enter into loan participations and repurchase agreements;
(8) Pledge, mortgage or hypothecate its assets except in connection with
reverse repurchase agreements and except to secure temporary borrowings
permitted by (6) above in aggregate amounts not to exceed 10% of its net assets
taken at cost at the time of the incurrence of such borrowings;
(9) Act as an underwriter of securities of other issuers except that, in
the disposition of portfolio securities, it may be deemed to be an underwriter
under the federal securities laws;
(10) Invest in securities of other investment companies, except by
purchases in the open market involving only customary brokers' commissions, or
in connection with a merger, consolidation, reorganization or similar
transaction. Under the 1940 Act the Fund may not (a) invest more than 10% of its
total assets (taken at current value) in such securities, (b) own securities of
any one investment company having a value in excess of 5% of the Fund's total
assets (taken at current value), or (c) own more than 3% of the outstanding
voting stock of any one investment company;
(11) Purchase or retain securities of an issuer if, to the knowledge of
the Fund, officers, trustees or directors of the Fund or any investment adviser
of the Fund who individually own beneficially more than 1/2 of 1% of the shares
or securities of that issuer together own beneficially more than 5% of such
shares or securities;
7
<PAGE>
(12) Purchase securities of any company which has (with predecessor
businesses and entities) a record of less than three years' continuing operation
or purchase securities whose source of repayment is based, directly or
indirectly, on the credit of such a company, except (i) obligations issued or
guaranteed by the United States Government, its agencies or instrumentalities,
or (ii) Municipal Securities which are rated by at least two nationally
recognized municipal bond rating services, if as a result more than 5% of the
total assets of the Fund (taken at current value) would be invested in such
securities;
(13) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts, commodities or commodity contracts or real estate (except that the
Fund may buy Municipal Securities or other permitted investments secured by real
estate or interests therein), or
(14) Write or purchase puts, calls, warrants, straddles, spreads or
combinations thereof, except that the Fund may purchase puts as described under
"Investment Objectives and Policies -- Tax Exempt Fund -- Purchase of Securities
with Rights to Put Securities to Seller" and may purchase Municipal Securities
on a "when-issued" basis as described under "Investment Objectives and Policies
- -- Tax Exempt Fund -- When-Issued Securities";
Except as otherwise stated in restriction (6), the foregoing percentages
and the percentage limitations set forth in the Prospectus will apply at the
time of the purchase of a security and shall not be considered violated unless
an excess or deficiency occurs or exists immediately after and as a result of a
purchase of such security. As regards restriction (6), as a non-fundamental
operating policy, any borrowings of the Tax Exempt Fund will not exceed 5% of
the Fund's total assets.
For the purpose of the foregoing investment restrictions, the
identification of the "issuer" of Municipal Securities which are not general
obligation bonds (see Appendix B) is made by Back Bay Advisors(R) on the basis
of the characteristics of the obligation, the most significant of which is the
source of funds for the payment of principal and interest on such securities. If
the assets and revenues of an agency, authority, instrumentality or other
political subdivision are separate from those of the government creating the
subdivision, and the obligation is based solely on the assets and revenues of
the subdivision, such subdivision would be regarded as the sole issuer.
Similarly, in the case of industrial development bonds (see Appendix B), if the
bond is backed only by the assets and revenues of the non-governmental user, the
non-governmental user would be regarded as the sole issuer.
As a matter of operating policy and subject to change without
shareholder approval, the Fund will not purchase or sell real property,
including limited partnership interests.
ALL FUNDS
No Fund will purchase any security restricted as to disposition under
federal securities laws if, as a result, more than 10% of such Fund's net assets
would be invested in such securities or in other securities that are illiquid.
The Funds have implemented procedures to determine the liquidity of Section 4(2)
commercial paper purchased by the Funds for purposes of determining whether the
Fund's limit on the purchases of illiquid securities has been met.
The staff of the SEC is currently of the view that repurchase agreements
maturing in more than seven days are "illiquid" securities. Each Fund currently
intends to conduct its operations in a manner consistent with this view. In
addition, certain loan participations may be "illiquid" securities for this
purpose.
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------
Trustees
The trustees of the Trusts and their ages (in parentheses) and principal
occupations during at least the past five years are as follows:
8
<PAGE>
GRAHAM T. ALLISON, JR.--Trustee (56); 79 John F. Kennedy Street, Cambridge, MA
02138; Douglas Dillon Professor and Director for the Center of Science and
International Affairs, John F. Kennedy School of Government; Special
Advisor to the United States Secretary of Defense; formerly, Assistant
Secretary of Defense; formerly Dean, John F. Kennedy School of Government.
DANIEL M. CAIN - Trustee (51); 452 Fifth Avenue, New York, NY 10018; President,
Cain Brothers & Company (investment banking); Trustee, Universal Health
Realty Income Trust (REIT); Chairman, Inter Fish, Inc. (aquaculture venture
in Barbados).
KENNETH J. COWAN -- Trustee (64); 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 (53); 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 (54); 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 (53); President, Chief Executive
Officer and Director, NEF Corporation; President and Chief Executive
Officer, New England Funds, L.P.; President and Chief Executive Officer,
New England Funds Management, L.P. ("NEFM"); Director, Back Bay
Advisors(R), Inc.; formerly, Director, New England Securities Corporation
("New England Securities").
JOHN A. SHANE -- Trustee (63); 300 Unicorn Drive, Woburn, Massachusetts 01801;
President, Palmer Service Corporation (venture capital organization);
General Partner, The Palmer Organization and Palmer Partners L.P.;
Director, Abt Associates, Inc. (consulting firm); Director, Arch
Communications Group, Inc. (paging service); Director, Dowden Publishing
Company, Inc. (publishers of medical magazines); Director, Eastern Bank
Corporation; Director, Overland Data, Inc. (manufacturer of computer tape
drives); Director, Gensym Corporation (expert system software); Director,
Summa Four, Inc. (manufacturer of telephone switching equipment); Director,
United Asset Management Corporation (holding company for institutional
money management).
PETER S. VOSS* -- Chairman of the Board, Chief Executive Officer and Trustee
(49); President and Chief Executive Officer of New England Investment
Companies, L.P. ("NEIC"); Director, President and Chief Executive Officer
of New England Investment Companies, Inc. ("NEIC Inc."); Chairman of the
Board and Director, NEF Corporation; Chairman of the Board and Director,
Back Bay Advisors(R), Inc.; Director, The New England; formerly, Group
Executive Vice President, Bank of America (Los Angeles); formerly, Group
Head of International Banking, Trading and Securities, Security Pacific
National Bank and Chief Executive Officer, Security Pacific Investment
Group.
PENDLETON P. WHITE -- Trustee (65); 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).
- ----------
*Trustee deemed an "interested person" of the Trusts, as defined in the
1940 Act.
9
<PAGE>
Officers
In addition to Messrs. Voss and Schmelzer, the officers of the Trusts
and their ages (in parentheses) and principal occupations during the past five
years are as follows:
BRUCE R. SPECA -- Executive Vice President (40); Executive Vice President, NEF
Corporation; Executive Vice President, New England Funds, L.P.; Executive
Vice President, NEFM.
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).
FRANK NESVET -- Treasurer (53); Senior Vice President and Chief Financial
Officer, NEF Corporation; Senior Vice President and Chief Financial
Officer, New England Funds, L.P.; Senior Vice President and Chief Financial
Officer, NEFM; formerly, Executive Vice President, SuperShare Services
Corporation (mutual fund and unit investment trust sponsor).
Previous positions during the past five years with The New England, New
England Securities or New England Funds, L.P. are omitted, if not materially
different. Each of the trustees is also a director or trustee of several other
investment companies for which New England Funds, L.P. acts as principal
underwriter and affiliates of The New England act as investment adviser.
The address of each trustee and officer affiliated with NEF Corporation,
New England Funds, L.P., NEFM or New England Securities is 399 Boylston Street,
Boston, MA 02116.
Compensation
Neither Trust pays compensation to its officers, or to its trustees who
are "interested persons" of the Trusts.
Each trustee who is not an interested person of the Trusts receives in
the aggregate for serving on the boards of the Trusts and New England Funds
Trust I and New England Funds Trust II (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 is a member. Each
committee chairman receives an additional retainer fee at the annual rate of
$2,500. These fees are allocated among the Funds and the nineteen other mutual
fund portfolios in the New England Funds Trusts based on a formula that takes
into account, among other factors, the net assets of each fund.
During the fiscal year ended June 30, 1996, the persons who were
trustees of the Trusts for all or part of such year received the amounts set
forth in the following table for serving as a trustee of the Trusts; and during
the year ended December 31, 1995, such persons received the amounts set forth
below for serving as trustee of the Trusts 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 August 29,
1996 a total of thirty-seven mutual fund portfolios (not all of which were in
existence during all of 1995).
10
<PAGE>
<TABLE>
<CAPTION>
Aggregate Aggregate Pension or Total Compensation
Compensation Compensation Retirement from the New
from New England from New England Benefits Accrued England Funds
Cash Management Tax Exempt Money as Part of Fund Estimated Trusts, Zenith and
Trust in the Market Trust in Expenses in the Annual NEVA in
Year Ended the Year Ended Year Ended Benefits Upon the Year Ended
Name of Trustee June 30, 1996 June 30, 1996 June 30, 1996 Retirement December 31, 1995
<S> <C> <C> <C> <C> <C>
Graham T. Allison, Jr.(a) $5,751 $2,427 $0 $0 $50,000
Daniel M. Cain (b) $2,097 $ 865 $0 $0 $ 0
Kenneth J. Cowan $6,562 $2,764 $0 $0 $69,291
Richard Darman (b) $2,097 $ 865 $0 $0 $ 0
Sandra O. Moose $5,748 $2,427 $0 $0 $56,250
James H. Scott (c) $4,271 $1,807 $0 $0 $59,000
John A. Shane $6,023 $2,564 $0 $0 $63,000
Pendleton P. White $6,023 $2,564 $0 $0 $63,000
</TABLE>
(a) Mr. Allison became a trustee of the Trusts effective April 1, 1995.
(b) Messrs. Cain and Darman were elected trustees of the Trusts on
February 23, 1996.
(c) Effective March 5, 1996, Mr. Scott resigned as a trustee of the Trusts.
The Trusts provide no pension or retirement benefits to trustees, but
have adopted a deferred payment arrangement under which each trustee may elect
not to receive fees from each Fund on a current basis but to receive in a
subsequent period an amount equal to the value that such fees would have if they
had been invested in each Fund on the normal payment date for such fees. As a
result of this method of calculating the deferred payments, each Fund, upon
making the deferred payments, will be in the same financial position as if the
fees had been paid on the normal payment dates.
At August 1, 1996, the officers and trustees of the Trusts as a group
owned less than 1% of the outstanding shares of each Fund.
- --------------------------------------------------------------------------------
INVESTMENT ADVISORY, SUBADVISORY, DISTRIBUTION AND OTHER SERVICES
- --------------------------------------------------------------------------------
Investment Advisory and Subadvisory Agreements
Pursuant to separate advisory agreements, each dated January 2, 1996,
NEFM has agreed, subject to the supervision of the Board of Trustees of the
relevant Trust, to manage the investment and reinvestment of the assets of each
Fund and to provide a range of administrative services to each Fund. For the
services described in the advisory agreements, each Fund has agreed to pay NEFM
a management fee as set forth below:
Money Market Fund and Government Fund
Annual Percentage Rate Average Daily Net Asset Value Levels
- ---------------------- ------------------------------------
.425% the first $500 million
.400% the next $500 million
.350% the next $500 million
.300% the next $500 million
.250% amounts in excess of $2 billion
Tax Exempt Fund -- Under the advisory agreement relating to the Tax
Exempt Fund, the Fund pays NEFM a fee at the annual rate of 0.40% of the average
daily net asset value of the Fund up to $100 million and 0.30% of such asset
value in excess of $100 million.
The advisory agreements each provide that NEFM may delegate its
responsibilities thereunder to other parties. Pursuant to separate subadvisory
agreements, each dated January 2, 1996, NEFM has delegated
11
<PAGE>
responsibility for managing the investment and reinvestment of each Fund's
assets to Back Bay Advisors(R) as subadviser. For providing such subadvisory
services to the Funds, NEFM pays Back Bay Advisors(R) a subadvisory fee as set
forth below:
Annual Average Net
Fund Fee Rate Asset Levels
- ---- -------- ------------
Money Market Fund 0.205% the first $500 million
0.180% the next $500 million
0.160% the next $500 million
0.140% the next $500 million
0.120% amounts in excess of $2 billion
Government Fund 0.2125% the first $500 million
0.2000% the next $500 million
0.1750% the next $500 million
0.1500% the next $500 million
0.1250% amounts in excess of $2 billion
Tax Exempt Fund 0.200% the first $100 million
0.150% amounts in excess of $100 million
The Funds pay no direct fees to Back Bay Advisors.
Prior to January 2, 1996, Back Bay Advisors served as adviser to the
Funds pursuant to separate advisory agreements, each of which provided for an
advisory fee payable by the Fund to Back Bay Advisors at the same rate as the
management fee currently payable by the Fund to NEFM.
For the fiscal years ended June 30, 1994 and 1995 and the period July 1,
1995 to December 31, 1995, the advisory compensation paid to Back Bay Advisors
amounted to $3,022,248, $2,796,164 and $1,379,803, respectively, for the Money
Market Fund and $265,221, $255,727 and $126,103, respectively, for the
Government Fund.
For the six months ended June 30, 1996, the advisory compensation paid
to NEFM amounted to $726,741 and $59,722 for the Money Market Fund and the
Government Fund, respectively.
For the six months ended June 30, 1996, the subadvisory fee NEFM paid to
Back Bay Advisors amounted to $678,119 and $60,520 for the Money Market Fund and
the Government Fund, respectively.
Until further notice to the Tax Exempt Fund, NEFM and Back Bay Advisors
have agreed to reduce their fee and/or pay the charges, expenses and fees of the
Fund (not including fees payable to the trustees who are not "interested
persons" of the Trust) to the extent necessary to limit the Fund's expenses to
an annual rate of 0.5625 of 1% of average net assets. Prior to January 2, 1996,
similar voluntary limitations were in effect with regard to Back Bay Advisors(R)
and the Fund. For the fiscal years ended June 30, 1994 and 1995 and the period
July 1, 1995 to December 31, 1995, gross advisory fees payable to Back Bay
Advisors(R) of $231,093, $281,837 and $134,552, respectively, were reduced by
$192,773, $199,639 and $108,843, respectively, as a result of this expense
limitation. For the six months ended June 30, 1996, the gross management fee
payable to NEFM of $133,354 was reduced by $54,887, resulting in a net
management fee of $78,467, and the gross subadvisory fee payable by NEFM to Back
Bay Advisors(R) of $66,677 was reduced by $54,887, resulting in a net
subadvisory fee of $11,790 as a result of this expense limitation.
In General. Back Bay Advisors(R) serves as subadviser to the Funds.
Formed in 1986, Back Bay Advisors(R) provides investment management services to
institutional clients, including other registered investment companies and
accounts of The New England and its affiliates. Back Bay Advisors'(R) general
partner, Back Bay Advisors(R), Inc., is a wholly-owned subsidiary of NEIC
Holdings, Inc. ("NEIC Holdings"), which is a wholly-owned subsidiary of NEIC.
NEIC owns the entire limited partnership interest in Back Bay Advisors(R).
NEFM, formed in 1995, is a limited partnership whose sole general
partner, NEF Corporation, is a wholly-owned subsidiary of NEIC Holdings. NEF
Corporation is also the sole general partner of New England
12
<PAGE>
Funds, L.P., the distributor of the Funds (the "Distributor"). NEIC owns the
entire limited partnership interest in each of NEFM and New England Funds, L.P.
NEIC's sole general partner, NEIC Inc., is a wholly-owned subsidiary of
The New England, which owns a majority limited partnership interest in NEIC.
NEIC and its eight subsidiary or affiliated asset management firms,
collectively, have more than $87 billion of assets under management or
administration.
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, receipt of certain
regulatory approvals. After such merger, NEIC Inc. will be a wholly-owned
subsidiary of MetLife, and MetLife will own, directly or indirectly, a majority
limited partnership in NEIC. The merger is expected to occur on or after August
30, 1996.
Each Fund pays all of its expenses not assumed by NEFM or Back Bay
Advisors(R), including, but not limited to, the charges and expenses of the
Fund's custodian and transfer agent, independent auditors and legal counsel, all
brokerage commissions and transfer taxes in connection with portfolio
transactions, all taxes and filing fees, the fees and expenses for registration
or qualification of its shares under the federal or state securities laws, all
expenses of shareholders' and trustees' meetings and of preparing and printing
reports to shareholders and the compensation of trustees who are not directors,
officers or employees of NEFM, Back Bay Advisors(R) or their affiliates (other
than registered investment companies). Since January 2, 1996, the Funds have
borne the cost of certain accounting and legal services that were formerly borne
by Back Bay Advisors(R).
Under each Fund's advisory agreement, if the total ordinary business
expenses of a particular Fund (and, in the case of New England Cash Management
Trust, the total ordinary business expenses of the Trust as a whole) for any
fiscal year exceed the lowest applicable limitation (based on a percentage of
average net assets or income) prescribed by any state in which shares of that
Fund (or, with respect to New England Cash Management Trust, of any series of
the Trust) are qualified for sale, NEFM shall pay such excess. At the date of
this Statement, the most restrictive state annual expense limitation is 2 1/2%
of the average annual net assets up to $30,000,000, 2% of the next $70,000,000
of such assets and 1 1/2% of such assets in excess of $100,000,000. NEFM will
not be required to reduce its fee or pay such expenses to an extent or under
circumstances which might result in a Fund's inability to qualify as a regulated
investment company under the Code. The term "expenses" is defined in the
statutes or regulations of such jurisdictions and, generally speaking, excludes
brokerage commissions, taxes, interest, distribution-related expenses and
extraordinary expenses.
Each Fund's advisory agreement and subadvisory agreement provides that it will
continue in effect only if it is approved at least annually (i) by the trustees
of the relevant Trust or by vote of a majority of the outstanding voting
securities of the applicable Fund and (ii) by vote of a majority of the trustees
who are not interested persons of the Fund or NEFM. Any amendment to an advisory
or subadvisory agreement must be approved by vote of a majority of the
outstanding voting securities of the applicable Fund and by vote of a majority
of the trustees who are not such interested persons. Each agreement may be
terminated without penalty by the trustees or by the shareholders of the
applicable Fund upon 60 days' written notice or by NEFM upon 90 days' written
notice, and each terminates automatically in the event of its assignment. Each
subadvisory agreement also may be terminated by the subadviser upon 90 days'
notice and automatically terminates upon termination of the related advisory
agreement. In addition, each advisory agreement will automatically terminate if
the Trust or the Fund shall at any time be required by the Distributor to
eliminate all reference to the words "New England" or the letters "TNE" in the
name of the relevant Trust or the relevant Fund, unless the continuance of the
agreement after such change of name is approved by a majority of the outstanding
voting securities of the relevant Fund and by a majority of the trustees who are
not interested persons of the relevant Trust or the Fund's adviser or
subadviser.
Each Fund's advisory agreement and subadvisory agreement provides that NEFM or
Back Bay Advisors(R) shall not be subject to any liability in connection with
the performance of its services thereunder in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties.
Prior to January 2, 1996, Back Bay Advisors(R) had contracted with New
England Securities for New England Securities to provide certain administrative
services to the Funds, at Back Bay Advisors'(R) expense.
13
<PAGE>
Certain officers and employees of Back Bay Advisors(R) have responsibility for
portfolio management of other advisory accounts and clients of Back Bay
Advisors(R) (including other registered investment companies and accounts of
affiliates of Back Bay Advisors(R)) that may invest in securities in which the
Funds also invest. If Back Bay Advisors(R) determines that an investment
purchase or sale opportunity is appropriate and desirable for more than one
advisory account, purchase and sale orders may be executed separately or may be
combined and, to the extent practicable, allocated by Back Bay Advisors(R) to
the participating accounts.
It is believed that the ability of the Funds to participate in larger
volume transactions in this manner will in some cases produce better executions
for the Funds. However, in some cases, this procedure could have a detrimental
effect on the price and amount of a security available to a Fund or the price at
which a security may be sold. The trustees are of the view that the benefits of
retaining Back Bay Advisors(R) as subadviser to each of the Funds outweigh the
disadvantages, if any, that may result from participating in such transactions.
Where advisory accounts have competing interests in a limited investment
opportunity, Back Bay Advisors(R) will allocate an investment purchase
opportunity based on the relative time the competing accounts have had funds
available for investment, and the relative amounts of available funds, and will
allocate an investment sale opportunity based on relative cash requirements and
the relative time the competing accounts have had investments available for
sale. It is Back Bay Advisors'(R) policy to allocate, to the extent practicable,
investment opportunities to each client over a period of time on a fair and
equitable basis relative to its other clients.
Distribution Agreement
Under separate agreements with each Fund, the Distributor, 399 Boylston
Street, Boston, Massachusetts 02116, acts as the distributor of the Funds'
shares, which are sold at net asset value without any sales charge. The
Distributor receives no compensation from the Funds or purchasers of Fund shares
for acting as distributor. The agreements do not obligate the Distributor to
sell a specific number of shares. Under the agreements, the Distributor pays
promotion and distribution expenses relating to the sale of Fund shares,
including the cost of preparing, printing and distributing prospectuses used in
offering shares of the Funds for sale.
The Distributor pays investment dealers a service fee in order to
compensate them for services they provide and expenses they incur in connection
with the establishment or maintenance of shareholder accounts in the Funds. The
service fee is paid quarterly at an annual rate equal to 0.10% of average Fund
net assets, including reinvested dividends, in accounts serviced by the
investment dealer during the year. In order to receive a fee for a particular
quarter, the investment dealer's clients' average daily net asset balance in a
Fund must equal or exceed $1 million. The Distributor pays the service fee; the
fee is not a direct or indirect expense of the Funds or their shareholders and
does not affect the Funds' yields.
The Distributor controls the words "New England" in the names of the
Trusts and the Funds and if it should cease to be the distributor, New England
Cash Management Trust, New England Tax Exempt Money Market Trust or the affected
Fund may be required to change their names and delete these words or letters.
The Distributor also acts as general distributor for New England Funds Trust I
and New England Trust II.
The Distributor may publish information about the Funds in the
publications described in Appendix D and may include information in advertising
and sales literature as described in Appendix E.
Independent Accountants
The Funds' independent accountants are Price Waterhouse LLP, 160 Federal
Street, Boston, Massachusetts 02110. Price Waterhouse LLP conducts an annual
audit of the Funds' financial statements, assists in the preparation of the
Funds' federal and state income tax returns and consults with the Funds as to
matters of accounting and federal and state income taxation. The information
concerning Financial Highlights in the Prospectus, and the financial statements
incorporated by reference in this Statement, have been so included in reliance
on the reports of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
14
<PAGE>
Custodian
State Street Bank and Trust Company ("State Street Bank"), 225 Franklin
Street, Boston, Massachusetts 02110, is the custodian for each Fund. As such,
State Street Bank holds in safekeeping certificated securities and cash
belonging to each Fund and, in such capacity, is the registered owner of
securities in book-entry form belonging to each Fund. Upon instruction, State
Street Bank receives and delivers cash and securities in connection with
transactions of each Fund and collects all dividends and other distributions
made with respect to each Fund's portfolio securities. State Street Bank also
maintains certain accounts and records of the Funds and calculates the total net
asset value, total net income and net asset value per share of the Funds. State
Street Bank does not determine the investment policies of the Funds or decide
which securities a Fund will buy or sell.
Other Services
Pursuant to a contract between the Funds and the Distributor, the
Distributor acts as shareholder servicing and transfer agent for the Funds and
is responsible for services in connection with the establishment, maintenance
and recording of shareholder accounts, including all related tax and other
reporting requirements and the implementation of investment and redemption
arrangements offered in connection with the sale of the Funds' shares. The Funds
pay a per account fee to the Distributor for these services in the amount of
$21.50, annually, which may be increased with the approval of the Trusts'
Boards. The aggregate amount of fees paid by the Funds to the Distributor for
these services during the three most recent fiscal years of the Funds were as
follows:
Trust Fiscal Year Ended June 30,
- --------------------------------------------------------------------------------
1994 1995 1996
New England Cash Management Trust
Money Market Series $1,646,555 $2,011,935 $1,986,393
U.S. Government Series $ 74,257 $ 99,544 $ 98,617
New England Tax Exempt Money Market Trust $ 58,609 $ 6,391 $ 76,498
The Distributor has subcontracted with State Street Bank for it to
provide, through its subsidiary, Boston Financial Data Services, Inc. ("BFDS"),
transaction processing, mail and other services.
In addition, during the fiscal year ended June 30, 1996, the Distributor
received legal and accounting services fees paid by the Money Market Fund and
Tax Exempt Fund in the amount of $21,912 and $22,044, respectively. The
Distributor has voluntarily agreed to waive these legal and accounting services
fees for the Government Fund until further notice. As a result of this voluntary
waiver, the Distributor waived its entire fee for the Government Fund of $22,044
for the fiscal year ended June 30, 1996.
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS
- --------------------------------------------------------------------------------
In General
In placing orders for the purchase and sale of portfolio securities for
each Fund, Back Bay Advisors(R) will always seek the best price and execution.
It is expected that the Funds' portfolio transactions will generally be with
issuers or dealers in money market instruments acting as principal. Accordingly,
the Funds do not anticipate that they will pay significant brokerage
commissions. During the year ended June 30, 1996, the Funds did not incur any
brokerage fees in connection with portfolio transactions.
Some of the portfolio transactions for each Fund are placed with dealers
who provide Back Bay Advisors(R) with supplementary investment and statistical
information or furnish market quotations to the Funds or other investment
companies advised by Back Bay Advisors(R). The business would not be so placed
if the Funds would not thereby obtain the best price and execution. Although it
is not possible to assign an exact dollar value to these research services, they
may, to the extent used, tend to reduce the expenses of Back Bay Advisors(R).
The research services may also be used by Back Bay Advisors(R) in connection
with its other advisory accounts and in some cases may not be used with respect
to the Funds.
15
<PAGE>
The Board of Trustees of each Trust has requested that Back Bay Advisors(R) seek
to reduce underwriting commissions or similar fees on Fund portfolio
transactions through certain methods currently available. It is not expected
that these methods will result in material reductions. The Boards have not
requested that Back Bay Advisors(R) or its affiliates attempt to join
underwriting syndicates to reduce underwriting commissions or fees.
Tax Exempt Fund
It is expected that the Tax Exempt Fund's portfolio securities will normally be
purchased directly from an underwriter or in the over-the-counter market from
the principal dealers in such securities, unless it appears that a better price
or execution may be obtained elsewhere. Purchases from underwriters will include
a commission or concession paid by the issuer to the underwriter, and purchases
from dealers will include the spread between the bid and asked price.
- --------------------------------------------------------------------------------
PERFORMANCE
- --------------------------------------------------------------------------------
From time to time, the Funds may use performance data in advertisements
and promotional material. These results may include comparisons to the average
daily yields of money market funds reporting to IBC/Donoghue's Money Fund Report
("Donoghue's"), including comparisons of such average yields for funds
considered by Donoghue's to be in the same category as each of the Funds. See
"Net Income, Dividends and Valuation" below for an explanation of how the Funds
calculate yield and "effective" (or "compound") yield.
New England Funds, L.P. may make reference in its advertising and sales
literature to awards, citations and honor bestowed on it by industry
organizations and other observers and raters, including, but not limited to
Dalbar's Quality Tested Service Seal and Key Honors Award. Such reference may
explain the criteria for the award, indicate the nature and significance of the
honor and provide statistical and other information about the award and New
England Funds, L.P.'s selection, including, but not limited to, the scores and
categories in which New England Funds, L.P. excelled, the names of funds and
fund companies that have previously won the award and comparative information
and data about those against whom New England Funds, L.P.
competed for the award, honor or citation.
New England Funds, L.P. may publish, allude to or incorporate in its
advertising and sales literature testimonials from shareholders, clients,
brokers who sell or own shares, broker-dealers, industry organizations and
officials and other members of the public, including, but not limited to, fund
performance, features and attributes, or service and assistance provided by
departments within the organization, employees or associates of New England
Funds, L.P.
From inception of each Fund (Class A shares) or date of first offering
(Class B shares) through each of the dates set forth below, an investment of
$10,000 in each Fund grew, assuming the reinvestment of all dividends, to the
respective amounts set forth below. The periods covered included periods of
widely fluctuating interest rates and should not necessarily be considered
representative of performance of an investment in a Fund today.
16
<PAGE>
New England Cash Management Trust -- Money Market Series
($10,000 investment on 7/10/78)
(Class A Shares)
Value of Investment on Value of Cumulative
Period Ended First Day of Period Reinvested Dividends Total Value
- ------------ ------------------- -------------------- -----------
12/31/78 $10,000 $ 385 $10,385
12/31/79 10,385 1,504 11,504
12/31/80 11,504 2,971 12,971
12/31/81 12,971 5,194 15,194
12/31/82 15,194 7,155 17,155
12/31/83 17,155 8,680 18,680
12/31/84 18,680 10,628 20,628
12/31/85 20,628 12,259 22,259
12/31/86 22,259 13,675 23,675
12/31/87 23,675 15,110 25,110
12/31/88 25,110 16,915 26,915
12/31/89 26,915 19,320 29,320
12/31/90 29,320 21,638 31,638
12/31/91 31,638 23,499 33,499
12/31/92 33,499 24,655 34,655
12/31/93 34,655 25,536 35,536
06/30/94 35,536 26,036 36,036
06/30/95 36,036 27,761 37,761
06/30/96 37,761 29,596 39,596
New England Cash Management Trust - U.S. Government Series
($10,000 investment on 9/20/93)
(Class B Shares)
Value of Investment on Value of Cumulative
Period Ended First Day of Period Reinvested Dividends Total Value
- ------------ ------------------- -------------------- -----------
12/31/93 $10,000 $ 74 $10,074
06/30/94 10,074 216 10,216
06/30/95 10,216 705 10,705
06/30/96 10,705 1,125 11,225
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<PAGE>
New England Cash Management Trust - U.S. Government Series
($10,000 investment on 6/2/82)
(Class A Shares)
Value of Investment on Value of Cumulative
Period Ended First Day of Period Reinvested Dividends Total Value
- ------------ ------------------- -------------------- -----------
12/31/82 $10,000 $ 543 $10,543
12/31/83 10,543 1,435 11,435
12/31/84 11,435 2,559 12,559
12/31/85 12,559 3,550 13,550
12/31/86 13,550 4,402 14,402
12/31/87 14,402 5,213 15,213
12/31/88 15,213 6,232 16,232
12/31/89 16,232 7,610 17,610
12/31/90 17,610 8,925 18,925
12/31/91 18,925 10,009 20,009
12/31/92 20,009 10,694 20,694
12/31/93 20,694 11,213 21,213
06/30/94 21,213 11,500 21,500
06/30/95 21,500 12,496 22,496
06/30/96 22,496 13,570 23,570
New England Cash Management Trust - U.S. Government Series
($10,000 investment on 9/20/93)
(Class B Shares)
Value of Investment on Value of Cumulative
Period Ended First Day of Period Reinvested Dividends Total Value
- ------------ ------------------- -------------------- -----------
12/31/93 $10,000 $ 67 $10,067
06/30/94 10,067 203 10,203
06/30/95 10,203 672 10,672
06/30/96 10,672 1,182 11,182
New England Tax Exempt Money Market Trust
($10,000 investment on 4/21/83)
(Class A Shares)
Value of Investment on Value of Cumulative
Period Ended First Day of Period Reinvested Dividends Total Value
- ------------ ------------------- -------------------- -----------
12/31/83 $10,000 $ 371 $10,371
12/31/84 10,371 984 10,984
12/31/85 10,984 1,543 11,543
12/31/86 11,543 2,043 12,043
12/31/87 12,043 2,531 12,531
12/31/88 12,531 3,134 13,134
12/31/89 13,134 3,899 13,899
12/31/90 13,899 4,660 14,660
12/31/91 14,660 5,268 15,268
12/31/92 15,268 5,667 15,667
12/31/93 15,667 5,979 15,979
06/30/94 15,979 6,153 16,153
06/30/95 16,153 6,667 16,667
06/30/96 16,667 7,209 17,209
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<PAGE>
New England Tax Exempt Money Market Trust
($10,000 investment on 9/13/93)
(Class B shares)
Value of Investment on Value of Cumulative
Period Ended First Day of Period Reinvested Dividends Total Value
- ------------ ------------------- -------------------- -----------
12/31/93 $10,000 $ 60 $10,060
06/30/94 10,060 170 10,170
06/30/95 10,170 493 10,493
06/30/96 10,493 834 10,834
- --------------------------------------------------------------------------------
DESCRIPTION OF THE FUNDS AND OWNERSHIP OF SHARES
- --------------------------------------------------------------------------------
New England Cash Management Trust was organized as a Massachusetts
business trust under the laws of Massachusetts by an Agreement and Declaration
of Trust (a "Declaration of Trust") dated June 5, 1980. The Trust commenced
operations on October 3, 1980 by acquiring all the assets and liabilities of NEL
Cash Management Account, Inc., which commenced operations on July 10, 1978. The
Trust was established with the same investment objective, policies, restrictions
and investment adviser as the NEL Cash Management Account, Inc. then had. On
June 2, 1982 the U.S. Government Series commenced operations as a separate
portfolio of New England Cash Management Trust, the Trust's then existing
portfolio having been redesignated the "Money Market Series." The Money Market
Fund and the Government Fund are the only series of New England Cash Management
Trust currently in existence. Each such Fund has two classes of shares available
for purchase.
New England Tax Exempt Money Market Trust was organized as a
Massachusetts business trust under the laws of Massachusetts by a Declaration of
Trust dated January 18, 1983, and commenced operations on April 21, 1983. Only
one series of shares of New England Tax Exempt Money Market Trust is currently
in existence; it has two classes of shares available for purchase.
Class A and B shares of each Fund are identical, except that the classes
have different exchange privileges, as set forth in detail in the Prospectus.
The Declarations of Trust currently permit the relevant trustees to
issue an unlimited number of full and fractional shares of each Fund. Each Fund
is represented by a particular series of shares. The Declarations of Trust
further permit each Trust's trustees to divide the shares of each series into
any number of separate classes, each having such rights and preferences relative
to other classes of the same series as the trustees may determine. The shares of
each Fund have no pre-emptive rights. Upon termination of any Fund, whether
pursuant to liquidation of the Fund or otherwise, shareholders of each series of
shares are entitled to share pro rata in the net assets belonging to that series
then available for distribution to such shareholders.
The assets received by each series of New England Cash Management Trust
from the issue or sale of shares of each series thereof and all income,
earnings, profits, losses and proceeds therefrom, subject only to the rights of
creditors, are allocated to, and constitute the underlying assets of, that
series. The underlying assets of each series are segregated and are charged with
the expenses in respect of that series and with a share of the general expenses
of New England Cash Management Trust. Any general expenses of the Trust not
readily identifiable as belonging specifically to a particular series are
allocated by or under the direction of the trustees in such manner as the
trustees determine to be fair and equitable. While the expenses of the Trust are
allocated to the separate books of account of each series of the Trust, certain
expenses may be legally chargeable against the assets of both series.
The Declarations of Trust also permit the trustees to charge
shareholders directly for custodial, transfer agency and servicing expenses.
The Declarations of Trust also permit the trustees, without shareholder
approval, to subdivide any series or class of shares into various sub-series or
sub-classes participating in the same portfolio with such
19
<PAGE>
dividend preferences and other rights as the trustees may designate. While the
trustees have no current intention to exercise this power, it is intended to
allow them to provide for an equitable allocation of the impact of any future
regulatory requirements which might affect various classes of shareholders
differently. The trustees may also, without shareholder approval, establish one
or more additional series or classes or merge two or more series or classes. At
such time as the trustees of New England Tax Exempt Money Market Trust create
another series, the Trust would become a "series" company as that term is used
in Section 18(f) of the 1940 Act. Currently, New England Cash Management Trust
is such a "series" company.
The Declarations of Trust provide for the perpetual existence of the Trusts.
Either Trust or any Fund, however, may be terminated at any time by vote of at
least two-thirds of the outstanding shares of the Fund affected or by the
relevant trustees upon written notice to the shareholders. Similarly, any class
within a Fund may be terminated by vote of at least two-thirds of the
outstanding shares of such class or by the trustees upon written notice.
VOTING RIGHTS
General
As summarized in the Prospectus, shareholders are entitled to one vote
for each full share held (with fractional votes for fractional shares held) and
may vote (to the extent described below) in the election of trustees and the
termination of the Funds and on other matters submitted to the vote of
shareholders.
The Declaration of Trust for each Trust provides that, on any matter
submitted to a vote of all Trust shareholders, all of a Trust's shares entitled
to vote shall be voted together irrespective of series or class unless the
rights of a particular series or class would be adversely affected by the vote,
in which case a separate vote of that series or class shall also be required to
decide the question. Also, a separate vote shall be held whenever required by
the 1940 Act or any rule thereunder. Rule 18f-2 under the 1940 Act provides in
effect that a series or class shall be deemed to be affected by a matter unless
it is clear that the interests of each series or class in the matter are
substantially identical or that the matter does not affect any interest of such
series or class. On matters affecting an individual series or class, only
shareholders of that series or class are entitled to vote.
There will normally be no meetings of shareholders for the purpose of
electing trustees except that in accordance with the 1940 Act (i) each Trust
will hold a meeting of its shareholders for the election of trustees at such
time as less than a majority of the trustees holding office have been elected by
shareholders, and (ii) if, as a result of a vacancy in the Board of Trustees,
less than two-thirds of the trustees holding office have been elected by the
shareholders, that vacancy may only be filled by a vote of the shareholders. In
addition, trustees of the Tax Exempt Fund may be removed from office by a
written consent signed by the holders of two-thirds of the outstanding shares
and filed with the Fund's custodian or by a vote of the holders of two-thirds of
the outstanding shares at a meeting duly called for the purpose, which meeting
shall be held upon the written request of the holders of not less than 10% of
the outstanding shares.
Upon written request by the holders of shares having a net asset value
of $25,000 or constituting 1% of the outstanding shares stating that such
shareholders wish to communicate with the other shareholders for the purpose of
obtaining the signatures necessary to demand a meeting to consider removal of a
trustee, the Tax Exempt Fund has undertaken to provide a list of shareholders or
to disseminate appropriate materials (at the expense of the requesting
shareholders).
Except as set forth above, the trustees shall continue to hold office
and may appoint successor trustees. Voting rights are not cumulative.
No amendment may be made to the Declarations of Trust without the
affirmative vote of a majority of the outstanding shares of the applicable Trust
except (i) to change the name of the Trust or a series thereof or to cure
technical problems in the Declaration of Trust, (ii) to establish and designate
new series or classes of shares, and (iii) to establish, designate or modify new
and existing series or classes of shares or modify other provisions relating to
Trust shares in response to applicable laws or regulations, or, in the case of
the Tax Exempt Fund, in order to convert the Fund into a "series" company. If
one or more new series of either Trust is established and designated by the
trustees, the shareholders having beneficial interests in the Funds described in
the Prospectus and this Statement shall not be entitled to vote on matters
exclusively affecting such new series, such matters
20
<PAGE>
including, without limitation, the adoption of or any change in the investment
objectives, policies or restrictions of the new series and the approval of the
investment advisory contracts of the new series. Similarly, the shareholders of
the new series shall not be entitled to vote on any such matters as they affect
the Funds.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, a Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declarations of Trust disclaim shareholder liability for acts or
obligations of a Fund and require that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by a Trust or
its trustees. The Declarations of Trust provide for indemnification out of the
assets of a Fund for all loss and expense of any shareholder held personally
liable for the obligations of that Fund. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is considered
remote since it is limited to circumstances in which the disclaimer is
inoperative and the Fund itself would be unable to meet its obligations.
The Declarations of Trust further provide that the trustees will not be
liable for errors of judgment or mistakes of fact or law. However, nothing in
the Declarations of Trust protects a trustee against any liability to which the
trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his or her office. The By-Laws of each Trust provide for indemnification by the
Trust of the trustees and the officers of such Trust except with respect to any
matter as to which any such person did not act in good faith in the reasonable
belief that his or her action was in or not opposed to the best interests of the
Trust. Such person may not be indemnified against any liability to the Trust or
its shareholders to which he or she would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office.
OWNERSHIP OF SHARES
At August 1, 1996, there were 675,363,983 shares of the Money Market
Fund, 53,720,046 shares of the Government Fund and 65,243,042 shares of the Tax
Exempt Fund issued and outstanding. One account registered to National Financial
Services Corp. (For the Exclusive Benefit of its Customers), 200 Liberty St., 1
World Financial Center; New York, NY 10281-1003 owned 67,149,508 shares of the
Money Market's Class A shares, about 10.1% of the total Class A shares then
outstanding. Two accounts registered to National Financial Services Corp. (For
the Exclusive Benefit of its Customers), 200 Liberty St., 1 World Financial
Center; New York, NY 10281-1003 and one account registered to Kevin M. Mahony
and Mary S. Mahony, 228 Common St., Belmont, MA 02178-2916 owned 6,621,101 and
3,139,611 Class A shares of the Government Fund, respectively, about 12.6% and
6.0%, respectively, of the Class A shares then outstanding. Seven accounts
registered to Brady Diesel Inc. 401K Savings Plan, P.O. Box 4417, Houma, LA
70361-4417, Smith Barney Inc, 388 Greenwich St., New York, NY 10013-2375, Thomas
Smith Co. Inc. 401K Plan, 288 Grove St. Worcester, MA 01605-3908, Jean Magill
(Guardian, Amy L. Magill), P.O. Box 1673, Snellville, GA 30278-1673, Jean Magill
(Guardian, James C. Magill, Jr.), P.O. Box 1673, Snellville, GA 30278-1673,
Mable Snell, 2145 North Rd., Snellville GA 30278-2630 and Winnie S. Escoe, 2610
Glendale Ct., Conyers, GA 30208-1460 owned 114,612, 105,122, 87,965, 87,699,
87,669, 83,581 and 50,715 Class B shares of the fund, respectively, about 11.8%,
10.8%, 9.0%, 9.0%, 9.0%, 8.6% and 5.2% of the total Class B shares then
outstanding. For the Tax Exempt Fund's Class A shares, there were two accounts
registered to National Financial Services Corp.(For the Exclusive Benefit of its
Customers) and Mark Henkin, 265 East 66th St. #19-C, New York, NY 10021-6406
which owned 12,031,753 and 4,620,279 shares, respectively, about 18.5% and 7.1%
of the fund's Class A shares then outstanding. Five accounts registered to Harry
Graff (Trustee of the Harry Graff Trust DTD 7/27/90), 17 Raven Ln., Gloucester,
MA 01930-4177, Ruth L. Graff (Trustee of the Ruth L. Graff Trust DTD 7/27/90),
17 Raven Ln., Gloucester, MA 01930-4177, Henry S. Belber, 229 Lancaster Ave.,
Devon, PA 19333-1589, National Financial Services Corp.( For the Benefit of
Richard J. Broggi and Ellen Ann Broggi), P.O. Box 366, Bridgewater Hill,
Bridgewater Corners, VT 05035-0366 and Dorothy Kosiba Temple and Raymond Kosiba,
1548 William Peters Rd., Bogalusa, LA 70427-6053 owned 65,166, 65,001, 47,322,
37,318 and 25,000 Class B shares of the fund, respectively, about 18.2%, 18.1%,
13.2%, 10.4% and 7.0%, respectively, of the Class B shares of the fund.
21
<PAGE>
- --------------------------------------------------------------------------------
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
The procedures for purchasing shares of the Funds are summarized in the
Prospectus under the caption "6 Ways to Buy Fund Shares." Shares may also be
purchased either in writing, by phone or by electronic funds transfer, or by
exchange as described in the Prospectus, through firms that have selling
agreements with the Distributor.
Shares of each Fund are offered for sale continuously at their
respective net asset values, which the Funds seek to maintain at a constant $1
per share. See "Net Income, Dividends and Valuation." There is no sales charge.
The minimum initial investment is $1,000, with a $50 minimum for
subsequent investments. There are reduced initial investment minimums for
certain investments described below under "Shareholder Services."
Banks may charge a fee for transmitting funds by wire or through the
Automated Clearing House ("ACH") system. With respect to shares purchased by
federal funds wire, shareholders should bear in mind that wire transfers may
take two or more hours to complete.
A shareholder may purchase additional shares electronically through the
ACH system so long as the shareholder's bank or credit union is a member of the
ACH system and the shareholder has a completed, approved ACH application on
file.
In all instances where checks are sent for the purchase of shares, they must be
drawn on U.S. banks and payable in U.S. dollars.
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
Open Accounts
Except for investors who own shares through certain broker "street name"
or retirement plan arrangements, each shareholder's investment is automatically
credited to a separate open account maintained for the shareholder by the
Distributor, and the shareholder will receive a monthly statement disclosing the
current balance of shares owned in the shareholder's account and the details of
all transactions in that account during the month; however, if there were no
transactions other than dividend declarations during a month, the shareholder
will receive a quarterly statement instead of a monthly statement. After the
close of each calendar year, the Distributor will send the shareholder a
statement for each of his or her accounts providing federal tax information on
dividends and distributions paid during the year including information as to
that percentage, if any, of Tax Exempt Fund dividends that are not exempt from
federal income taxation. Shareholders should retain this as a permanent record.
The Distributor reserves the right to charge a fee for providing duplicate
information.
Automatic Investment Plans
As described in the Prospectus, shareholders may, after opening an
account, authorize automatic monthly transfers of a least $50 from the
shareholder's bank account to purchase shares of a Fund. These transfers are
effected through checks drawn under Investment Builder, a program designed to
facilitate such periodic payments.
Under Investment Builder, funds normally are credited to the Fund not
later than the fourth business day after the check is drawn. An Investment
Builder application must be completed to open an automatic investment plan. An
application is included in the Prospectus or may be obtained from your
investment dealer or from New England Funds by calling 1-800-225-5478. The plan
may be discontinued by written notice to New
22
<PAGE>
England Funds, L.P., which must be received at least five business days prior to
any payment date. The plan may be discontinued by State Street Bank at any time
without prior notice if any check is not paid upon presentation; or by written
notice to shareholders at least thirty days prior to any payment date. State
Street Bank is under no obligation to notify shareholders as to the nonpayment
of any check.
Retirement Plans Offering Tax Benefits - Money Market Fund and Government Fund
The federal tax laws provide for a variety of retirement plans offering
tax benefits. These plans may be funded with shares of the Money Market Fund or
the Government Fund, or with certain other investments. The plans include H.R.
10 (Keogh) plans for self-employed individuals and partnerships, individual
retirement accounts (IRAs), corporate pension and profit sharing plans,
including 401(k) plans, and retirement plans for public school systems and
certain tax exempt organizations (403(b) plans).
Initial investments in either Fund must be at least $250 for each
participant in corporate pension and profit sharing plans, IRAs and Keogh plans
and $50 for subsequent investments. There is a special initial and subsequent
investment minimum of $25 for payroll deduction investment programs for 401(k),
SARSEP, 403(b) and certain other retirement plans. Income dividends and capital
gain distributions will be automatically reinvested (unless the investor is age
59 1/2 or disabled). Plan documents can be obtained from the Distributor.
An investor should consult a competent tax or other adviser as to the
suitability of either Fund's shares as a vehicle for funding a plan, in whole or
in part, under the Employee Retirement Income Security Act of 1974 and as to the
eligibility requirements for a specific plan and its state as well as federal
tax aspects.
Systematic Withdrawal Plans
A shareholder owning shares having a value of $5,000 or more in any Fund
may establish a Systematic Withdrawal Plan providing for periodic payments of a
fixed or variable amount from the shareholder's account. There is no minimum
account size where payments are made directly to The New England or the
Distributor. There is no charge for this service, and the shareholder may
terminate his or her plan at any time. Shareholders can establish the plan on
the account application or obtain a Service Options Form for establishing such a
plan by calling New England Funds at 1-800-225-5478.
Under a Systematic Withdrawal Plan, shareholders may elect to receive or
direct payments monthly, quarterly, semiannually or annually for a fixed amount
of not less than $100 or a variable amount based on (1) a specified percentage
of an account's market value or (2) a specified number of years for liquidating
an account (e.g., a 20-year program of 240 monthly payments would be liquidated
at a monthly rate of 1/240, 1/239, 1/238, etc.). Under a variable payment
option, the initial payment from an account for each Fund must be $100 or more.
In addition, shareholders who have purchased insurance or annuity products of
The New England may elect to have amounts withdrawn from a Fund monthly to pay
the necessary premiums. Withdrawals may be paid to a person other than the
shareholder if a signature guarantee is provided. On Systematic Withdrawal Plans
for accounts subject to a contingent deferred sales charge ("CDSC"), the
redemption of shares will not be subject to a CDSC if the amount or percentage
you specify does not exceed, on an annualized basis, 10% of the value of your
account with the Fund (based on the day you established your Plan). In the case
of Class A and B shares not subject to a CDSC, there is no limit on the
percentage of an account that may be redeemed. Please consult your investment
dealer or New England Funds for additional information.
No share certificates will be issued for an account that is subject to a
Systematic Withdrawal Plan. Income dividends and capital gain distributions will
be reinvested.
Since Systematic Withdrawal Plan payments represent proceeds from the
liquidation of shares, withdrawals may reduce and possibly exhaust the initial
investment, particularly in the event of a period of low earnings. Accordingly,
the shareholder should consider whether a Systematic Withdrawal Plan and the
specified amounts to be withdrawn are appropriate in the circumstances. The
Funds and New England Funds make no recommendations or representations in this
regard. It may be appropriate for the shareholder to consult a tax adviser
before establishing such a Plan. See "Redemptions" and "Tax Status," below, for
certain information as to federal income taxes. New England Funds may modify or
terminate this program at any time.
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<PAGE>
Exchange Privilege
Class A shares of a Fund may be exchanged for shares of either class of
the other Funds and Class B shares of a Fund may be exchanged for Class B shares
of any other Funds, subject to the minimum investment and eligibility
requirements of the Funds into which you are exchanging and state securities law
requirements. Shareholders may also exchange their shares in the Funds for
shares of the same class of any other fund in the New England Funds listed
below, subject to those funds' eligibility requirements and sales charges. Class
A shares of a Fund may also be exchanged for Class C shares of the New England
Stock or Bond Funds, subject to the applicable sales charge. The Stock Funds of
the New England Funds are: New England Capital Growth Fund, New England Value
Fund, New England Balanced Fund, New England Growth Opportunities Fund, New
England International Equity Fund, New England Star Advisers Fund, New England
Star Worldwide Fund, New England Growth Fund and Growth Fund of Israel; the Bond
Funds of the New England Funds are: New England Government Securities Fund, New
England Limited Term U.S. Government Fund, New England Adjustable Rate U.S.
Government Fund, New England Strategic Income Fund, New England Bond Income
Fund, New England High Income Fund, New England Municipal Income Fund, New
England Massachusetts Tax Free Income Fund, New England Intermediate Term Tax
Free Fund of California and New England Intermediate Term Tax Free Fund of New
York.
Shareholders of any of the other funds in the New England Funds may
exchange all or any portion of their shares (including the proceeds of shares of
the other funds redeemed within 120 days before the exchange) for shares of the
same class of the Funds. However, Class A or Class B shares of a Fund acquired
by exchange either from the New England Stock or Bond Funds or another Fund will
be subject to a CDSC if, and to the extent as, the shares exchanged were subject
to a CDSC. Shareholders of Class C shares of the New England Stock or Bond Funds
may exchange those shares only for Class A shares of the Funds. Such exchanges
may be made by telephoning or writing New England Funds or certain investment
dealers. Such an exchange in the case of the Class B shares of the New England
Funds stops the aging period for purposes of determining the CDSC and conversion
to Class A, and the aging resumes only when an exchange is made back into a
non-money market fund in the New England Funds.
Shares of any Fund acquired through an exchange from the New England
Funds listed above may be re-exchanged for shares of the same class of those New
England Funds. Any such exchange will be based on the respective current net
asset values of the shares involved and no sales charge will be imposed.
Shareholders making such exchanges must provide New England Funds with
sufficient information to permit verification of their prior ownership of
shares.
An exchange may be effected, provided that neither the registered name
nor address of the accounts are different and provided that a certificate
representing the shares being exchanged has not been issued to the shareholder,
by (1) a telephone request to New England Funds at 1-800-225-5478 or (2) a
written request to New England Funds, using the Service Options Form available
from your investment dealer. In any event, a current prospectus of the fund
whose shares will be received must be delivered to the shareholder before the
transaction can be completed.
Automatic Exchange Plan
Shareholders may establish an Automatic Exchange Plan under which shares
are automatically redeemed each month and immediately reinvested in shares of
the same class of one or more of the New England Funds listed below, subject to
the investor eligibility requirement of that other fund and the exchange rules
regarding Class A and Class B above. Also, proceeds of automatic redemptions of
Class A shares of the Funds may be reinvested in Class C shares of those New
England Funds' Stock or Bond Funds that offer Class C shares. Registrations on
all accounts must be identical. The two dates each month on which exchanges may
be made are the 15th or 28th (or the first business day thereafter if the 15th
or the 28th are not business days) and are made until the account is exhausted
or until New England Funds is notified in writing to terminate the plan.
Exchanges may be made in amounts of $50 or more from any Fund. A sales charge
will be imposed on such exchanges unless the shares being exchanged were
previously acquired through an exchange from one of the New England Funds listed
below. Complete the account application or the Service Options Form available
from New England Funds to establish an Automatic Exchange Plan.
24
<PAGE>
Every exchange constitutes a sale of fund shares for federal income tax
purposes, on which an investor may realize a long- or short-term capital gain or
loss.
The other New England Funds and their investment objectives are as follows:
Stock Funds:
New England 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.
Growth Fund of Israel 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.
25
<PAGE>
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.
- --------------------------------------------------------------------------------
REDEMPTIONS
- --------------------------------------------------------------------------------
The procedures for redemption of Fund shares are summarized in the
Prospectus following the caption "Selling Fund Shares." As described in the
Prospectus, under "Contingent Deferred Sales Charges," a CDSC may be imposed in
certain instances upon the redemption of Fund shares which were acquired through
an exchange of shares of the New England Funds. For purposes of the CDSC, an
exchange of shares from one Fund to another Fund is not considered a redemption
or purchase. Any applicable CDSC will be calculated in the manner described in
the relevant prospectus of the New England Funds and the related Statement of
Additional Information.
Except as noted below, signatures on redemption requests must be
guaranteed by an "Eligible Guarantor Institution" as defined in Rule 17Ad-15
under the Securities Exchange Act of 1934. Signature guarantees by notaries
public are not acceptable. However, as noted in the Prospectus, a signature
guarantee will not be required if the proceeds of the redemption do not exceed
$100,000 and the proceeds check is made payable to the registered owner(s) and
mailed to the record address.
In order to have redemption proceeds sent to your bank by telephone, you
either must select this service when completing the new account application or
must do so subsequently on the Service Options Form (with a signature
guarantee), available from New England Funds or your investment dealer. When
selecting the service, you must designate a bank account to which the redemption
proceeds should be sent. Any change in the bank account so designated may be
made by furnishing to New England Funds or your investment dealer a completed
Service Options Form with a signature guarantee. Telephone redemptions proceeds
may be wired to a bank account only if the designated bank is a member of the
Federal Reserve System or has a correspondent bank that is a member of the
System. If the account is with a savings bank, it must have only one
correspondent bank that is a member of the System. The Funds, the Distributor
and State Street Bank are not responsible for the authenticity of withdrawal
instructions received by telephone.
In order to redeem shares electronically through the ACH system, a
shareholder's bank or credit union must be a member of the ACH system and the
shareholder must have a completed, approved ACH application on file. In
addition, the telephone request must be received no later than 4:00 p.m.
(Eastern time). Upon receipt of the required information, the appropriate number
of shares will be redeemed and the monies forwarded to the bank designated on
the shareholder's application through the ACH system. The redemption will be
processed the day the telephone call is made and the monies generally will
arrive at the shareholder's bank within three business days. The availability of
these monies will depend on the individual bank's rules.
The redemption price will be the net asset value per share next
determined after the redemption request and any necessary special documentation
are received by New England Funds in proper form. Payment normally will be made
by State Street Bank on behalf of the Fund within seven days thereafter.
However, payment of the redemption proceeds may be delayed if the purchase of
shares was made by a check or an electronic funds transfer, which was deposited
or initiated, respectively, less than ten days prior to the redemption request
(unless the Fund is aware that the check or transfer has cleared).
The Funds will normally redeem shares for cash. However, each of the
Funds reserves the right to pay the redemption price wholly or partly in kind if
the Board of Trustees of the relevant Trust determines it to be
26
<PAGE>
advisable in the interest of the remaining shareholders. If portfolio securities
are distributed in lieu of cash, the shareholder may be unable to sell the
securities for the full value placed on them when held by the Fund and will
probably have to pay a "dealer spread" or other brokerage amounts in order to
liquidate such securities. However, each Trust has elected to be governed by
Rule 18f-1 under the 1940 Act pursuant to which each Fund is obligated to redeem
shares solely in cash for any shareholder during any 90-day period up to the
lesser of $250,000 or 1% of the total net asset value of the Fund at the
beginning of such period.
- --------------------------------------------------------------------------------
NET INCOME, DIVIDENDS AND VALUATION
- --------------------------------------------------------------------------------
Determination of Net Income
The net income of each Fund is determined as of the close of regular
trading on the New York Stock Exchange (the "Exchange") on each day that the
Exchange is open for trading. The Exchange is expected to be closed on the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net income
includes (i) all interest accrued and discount earned on the portfolio
investments of the Fund, minus (ii) amortized premium on such investments, plus
or minus (iii) all realized gains and losses on such investments, and minus (iv)
all expenses of the Fund.
Determination of Yield
Yield. Each Fund's yield, as it may appear in advertisements or written
sales material, represents the net change, exclusive of capital changes, in the
value of a hypothetical account having a balance of one share at the beginning
of the period for which yield is determined (the "base period"). Current yield
for the base period (for example, seven calendar days) is calculated by dividing
(i) the net change in the value of the account for the base period by (ii) the
number of days in the base period. The resulting number is then multiplied by
365 to determine the net income on an annualized basis. This amount is divided
by the value of the account as of the beginning of the base period, normally $1,
in order to state the current yield as a percentage. Yield may also be
calculated on a compound basis ("effective" or "compound" yield) which assumes
continual reinvestment throughout an entire year of net income earned at the
same rate as net income is earned by the account for the base period.
Each Fund's yield for the seven days ended June 30, 1996 and effective
yield based on such seven-day period were, respectively, 4.46% and 4.56% (Money
Market Fund), 4.03% and 4.11% (Government Fund) and 3.08% and 3.13% (Tax Exempt
Fund).
Taxable-Equivalent Yield. The Tax Exempt Fund may also advertise a
taxable-equivalent yield or taxable-equivalent effective yield, calculated as
described above, except that, for any given tax bracket, net investment income
will be calculated using as gross investment income an amount equal to the sum
of (i) any taxable income of the Fund plus (ii) the tax exempt income of the
Fund divided by the difference between 1 and the effective federal income tax
rate for taxpayers in that tax bracket.
Taxable-Equivalent Yield and Taxable-Equivalent
Effective Yield for the 7 day period ended 6/30/96
Federal Taxable-Equivalent Taxable-Equivalent
Tax Rate Yield Effective Yield
15% 3.62% 3.68%
28% 4.28% 4.35%
31% 4.46% 4.54%
36% 4.81% 4.89%
39.6% 5.10% 5.18%
27
<PAGE>
- --------------------------------------------------------------------------------
TAX-FREE INVESTING
- --------------------------------------------------------------------------------
The table below compares taxable and tax-free yields, based on tax rates
for 1996:
<TABLE>
<CAPTION>
Federal
TAXABLE INCOME Marginal
-------------- Tax IF TAX EXEMPT YIELD IS
Joint Single Rate ----------------------
Return Return (1996) 2% 3% 4% 5% 6%
Then the Equivalent Taxable Yield Would Be
<S> <C> <C> <C> <C> <C> <C> <C>
$0 - $40,100 $0 - $24,000 15% 2.35% 3.53% 4.71% 5.88% 7.06%
$40,101 - $96,900 $24,001 - $58,150 28% 2.78% 4.17% 5.56% 6.94% 8.33%
$96,901 - $147,700 $58,151 - $121,300 31% 2.90% 4.35% 5.80% 7.25% 8.70%
$147,701 - $263,750 $121,301 - $263,750 36% 3.13% 4.69% 6.25% 7.81% 9.38%
over $263,751 over $263,751 39.6% 3.31% 4.97% 6.62% 8.28% 9.93%
</TABLE>
The table above does not take into account the effect of state and local
taxes, if any, or federal income taxes on social security benefits which may
arise as a result of receiving tax exempt income.
In General
Yield is calculated without regard to realized and unrealized gains and
losses. The yield of each Fund will vary depending on prevailing interest rates,
operating expenses and the quality, maturity and type of instruments held in the
portfolio of that Fund. Consequently, no yield quotation should be considered as
representative of what the yield of the applicable Fund may be for any future
period. The Funds' yields are not guaranteed.
Shareholders comparing Fund yield with that of alternative investments
(such as savings accounts, various types of bank deposits, and other money
market funds) should consider such things as liquidity, minimum balance
requirements, checkwriting privileges, the differences in the periods and
methods used in the calculation of the yields being compared, and the impact of
taxes on alternative types of investments.
Yield information may be useful in reviewing each Fund's performance and
providing a basis for comparison with other investment alternatives. However,
unlike bank deposits, traditional corporate or municipal bonds or other
investments which pay a fixed yield for a stated period of time, money market
and tax exempt money market fund yields fluctuate.
Daily Dividends
As described in the Prospectus, the net income of each Fund is declared
as a dividend, at the closing of regular trading on the Exchange each day that
the Exchange is open. Dividends will be paid in cash to the shareholder if the
shareholder has notified State Street Bank in writing of the election on or
before payable date. The net income for Saturdays, Sundays and other days on
which the Exchange is closed is declared as a dividend on the immediately
preceding business day. Although the Funds do not expect to realize any
long-term capital gains, if such gains are realized they will be distributed
once a year.
Valuation of the Funds' Portfolio Investments
The total net asset value of each Fund (the excess of the Fund's assets
over its liabilities) is determined by State Street Bank as of the close of
regular trading on the Exchange on each day the Exchange is open for trading.
(See "Determination of Net Income.") The portfolio securities of each Fund are
valued at their fair
28
<PAGE>
value as determined in good faith by the relevant Trust's Board of Trustees or
persons acting at their direction. Under normal market conditions, portfolio
securities will be valued at amortized cost as described below. Expenses of each
Fund are paid or accrued each day.
Under the amortized cost method of valuation, securities are valued at cost on
the date of purchase. Thereafter, the value of securities purchased at a
discount or premium is increased or decreased incrementally each day so that at
maturity the purchase discount or premium is fully amortized and the value of
the security is equal to its principal amount. Due to fluctuations in interest
rates, the amortized cost value of the securities of a Fund may at times be more
or less than their market value.
By using amortized cost valuation, the Funds seek to maintain a constant
net asset value of $1.00 per share despite minor shifts in the market value of
their portfolio securities. The yield on a shareholder's investment may be more
or less than that which would be recognized if the net asset value per share
were not constant and were permitted to fluctuate with the market value of the
portfolio securities of each Fund. However, as a result of the following
procedures, it is believed that any difference will normally be minimal. The
trustees monitor quarterly the deviation between the net asset value per share
of each Fund as determined by using available market quotations and its
amortized cost price per share. Back Bay Advisors(R) makes such comparisons at
least weekly and will advise the trustees promptly in the event of any
significant deviation. If the deviation exceeds 1/2 of 1% for any Fund, the
relevant Board of Trustees will consider what action, if any, should be
initiated to provide fair valuation of the portfolio securities of that Fund and
prevent material dilution or other unfair results to shareholders. Such action
may include redemption of shares in kind; selling portfolio securities prior to
maturity; withholding dividends; or using a net asset value per share as
determined by using available market quotations. There is no assurance that each
Fund will be able to maintain its net asset value at $1.00.
- --------------------------------------------------------------------------------
TAXES
- --------------------------------------------------------------------------------
In General
The tax status of the Funds and the distributions that each Fund may
make are summarized in the text of the Prospectus titled "Income Tax
Considerations." Each Fund intends to qualify as a regulated investment company
under the Code. This means that the Fund is not subject to federal income tax on
net income and net realized capital gains distributed to shareholders provided
it distributes annually substantially all its net investment income and net
realized short-term capital gains.
To avoid certain excise taxes, each Fund must distribute by December 31
each year virtually all of its ordinary income realized in that year, and any
previously undistributed capital gains it realized in the twelve months ended on
October 31 of that year. Certain dividends declared by a Fund in December but
not actually received by you until January will be treated for federal tax
purposes as though you had received them in December.
Money Market Fund and Government Fund
It is not expected that either Fund will realize any long-term capital
gains. However, to the extent that distributions of any net realized long-term
capital gains are made to shareholders of either Fund, such gains are taxable to
such shareholders as long-term capital gains, whether received in cash or
additional shares and regardless of how long shareholders have held their
shares. Such distributions are not eligible for the dividends received deduction
for corporations.
The Money Market Fund and the Government Fund are treated as separate
entities for federal income tax purposes.
Tax Exempt Fund
The Fund intends to have at least 50% of its total assets invested in
Municipal Securities at the close of each quarter of its taxable year so that
dividends paid by the Fund which are derived from interest on Municipal
29
<PAGE>
Securities will be "exempt-interest dividends" within the meaning of the Code.
Exempt-interest dividends may be treated by shareholders as interest excludable
from gross income under Section 103(a) of the Code. Dividends derived from
income which is not exempt from federal income tax, including interest earned on
investments in taxable money market securities or in repurchase agreements and
any net short-term capital gains realized by the Fund, will be taxable to
shareholders as ordinary income whether received in cash or additional shares.
See the Prospectus for information concerning the federal income tax treatment
of interest on "private activity bonds" and certain other limitations on the
tax-exempt status of interest on Municipal Securities.
Net long-term capital gain distributions, if any, will be taxable to
shareholders as long-term capital gains, regardless of the length of time the
shareholder has held shares of the Fund.
None of the Funds' dividends or distributions are expected to be
eligible for the dividends-received deduction available to corporations.
Under the Code, investors may not deduct interest on indebtedness
incurred or continued to purchase or carry shares of an investment company
paying exempt-interest dividends, such as the Fund. (See Section 265(4) of the
Code.) Further, entities or persons who are "substantial users" (or persons
related to "substantial users") of facilities financed by industrial development
bonds (see Appendix A-2) should consult their tax advisers before purchasing
shares of the Fund.
Shareholders are advised to consult their own tax advisers for more detailed
information concerning the federal income taxation of the Fund and the income
tax consequences to its shareholders.
All Funds
The foregoing relates only to federal income taxation of individuals and
corporations. Prospective shareholders should consult their tax advisers as to
the possible application of state and local income tax laws to Fund dividends
and capital gain distributions and the tax consequences of retirement plans
offering tax benefits. Information regarding the tax status of distributions
made by the Funds will be sent to shareholders shortly after the end of each
calendar year.
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Financial Statements of each of the Funds and the related reports of
the independent accountants included in the annual reports of the Funds for the
year ended June 30, 1996, are incorporated herein by reference.
30
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX A
- --------------------------------------------------------------------------------
DESCRIPTION OF CERTAIN NEW ENGLAND CASH MANAGEMENT TRUST INVESTMENTS:
Obligations Backed by Full Faith and Credit of the U.S. Government --
are bills, certificates of indebtedness, notes and bonds issued by (i) the U.S.
Treasury or (ii) agencies, authorities and instrumentalities of the U.S.
Government or other entities and backed by the full faith and credit of the U.S.
Government. Such obligations include, but are not limited to, obligations issued
by the Government National Mortgage Association, the Farmers' Home
Administration and the Small Business Administration.
Other U.S. Government Obligations -- are bills, certificates of
indebtedness, notes and bonds issued by agencies, authorities and
instrumentalities of the U.S. Government which are supported by the right of the
issuer to borrow from the U.S. Treasury or by the credit of the agency,
authority or instrumentality itself. Such obligations include, but are not
limited to, obligations issued by the Tennessee Valley Authority, the Bank for
Cooperatives, Federal Home Loan Banks, Federal Intermediate Credit Banks,
Federal Land Banks and the Federal National Mortgage Association.
Repurchase Agreements -- are agreements by which the Fund purchases a
security (usually a U.S. Government Obligation) and obtains a simultaneous
commitment from the seller (a member bank of the Federal Reserve System or, to
the extent permitted by the 1940 Act, a recognized securities dealer) to
repurchase the security at an agreed upon price and date. The resale price is in
excess of the purchase price and reflects an agreed upon market rate unrelated
to the coupon rate on the purchased security. Such transactions afford an
opportunity for the Fund to earn a return on temporarily available cash at
minimal market risk, although the Fund may be subject to various delays and
risks of loss if the seller is unable to meet its obligation to repurchase.
Certificates of Deposit -- are certificates issued against funds
deposited in a bank, are for a definite period of time, earn a specified rate of
return and are normally negotiable.
Bankers' Acceptances -- are short-term credit instruments used to
finance the import, export, transfer or storage of goods. They are termed
"accepted" when a bank guarantees their payment at maturity.
Yankeedollar Obligations -- obligations of U.S. branches of foreign
banks.
Eurodollar Obligations -- dollar-denominated obligations of foreign
banks (including U.S. and London branches of foreign banks) and foreign branches
of U.S. banks.
Commercial Paper -- refers to promissory notes issued by corporations in
order to finance their short-term credit needs. (See Appendix C.)
Corporate Obligations -- include bonds and notes issued by corporations
in order to finance longer-term credit needs. (See Appendix C.)
- ------------
(1) These obligations, together with related repurchase agreements, are the only
obligations that may be purchased by the U.S. Government Series.
A-1
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX B
- --------------------------------------------------------------------------------
DESCRIPTION OF CERTAIN NEW ENGLAND TAX-EXEMPT MONEY MARKET TRUST INVESTMENTS
The three principal classifications of Municipal Securities are "Notes,"
"Bonds" and "Commercial Paper."
Municipal Notes. Municipal Notes are generally issued to finance
short-term capital needs and generally have maturities of one year or less.
Municipal Notes include:
1. Project Notes. Project Notes are issued by public bodies (called "local
issuing agencies") created under the laws of a state, territory or U.S.
possession. They have maturities that range up to one year from the date of
issuance. These Notes provide financing for a wide range of financial assistance
programs for housing, redevelopment and related needs (such as low-income
housing programs and urban renewal programs). While they are the primary
obligations of the local public housing agencies or the local urban renewal
agencies, they are also backed by the full faith and credit of the U.S.
Government. Accordingly, investment restriction (1) of New England Tax Exempt
Money Market Trust is not applicable to Project Notes. See "Investment
Restrictions."
2. Tax Anticipation Notes. Tax Anticipation Notes are issued to finance working
capital needs of states, counties, municipalities and other public bodies which
have the legal power to tax. Generally, they are issued in anticipation of
various seasonal tax revenues, such as real and personal property, income,
sales, use and business taxes, and are payable from some or all of these
specific future taxes.
3. Revenue Anticipation Notes. Revenue Anticipation Notes are issued to provide
interim financing in expectation of receipt of various types of non-tax revenue,
such as revenues available to the issuer under various federal revenue sharing
programs. In some cases, Revenue Anticipation Notes may be payable additionally
from tax revenues.
4. Bond Anticipation Notes. Bond Anticipation Notes are issued to provide
interim financing until long-term financing can be arranged. In most cases, the
long-term bonds, when sold and issued, then provide the money for repayment of
the Notes.
5. Construction Loan Notes. Construction Loan Notes are sold to provide
construction financing. After successful completion and acceptance, many
projects receive permanent financing through the Federal Housing Administration
under "Fannie Mae" (the Federal National Mortgage Association) or "Ginnie Mae"
(the Government National Mortgage Association) programs.
Municipal Bonds. Municipal Bonds, which meet longer-term capital needs
and generally have maturities of more than one year when issued, have two
principal classifications: General Obligation Bonds and Limited Obligation or
Revenue Bonds. One type of Municipal Revenue Bonds is referred to as Industrial
Development Bonds. These three are discussed below.
1. General Obligation Bonds. Issuers of General Obligation Bonds include states,
counties, cities, towns and regional districts. The proceeds of these
obligations are used to fund a wide range of public projects, including
construction or improvement of schools, highways and roads, and water and sewer
systems. The basic security behind General Obligation Bonds is the issuer's
pledge of its full faith and credit and taxing power for the payment of
principal and interest. General Obligation Bonds are not payable from any
particular fund or source. The characteristics and method of enforcement of
General Obligation Bonds vary according to the law applicable to the particular
issuer and payment may be dependent upon an appropriation by the issuer's
legislative body. The taxes that can be levied for the payment of debt service
may be limited or unlimited as to rate or amount. Such bonds may be additionally
secured by special assessments.
B-1
<PAGE>
2. Limited Obligation or Revenue Bonds. The principal source for repayment of a
Revenue Bond is generally the net revenues derived from a particular facility or
group of facilities or, in some cases, the proceeds of a special excise or other
specific revenue source. Revenue Bonds have been or may be issued to finance a
wide variety of capital projects including: electric, gas, water and sewer
systems; highways, bridges and tunnels; port facilities; colleges and
universities; and hospitals. Although the principal security behind these bonds
may vary, many provide additional security in the form of a debt service reserve
fund whose money may be used to make principal and interest payments on the
issuer's obligations. Housing finance authorities have a wide range of security,
including partially or fully insured mortgages, rent subsidies and/or
collateralized mortgages, and/or the net revenues from housing or other public
projects. Some authorities provide further security in the form of a state's
ability (without obligation) to make up deficiencies in the debt service reserve
fund.
3. Industrial Development Bonds. Prior to the Tax Reform Act of 1986, certain
debt obligations known as Industrial Development Bonds could be issued by or on
behalf of public authorities to raise money to finance various
privately-operated facilities for business and manufacturing, housing, sports
and pollution control; such obligations are included within the term Municipal
Bonds if the interest paid thereon is, in the opinion of bond counsel, exempt
from federal income tax. These bonds also have been or may be used to finance
public facilities, which may be privately used and operated, such as airports,
mass transit systems, ports and parking. The payment of the principal and
interest on such bonds is dependent solely on the ability of the facility's user
to meet its financial obligations and the pledge, if any, of real or personal
property so financed as security for such payment. The Tax Reform Act of 1986
eliminated some types of industrial revenue bonds but retained others under the
general category of "private activity bonds."
Tax-Exempt Commercial Paper. Tax-Exempt Commercial Paper is a short-term
obligation with a stated maturity of 365 days or less. It is issued by agencies
of state and local governments to finance seasonal working capital needs or as
short-term financing in anticipation of longer term financing. Tax-Exempt
Commercial Paper is often renewed or refunded at its maturity by the issuance of
other short or long-term obligations.
Other Types of Municipal Securities. The foregoing describes types of
Municipal Securities which are presently available. New England Tax Exempt Money
Market Trust may, to the extent consistent with its investment objective,
policies and restrictions, invest in other types of Municipal Securities as they
become available in the future.
B-2
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX C
- --------------------------------------------------------------------------------
RATINGS OF CORPORATE AND MUNICIPAL BONDS, COMMERCIAL PAPER AND
SHORT-TERM TAX-EXEMPT OBLIGATIONS
Set forth below are descriptions of the highest ratings of Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's Ratings Group ("S&P") for
corporate and municipal bonds, commercial paper and short-term tax-exempt
obligations. Ratings for commercial paper have been included since certain of
the obligations which the Funds are authorized to purchase have characteristics
of commercial paper and have been rated as such by Moody's and S&P.
MOODY'S RATINGS
Corporate and Municipal Bonds
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
Short-Term Municipal Notes
The two highest ratings of Moody's for short-term municipal notes are MIG-1 and
MIG-2: MIG-1 denotes "best quality, enjoying strong protection from established
cash flows;" MIG-2 denotes "high quality," with margins of protection ample
although not so large as in the preceding group.
Commercial Paper
The rating P-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: (1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by the management
of obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations.
Issuers rated Prime-1 are judged to be of the best quality. Their short-term
debt obligations carry the smallest degree of investment risk. Margins of
support for current indebtedness are large or stable with cash flow and asset
protection well assured. Current liquidity provides ample coverage of near-term
liabilities and unused alternative financing arrangements are generally
available. While protective elements may change over the intermediate or long
term, such changes are most unlikely to impair the fundamentally strong position
of short-term obligations.
C-1
<PAGE>
S&P RATINGS
Corporate and Municipal Bonds
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA -- Bonds rated AA also qualify as high quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
Short-Term Municipal Notes
S&P does not rate short-term municipal notes as such.
Commercial Paper
Commercial paper rated A-1 by S&P has the following characteristics: Liquidity
ratios are adequate to meet cash requirements. Long-term senior debt is rated
"A" or better. The issuer has access to at least two additional channels of
borrowing. Basic earnings and cash flow have an upward trend with allowance made
for unusual circumstances. Typically, the issuer's industry is well established
and the issuer has a strong position within the industry. The reliability and
quality of management are unquestioned. Commercial paper within the A-1 category
which has overwhelming safety characteristics is denoted "A-1+."
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APPENDIX D
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PUBLICATIONS THAT MAY BE REFERRED TO IN FUND ADVERTISEMENTS OR
SALES LITERATURE
ABC and affiliates Fitch Insights
Adam Smith's Money World Forbes
America On Line Fort Worth Star-Telegram
Anchorage Daily News Fortune
Atlanta Constitution Fox Network and affiliates
Atlanta Journal Fund Action
Arizona Republic Fund Decoder
Austin American Statesman Global Finance
Baltimore Sun (the) Guarantor
Bank Investment Marketing Hartford Courant
Barron's Houston Chronicle
Bergen County Record (NJ) INC
Bloomberg Business News Indianapolis Star
B'nai B'rith Jewish Monthly Individual Investor
Bond Buyer Institutional Investor
Boston Business Journal International Herald Tribune
Boston Globe Internet
Boston Herald Investment Advisor
Broker World Investment Company Institute
Business Radio Network Investment Dealers Digest
Business Week Investment Profiles
CBS and affiliates Investment Vision
CFO Investor's Daily
Changing Times IRA Reporter
Chicago Sun Times Journal of Commerce
Chicago Tribune Kansas City Star
Christian Science Monitor KCMO (Kansas City)
Christian Science Monitor News Service KOA-AM (Denver)
Cincinnati Enquirer Los Angeles Times
Cincinnati Post Leckey, Andrew (syndicated column)
CNBC Lear's
CNN Life Association News
Columbus Dispatch Lifetime Channel
CompuServe Miami Herald
Dallas Morning News Milwaukee Sentinel
Dallas Times-Herald Money
Denver Post Money Maker
Des Moines Register Money Management Letter
Detroit Free Press Morningstar
Donoghues Money Fund Report Mutual Fund Market News
Dorfman, Dan (syndicated column) Mutual Funds Magazine
Dow Jones News Service National Public Radio
Economist National Underwriter
FACS of the Week NBC and affiliates
Financial News Network New England Business
Financial Planning New England Cable News
Financial Planning on Wall Street New Orleans Times-Picayune
Financial Research Corp. New York Daily News
Financial Services Week New York Times
Financial World Newark Star Ledger
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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
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APPENDIX E
- --------------------------------------------------------------------------------
CERTAIN INFORMATION THAT MAY BE INCLUDED IN ADVERTISING AND
PROMOTIONAL LITERATURE
References may be included in New England Funds' advertising and
promotional literature to NEIC and its affiliates that perform advisory or
subadvisory functions for New England Funds including, but not limited to: New
England Funds Management, L.P., Back Bay Advisors(R), Loomis, Sayles & Company,
L.P., Capital Growth Management Limited Partnership, Draycott Partners, Ltd. and
Westpeak Investment Advisors, L.P.
References may be included in New England Funds' advertising and
promotional literature to NEIC affiliates that do not perform advisory or
subadvisory functions for the Funds including, but not limited to, New England
Investment Associates, L.P., Copley Real Estate Advisors, L.P., Marlborough
Capital Advisors, L.P., Reich & Tang Capital Management and Reich & Tang Mutual
Funds Group.
References to subadvisers unaffiliated with NEIC that perform
subadvisory functions on behalf of New England Funds may be contained in New
England Funds' advertising and promotional literature including, but not limited
to, Berger Associates, Inc., Janus Capital Corporation, Founders Asset
Management, Inc. and Montgomery Asset Management, L.P.
New England Funds' advertising and promotional material may include, but
is not limited to, discussions of the following information about the above
entities:
[bullet] Specific and general investment emphasis, specialties, competencies,
operations and functions
[bullet] Specific and general investment philosophies, strategies, processes and
techniques
[bullet] 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
[bullet] The corporate histories, founding dates and names of founders of the
entities
[bullet] Awards, honors and recognition given to the firms
[bullet] The names of those with ownership interest and the percentage of
ownership
[bullet] Current capitalization, levels of profitability and other financial
information
[bullet] Identification of portfolio managers, researchers, economists,
principals and other staff members and employees
[bullet] 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
[bullet] Specific identification of, and general reference to, current
individual, corporate and institutional clients, including pension and
profit sharing plans
[bullet] 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
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-asset types managed
-numbers of principal parties and employees, and the length of their
tenure, including officers, portfolio managers, researchers,
economists, technicians and support staff
-the above individuals' total and average number of years of industry
experience and the total and average length of their service to the
adviser or the subadviser
In addition, communications and materials developed by New England Funds
may make reference to the following information about NEIC and its affiliates:
NEIC is the fifth largest publicly traded money manager in the U.S.
listed on the New York Stock Exchange. NEIC maintains over $87 billion in assets
under management. Clients serviced by NEIC and its affiliates, besides New
England Funds, include wealthy individuals, major corporations and large
institutions.
Back Bay Advisors(R) employs a conservative style of management
emphasizing short and intermediate term securities to reduce volatility, adds
value through careful, continuous credit analysis and has expertise in
government, corporate and tax-free municipal bonds and equity securities. Among
its clients are Boston City Retirement System, Public Service Electric & Gas of
New Jersey, Petrolite Corp. and General Mills.
Capital Growth Management Limited Partnership seeks to deliver
exceptional growth for its clients through the selection of stocks with the
potential to outperform the market and grow at a faster rate than the U.S.
economy. Among its approaches are pursuit of growth 50% above the Standard &
Poor's Index of 500 Common Stocks, prompt responses to changes in the market or
economy and aggressive, highly concentrated portfolios.
Loomis, Sayles & Company, L.P. is one of the oldest and largest
investment firms in the U.S. and has provided investment counseling to
individuals and institutions since 1926. Characteristic of Loomis, Sayles &
Company, L.P. is that it has one of the largest staffs of research analysts in
the industry, practices strict buy and sell disciplines and focuses on sound
value in stock and bond selection. Among its clients are large corporations such
as Chrysler, Mobil Oil and Revlon.
Westpeak Investment Advisors, L.P. ("Westpeak") employs proprietary
research and a disciplined stock selection process that seeks rigorously to
control unnecessary risk. Its investment process is designed to evaluate when
value and growth styles two primary approaches to stock investing - hold
potential for reward. Over seventy fundamental attributes are continuously
analyzed by Westpeak's experienced analysts and sophisticated computer systems.
The results are assessed against Wall Street's consensus thinking, in pursuit of
returns in excess of appropriate benchmarks. The value/growth strategy is a
unique blend of investment styles, seeking opportunities for increased return
with reduced risk. Among the keys to Westpeak's investment process are
continuous review of timely, accurate data on over 3600 companies, analysis of
dozens of factors for excess return potential and identification of overvalued
and undervalued stocks.
Harris Associates L.P. is a Chicago-based investment management company
with more than $9.5 billion in assets under management, including the $5.4
billion Oakmark Fund Group and $4.1 billion in multi-manager partnerships,
individual accounts and institutional assets. Harris Associates L.P.'s
investment philosophy is predicated on the belief that over time market price
and value converge and that investment in securities prices significantly below
long-term value presents the 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:
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<PAGE>
[box] Specific and general references to industry statistics regarding 401(k)
and retirement plans including historical information and industry trends
and forecasts regarding the growth of assets, numbers of plans, funding
vehicles, participants, sponsors and other demographic data relating to
plans, participants and sponsors, third party and other administrators,
benefits consultants and firms including, but not limited to, DC Xchange,
William Mercer and other organizations involved in 401(k) and retirement
programs with which New England Funds may or may not have a relationship.
[box] 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.
[box] Specific and general discussion of economic, legislative and other
environmental factors affecting 401(k) and retirement plans, including but
not limited to, statistics, detailed explanations or broad summaries of:
-past, present and prospective tax legislation and IRS requirements and
rules, including, but not limited to, reporting standards, minimum
distribution notices, Forms 5500, Form 1099R and other relevant forms and
documents, Department of Labor rules and standards and other regulations.
This includes past, current and future initiatives, interpretive releases
and positions of regulatory authorities about the past, current or future
eligibility, availability, operations, administration, structure,
features, provisions or benefits of 401(k) and other retirement plans
-information about the history, status and future trends of Social
Security and similar government benefit programs including, but not
limited to, eligibility and participation, availability, operations and
administration, structure and design, features, provisions, benefits and
costs
-current and prospective ERISA regulations and requirements.
[box] 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.
[box] Specific and general reference to the benefits of investing in mutual
funds for 401(k) and retirement plans, and, in particular, New England
Funds and its 401(k) and retirement plan offerings, including but not
limited to:
-the significant economies of scale experienced by mutual fund companies
in the 401(k) and retirement benefits arena
-broad choice of investment options and competitive fees
-plan sponsor and participant statements and notices
E-3
<PAGE>
-the plan prototype, summary descriptions and board resolutions
-plan design and customized proposals
-trusteeship, record keeping and administration
-the services of State Street Bank, including but not limited to, trustee
services and tax reporting
-the services of DST Systems, Inc. and BFDS, including but not limited to
mutual fund processing support, participant 800 numbers and participant
401(k) statements
-the services of Trust Consultants Inc., including but not limited to,
sales support, plan record keeping, document service support, plan
sponsor support, compliance testing and Form 5500 preparation.
[box] Specific and general reference to the role of the investment dealer and
the benefits and features of working with a financial professional
including:
-access to expertise on investments
-assistance in interpreting past, present and future market trends and
economic events
-providing information to clients, including participants, during
enrollment and on an ongoing basis after enrollment
-promoting and understanding the benefits of investing, including mutual
fund diversification and professional management.
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