<PAGE>
Registration Nos. 2-81614
811-3658
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ____ [ ]
Post-Effective Amendment No. 25 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY [X]
ACT OF 1940
Amendment No. 26 [X]
(Check appropriate box or boxes)
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NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST
(Exact Name of Registrant as Specified in Charter)
399 Boylston Street, Boston, Massachusetts 02116
(Address of Principal Executive Offices, including Zip Code)
(617) 578-1669
(Registrant's Telephone Number, including Area Code)
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Robert E. O'Hare
New England Funds, L.P.
399 Boylston Street
Boston, Massachusetts 02116
(Name and Address of Agent for Service)
Copy to:
John Loder, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
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It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on September 1, 1998 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST
(Prospectus and Statement of Additional Information)
CROSS REFERENCE SHEET
Items required by Form N-1A
Item No. of
Form N-1A Caption in Prospectus
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1 . . . . . . . . . Cover page
2 . . . . . . . . Schedule of Fees
3 . . . . . . . . Financial Highlights; Fund Yields; Additional
Facts about the Funds
4 . . . . . . . . Investment Objectives; How the Funds Pursue
Their Objectives; Fund Investments; Investment
Risks; Additional Facts about the Funds
5 . . . . . . . . Fund Management; Back Cover Page
6 . . . . . . . . Cover Page; Minimum Investment; 6 Ways to Buy
Fund Shares; Fund Dividend Payments; Income Tax
Considerations; Additional Facts about the
Funds
7 . . . . . . . . Cover page; 6 Ways to Buy Fund Shares;
Exchanging Among New England Funds; Back Cover
Page
8 . . . . . . . . 5 Ways to Sell Fund Shares
9 . . . . . . . . None
<PAGE>
Item No. of Caption in Statement of
Form N-1A Additional Information
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10 . . . . . . . . . Cover page
11 . . . . . . . . . Table of Contents
12 . . . . . . . . . Not Applicable
13 . . . . . . . . . Investment Objectives and Policies; Investment
Restrictions
14 . . . . . . . . . Management of the Funds
15 . . . . . . . . . Description of the Funds and Ownership of
Shares
16 . . . . . . . . . Investment Advisory, Distribution and Other
Services
17 . . . . . . . . . Portfolio Transactions
18 . . . . . . . . . Description of the Funds and Ownership of
Shares
19 . . . . . . . . . Purchase of Shares; Shareholder Services;
Redemptions; Net Income, Dividends and
Valuation; Taxes
20 . . . . . . . . . Net Income, Dividends and Valuation; Taxes
21 . . . . . . . . . Investment Advisory and Other Services
22 . . . . . . . . . Net Income, Dividends and Valuation; Taxes
23 . . . . . . . . . Financial Statements and Report of Independent
Accountants
<PAGE>
[LOGO](R)
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
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NEW ENGLAND CASH MANAGEMENT TRUST
MONEY MARKET SERIES
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST
(THE "FUNDS," AND EACH A "FUND")
PROSPECTUS AND APPLICATION -- September 1, 1998
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.
New England Cash Management Trust - Money Market Series offers three classes of
shares (Classes A, B and C) to the general public. New England Tax Exempt Money
Market Trust offers Classes A and B only. Class A, Class B and Class C shares
are offered at net asset value; however, under conditions described below, a
contingent deferred sales charge (a "CDSC") is 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." Through a separate Prospectus, New England Cash
Management Trust -- Money Market Series also offers an additional class of
shares, Class Y shares, to certain institutional investors. To obtain more
information about Class Y shares, please call New England Funds, L.P. (the
Distributor) toll-free at 1-800-225-5478.
You can find more detailed information about the Funds in the Statement of
Additional Information (the "Statement") dated September 1, 1998, 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., 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. The SEC maintains a Web site (http://sec.gov)
that contains the Statement, material incorporated by reference and other
information regarding the Funds.
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 NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
<TABLE>
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TABLE OF CONTENTS
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Page
<S> <C> <C>
FUND EXPENSES AND FINANCIAL INFORMATION
1 Schedule of Fees Sales charges, yearly operating expenses.
2 Financial Highlights Historical information on the Funds' performance.
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INVESTMENT STRATEGY
4 Investment Objectives The investment goal for each Fund.
4 Nvest Companies and the Funds' Adviser and The Funds' adviser and subadviser are affiliates of
Subadviser. Nvest Companies.
4 How The Funds Pursue Their Objectives
4 Fund Investments Descriptions of the types of securities in which
each Fund invests.
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6 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.
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7 FUND MANAGEMENT Information about the Funds' adviser and
subadviser.
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BUYING FUND SHARES
8 Minimum Investment Everything you need to know to open and add to
8 6 Ways to Buy Fund Shares a New England Funds account.
[] Through your investment dealer
[] By mail
[] By wire transfer of Federal Funds
[] By Investment Builder
[] By electronic purchase through ACH
[] By exchange from another New England Fund
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OWNING FUND SHARES
10 Exchanging Among New England Funds New England Funds offers three convenient ways to
exchange Fund shares.
11 Fund Dividend Payments
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SELLING FUND SHARES
13 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
15 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.
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FUND DETAILS
16 Fund Yields Additional information you may find important.
16 Income Tax Considerations
17 Additional Facts About The Funds
</TABLE>
<PAGE>
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FUND EXPENSES AND FINANCIAL INFORMATION
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SCHEDULE OF FEES
Expenses are one of several factors to consider when you invest in the Funds.
The following tables summarize 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 TAX
MANAGEMENT TRUST -- EXEMPT MONEY
MONEY MARKET SERIES MARKET TRUST
CLASS A CLASS B CLASS C CLASS A CLASS B
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<S> <C> <C> <C> <C> <C>
Maximum Initial Sales Charge Imposed
on a Purchase ...................... None None None None None
Maximum Contingent Deferred Sales
Charge ............................. None* None* None* None* None*
* Shares of each class are sold without any sales charge. However, Class A, Class B and Class C 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)
<CAPTION>
NEW ENGLAND
NEW ENGLAND CASH TAX
MANAGEMENT TRUST -- EXEMPT MONEY
MONEY MARKET SERIES MARKET TRUST
CLASS A CLASS B CLASS C CLASS A CLASS B
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Management Fees (after voluntary fee
waiver where indicated) .............. 0.42% 0.42% 0.42% 0.20%(1) 0.20%(1)
12b-1 Fees ............................. None None None None None
Other Expenses (after voluntary fee
waiver where indicated) .............. 0.42% 0.42% 0.42% 0.45% 0.45%
Total Fund Operating Expenses (after
voluntary fee waiver where indicated) 0.84% 0.84% 0.84% 0.65%(1) 0.65%(1)
(1) 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 0.85% for 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."
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.
<CAPTION>
NEW ENGLAND
NEW ENGLAND CASH TAX
MANAGEMENT TRUST -- EXEMPT MONEY
MONEY MARKET SERIES MARKET TRUST
CLASS A CLASS B CLASS C CLASS A CLASS B
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<S> <C> <C> <C> <C> <C>
(1) (1)
1 year ................................. $ 9 $ 9 $ 9 $ 7 $ 7
3 years ................................ $ 27 $ 27 $ 27 $21 $21
5 years ................................ $ 47 $ 47 $ 47 $36 $36
10 years ............................... $104 $104 $104 $81 $81
(1) Assumes CDSC does not apply to the redemption.
</TABLE>
The purpose of this fee schedule is to help you understand the various costs
and expenses that you will bear directly or indirectly if you invest in 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.
<PAGE>
FINANCIAL HIGHLIGHTS
(For Class A, B and C shares of New England Cash Management Trust - Money
Market Series and for Class A and B shares of New England Tax Exempt Money
Market Trust outstanding throughout the indicated periods.)
The Financial Highlights presented on pages 2 through 3 have been included in
financial statements for the Funds. The financial statements have been
examined by PricewaterhouseCoopers LLP, independent accountants, whose reports
thereon, which were unqualified, are incorporated by reference in the
Statement and can be obtained by shareholders. 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
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
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1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning
of period ........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income ........... 0.0816 0.0801 0.0693 0.0450 0.0275 0.0264 0.0469 0.0482 0.0467 0.0488
Net gains or losses
on securities
(both realized and
unrealized) ...... 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0002 0.0000 0.0000
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total income from
investment
operations ....... 0.0816 0.0801 0.0693 0.0450 0.0275 0.0264 0.0469 0.0484 0.0467 0.0488
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Dividends (from net
investment income) (0.0816) (0.0801) (0.0693) (0.0450) (0.0275) (0.0264) (0.0469) (0.0484)(a) (0.0465) (0.0488)
Distributions (from
net realized
capital gains) ... 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 (0.0002) 0.0000
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.0816) (0.0801) (0.0693) (0.0450) (0.0275) (0.0264) (0.0469) (0.0484) (0.0467) (0.0488)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end
of period ........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total return (%) ... 8.45 8.29 7.15 4.58 2.84 2.68 4.79 4.95 4.77 4.99
RATIOS/SUPPLEMENTAL
DATA
Net assets, end of
period (000) ..... $984,246 $1,140,852 $1,150,963 $925,077 $775,914 $699,369 $649,808 $663,621 $698,659 $607,406
Ratio of expenses to
average net assets
(%) .............. 0.72 0.67 0.68 0.73 0.79 0.84 0.88 0.90 0.88 0.84
Ratio of net income
to average net
assets (%) ....... 8.21 8.00 6.92 4.56 2.78 2.65 4.67 4.85 4.66 4.88
(a) Including net realized gain on investments.
</TABLE>
<PAGE>
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning
of period ........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income ........... 0.0541 0.0544 0.0483 0.0337 0.0214 0.0208 0.0314 0.0327 0.0314 0.0323
Net gains or losses
on securities
(both realized and
unrealized) ...... 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0001 0.0000
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total income from
investment
operations ....... 0.0541 0.0544 0.0483 0.0337 0.0214 0.0208 0.0314 0.0327 0.0315 0.0323
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Dividends (from net
investment income) (0.0541) (0.0544) (0.0483) (0.0337) (0.0214) (0.0208) (0.0314) (0.0327) (0.0315)(a) (0.0323)
Distributions (from
net realized
capital gains) ... 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 (0.0000)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.0541) (0.0544) (0.0483) (0.0337) (0.0214) (0.0208) (0.0314) (0.0327) (0.0315) (0.0323)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end
of period ........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total return (%) ... 5.53 5.56 4.93 3.41 2.20 2.10 3.18 3.32 3.20 3.28
RATIOS/SUPPLEMENTAL
DATA
Net assets, end of
period (000) ..... $65,433 $68,287 $72,634 $65,753 $56,555 $66,620 $67,797 $64,897 $67,736 $73,798
Ratio of expenses to
average net
assets (%)(b) .... 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.56 0.60
Ratio of net income
to average net
assets (%) ....... 5.41 5.42 4.81 3.38 2.14 2.08 3.15 3.29 3.17 3.23
(a) Including net realized gain on investments.
(b) 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 0.74%, 0.76%, 0.76%, 0.76%, 0.83%, 0.89%, 0.85%, 0.90%, 0.85% and 0.85%
for the years ended June 30, 1989, 1990, 1991, 1992, 1993, 1994, 1995, 1996, 1997 and 1998, respectively.
</TABLE>
<PAGE>
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INVESTMENT STRATEGY
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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 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."
INVEST COMPANIES AND THE FUNDS' ADVISER AND SUBADVISER
The investment adviser and subadviser of each of the Funds are independently
operated subsidiaries of Nvest Companies, L.P. ("Nvest Companies"), which is
part of an affiliated group including Nvest, L.P., a publicly traded company,
listed on the New York Stock Exchange and through its subsidiaries or an
affiliate manages over $135 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"), subadviser of each of the
Funds, manages over $8 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., 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 New England Cash Management Trust's trustees.
[] 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:
-- 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");
-- 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
-- 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 New
England Tax Exempt Money Market Trust's trustees, subject to any limitations
imposed by Rule 2a-7 under the Investment Company Act of 1940, as amended.
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 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 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 Fund will not be able to
invest in the full range of issues available in the Municipal Securities
market. The 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 Fund may also invest some of its assets in cash or taxable, high-quality
money market securities eligible for purchase by the Money 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 generally.
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.
[] BOTH 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 Trusts'
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.
- --------------------------------------------------------------------------------
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, 399 Boylston Street, Boston, Massachusetts 02116, is the
subadviser of each 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 a total of over $8
billion of assets, primarily mutual fund and institutional fixed-income
portfolios.
The transfer and dividend paying agent for the Funds is New England Funds
Service Corporations ("NEFSCO"), 399 Boylston Street, Boston, Massachusetts
02116. NEFSCO has subcontracted certain of its obligations as such to State
Street Bank and Trust Company ("State Street Bank"), 225 Franklin Street,
Boston, Massachusetts 02110.
The general partners of Back Bay Advisors, NEFM, and the Distributor, and the
sole shareholder of NEFSCO, are special purpose corporations that are
indirect, wholly-owned subsidiaries of Nvest Companies. Nvest Companies'
managing sole general partner, Nvest Corporation is an indirect, wholly-owned
subsidiary of Metropolitan Life Insurance Company ("MetLife"), a mutual life
insurance company. MetLife owns in the aggregate, directly and indirectly,
approximately 47% of the outstanding limited partnership interests in Nvest
Companies. Nvest Companies' advising general partner, Nvest, L.P., is a
publicly-traded company listed on the New York Stock Exchange. Nvest
Corporation is the sole general partner of Nvest, L.P.
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 and sell 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.
Each Fund pays NEFM a management fee at an annual rate set forth in the
following table, reduced by the amounts of any subadvisory fee payable by the
Fund to Back Bay Advisors (as described below).
PERCENTAGE OF AVERAGE DAILY NET ASSETS
OF THE FUND MANAGEMENT FEE PAID BY
FUND TO NEFM (AS A PERCENTAGE OF
FUND AVERAGE DAILY NET ASSETS OF THE FUND)
---- --------------------------------------
Money Market Fund 0.425% of the first $500 million
0.400% of the next $500 million
0.350% of the next $500 million
0.300% of the next $500 million
0.200% of amounts in excess of $2
billion
Tax Exempt Fund 0.400% of million the first $100
million
0.300% of amounts in excess of $100
million
Each Fund pays Back Bay Advisors a subadvisory fee at an annual rate set forth
in the following table:
SUBADVISORY FEE PAYABLE TO BACK BAY
ADVISORS (AS A PERCENTAGE OF THE
FUND AVERAGE DAILY NET ASSETS OF THE FUND)
---- --------------------------------------
Money Market Fund 0.205% of the first $500 million
0.180% of the next $500 million
0.160% of the next $500 million
0.140% of the next $500 million
0.120% of amounts in excess of $2
billion
Tax Exempt Fund 0.20% of the first $100 million
0.15% of amounts in excess of $100
million
In addition to the management fees paid to NEFM and the subadvisory fees paid
to Back Bay Advisors, 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
each agreed to proportionately reduce their fees and, if necessary, to bear
certain expenses associated with operating the Fund (not including fees
payable to the trustees of the Tax Exempt Fund who are not "interested
persons" thereof) to the extent necessary in order to limit those fees and
expenses to an annual rate of 0.65% 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.
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BUYING FUND SHARES
- --------------------------------------------------------------------------------
MINIMUM INVESTMENT
$2,500 is the minimum for an initial investment in a Fund, and $100 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, SEP, SIMPLE Plans, 403(b)(7) retirement plans
and certain other retirement plans.
[] $100 on initial and subsequent investments for automatic investing through
the Investment Builder program.
[] $250 on initial and $100 on subsequent investments for retirement plans with
tax benefits such as corporate pension and profit sharing plans and Keogh
plans.
[] $500 on initial and $100 on subsequent investments for IRAs.
[] $2,000 on initial and $100 on subsequent investments for accounts registered
under the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act.
6 WAYS TO BUY FUND SHARES
The Money Market Fund offers four classes of shares, Class A, Class B, Class
C, and Class Y, and the Tax Exempt Fund offers two classes of shares, Class A
and Class B, in order to enable investors in these classes 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, New England Star Small Cap Fund, New
England Capital Growth Fund, New England Value Fund, New England Growth
Opportunities Fund, New England Balanced Fund, New England Equity Income Fund
and, New England Bullseye 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 Tax Free Income
Fund of New York (formerly, 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:
USING NEW ENGLAND FUNDS PERSONAL ACCESS
LINE(TM) 1-800-346-5984
NEW ENGLAND FUNDS PERSONAL ACCESS
LINE(TM), NEW ENGLAND FUNDS' AUTOMATED
SERVICE SYSTEM, GIVES YOU 24-HOUR ACCESS
TO YOUR ACCOUNT. THROUGH YOUR TOUCH-
TONE TELEPHONE, YOU CAN RECEIVE YOUR
ACCOUNT BALANCE, YOUR RECENT
TRANSACTIONS, FUND PRICES AND RECENT
PERFORMANCE INFORMATION. YOU CAN ALSO
PURCHASE, SELL OR EXCHANGE CLASS A
SHARES OF ANY NEW ENGLAND FUND. FOR MORE
INFORMATION ABOUT NEW ENGLAND FUNDS
PERSONAL ACCESS LINE(TM), CALL US AT
1-800-225-5478 BETWEEN 8:00 A.M. AND
7:00 P.M. (EASTERN TIME).
[Graphic Omitted] THROUGH YOUR INVESTMENT DEALER:
Many investment dealers have a sales agreement with the Distributor and would
be pleased to accept your order.
[Graphic Omitted] 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.
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 between 8:00 a.m. and 7:00 p.m. (Eastern time).
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 a minimum of ten
calendar days.
[Graphic Omitted] 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 Funds are 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 Funds are open for business. Your bank may charge a fee for this service.
[Graphic Omitted] BY INVESTMENT BUILDER:
By Investment Builder is New England Funds' automatic investment plan. You may
authorize automatic monthly transfers of $100 or more from your bank checking
or savings account to purchase shares of one or more New England Funds.
FOR AN INITIAL INVESTMENT, please indicate that you would like to begin an
automatic investment plan through Investment Builder on the enclosed
application. Indicate the amount of the monthly investment and enclose a check
marked "Void" or a deposit slip from your bank account.
TO ADD INVESTMENT BUILDER TO AN EXISTING ACCOUNT, please call us at
1-800-225-5478 for a Service Options Form.
TO MAKE INVESTING EVEN EASIER, YOU CAN ALSO ORDER
PERSONALIZED INVESTMENT SLIPS BY CALLING
1-800-225-5478 BETWEEN 8:00 A.M. AND 7:00 P.M.
(EASTERN TIME).
[Graphic Omitted] BY ELECTRONIC PURCHASE THROUGH ACH:
You may purchase additional shares electronically through the Automated
Clearing House ("ACH") system as long as your bank or credit union is a member
of the ACH system and you have a completed, approved ACH application on file
with the Fund.
To purchase through ACH, call 1-800-225-5478 between 8:00 a.m. and 7:00 p.m.
(Eastern time) on a day when the Funds are open for business. You may also
purchase shares through ACH by calling New England Funds Personal Access Line
(TM) 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 New England Funds Personal Access
Line(TM) 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.
[Graphic Omitted] 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 (or, under limited circumstances, such other times as may be
agreed upon the dealer and the Distributor) 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 shareholder features may not be available to
persons whose shares are held in street name accounts.
You will not receive any certificates for your Class A shares unless you
request them in writing from New England Funds, L.P. (the "Servicing Agent").
The Funds' "open account" system for recording your investment eliminates the
problems and expense of handling and safekeeping certificates. Certificates
will not be issued for Class B or Class C shares. If you wish transactions in
your account to be effected by another person under a power of attorney from
you, special rules apply. Please contact your investment dealer or the
Distributor for details.
- --------------------------------------------------------------------------------
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 the other Fund described in this prospectus
with no sales charge, or 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
either Fund described in this prospectus or for Class C shares of the Money
Market Fund with no sales charge. Class A, Class B or Class C 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 on the
basis of relative net asset value plus the sales charge applicable to initial
purchases of Class A shares of the Stock or Bond Fund into which you are
exchanging, or (ii) for Class B or Class C 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.
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
as described in the remainder of this paragraph, but may not be exchanged for
Class B or Class C shares of the Stock and 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 (the
"California Fund") may be exchanged for Class A shares of another Stock or
Bond Fund at net asset value only if you held the California Fund shares for
at least six months; otherwise, you will pay the difference between any sales
charge you have already paid on your California Fund shares and the higher
sales charge of the Stock or Bond Fund into which you are exchanging; 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 SUBJECT TO
THE APPROPRIATE SALES CHARGE OR CDSC.
THE MINIMUM MONTHLY EXCHANGE AMOUNT
UNDER THE PLAN IS $100. 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 the 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."
CLASS C SHARES
Class C shares of the Money Market Fund may be exchanged for Class C shares of
any of the Stock or Bond Funds which offer Class C shares 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, the holding period of any Class C Stock or
Bond Fund shares that were exchanged for Class C shares of the Money Market
Fund is included, but the holding period of the Class C shares of the Money
Market 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 Funds are open for business, write to
New England Funds or call New England Funds Personal Access Line(TM) at
1-800-346-5984 twenty-four hours a day. Exchange requests after 4:00 p.m.
(Eastern time), or after the Exchange closes if it closes earlier than 4:00
p.m., will be processed at the net asset value determined at the close of
regular trading on the next day the Exchange is open. The exchange must be for
a minimum of $1,000 (or the total net asset value of your account, whichever
is less), except that, under the Automatic Exchange Plan, the minimum is $100.
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 an exchange into a
Stock or Bond Fund, you must obtain and carefully read 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
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.
MARKET TIMER RESTRICTIONS. Purchases and exchanges into the Funds should be
made for investment purposes only. The Funds and the Distributor reserve the
right to refuse or limit any purchase or exchange order by a particular
purchaser (or group of related purchasers) when such transaction is deemed
harmful to the best interests of the Fund's other shareholders or would
disrupt the management of the Fund. Without limiting the generality of the
foregoing, the Funds and the Distributor reserve the right to restrict (e.g.,
by limiting to a specified maximum dollar amount) purchases and exchanges for
the account of "market timers." An account will be deemed to be the account of
a market timer if (i) more than two exchange purchases of a given Fund are
effected for the account in a calendar quarter or (ii) the account effects one
or more exchange purchases of a given Fund in a calendar quarter in an
aggregate amount in excess of 1% of the Fund's total net assets.
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, which 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 Fund 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 and Class C shareholders, shares
acquired through this program will be subject to a CDSC if they are redeemed
from the account. This program is subject to any 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SELLING FUND SHARES
- --------------------------------------------------------------------------------
5 WAYS TO SELL FUND SHARES
You may sell shares of the Funds in the following ways:
[Graphic Omitted] THROUGH YOUR INVESTMENT DEALER:
Call your authorized investment dealer for information.
[Graphic Omitted] 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 Funds are open for business. Class A shares only may also be redeemed
by calling New England Funds Personal Access Line(TM) 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 -- All 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 Funds are 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 Funds are 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 New England Funds
Personal Access Line(TM) 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 New England
Funds Personal Access Line(TM) 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.
[Graphic Omitted] 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.
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.
[Graphic Omitted] 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. The checkwriting privilege does not apply to shares for
which you have requested share certificates to be issued. Checkwriting is not
available for investor accounts containing Class A shares subject to a CDSC.
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.
[Graphic Omitted] BY SYSTEMATIC WITHDRAWAL PLAN:
You may establish a Systematic Withdrawal Plan which 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 (or, under limited
circumstances, such other time as may be agreed upon between the dealer and the
Distributor) 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
ten 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 held in certificate form. If certificates have been issued for
your investment, you must send them to New England Funds along with your
request before a redemption request can be honored. See the instructions for
redemption by mail above.
The 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 net assets, or during any other period permitted by the SEC for the
protection of investors.
The funds reserve the right to suspend account services or refuse transaction
requests when notice has been received of a dispute between the registered or
beneficial owners of an account or there is suspicion or evidence that a
fraudulent act may results.
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. If such
shares are exchanged for Class B shares of a Stock or Bond Fund rather than
redeemed, then the Class B Stock or Bond Fund shares will continue to be
subject to a CDSC during the applicable period. 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 schedule for Class B Stock
on Bond Fund shares may depend on when the shares were originally purchased.
Investors are referred to the prospectus of the relevant Stock or Bond Fund
for a description of the applicable CDSC. Class C shares of the Money Market
Fund will be subject to a CDSC upon redemption if the shares were acquired by
exchange of Class C shares of a Stock or Bond Fund which were subject to a
CDSC at the time of exchange. If such shares are exchanged for Class C shares
of a Stock or Bond Fund rather than redeemed, then the Class C Stock or Bond
Fund shares will continue to be subject to a CDSC during the applicable
period. The time that Class C shares of the Money Market Fund are held is not
included in the holding period used to determine the CDSC. For Class C Stock
or Bond Fund shares purchased on or after March 1, 1998, a 1% CDSC applies to
redemptions made within the first 12 months following the purchase date.
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
- --------------------------------------------------------------------------------
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 New England Funds Personal Access Line(TM) 24 hours a
day at 1-800-346-5984.
INCOME TAX CONSIDERATIONS
As long as a Fund distributes substantially all its net investment income, net
tax-exempt 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 (generally taxes at a 20 percent tax
rate for noncorporate shareholders), whether received in cash or additional
shares and regardless of how long you have held your shares. Some 1998
distributions of gain realized in 1997 may be subject to tax at a 28 percent
rate. 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 gain net income it realized in the twelve
months ending October 31 of that year. Certain dividends declared by a Fund in
October, November or 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. You should
consult your tax adviser about any state or local taxes that may apply to such
distributions. BE SURE TO KEEP THIS STATEMENT AS A PERMANENT RECORD. A FEE MAY
BE CHARGED FOR ANY DUPLICATE INFORMATION REQUESTED.
The Money Market Fund is required to withhold 31% of all income dividends and
capital gain distributions it pays to you and 31% of gross proceeds of Fund
shares you redeem if (i) you do not provide a correct, certified taxpayer
identification number, (ii) the Fund is notified that you have underreported
income in the past, or (iii) you fail to certify to the Fund that you are not
subject to such federal back-up withholding. In addition, the Money Market
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. If you are a tax-exempt shareholder, however, these backup withholding
rules will not apply so long as you furnish the Fund with an appropriate
certification. Similar withholding requirements apply to the Tax Exempt Fund,
except that such requirements will not apply to dividends from the Tax Exempt
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
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. THE FUND INTENDS TO ADVISE SHAREHOLDERS OF THE
PROPORTION OF ITS DIVIDENDS DERIVED FROM SUCH INTEREST. BEFORE INVESTING IN
THE 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 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 $1,000 for all accounts,
except for those indicated below), 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, automatic investment plans, or accounts established in conjunction
with New England Securities Brokerage Services.
[] Each Trust offers only its own shares for sale. In some circumstances, a
Trust might be held liable to shareholders of the other Trust for
misstatements, if any, contained in this combined prospectus. The trustees of
the Trusts 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. Shareholders of a Trust may remove the
trustees of that Trust from office by votes cast at a shareholder meeting or
by written consent.
[] The Money Market Fund is a 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 semiannual 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.
[] The Class A, Class B, Class C and Class Y 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.
[recycle symbol] Printed on Recycled Paper XM51-0898
<PAGE>
NEW ENGLAND CASH MANAGEMENT TRUST
MONEY MARKET SERIES
SUPPLEMENT DATED SEPTEMBER 1, 1998 TO THE NEW ENGLAND CASH MANAGEMENT TRUST
MONEY MARKET SERIES PROSPECTUS FOR CLASS Y SHARES DATED JANUARY 23, 1998.
The date of the Prospectus is changed to September 1, 1998. The date of the
Statement of Additional Information is changed to September 1, 1998.
THE THIRD PARAGRAPH OF THE COVER PAGE IS REVISED TO READ AS FOLLOWS:
The Fund offers four classes of shares: Class Y (for qualified institutional
investors) and Classes A, B and C shares for other investors. Class Y shares are
offered at net asset value, without a sales charge or a contingent deferred
sales charge (a 'CDSC").
THE ANNUAL FUND OPERATING EXPENSES AND EXPENSE TABLES IN THE "SCHEDULE OF FEES"
SECTION ARE REVISED TO READ AS FOLLOWS:
Annual Fund Operating Expenses New England Cash Management
(as a percentage of average net assets) Trust Money Market Series
Class Y
---------------------------
Management Fees ......................... 0.42%
12b-1 Fees................................. None
Other Expenses............................. 0.39%
Total Fund Operating Expenses.............. 0.81% (1)(*)
(1) Certain investors may purchase Class Y shares through Wrap Fee Programs of
certain broker-dealers. Participants in Wrap Fee Programs should contact
their broker-dealer for information about any fees associated with their
Wrap Fee Program, which are in addition to Fund operating expenses.
* The expense information contained in this table and its footnotes has been
restated to reflect fees and expenses currently in effect for the Fund.
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 Cash Management
Trust Money Market Series
Class Y
----------------------------
1 year........................................ $ 8
3 years....................................... $ 26
5 years....................................... $ 45
10 years...................................... $100
THE "FINANCIAL HIGHLIGHTS" SECTION IS REVISED TO READ AS FOLLOWS:
The Financial Highlights presented below have been included in financial
statements for the Fund. The financial statements have been examined by
PricewaterhouseCoopers LLP, independent accountants, whose reports thereon,
which were unqualified, are incorporated by reference in the Statement and can
be obtained by shareholders. The Financial Highlights should be read in
conjunction with the financial statements and the notes thereto incorporated by
reference in the Statement. The Fund's annual report contains additional
performance information and is available upon request and without charge.
NEW ENGLAND CASH MANAGEMENT TRUST -- MONEY MARKET SERIES
(Class Y Shares)
YEAR ENDED JUNE 30
- -------------------------------------------------------------------------------
1998
----
Net asset value, beginning of period (a) $1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.0169
Net gains or losses on securities (both realize
and unrealized) 0.0000
Total income from investment operations 0.0169
LESS DISTRIBUTIONS
Dividends (from net investment income) (0.0169)
Distributions (from net realized capital gains) 0.0000
Total distributions (0.0169)
Net asset value, end of period $1.00
Total return (%) 1.7
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $103,860
Ratio of expenses to average net assets (%) 0.74(b)
Ratio of net income to average net assets (%) 4.98(b)
(a) Commenced operation on January 23, 1998
(b) Completed on an annualized basis.
THE SECTION ENTITLED "NEW ENGLAND INVESTMENT COMPANIES AND THE FUND'S ADVISER
AND SUBADVISER" IS REVISED TO READ AS FOLLOWS:
Nvest Companies and the Fund's Adviser and Subadviser
The investment adviser and subadviser of the Fund are independently
operated subsidiaries of Nvest Companies, L.P. ("Nvest Companies"),
which is part of an affiliated group including Nvest, L.P. ("Nvest"), a
publicly traded company listed on the New York Stock Exchange, one of
the largest publicly traded investment management firms in the United
States. Through its subsidiaries or affiliates, Nvest manages over $135
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 the Fund's objectives.
NEW ENGLAND FUNDS MANAGEMENT, L.P. ("NEFM") is investment adviser of
the Fund, as well as most of the other New England Funds.
BANK BAY ADVISORS(R), L.P., ("BACK BAY ADVISORS(R)"), subadviser of the
Fund, manages over $8 billion in assets, primarily mutual fund and
institutional fixed-income portfolios.
THE LAST SENTENCE OF THE SECOND PARAGRAPH OF THE SECTION ENTITLED "FUND
MANAGEMENT" IS REVISED TO READ AS FOLLOWS:
Formed in 1986, Back Bay Advisors now manages a total of over $ 8
billion of assets, primarily mutual fund and institutional fixed-income
portfolios.
THE FOLLOWING SENTENCE IS INSERTED DIRECTLY AFTER THE SECOND FULL PARAGRAPH OF
THE SECTION ENTITLED "FUND MANAGEMENT" AND REPLACES THE SIXTH BULLET POINT UNDER
THE CAPTION "ADDITIONAL FACTS ABOUT THE FUND" IN THE "FUND DETAILS" SECTION
WHICH IS DELETED:
The transfer and dividend paying agent for the Funds is New England
Funds Service Corporation ("NEFSCO"), located at 399 Boylston Street,
Boston, Massachusetts 02116.
THE THIRD PARAGRAPH OF THE SECTION ENTITLED "FUND MANAGEMENT" IS REVISED TO READ
AS FOLLOWS:
The general partners of each of Back Bay Advisors, NEFM and the
Distributor, and the sole shareholder of NEFSCO, are special purpose
corporations that are indirect, wholly-owned subsidiaries of Nvest
Companies. Nvest Companies' managing partner, Nvest Corporation, is an
indirect wholly-owned subsidiary of Metropolitan Life Insurance Company
("MetLife"), a mutual life insurance company. MetLife owns in the
aggregate, directly or indirectly, approximately 47% of the outstanding
limited partnership interests in Nvest Companies. Nvest Companies'
advising general partner, Nvest, L.P., is a publicly-traded company
listed on the New York Stock Exchange. Nvest Corporation is the sole
general partner of Nvest, L.P.
THE SIXTH AND SEVENTH PARAGRAPHS OF THE SECTION ENTITLED "FUND MANAGEMENT" (EACH
BEGINNING "FOR THE FISCAL YEAR . . .") ARE REPLACED WITH THE FOLLOWING:
The Fund pays NEFM a management fee at an annual rate set forth in the
following table, reduced by the amounts of any subadvisory fees payable
by the Fund to Back Bay Advisors (as described below).
Management Fee paid by Fund to
NEFM (as a percentage of average
daily net assets of the Fund)
---------------------------------
0.425% of the first $500 million
0.400% of the next $500 million
0.350% of the next $500 million
0.300% of the next $500 million
0.200% of amounts in excess of $2 billion
The Fund pays Back Bay Advisors a subadvisory fee at an annual rate set
forth in the following table:
Subadvisory fee payable to Back Bay Advisors (as a
percentage of the average daily net assets of the Fund)
---------------------------------
0.205% of the first $500 millio
0.180% of the next $500 million
0.160% of the next $500 million
0.140% of the next $500 million
0.120% of amounts in excess of $2 billion
THE FIRST SENTENCE OF THE LAST PARAGRAPH OF THE SECTION ENTITLED "FUND
MANAGEMENT" IS REVISED TO READ AS FOLLOWS:
In addition to the management fees paid to NEFM and the subadvisory
fees paid to Back Bay Advisors, the 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.
THE SECOND PARAGRAPH UNDER THE CAPTION "EXCHANGING AMONG NEW ENGLAND FUNDS" IN
THE "OWNING FUND SHARES" SECTION IS REVISED TO READ AS FOLLOWS:
Class Y 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 as described in the remainder of this
paragraph, but may not be exchanged for Class B or Class C shares of
the Stock and 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 (the
"California Fund") may be exchanged for Class A shares of another Stock
or Bond Fund at net asset value only if you held the California Fund
shares for at least six months; otherwise, you will pay the difference
between any sales charge you have already paid on your California Fund
shares and the higher sales charge of the Stock or Bond Fund into which
you are exchanging; 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 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 change you have already paid on our Adjustable Rate
Fund shares and the higher sales charge of the Stock or Bond Fund into
which you are exchanging.
THE FOLLOWING PARAGRAPH IS INSERTED DIRECTLY AFTER THE FINAL PARAGRAPH UNDER THE
CAPTION "EXCHANGING AMONG NEW ENGLAND FUNDS" IN THE "OWNING FUND SHARES"
SECTION:
Market Timer Restrictions. Purchases and exchanges into the Funds
should be made for investment purposes only. The Funds and the
Distributor reserve the right to refuse or limit any purchase or
exchange order by a particular purchaser (or group of related
purchasers) when such transaction is deemed harmful to the best
interests of the Fund's other shareholders or would disrupt the
management of the Fund. Without limiting the generality of the
foregoing, the Funds and the Distributor reserve the right to restrict
(e.g., by limiting to a specified maximum Market Timer dollar amount)
purchases and exchanges for the account of "market timers." An account
will be deemed to be the account of a market timer if (i) more than two
exchange purchases of a given Fund are effected for the account in a
calendar quarter or (ii) the account effects one or more exchange
purchases of a given Fund in a calendar quarter in an aggregate amount
in excess of 1% of the Fund's total net assets.
THE FIRST PARAGRAPH UNDER THE CAPTION "INCOME TAX CONSIDERATIONS" IN THE "FUND
DETAILS" SECTION IS REVISED TO READ AS FOLLOWS:
As long as the Fund distributes substantially all its net investment
income, net tax-exempt income and net short-term capital gains, if any,
to its shareholders, it will not pay federal income tax on the amounts
distributed.
THE SECOND PARAGRAPH UNDER THE CAPTION "INCOME TAX CONSIDERATIONS " IN THE "FUND
DETAILS" SECTION IS REVISED TO READ AS FOLLOWS:
The Fund usually does not realize a substantial amount of long-term
capital gains. If the Fund does, it will distribute them annually and
they will be taxable to you as long-term capital gains (generally taxed
at a 20 percent tax rate for noncorporate shareholders), whether
received in cash or additional shares and regardless of how long you
have held your shares. Some 1998 distributions of gain realized in 1997
may be subject to tax at 28 percent rate. No distribution from the Fund
is expected to be eligible for the dividends-received deduction for
corporations.
THE LAST SENTENCE OF THE THIRD PARAGRAPH OF THE SECTION ENTITLED "INCOME TAX
CONSIDERATIONS" IS REVISED TO READ AS FOLLOWS:
Certain dividends declared by the Fund in October, November or
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 SECOND SENTENCE OF THE FIFTH PARAGRAPH OF THE SECTION ENTITLED "INCOME TAX
CONSIDERATIONS" IS DELETED IN ITS ENTIRETY AND THE FIRST SENTENCE OF THE SAME
SECTION IS REVISED TO READ AS FOLLOWS:
The Fund is required to withhold 31% of all income dividends and
capital gain distributions it pays to you and 31% of gross proceeds of
Fund shares you redeem if (i) you do not provide a correct, certified
taxpayer identification number, (ii) the Fund is notified that you have
underreported income in the past, or (iii) you fail to certify to the
Fund that you are not subject to such federal back-up withholding.
THE FOLLOWING SENTENCE IS INSERTED DIRECTLY AFTER THE PENULTIMATE PARAGRAPH
UNDER THE CAPTION "WAYS TO SELL FUND SHARES" IN THE "SELLING FUND SHARES"
SECTION.
The Funds reserve the right to suspend account services or refuse
transaction requests when notice has been received of a dispute between
the registered or beneficial owners of an account or there is suspicion
or evidence that a fraudulent act may result.
<PAGE>
[LOGO OMITTED]
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
- -------------------------------------------------------------------------------
NEW ENGLAND MONEY MARKET FUNDS
NEW ENGLAND CASH MANAGEMENT TRUST -- MONEY MARKET SERIES
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 1, 1998
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 for Class A, B and C shares dated
September 1, 1998 and New England Cash Management Trust - Money Market Series
Class Y share prospectus datedSeptember 1, 1998, (collectively, the
"Prospectus"), and should be read in conjunction therewith. A copy of the
Prospectuses 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 15
Description of the Funds and Ownership of Shares 18
Purchase of Shares 21
Shareholder Services 21
Open Accounts 21
Automatic Investment Plans 21
Retirement Plans Offering Tax Benefits 22
Systematic Withdrawal Plans 22
Exchange Privilege 23
Automatic Exchange Plan 23
Redemptions 25
Net Income, Dividends and Valuation 26
Tax-Free Investing 27
Taxes 28
Financial Statements 29
Appendix A - Description of Certain New England Cash
Management Trust - Money Market Series 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 - Media That May be Referred to in Fund
Advertisements or Sales Literature D-1
Appendix E - Advertising and Promotional Literature E-1
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
GENERAL
The investment objectives and policies of New England Cash Management
Trust - Money Market Series (the "Money Market 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
The Fund will invest only in securities which the Fund's subadviser,
Back Bay Advisors(R), L.P. ("Back Bay Advisors(R)"), acting under guidelines
established by the New England Cash Management 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 the 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.
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.
Considerations of liquidity, safety and preservation of capital may
preclude the Fund from investing in money market instruments paying the highest
available yield at a particular time. The 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. The 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 Fund, may
result in frequent changes in the portfolio of the Fund. There are usually no
brokerage commissions as such paid by the Fund 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.
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.
BOTH 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 either Fund), a
Municipal Security (in the case of the Tax Exempt Fund) or another type of high
quality money market instrument, the obligation of the seller is not guaranteed
by the U.S. Government, the issuer of the Municipal Security, or the issuer of
any other high quality money market instrument underlying the agreement, and
there is a risk that the seller may fail to repurchase the underlying security.
In such event, the Fund would attempt to exercise rights with respect to the
underlying security, including possible disposition in the market. However, in
case of such a default, a Fund may be subject to various delays and risks of
loss, including (a) possible declines in the value of the underlying security
during the period while the Fund seeks to enforce its rights thereto, (b)
possible reduced levels of income and lack of access to income during this
period, and (c) inability to enforce rights and the expenses involved in
attempted enforcement. Each Fund will enter into repurchase agreements only
where the market value of the underlying security equals or exceeds the
repurchase price, and each Fund will require the seller to provide additional
collateral if this market value falls below the repurchase price at any time
during the term of the repurchase agreement.
As described in the Prospectuses, 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. The
restrictions set forth in the numbered paragraphs 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
The Money Market Fund will not:
(1) Purchase any security (other than U.S. Government Securities and
repurchase agreements relating thereto) if, as a result, more than 5% of the
Fund's total assets (taken at current value) would be invested in securities of
a single issuer. This restriction applies to securities subject to repurchase
agreements but not to the repurchase agreements themselves;
(2) Purchase any security if, as a result, more than 25% of the Fund's
total assets (taken at current value) would be invested in any one industry.
This restriction does not apply to U.S. Government Securities and bank
obligations. For purposes of this restriction, telephone, gas and electric
public utilities are each regarded as separate industries and finance companies
whose financing activities are related primarily to the activities of their
parent companies are classified in the industry of their parents;
(3) Purchase securities on margin (but it may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities); or make short sales except where, by virtue of ownership of other
securities, it has the right to obtain, without payment of further
consideration, securities equivalent in kind and amount to those sold, and the
Fund will not deposit or pledge more than 10% of its total assets (taken at
current value) as collateral for such sales;
(4) Acquire more than 10% of the total value of any class of the
outstanding securities of an issuer or acquire more than 10% of the outstanding
voting securities of an issuer. This restriction does not apply to U.S.
Government Securities;
(5) Borrow money, except as a temporary measure for extraordinary or
emergency purposes (but not for the purpose of investment) up to an amount not
in excess of 10% of its total assets (taken at cost) or 5% of such total assets
(taken at current value), whichever is lower;
(6) Pledge, mortgage or hypothecate more than 10% of its total assets
(taken at cost);
(7) Invest more than 5% of its total assets (taken at current value) in
securities of businesses (including predecessors) less than three years old;
(8) Purchase or retain securities of any issuer if, to the knowledge of
the Fund, officers and Trustees of the Fund or officers and directors of any
investment adviser of the Fund who individually own beneficially more than 1/2
of 1% of the securities of that company, together own beneficially more than 5%;
(9) Make loans, except by purchase of debt obligations in which the
Fund may invest consistent with its objective and investment policies. This
restriction does not apply to repurchase agreements;
(10) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts, commodities or commodity contracts or real estate. This restriction
does not prevent the Fund from purchasing securities of companies investing in
real estate or of companies which are not principally engaged in the business of
buying or selling such leases, rights or contracts;
(11) Act as underwriter except to the extent that, in connection with
the disposition of portfolio securities, it may be deemed to be an underwriter
under the federal securities laws;
(12) Make investments for the purpose of exercising control or
management;
(13) Participate on a joint or joint and several basis in any trading
account in securities. (The "bunching" of orders for the purchase or sale of
portfolio securities with 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.
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;
(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.
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.
BOTH 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:
GRAHAM T. ALLISON, JR.--Trustee (58); 79 John F. Kennedy Street, Cambridge,
Massachusetts 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 (53); 452 Fifth Avenue, New York, New York 10018;
President and CEO, Cain Brothers & Company Incorporated (investment
banking); formerly, Trustee, Universal Health Realty Income Trust
(REIT); Chairman, Inter Fish, Inc. (aquaculture venture in Barbados).
KENNETH J. COWAN -- Trustee (66); One Beach Drive, S.E. #2103, St. Petersburg,
Florida 33701; Retired; Director, A Young Woman's Residence (social
services); 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 (55); 1001 Pennsylvania Avenue, N.W., Washington, D.C.
20004; Partner and former Managing Director, The Carlyle Group
(investments); Public Service Professor, Harvard Graduate School of
Government; Trustee, Council for Excellence in Government
(not-for-profit); Director, Frontier Ventures (personal investment);
Director, Telcom Ventures (telecommunications); Director, Genesis Cable
(cable communications); Director, Prime Communications (cable
communications); Director, Neptune Communications (undersea cable
systems); formerly, Director of the U.S. Office of Management and
Budget and a member of President Bush's Cabinet.
SANDRA O. MOOSE -- Trustee (56); 135 E. 57th Street New York, New York 10022;
Senior Vice President and Director, The Boston Consulting Group, Inc.
(management consulting); Director, GTE Corporation (communication
services) and Director, Rohm and Haas Company (specialty chemicals).
HENRY L.P. SCHMELZER* -- Trustee and President (55); President, Chief
Executive Officer and Director, NEF Corporation; Managing Director,
President and Chief Executive Officer, New England Funds, L.P.;
President and Chief Executive Officer, New England Funds Management,
L.P. ("NEFM"); Chief Executive Officer, New England Funds Service
Corporation ("NEFSCO"); Director, Back Bay Advisors(R), Inc. ("BBAI");
Director, Maine Bank and Trust Company; formerly, Director, New England
Securities Corporation ("New England Securities").
JOHN A. SHANE -- Trustee (65); 300 Unicorn Drive, Woburn, Massachusetts
01801; President, Palmer Service Corporation (venture capital
organization); General Partner, Palmer Partners L.P. (venture capital
organization); 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
(developer of 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
(51); President and Chief Executive Officer, Nvest, L.P. and Nvest
Companies, L.P. ("Nvest Companies"); Chairman of the Board and
Director, President and Chief Executive Officer, Nvest Corporation;
Chairman of the Board and Director, NEF Corporation; Chairman of the
Board and Director, BBAI; formerly, Director, New England Life
Insurance Company ("NELICO").
PENDLETON P. WHITE -- Trustee (67); 6 Breckenridge Lane, Savannah, Georgia
31411; Retired; formerly, President and Chairman of the Executive
Committee, Studwell Associates (executive search consultants);
formerly, Trustee, The Faulkner Corporation (community hospital
corporation). Officers
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 (42); Executive Vice President,
NEF Corporation; Executive Vice President, New England Funds, L.P.;
Executive Vice President, NEFM; Executive Vice President and Chief
Operating Officer, NEFSCO.
FRANK NESVET -- Treasurer (54); Senior Vice President and Chief Financial
Officer, NEF Corporation; Managing Director, Senior Vice President and
Chief Financial Officer, New England Funds, L.P..
JOHN E. PELLETIER - Secretary and Clerk (34); 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; Senior Vice President and General Counsel, NEFSCO;
formerly, Senior Vice President and General Counsel, Funds Distributor,
Inc. (mutual fund service company); formerly, Counsel, The Boston
Company Advisors, Inc.; formerly, Associate, Ropes & Gray (law firm).
Each person listed above holds the same position(s) with both Trusts.
Previous positions during the past five years with NELICO or Metropolitan Life
Insurance Company ("MetLife"), New England Funds, L.P., or NEFM are omitted, if
not materially different. As indicated below under "Trustee Fees", 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.
The address of each trustee and officer affiliated with NEF
Corporation, New England Funds, L.P., NEFM, NEFSCO or New England Securities is
399 Boylston Street, Boston, Massachusetts 02116.
- --------------------------------
* Trustee deemed an "interested person" of the Trusts, as defined in the
1940 Act.
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, New England Funds Trust II and New England Funds Trust III (all five
trusts collectively, the "New England Funds Trusts"), comprising a total of 23
mutual fund portfolios, a retainer fee at the annual rate of $40,000 and meeting
attendance fees of $3,500 for each meeting of the boards he or she attends. Each
committee member receives an additional retainer fee at the annual rate of
$6,000. Furthermore, each committee chairman receives an additional retainer fee
(beyond the committee member retainer fee) at the annual rate of $4,000. These
fees are allocated among the 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, 1998, the trustees of the Trusts
received the amounts set forth in the following table for serving as a trustee
of the Trusts; and during the year ended December 31, 1997, such persons
received the amounts set forth below for serving as trustee of the Trusts and
for also serving as trustees of the other New England Funds Trusts.
<TABLE>
<CAPTION>
Aggregate Aggregate Pension or
Compensation Compensation Retirement Total Compensation
from New England from New England Benefits Accrued from the New
Cash Management Tax Exempt Money as Part of Fund Estimated England Funds
Trust in the Market Trust in Expenses in the Annual Trusts in the
Year Ended the Year Ended Year Ended June Benefits Upon Year Ended
Name of Trustee June 30, 1998 June 30, 1998 30, 1998 Retirement December 31, 1997
--------------- -------------- -------------- ------------- ---------- ------------------
<S> <C> <C> <C> <C> <C>
Graham T. Allison, Jr. $3,954 1,595 $0 $0 52,000
Daniel M. Cain* $4,225 1,560 $0 $0 58,500
Kenneth J. Cowan $4,293 1,629 $0 $0 61,500
Richard Darman* $3,889 1,529 $0 $0 54,500
Sandra O. Moose $3,954 1,595 $0 $0 56,000
John A. Shane $3,954 1,595 $0 $0 57,500
Pendleton P. White $3,954 1,595 $0 $0 57,000
</TABLE>
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 September 1, 1998, the officers and trustees of the Trusts as a group
owned less than 1% of the outstanding shares of each Fund.
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISORY, SUBADVISORY, DISTRIBUTION AND OTHER SERVICES
- --------------------------------------------------------------------------------
Investment Advisory and Subadvisory Agreements
- ----------------------------------------------
Pursuant to separate advisory agreements, each dated August 30, 1996,
as amended May 1, 1998, 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 set forth in the following table, reduced by
the amount of any subadvisory fee payable by the Fund to Back Bay Advisors (as
described below):
Management fee payable by Fund to NEFM
(as a percentage of average daily net assets
Fund of the Fund)
---- --------------------------------------------
Money Market Fund 0.425% of the first $500 million
0.400% of the next $500 million
0.500% of the next $500 million
0.300% of the next $500 million
0.200% of amounts in excess of $7 billion
Tax Exempt Fund 0.400% of the first $100 million
0.300% of amounts 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 August 30, 1996, as amended May 1, 1998, NEFM has
delegated responsibilities for managing the investment and reinvestment of each
Fund to Back Bay Advisors as subadviser. For providing such subadvisory services
to the Funds, each Fund pays Back Bay Advisors the following fee:
Subadvisory fee payable by the Fund
(as a percentage of average daily net assets
Fund of the Fund)
---- --------------------------------------------
Money Market Fund 0.205% of the first $500 million
0.180% of the next $500 million
0.160% of the next $500 million
0.140% of the next $500 million
0.120 % of amounts in excess of $2 billion
Tax Exempt Fund 0.200% of the first $100 million
0.150% of amounts in excess of $100 million
From January 2, 1996 to May 1, 1998, NEFM served as adviser and Back
Bay Advisors served as subadviser to each Fund pursuant to separate advisory and
subadvisory agreements providing for the same management and subadvisory fees as
are currently in effect for the Funds; except that NEFM, and not the Fund, paid
Back Bay Advisors for the services it rendered to each Fund. 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 asthe management fee currently
payable by the Fund to NEFM (before reduction of any subadvisory fees).
For the period July 1, 1995 to December 31, 1995, the advisory fee paid
to Back Bay Advisors amounted to $1,379,803for the Money Market Fund.
For the six months ended June 30, 1996 and the fiscal years ended June
30, 1997 and June 30, 1998, the Money Market Fund paid management fees of
$726,741, $1,485,266 and $1,535,052 to NEFM. During this period, Back Bay
Advisors received subadvisory fees of $2,057,922, $1,340,219, and $6,380,613.
Beginning January 2, 1996 and until further notice to the Tax Exempt
Fund, NEFM and Back Bay Advisors(R) have each agreed to proportionately 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. 65% 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 period July
1, 1995 to December 31, 1995, gross advisory fees payable to Back Bay
Advisors(R) of $281,837 and $134,552, respectively, were reduced by $199,639 and
$108,843, respectively, as a result of this expense limitation. For the six
months ended June 30, 1996 and the fiscal years ended June 30, 1997 and June 30,
1998, gross management fees payable to NEFM of $133,354, $273,587 and $274,666
were reduced by $54,887, $192,978 and $165,118, respectively, resulting in net
management fees of $78,467, $80,609 and $109,548, respectively, and gross
subadvisory fees payable to Back Bay Advisors(R) of $66,677, $136,794 and
$137,333 were reduced by $54,887, $96,489 and $82,559, respectively, resulting
in net subadvisory fees, of $11,790, $40,305 and $54,774, respectively, as a
result of this expense limitation.
In General. NEFM, formed in 1995, is a limited partnership whose sole
general partner, NEF Corporation, is a wholly-owned subsidiary of Nvest
Holdings, Inc. ("Nvest Holdings"), which in turn is a wholly-owned subsidiary of
Nvest Companies. NEF Corporation is also the sole general partner of New England
Funds, L.P., the distributor of the Funds, and the sole shareholder of NEFSCO
the transfer and dividend disbursing agent of the Funds. Nvest Companies owns
the entire limited partnership interest in each of NEFM and New England Funds,
L.P.
Back Bay Advisors(R) serves as a subadviser to the Funds. Formed in
1986, Back Bay Advisors provides investment management services to institutional
clients, including other registered investment companies and accounts of NELICO
and its affiliates. Back Bay Advisors(R) general partner, BBAI, Inc. is a
wholly-owned subsidiary of Nvest Holdings. NEICOP owns the entire limited
partnership interest in Back Bay Advisors(R). Back Bay Advisors(R) specializes
in fixed income management and currently manages over $7 billion in total
assets.
Nvest Companies' managing general partner, Nvest Corporation, is a
wholly-owned subsidiary of MetLife New England Holdings, Inc., which in turn is
a wholly-owned subsidiary of Metropolitan Life Insurance Company, a mutual life
insurance company ("MetLife"). MetLife owns directly 46% (and in the aggregate,
directly and indirectly, 47%) of the outstanding limited partnership interests
in Nvest Companies. Nvest Companies' advising general partner, Nvest, L.P., is a
publicly-traded company listed on the New York Stock Exchange. Nvest Corporation
is the sole general partner of Nvest, L.P. Nvest Companies' 14 principal
subsidiary or affiliated asset management firms, collectively, had more than
$135 billion of assets under management as of June 30, 1998.
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). Each Fund also pays NEFM for certain
accounting and legal services provided to the Fund by NEFM.
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.
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,
New England Trust II and New England Funds Trust III.
The Distributor may publish information about the Funds in the media
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 PricewaterhouseCoopers LLP, 160
Federal Street, Boston, Massachusetts 02110. Price Waterhouse LLP conducts an
annual audit of the Funds' financial statements, assists in the preparation of
the Funds' federal and state income tax returns and consults with the Funds as
to matters of accounting and federal and state income taxation. The information
concerning Financial Highlights in the Prospectus, and the financial statements
incorporated by reference in this Statement, have been so included in reliance
on the reports of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
Custodian
- ----------
State Street Bank and Trust Company ("State Street Bank"), 225 Franklin
Street, Boston, Massachusetts 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:
Fund Fiscal Year Ended June 30,
- --------------------------------------------------------------------------------
1996 1997 1998
---- ---- ----
Money Market Fund $1,986,393 $1,743,823 $1,685,387
Tax Exempt Fund $ 76,498 $ 75,898 $ 73,566
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, 1998 New England
Funds, L.P. performed certain accounting and administrative services for the
Funds. Each Fund reimbursed New England Funds for all or part of New England
Funds' expenses of providing these services which include the following: (i)
expenses for personnel performing bookkeeping, accounting, internal auditing and
financial reporting functions and clerical functions relating to the Fund, (ii)
expenses for services required in connection with the preparation of
registration statements and prospectuses, shareholder reports and notices, proxy
solicitation material furnished to shareholders of the Fund or regulatory
authorities and reports and questionnaires for SEC compliance, and (iii)
registration, filing and other fees in connection with requirements of
regulatory authorities.
During the fiscal year ended June 30, 1998, New England Funds, L.P.
received legal and accounting services fees paid by the Money Market Fund and
Tax Exempt Fund in the amounts of $100,532 and $23,386, respectively.
<PAGE>
- --------------------------------------------------------------------------------
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, 1998, the Funds did not incur any
brokerage fees in connection with portfolio transactions.
Some of the portfolio transactions for each Fund are placed with
dealers who provide Back Bay Advisors(R) with supplementary investment and
statistical information or furnish market quotations to the Funds or other
investment companies advised by Back Bay Advisors(R). The business would not be
so placed if the Funds would not thereby obtain the best price and execution.
Although it is not possible to assign an exact dollar value to these research
services, they may, to the extent used, tend to reduce the expenses of Back Bay
Advisors(R). The research services may also be used by Back Bay Advisors(R) in
connection with its other advisory accounts and in some cases may not be used
with respect to the Funds.
The Board of Trustees of 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.
New England Cash Management Trust -- Money Market Series
($10,000 investment on 7/10/78)
-------------------------------
(Class A Shares)
Value of Investment Value of Cumulative
Period Ended on 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 7,156 17,156
12/31/83 17,156 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 13,676 23,676
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 29,628 39,628
06/30/97 39,628 31,518 41,518
06/30/98 41,518 33,588 43,588
New England Cash Management Trust -- Money Market Series
($10,000 investment on 9/13/93)
(Class B Shares)
Value of Investment Value of Cumulative
Period Ended on 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 1,234 11,234
06/30/97 11,234 1,770 11,770
06/30/98 11,770 2,358 12,358
New England Cash Management Trust -- Money Market Fund
($10,000 investment on May 1, 1998)
(Class C Shares)
Value of Investment Value of Cumulative
Period Ended on First Day of Period Reinvested Dividends Total Value
- ------------ ---------------------- -------------------- -----------
06/30/98 $ 10,000 $ 165 $10,165
New England Cash Management Trust -- Money Market Fund
($10,000 investment on January 23, 1998)
(Class Y Shares)
Value of Investment Value of Cumulative
Period Ended on First Day of Period Reinvested Dividends Total Value
- ------------ ---------------------- -------------------- -----------
06/30/98 $ 10,000 $ 169 $10,169
New England Tax Exempt Money Market Trust
($10,000 investment on 4/21/83)
(Class A Shares)
Value of Investment Value of Cumulative
Period Ended on 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 7,220 17,220
06/30/97 17,220 7,771 17,771
06/30/98 17,771 8,353 18,353
New England Tax Exempt Money Market Trust
($10,000 investment on 9/13/93)
(Class B Shares)
Value of Investment Value of Cumulative
Period Ended on 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 10,493 841 10,841
06/30/97 10,841 1,188 11,188
06/30/98 11,188 1,555 11,555
- --------------------------------------------------------------------------------
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 NEL Cash Management Account, Inc. then had. The Money
Market Fund is the only series of New England Cash Management Trust currently in
existence. The Fund hasfour 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, B and C shares of the Money Market Fund and Class A and B
shares of the Tax Exempt Trust are identical except that the classes have
different exchange privileges, as set forth in detail in the Prospectus.
Class Y shares of the Money Market Fund are offered only to certain
qualified investors and have different exchange privileges, as set forth in
detail in the Prospectus. Class Y shares bear their own transfer agency and/or
prospectus printing costs and do not bear any portion of those relating to other
classes of shares.
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.
If a Trust were to issue shares of more than one Series, the assets
received by each series of the 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 the 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 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 the Trusts create another series, the Trusts would
become a "series" company as that term is used in Section 18(f) of the 1940 Act.
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 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, 1998, there were 734,287,390 shares of the Money Market
Fund and 72,458,977 shares of the Tax Exempt Fund issued and outstanding. Two
accounts registered to Raymond James & Associates Inc. FAO Appreciated
Investment Management Inc., Fort Wayne IN. 46804-1010 and Della Pollock,
Pierceton, IN 46562-0464 owned 267,094 Class C shares, about 20.35%, and 192,407
Class C shares, about 14.66%, respectively, of the Money Market Fund. One
Account registered to National financial Services Corp. for the Exclusive
Benefit of our Customers, PO box 3752, Church St. Station, New York, New York
10008-3752 owned 110,148,657, about 99.95%, of the Class Y shares of the Money
Market Fund. One Account registered to National Financial Services Corp. for the
Exclusive Benefit of our Customers, PO Box 3752, Church St. Station, New York,
New York 10008-3752 owned 13,289,972, about 18.46%, of the Class A shares of the
Tax Exempt Fund. Seven accounts registered to Ruth L. Graff, Trustee of the Ruth
L. Graff Trust, 17 Raven Lane, Gloucester, MA 01930-4177, Samuel J. Weldler and
Donya Weldler Jt. Ten, 5725 N. Bernard St., Chicago, IL 60659-3411, Joseph
Defoto, 13240 Chalon Rd, West Los Angeles, CA 90049-1213, M. Theresa Dempsey and
Matthew P. Dempsey, Jt. Ten, 4126 Jora Ln, Cincinnati, OH, 45209-1407, Judith A.
Gizara, 56 Old Country Rd, Mason, NH 03048-4308, Roy S. Takaki and Gail M.
Takaki, Jt. Ten, 7275 Nohili St., Honolulu, HI 96825-2249 and Nelldeane Price
and Lilly G Woodall, Jt. Ten 1513 Oxmoor Rd, Birmingham, AL 35209-3907 owned
42,759 Class B shares, about 23.00%, 28,048 Class B shares, about 15.09%, 26,001
Class B shares, about 13.99%, 17,345 Class B shares, about 9.33%, 16,162 Class B
shares, about 8.71%, 11,091 Class B shares, about 5.97% and 10,518 Class B
shares, about 5.66%, of Tax Exempt Fund.
<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 $2,500, with a $100 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 $100 from the
shareholder's bank account to purchase shares of a Fund. These transfers are
effected through checks drawn under Investment Builder, a program designed to
facilitate such periodic payments.
Under Investment Builder, funds normally are credited to the Fund not
later than the fourth business day after the check is drawn. An Investment
Builder application must be completed to open an automatic investment plan. An
application is included in the Prospectus or may be obtained from your
investment dealer or from New England Funds by calling 1-800-225-5478. The plan
may be discontinued by written notice to New England Funds, L.P., which must be
received at least five business days prior to any payment date. The plan may be
discontinued by State Street Bank at any time without prior notice if any check
is not paid upon presentation; or by written notice to shareholders at least
thirty days prior to any payment date. State Street Bank is under no obligation
to notify shareholders as to the nonpayment of any check.
Retirement Plans Offering Tax Benefits - Money Market Fund
- ----------------------------------------------------------
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
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 the Fund must be at least $250 for each
participant in corporate pension and profit sharing plans, IRAs and Keogh plans
and $100 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 NELICO 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 $50 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 $50 or
more. In addition, shareholders who have purchased insurance or annuity products
of NELICO 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.
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 investor eligibility requirements of the
Funds into which you are exchanging. 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 Star Small Cap Fund, New England Growth
Fund and New England Equity Income Fund; 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 New
England Tax Free Income Fund of New York and New England Bullseye Fund. If you
own Class Y shares, you may exchange those shares for Class Y shares of the
Money Market Fund. These options are summarized in the Prospectus.
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, Class B or Class C 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.
Class C shares of a Fund may be exchanged for Class C shares of any of
the Stock or Bond Funds which offer Class C on the basis of relative net asset
value, subject to the CDSC schedule of the Stock or Bond Fund acquired. For
purpose of computing the CDSC payable upon redemption of shares acquired by such
exchange, the holding period of any Class C Stock or Bond Fund shares that were
exchanged for Class C shares of the Fund is included, but the holding period of
the Class C shares of the Fund is not included.
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, P.O. Box 8551, Boston, MA 02266-8551. 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, Class B and Class C 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 $100 or more from any
Fund. A sales charge will be imposed on such exchanges unless the shares being
exchanged were previously acquired through an exchange from one of the New
England Funds listed below. Complete the account application or the Service
Options Form available from New England Funds to establish an Automatic Exchange
Plan.
Every exchange constitutes a sale of fund shares for federal income tax
purposes, on which an investor may realize a long- or short-term capital gain or
loss.
The other New England Funds and their investment objectives are as follows:
STOCK FUNDS:
NEW ENGLAND 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.
NEW ENGLAND STAR SMALL CAP FUND seeks capital appreciation.
NEW ENGLAND EQUITY INCOME FUND seeks current income and capital growth.
NEW ENGLAND BULLSEYE FUND seeks long-term growth of capital.
BOND FUNDS:
NEW ENGLAND GOVERNMENT SECURITIES FUND seeks a high level of current
income consistent with safety of principal by investing in U.S. Government
securities and engaging in transactions involving related options, futures and
options on futures.
NEW ENGLAND LIMITED TERM U.S. GOVERNMENT FUND seeks a high current
return consistent with preservation of capital.
NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND seeks a high level of
current income consistent with low volatility of principal.
NEW ENGLAND STRATEGIC INCOME FUND seeks high current income with a
secondary objective of capital growth.
NEW ENGLAND BOND INCOME FUND seeks a high level of current income
consistent with what the Fund considers reasonable risk. The Bond Income Fund
invests primarily in corporate and U.S. Government bonds.
NEW ENGLAND HIGH INCOME FUND seeks high current income plus the
opportunity for capital appreciation to produce a high total return.
NEW ENGLAND MUNICIPAL INCOME FUND seeks as high a level of current
income exempt from federal income taxes as is consistent with reasonable risk
and protection of shareholders' capital. The Municipal Income Fund invests
primarily in debt securities of municipal issuers, the interest of which is
exempt from federal income tax but may be subject to the federal alternative
minimum tax, and may engage in transactions in financial futures contracts and
options on futures.
NEW ENGLAND MASSACHUSETTS TAX FREE INCOME FUND seeks as high a level of
current income exempt from federal income tax and Massachusetts personal income
taxes as Back Bay Advisors, the Fund's subadviser, believes is consistent with
preservation of capital.
NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA seeks as high
a level of current income exempt from federal income tax and its state personal
income tax as is consistent with preservation of capital.
NEW ENGLAND TAX FREE INCOME 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 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, Martin Luther King 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.
Daily Dividends
- ---------------
As described in the Prospectus, the net income of each Fund is declared
as a dividend, at the closing of regular trading on the Exchange each day that
the Exchange is open. Dividends will be paid in cash to the shareholder if the
shareholder has notified State Street Bank in writing of the election on or
before payable date. The net income for Saturdays, Sundays and other days on
which the Exchange is closed is declared as a dividend on the immediately
preceding business day. Although the Funds do not expect to realize any
long-term capital gains, if such gains are realized they will be distributed
once a year.
Valuation of the Funds' Portfolio Investments
- ---------------------------------------------
The total net asset value of each Fund (the excess of the Fund's assets
over its liabilities) is determined by State Street Bank as of the close of
regular trading on the Exchange on each day the Exchange is open for trading.
(See "Determination of Net Income.") The portfolio securities of each Fund are
valued at their fair value as determined in good faith by the relevant Trust's
Board of Trustees or persons acting at their direction. Under normal market
conditions, portfolio securities will be valued at amortized cost as described
below. Expenses of each Fund are paid or accrued each day.
Under the amortized cost method of valuation, securities are valued at
cost on the date of purchase. Thereafter, the value of securities purchased at a
discount or premium is increased or decreased incrementally each day so that at
maturity the purchase discount or premium is fully amortized and the value of
the security is equal to its principal amount. Due to fluctuations in interest
rates, the amortized cost value of the securities of a Fund may at times be more
or less than their market value.
By using amortized cost valuation, the Funds seek to maintain a
constant net asset value of $1.00 per share despite minor shifts in the market
value of their portfolio securities. The yield on a shareholder's investment may
be more or less than that which would be recognized if the net asset value per
share were not constant and were permitted to fluctuate with the market value of
the portfolio securities of each Fund. However, as a result of the following
procedures, it is believed that any difference will normally be minimal. The
trustees monitor quarterly the deviation between the net asset value per share
of each Fund as determined by using available market quotations and its
amortized cost price per share. Back Bay Advisors(R) makes such comparisons at
least weekly and will advise the trustees promptly in the event of any
significant deviation. If the deviation exceeds 1/2 of 1% for any Fund, the
relevant Board of Trustees will consider what action, if any, should be
initiated to provide fair valuation of the portfolio securities of that Fund and
prevent material dilution or other unfair results to shareholders. Such action
may include redemption of shares in kind; selling portfolio securities prior to
maturity; withholding dividends; or using a net asset value per share as
determined by using available market quotations. There is no assurance that each
Fund will be able to maintain its net asset value at $1.00.
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, 1998 and effective
yield based on such seven-day period were, respectively, 4.96% and 5.08% (Money
Market Fund) and 3.23% and 3.28% (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 6/30/98
--------------------------------------------------
7 day yield: 3.23%
7 day effective: 3.28%
Federal Taxable-Equivalent Taxable-Equivalent
Tax Rate Yield Effective Yield
-------- ----- ---------------
15% 3.80% 3.86%
28% 4.49% 4.56%
31% 4.68% 4.75%
36% 5.05% 5.13%
39.6% 5.35% 5.43%
- --------------------------------------------------------------------------------
TAX-FREE INVESTING
- --------------------------------------------------------------------------------
The table below compares taxable and tax-free yields, based on tax
rates for 1998:
<TABLE>
<CAPTION>
Federal
TAXABLE INCOME Marginal
--------------- Tax IF TAX EXEMPT YIELD IS
Joint Single Rate ----------------------
Return Return (1998) 2% 3% 4% 5% 6%
Then the Equivalent Taxable Yield Would Be
----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$0 - $41,200 $0 - $ 24,650 15% 2.35% 3.53% 4.71% 5.88% 7.06%
$41,201 - $ 99,600 $24,651 - $ 59,750 28% 2.78% 4.17% 5.56% 6.94% 8.33%
$96,601 - $151,750 $59,751 - $124,650 31% 2.90% 4.35% 5.80% 7.25% 8.70%
$151,751 - $271,050 $124,651 - $271,050 36% 3.13% 4.69% 6.25% 7.81% 9.38%
over $271,050 over $271,050 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.
- --------------------------------------------------------------------------------
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
- -----------------
It is not expected that the 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 the 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.
Tax Exempt Fund
- ---------------
The Fund intends to have at least 50% of its total assets invested in
Municipal Securities at the close of each quarter of its taxable year so that
dividends paid by the Fund which are derived from interest on Municipal
Securities will be "exempt-interest dividends" within the meaning of the Code.
Exempt-interest dividends may be treated by shareholders as interest excludable
from gross income under Section 103(a) of the Code. Dividends derived from
income which is not exempt from federal income tax, including interest earned on
investments in taxable money market securities or in repurchase agreements and
any net short-term capital gains realized by the Fund, will be taxable to
shareholders as ordinary income whether received in cash or additional shares.
Determination of the taxability status of dividends is made using the average
annual method. The percentage of income designated as tax-exempt for any
particular distribution may be substantially different from the percentage of
the Fund's income that was tax-exempt during the period covered by the
distribution. 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 B) 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, 1998 are incorporated herein by reference.
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX A
- --------------------------------------------------------------------------------
DESCRIPTION OF CERTAIN NEW ENGLAND CASH MANAGEMENT TRUST -
MONEY MARKET SERIES 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.)
<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.
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.
<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.
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+."
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX D
- --------------------------------------------------------------------------------
MEDIA THAT MAY BE REFERRED TO IN FUND ADVERTISEMENTS OR
SALES LITERATURE
ABC and affiliates Fitch Insights
Adam Smith's Money World Forbes
America Online 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
<PAGE>
Newsday St. Louis Post Dispatch
Newsweek St. Petersburg Times
Nightly Business Report Standard & Poor's Outlook
Orange County Register Standard & Poor's Stock Guide
Orlando Sentinel Stanger's Investment Advisor
Palm Beach Post Stockbroker's Register
Pension World Strategic Insight
Pensions and Investments Tampa Tribune
Personal Investor Time
Philadelphia Inquirer Tobias, Andrew (syndicated column)
Porter, Sylvia (syndicated column) Toledo Blade
Portland Oregonian UPI
Prodigy US News and World Report
Public Broadcasting Service USA Today
Quinn, Jane Bryant (syndicated column) USA TV Network
Registered Representative Value Line
Research Magazine Wall St. Journal
Resource Wall Street Letter
Reuters Wall Street Week
Rocky Mountain News Washington Post
Rukeyser's Business (syndicated column) WBZ
Sacramento Bee WBZ-TV
San Diego Tribune WCVB-TV
San Francisco Chronicle WEEI
San Francisco Examiner WHDH
San Jose Mercury Worcester Telegram
Seattle Post-Intelligencer World Wide Web
Seattle Times Worth Magazine
Securities Industry Management WRKO
Smart Money
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX E
- --------------------------------------------------------------------------------
ADVERTISING AND PROMOTIONAL LITERATURE
References may be included in New England Funds' advertising and
promotional literature to Nvest, L.P. and its affiliates that perform advisory
and subadvisory functions for New England Funds including, but not limited to:
Back Bay Advisors(R), Harris Associates L.P., Loomis, Sayles & Company, L.P.
("Loomis Sayles"), Capital Growth Management Limited Partnership ("CGM") and
Westpeak Investment Advisors, L.P. ("Westpeak"). Reference also may be made to
the funds of their respective fund groups, namely, Loomis Sayles Funds and The
Oakmark Funds.
References may be included in New England Funds' advertising and
promotional literature to other Nvest affiliates including, but not limited to,
New England Investment Associates, L. P., AEW Capital Management, L.P.,
Marlborough Capital Advisors, L.P., Reich & Tang Capital Management, Reich and
Tang Mutual Funds Group, Jurika & Voyles and its fund group, Vaughan, Nelson,
Scarborough & McConnell and Snyder Capital Management, Inc.
References to subadvisers unaffiliated with Nvest, L.P. that perform
subadvisory functions on behalf of New England Funds and their respective fund
groups may be contained in New England Funds' advertising and promotional
literature including, but not limited to, Janus Capital Corporation, Founders
Asset Management, LLC, Montgomery Asset Management, LLC and Robertson, Stephens
& Company Investment Management, L.P.
New England Funds' advertising and promotional material may include,
but is not limited to, discussions of the following information about both
affiliated and unaffiliated entities:
[] Specific and general assessments and forecasts regarding U.S. and world
economies, the economics of specific nations and their impact on the
New England Funds
[] Specific and general investment emphasis, specialties, fields of
expertise, competencies, operations and functions
[] Specific and general investment philosophies, strategies, processes,
techniques and types of analysis
[] Specific and general sources of information, economic models, forecasts
and data services utilized, consulted or considered in the course of
providing advisory or other services
[] The corporate histories, founding dates and names of founders of the
entities
[] Awards, honors and recognition given to the firms
[] The names of those with ownership interest and the percentage of
ownership
[] The industries and sectors from which clients are drawn and specific
client names and background information on current individual,
corporate and institutional clients, including pension and profit
sharing plans
[] Current capitalization, levels of profitability and other financial and
statistical information
[] Identification of portfolio managers, researchers, economists,
principals and other staff members and employees
[] The specific credentials of the above individuals, including, but not
limited to, previous employment, current and past positions, titles and
duties performed, industry experience, educational background and
degrees, awards and honors
[] Current and historical statistics about:
-total dollar amount of assets managed
-New England Funds' assets managed in total and by fund
-the growth of assets
-asset types managed
-numbers of principal parties and employees, and the length of their
tenure, including officers, portfolio managers, researchers,
economists, technicians and support staff
-the above individuals' total and average number of years of industry
experience and the total and average length of their service to the
adviser or the subadviser
[] The general and specific strategies applied by the advisers in the
management of New England Funds' portfolios including, but not limited
to:
-the pursuit of growth, value, income oriented, risk management or
other strategies
-the manner and degree to which the strategy is pursued
-whether the strategy is conservative, moderate or extreme and an
explanation of other features and attributes
-the types and characteristics of investments sought and specific
portfolio holdings
-the actual or potential impact and result from strategy implementation
-through its own areas of expertise and operations, the value added by
subadvisers to the management process
-the disciplines it employs, e.g., in the case of Loomis Sayles, the
strict buy/sell guidelines and focus on sound value it employs, and
goals and benchmarks that it establishes in management, e.g., CGM
pursues growth 50% above the S&P 500
-the systems utilized in management, the features and characteristics
of those systems and the intended results from such computer analysis,
e.g., Westpeak's efforts to identify overvalued and undervalued
issues.
[] Specific and general references to portfolio managers and funds that
they serve as portfolio manager of, other than New England Funds, and
those families of funds, other than New England Funds. Any such
references will indicate that New England Funds and the other funds of
the managers differ as to performance, objectives, investment
restrictions and limitations, portfolio composition, asset size and
other characteristics, including fees and expenses. References may also
be made to industry rankings and ratings of the Funds and other funds
managed by the Funds' adviser and subadvisers, including, but not
limited to, those provided by Morningstar, Lipper Analytical Services,
Forbes and Worth.
In addition, communications and materials developed by New England
Funds will make reference to the following information about Nvest, L.P. and its
affiliates:
Nvest, L.P. is one of the largest publicly traded managers in the U.S.
and is listed on the New York Stock Exchange. Nvest, L.P. maintains over $100
billion in assets under management.
In addition, promotional materials may include:
[] Specific and general references to New England Funds' multi-manager
approach through Nvest affiliates and outside firms including, but not
limited to, the following:
-that each adviser/manager operates independently on a day-to-day basis
and maintains an image and identity separate from Nvest, L.P. and the
other investment managers
-other fund companies are limited to a "one size fits all" approach but
New England Funds draws upon the talents of multiple managers whose
expertise best matches the fund objective
-in this and other contexts reference may be made to New England Funds'
slogan "Where The Best Minds Meet"(R) and that New England Funds
ability to match the talent to the task is one more reason it is
becoming known as "Where The Best Minds Meet."
Financial Adviser Services ("FAS"), a division of Nvest L.P., may be
referenced in Fund advertising and promotional literature concerning the
marketing services it provides to Nvest, L.P.-affiliated fund groups including:
New England Funds, Loomis Sayles Funds, Oakmark Funds and Reich & Tang Funds.
FAS will provide marketing support to Nvest, L.P.-affiliated fund
groups targeting financial advisers, financial intermediaries and institutional
clients who may transact purchases and other fund-related business directly with
these fund groups. Communications will contain information including, but not
limited to: descriptions of clients and the marketplaces to which it directs its
efforts; the mission and goals of FAS and the types of services it provides,
which may include: seminars; its 1-800 number, Web site, Internet or other
electronic facilities; qualitative information about the funds' investment
methodologies; information about specific strategies and management techniques;
performance data and features of the funds; institutional oriented research and
portfolio manager insight and commentary. Additional information contained in
advertising and promotional literature may include: rankings and ratings of the
funds including, but not limited to, those of Morningstar and Lipper Analytical
Services; statistics about the advisers', fund groups' or a specific fund's
assets under management; the histories of the advisers and biographical
references to portfolio managers and other staff including, but not limited to,
background, credentials, honors, awards and recognition received by the advisers
and their personnel; and commentary about the advisers, their funds and their
personnel from third-party sources including newspapers, magazines, periodicals,
radio, television or other electronic media.
References may be included in New England Funds' advertising and
promotional literature about its 401(k) and retirement plans. The information
may include, but is not limited to:
[] Specific and general references to industry statistics regarding 401(k)
and retirement plans including historical information and industry
trends and forecasts regarding the growth of assets, numbers of plans,
funding vehicles, participants, sponsors and other demographic data
relating to plans, participants and sponsors, third party and other
administrators, benefits consultants and firms including, but not
limited to, DC Xchange, William Mercer and other organizations involved
in 401(k) and retirement programs with whom New England Funds may or
may not have a relationship.
[] Specific and general reference to comparative ratings, rankings and
other forms of evaluation as well as statistics regarding the New
England Funds as a 401(k) or retirement plan funding vehicle produced
by, including, but not limited to, Access Research, Dalbar, Investment
Company Institute and other industry authorities, research
organizations and publications.
[] Specific and general discussion of economic, legislative, and other
environmental factors affecting 401(k) and retirement plans, including,
but not limited to, statistics, detailed explanations or broad
summaries of:
-past, present and prospective tax regulation, Internal Revenue Service
requirements and rules, including, but not limited to, reporting
standards, minimum distribution notices, Form 5500, Form 1099R and
other relevant forms and documents, Department of Labor rules and
standards and other regulation. This includes past, current and future
initiatives, interpretive releases and positions of regulatory
authorities about the past, current or future eligibility,
availability, operations, administration, structure, features,
provisions or benefits of 401(k) and retirement plans
-information about the history, status and future trends of Social
Security and similar government benefit programs including, but not
limited to, eligibility and participation, availability, operations
and administration, structure and design, features, provisions,
benefits and costs
-current and prospective ERISA regulation and requirements.
Specific and general discussion of the benefits of 401(k) investment
and retirement plans, and, in particular, the New England Funds 401(k)
and retirement plans, to the participant and plan sponsor, including
explanations, statistics and other data, about:
-increased employee retention
-reinforcement or creation of morale
-deductibility of contributions for participants
-deductibility of expenses for employers
-tax deferred growth, including illustrations and charts
-loan features and exchanges among accounts
-educational services materials and efforts, including, but not limited
to, videos, slides, presentation materials, brochures, an investment
calculator, payroll stuffers, quarterly publications, releases and
information on a periodic basis and the availability of wholesalers
and other personnel.
[] Specific and general reference to the benefits of investing in mutual
funds for 401(k) and retirement plans, and, in particular, New England
Funds and investing in its 401(k) and retirement plans, including, but
not limited to:
-the significant economies of scale experienced by mutual fund
companies in the 401(k) and retirement benefits arena
-broad choice of investment options and competitive fees
-plan sponsor and participant statements and notices
-the plan prototype, summary descriptions and board resolutions
-plan design and customized proposals
-trusteeship, record keeping and administration
-the services of State Street Bank, including, but not limited to,
trustee services and tax reporting
-the services of DST and BFDS, including, but not limited to, mutual
fund processing support, participant 800 numbers and participant
401(k) statements
-the services of Trust Consultants Inc. (TCI), including, but not
limited to, sales support, plan record keeping, document service
support, plan sponsor support, compliance testing and Form 5500
preparation.
[] Specific and general reference to the role of the investment dealer and
the benefits and features of working with a financial professional
including:
-access to expertise on investments
-assistance in interpreting past, present and future market trends and
economic events
-providing information to clients including participants during
enrollment and on an ongoing basis after participation
-promoting and understanding the benefits of investing, including
mutual fund diversification and professional management.
<PAGE>
Registration Nos. 2-81614
811-3658
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Highlights for the Registrant are included in the
prospectus filed as Part A hereof. The following financial
statements are incorporated in the statement of additional
information included in Part B hereof by reference to the annual
report to shareholders for the fiscal year ended June 30, 1998,
which was filed with the Commission on August, 1998.
(i) Portfolio Composition
(ii) Statement of Assets & Liabilities
(iii) Statement of Operations
(iv) Statement of Changes in Net Assets
(v) Per Share Data and Ratios
(b) Exhibits:
1. Second Amended and Restated Agreement and Declaration of
Trust dated September 10, 1993 and Amendment No. 2 thereto
dated January 28, 1996 is incorporated herein by reference
to Post-Effective Amendment No. 22 to the Registrant's
Registration Statement on Form N-1A (File No. 2-81614),
filed on August 23, 1996.
2. Amended By-Laws dated May 8, 1985 are incorporated herein
by reference to Post-Effective Amendment No. 22 to the
Registrant's Registration Statement on Form N-1A (File No.
2-81614), filed on August 23, 1996.
3. None.
4. Rights of shareholders are described in Article III,
Section 6 of the Second Amended and Restated Agreement and
Declaration of Trust incorporated by reference as Exhibit
1 to this Registration Statement.
5. (a) Advisory Agreement between Registrant and New England
Funds Management, L.P. ("NEFM") dated May 1, 1998, filed
herein.
(b) Subadvisory Agreement with the Registrant, NEFM and
Back Bay Advisors, L.P. ("Back Bay Advisors") dated May 1,
1998, is filed herein.
6. (a) Distribution Agreement between the Registrant and New
England Funds, L.P. dated May 1, 1991 is incorporated
herein by reference to Post-Effective Amendment No. 22 to
the Registrant's Registration Statement on Form N-1A (File
No. 2-81614), filed on August 23, 1996.
(b) Form of New England Funds, L.P. Dealer Agreement is
incorporated herein by reference to Post Effective
Amendment No. 23to the Registrant's Registration Statement
on Form N-1A (File No. 2-81614), filed on August 20, 1997.
7. None.
8. Custodian Agreement between Registrant and State Street
Bank and Trust Company dated April 21, 1983 and Amendment
thereto dated September 12, 1991 is incorporated herein by
reference to Post-Effective Amendment No. 22 to the
Registrant's Registration Statement on Form N-1A (File No.
2-81614), filed on August 23, 1996.
9. (a) Shareholder Servicing and Transfer Agency Agreement
between Registrant and TNE Investment Services Corporation
dated September 1, 1993 is incorporated herein by
reference to Post-Effective Amendment No. 22 to the
Registrant's Registration Statement on Form N-1A (File No.
2-81614), filed on August 23, 1996.
(b) Sub-Transfer Agency and Service Agreement between TNE
Investment Services Corporation and State Street Bank and
Trust Company dated September 1, 1993 is incorporated
herein by reference to Post-Effective Amendment No. 22 to
the Registrant's Registration Statement on Form N-1A (File
No. 2-81614), filed on August 23, 1996.
(c) Powers of Attorney designating Edward A. Benjamin,
Frank Nesvet, and Henry L.P. Schmelzer as attorneys to
sign for Kenneth J. Cowan, Peter S. Voss, Henry L.P.
Schmelzer, Graham T. Allison, Jr., Pendleton P. White,
John A. Shane, Sandra O. Moose, Daniel M. Cain and Richard
Darman are filed herein.
10. None.
11. Consent of PricewaterhouseCoopers LLP is to Post Effective
Amendment No. 24to the Registrant's Registration Statement
on Form N-1A (File No. 2-81614), filedherein.
12. None.
13. None.
14. The following are incorporated herein by reference to
Post-Effective Amendment No. 22 to the Registrant's
Registration Statement on Form N-1A (File No. 2-81614),
filed on August 23, 1996: (i) New England Funds, L.P. Tax
Sheltered Custodial Account Agreement; (ii) New England
Funds, L.P. Keogh Plan; (iii) New England Funds, L.P.
Simplified Employee Pension Plan; (iv) New England Funds,
L.P. Individual Retirement Account Prototype.
15. Not applicable.
16. Schedule for calculation of performance data is
incorporated herein by reference to Post-Effective
Amendment No. 22 to the Registrant's Registration
Statement on Form N-1A (File No. 2-81614), filed on August
23, 1996.
17. Financial Data Schedule is filed herewith.
Item 25. Persons Controlled by or Under Common Control with Registrant
None.
Item 26. Number of Holders of Securities
The following table sets forth the number of record holders of
each class of securities of the Registrant as of June 30, 1998:
(1) (2)
Title of Class Number of Record Holders
-------------- ------------------------
Class A Class B
2,648 33
Shares of beneficial interest, no par value
Item 27. Indemnification
See Article 4 of the Registrant's Amended By-Laws filed as
Exhibit 2 incorporated herein by reference.
In addition, New England Investment Companies, L.P. ("NEIC"),
the parent company of the Trust's adviser and distributor,
maintains a directors and officers liability insurance policy
with maximum coverage of $15 million, under which the trustees
and officers of the trust are names as insureds.
Item 28: Business and Other Connections of Investment Adviser
(a) Back Bay Advisors, which serves as subadviser to the
Registrant, is a registered investment adviser that is
wholly-owned by Nvest Companies, L.P. ("NEIC"), a New York
Stock Exchange-listed company. Back Bay Advisors serves as
investment adviser to a number of other registered investment
companies.
Back Bay Advisors' general partner and officers have been
engaged during the past two fiscal years in the following
businesses, professions, vocations or employments of a
substantial nature (former affiliations are marked with an
asterisk):
<TABLE>
<CAPTION>
Name and Office with Name and Address of Nature of
Back Bay Advisors Other Affiliations Connection
----------------- ------------------ ----------
<S> <C> <C>
Back Bay Advisors, Inc. None None
General Partner
Charles T. Wallis, President and Chief NEF Corporation Director
Executive Officer 399 Boylston Street
Boston, MA 02116
Back Bay Advisors, Inc. President, Chief Executive Officer and
399 Boylston Street Director
Boston, MA 02116
Edgar M. Reed, Executive Vice President Aetna Capital Management* Head of Fixed Income Management Group
and Chief Investment Officer 151 Farmington Avenue
Hartford, CT 06156
Scott A. Millimet, Executive Vice Back Bay Advisors, Inc. Executive Vice President
President 399 Boylston Street
Boston, MA 02116
Kimberly J. Forsyth, Senior Vice None None
President
Catherine Bunting, Senior Vice President None None
J. Scott Nicholson, Senior Vice President None None
Harold B. Bjornson, Vice President None None
Peter Palfrey, Vice President None None
Nathan R. Wentworth, Vice President None None
Paul Zamagni, Vice President and None
Treasurer
Eric Gutterson, Vice President None None
</TABLE>
(b) New England Funds Management, L.P., ("NEFM") a registered
investment adviser that is wholly-owned byNvest, serves as
investment adviser to the Registrant. NEFM, organized in 1995,
also serves as investment adviser to most of the series of New
England Funds Trust I, all of the series of New England Funds
Trust II, New England Cash Management Trust and New England
Equity Income Fund. NEFM's general partner, directors and
officers have been engaged during the past two fiscal years in
the following businesses, professions, vocations or employments
of a substantial nature (former affiliations are marked with an
asterisk):
<TABLE>
<CAPTION>
Name and Office with Name and Address of Nature of
NEFM Other Affiliations Connection
-------------------- ------------------- ---------
<S> <C> <C>
NEF Corporation None None
General Partner
Henry L.P. Schmelzer, New England Funds, L.P. Managing Director, President and CEO
Managing Director, President and Chief 399 Boylston Street
Executive Officer Boston, MA 02116
NEF Corporation President, and, CEO and Director
399 Boylston Street
Boston, MA 02116
New England Funds Service Chief Executive Officer
Corporation ("NEFSCO")
399 Boylston Street
Boston, MA 02116
Back Bay Advisors, Inc. Director
399 Boylston Street
Boston, MA 02116
New England Securities Corporation* Director
399 Boylston Street
Boston, MA 02116
Frank Nesvet, New England Funds, L.P. Managing Director, Senior Vice
Managing Director, Senior Vice 399 Boylston Street President, and CFO and Fund Treasurer
President, and CFO and Fund Treasurer Boston, MA 02116
NEF Corporation Senior Vice President, and CFO and
399 Boylston Street Treasurer
Boston, MA 02116
NEFSCO Senior Vice President, General
399 Boylston Street Counsel, Secretary and Clerk
Boston, MA 02116
John E. Pelletier NEF Corporation Senior Vice President, General
Managing Director, Senior Vice 399 Boylston Street Counsel, Secretary and Clerk
President, General Counsel, Assistant Boston, MA
Secretary and Clerk
New England Funds, L.P. Managing Director, Senior Vice
399 Boylston Street President, General Counsel, Secretary
Boston, MA 02116 Clerk
NEFSCO Senior Vice President, General
399 Boylston Street Counsel and Chief Legal Officer
Boston, MA 02116
Bruce R. Speca, NEF Corporation Executive Vice President
Managing Director and Executive Vice 399 Boylston Street
President Boston, MA 02116
New England Funds, L.P. Managing Director and Executive Vice
399 Boylston Street President
Boston, MA 02116
NEFSCO Executive Vice President and Chief
399 Boylston Street Operating Officer
Boston, MA 02116
Scott E. Wennerholm New England Funds, L.P. Managing Director, Senior Vice
Managing Director, Senior Vice President 399 Boylston Street President and Chief Financial Officer
and Chief Financial Officer Boston, MA 02116
NEFSCO Executive Vice President and Chief
399 Boylston Street Operating Officer
Boston, MA 02116
NEF Corporation Senior Vice President and Chief
399 Boylston Street Financial Officer
Boston, MA 02116
New England Funds, L.P. Senior Vice President
399 Boylston Street
Boston, MA 02116
NEFSCO Senior Vice President and Chief
399 Boylston Street Financial Officer
Boston, MA 02116
Peter H. Duffy NEF Corporation Vice President
Vice President 399 Boylston Street
Boston, MA 02116
Christopher Wilson New England Funds, L.P. Managing Director and Senior Vice
Managing Director and Senior 399 Boylston Street President
Vice President Boston, MA 02116
New England Funds, L.P. Vice President
399 Boylston Street
Boston, MA 02116
NEF Corporation Senior Vice President
399 Boylston Street
Boston, MA 02116
NEFSCO Senior Vice President
399 Boylston Street
Boston, MA 02116
James H. Davis New England Funds, L.P. Managing Director and Senior Vice
Managing Director and Senior Vice 399 Boylston Street President
President Boston, MA 02116
NEF Corporation Senior Vice President
399 Boylston Street
Boston, MA 02116
NEFSCO Senior Vice President
399 Boylston Street
Boston, MA 02116
Caren I. Leedom New England Funds, L.P. Managing Director and Senior Vice
Managing Director and Senior Vice 399 Boylston Street President
President Boston, MA 02116
NEF Corporation Senior Vice President
399 Boylston Street
Boston, MA 02116
NEFSCO Senior Vice President
399 Boylston Street
Boston, MA 02116
Raymond K. Girouard New England Funds, L.P. Senior Vice President, Comptroller
Senior Vice President and Assistant 399 Boylston Street and Assistant Treasurer
Treasurer Boston, MA 02116
NEF Corporation Senior Vice President, Assistant and
399 Boylston Street Comptroller
Boston, MA 02116
NEFSCO Senior Vice President, Comptroller
399 Boylston Street and Assistant Treasurer
Boston, MA 02116
Robert E. O'Hare NEF Corporation Vice President, Senior Counsel
Vice President, Senior Counsel, 399 Boylston Street Assistant Secretary and Assistant
Assistant Secretary and Assistant Clerk Boston, MA 02116 Clerk
New England Funds, L.P. Vice President Senior Counsel
399 Boylston Street Assistant Secretary and Assistant
Boston, MA 02116 Clerk
NEFSCO Vice President, Senior Counsel
399 Boylston Street Assistant Secretary and Assistant
Boston, MA 02116 Clerk
Martin G. Dyer NEF Corporation Vice President and Assistant Secretary
Vice President and Assistant Secretary 399 Boylston Street
Boston, MA 02116
New England Funds, L.P. Vice President and Assistant Secretary
399 Boylston Street
Boston, MA 02116
NEFSCO Vice President and Assistant Secretary
399 Boylston Street
Boston, MA 02116
Ralph M. Greggs None None
Senior Vice President
New England Funds, L.P. Senior Vice President
399 Boylston Street
Boston, MA 02116
Beatriz A. Pina-Smith NEF Corporation Vice President and Assistant
Vice President and Assistant Treasurer 399 Boylston Street Treasurer and Assistant Controller
Boston, MA 02116
New England Funds, L.P. Vice President and Assistant
399 Boylston Street Treasurer and Assistant Controller
Boston, MA 02116
</TABLE>
Item 29. Principal Underwriters
(a) New England Funds, L.P., the Registrant's principal underwriter, also serves
as principal underwriter for:
New England Funds Trust I
New England Funds Trust II
New England Funds Trust III
New England Cash Management Trust
(b) The general partner and officers of the Registrant's principal underwriter,
New England Funds, L.P., and their addresses are as follows:
<TABLE>
<CAPTION>
Positions and Offices with Positions and Offices
Name Principal Underwriter with Registrant
---- --------------------- ---------------
<S> <C> <C>
NEF Corporation General Partner None
Henry L.P. Schmelzer Managing Director, President and Chief President and Trustee
Executive Officer
Bruce R. Speca Managing Director and Executive Vice President Executive Vice President
Frank Nesvet Managing Director, Senior Vice President and Treasurer
Chief Financial Officer
James H. Davis Managing Director and Senior Vice President None
Caren I. Leedom Managing Director and Senior Vice President None
Raymond K. Girouard Senior Vice President, Treasurer and None
Controller
Frank S. Maselli Senior Vice President None
Rayona T. Bennett Vice President None
Elizabeth P. Burns Vice President None
Peter H. Duffy Vice President Assistant Treasurer
Martin G. Dyer Vice President and Assistant Secretary None
Tracy A. Fagan Vice President None
Philip J. Graham Jr. Vice President None
Ralph M. Greggs Vice President None
Lynne H. Johnson Vice President None
David E. Kaplan Vice President None
Marie G. McKenzie Vice President None
Lynda A. Nelson Vice President None
Robert E. O'Hare Vice President, Senior Counsel, Assistant Assistant Secretary
Secretary and Assistant Clerk
Kristine E. Swanson Vice President None
Beatriz A. Pina-Smith Vice President and Assistant Controller None
Sharon M. Wratchford Vice President None
</TABLE>
The principal business address of all the above persons or entities is
399 Boylston Street, Boston, MA 02116.
(c) Not applicable.
Item 30. Location of Accounts and Records
The following companies maintain possession of the documents required
by the specified rules:
(a) Registrant
Rule 31a-1(b) (4)
Rule 31a-2(a)
(b) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Rule 31a-1(a)
Rule 31a-1(b) (1), (2), (3), (5), (6), (7), (8)
Rule 31a-2(a)
(c) Back Bay Advisors, L.P. 399 Boylston Street Boston,
Massachusetts 02116 Rule 31a-1(a) (9), (10), (11); (f) Rule
31a-2(a); (e)
(d) New England Funds, L.P. 399 Boylston Street Boston,
Massachusetts 02116 Rule 31a - 1(d) Rule 31a - 2(c)
Item 31. Management Services
Not applicable.
Item 32. Undertakings
The Registrant undertakes to provide its annual report to any
person who receives the prospectus and who requests the annual
report.
<PAGE>
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Post-Effective Amendment No. 25 to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment No. 25 to its Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Boston, in the Commonwealth of Massachusetts on the
28th day of August, 1998.
NEW ENGLAND TAX EXEMPT
MONEY MARKET TRUST
By: PETER S. VOSS*
---------------------
Peter S. Voss
Chief Executive Officer
*By: /s/ FRANK NESVET
---------------------
Frank Nesvet
Attorney-in-Fact
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 25 to Registration Statement No. 2-81614 has been
signed below by the following persons in the capacities and on the date
indicated.
Signature Title Date
Chairman of the Board;
Chief Executive
Officer; Principal
PETER S. VOSS* Executive Officer; August 28, 1998
- -------------------------- Trustee
Peter S. Voss
/s/ FRANK NESVET Treasurer August 28, 1998
- --------------------------
Frank Nesvet
HENRY L. P. SCHMELZER* Trustee and President August 28, 1998
- --------------------------
Henry L. P. Schmelzer
GRAHAM T. ALLISON, JR.* Trustee August 28, 1998
- --------------------------
Graham T. Allison, Jr.
DANIEL M. CAIN* Trustee August 28, 1998
- --------------------------
Daniel M. Cain
KENNETH J. COWAN* Trustee August 28, 1998
- --------------------------
Kenneth J. Cowan
RICHARD DARMAN* Trustee August 28, 1998
- --------------------------
Richard Darman
SANDRA O. MOOSE* Trustee August 28, 1998
- --------------------------
Sandra O. Moose
JOHN A. SHANE* Trustee August 28, 1998
- --------------------------
John A. Shane
PENDLETON P. WHITE* Trustee August 28, 1998
- --------------------------
Pendleton P. White
*By: /s/ FRANK NESVET
---------------------
Frank Nesvet
Attorney-in-Fact
August 28, 1998
<PAGE>
N-1A EXHIBITS ITEM 24(B)
EXHIBIT NUMBER EXHIBIT
-------------- -------
5 (a) Advisory Agreement between the Registrant and New England
Funds Management, L.P.
5 (b) Subadvisory Agreement among Registrant, New England Funds
Management L.P. and Back Bay Advisors, L.P.
9 (c) Power of Attorney
11 Consent of PricewaterhouseCoopers LLP
17 Financial data schedule
<PAGE>
EXHIBIT 99.5(A)
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST
ADVISORY AGREEMENT
AGREEMENT made the 30th day of August, 1996, and amended this 1st day
of May, 1998, by and between NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST (the
"Fund"), and NEW ENGLAND FUNDS MANAGEMENT, L.P., a Delaware limited partnership
(the "Manager").
WITNESSETH:
WHEREAS, the Fund and the Manager wish to enter into an agreement
setting forth the terms upon which the Manager (or certain other parties acting
pursuant to delegation from the Manager) will perform certain services for the
Fund;
NOW, THEREFORE, in consideration of the premises and covenants
hereinafter contained, the parties agree as follows:
1. (a) The Fund hereby employs the Manager to furnish the Fund with
Portfolio Management Services (as defined in Section 2 hereof) and
Administrative Services (as defined in Section 3 hereof), subject to
the authority of the Manager to delegate any or all of its
responsibilities hereunder to other parties as provided in Sections
1(b) and (c) hereof. The Manager hereby accepts such employment and
agrees, at its own expense, to furnish such services (either directly
or pursuant to delegation to other parties as permitted by Sections
1(b) and (c) hereof) and to assume the obligations herein set forth,
for the compensation herein provided; provided, however, that the
Manager shall have no obligation to pay the fees of any Sub-Adviser (as
defined in Section 1(b) hereof), to the extent that the Fund has
agreed, under any contract to which the Fund and the Sub-Adviser are
parties (a "Sub-Advisory Agreement") to pay such fees. The Manager
shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent the Fund in any way or otherwise be
deemed an agent of the Fund.
(b) The Manager may delegate any or all of its
responsibilities hereunder with respect to the provision of Portfolio
Management Services (and assumption of related expenses) to one or more
other parties (each such party, a "Sub-Adviser"), pursuant in each case
to a written agreement with such Sub-Adviser that meets the
requirements of Section 15 of the Investment Company Act of 1940 and
the rules thereunder (the "1940 Act") applicable to contracts for
service as investment adviser of a registered investment company
(including without limitation the requirements for approval by the
trustees of the Fund and the shareholders of the Fund), subject,
however, to such exemptions as may be granted by the Securities and
Exchange Commission. Any Sub-Adviser may (but need not) be affiliated
with the Manager. If different Sub-Advisers are engaged to provide
Portfolio Management Services with respect to different segments of the
portfolio of the Fund, the Manager shall determine, in the manner
described in the prospectus of the Fund from time to time in effect,
what portion of the assets belonging to the Fund shall be managed by
each Sub-Adviser.
(c) The Manager may delegate any or all of its
responsibilities hereunder with respect to the provision of
Administrative Services to one or more other parties (each such party,
an "Administrator") selected by the Manager. Any Administrator may (but
need not) be affiliated with the Manager.
2. As used in this Agreement, "Portfolio Management Services" means
management of the investment and reinvestment of the assets belonging to the
Fund, consisting specifically of the following:
(a) obtaining and evaluating such economic, statistical and
financial data and information and undertaking such additional
investment research as shall be necessary or advisable for the
management of the investment and reinvestment of the assets belonging
to the Fund in accordance with the Fund' investment objectives and
policies;
(b) taking such steps as are necessary to implement the
investment policies of the Fund by purchasing and selling of
securities, including the placing of orders for such purchase and sale;
and
(c) regularly reporting to the Board of Trustees of the Fund
with respect to the implementation of the investment policies of the
Fund.
3. As used in this Agreement, "Administrative Services" means the
provision to the Fund, by or at the expense of the Manager, of the following:
(a) office space in such place or places as may be agreed upon
from time to time by the Fund and the Manager, and all necessary office
supplies, facilities and equipment;
(b) necessary executive and other personnel for managing the
affairs of the Fund (exclusive of those related to and to be performed
under contract for custodial, transfer, dividend and plan agency
services by the entity or entities selected to perform such services
and exclusive of any managerial functions described in Section 4);
(c) compensation, if any, of trustees of the Fund who are
directors, officers or employees of the Manager, any Sub-Adviser or any
Administrator or of any affiliated person (other than a registered
investment company) of the Manager, any Sub-Adviser or any
Administrator; and
(d) supervision and oversight of the Portfolio Management
Services provided by each Sub-Adviser, and oversight of all matters
relating to compliance by the Fund with applicable laws and with the
Fund' investment policies, restrictions and guidelines, if the Manager
has delegated to one or more Sub-Advisers any or all of its
responsibilities hereunder with respect to the provision of Portfolio
Management Services.
4. Nothing in section 3 hereof shall require the Manager to bear, or to
reimburse the Fund for:
(a) any of the costs of printing and mailing the items
referred to in sub-section (n) of this section 4;
(b) any of the costs of preparing, printing and distributing
sales literature;
(c) compensation of trustees of the Fund who are not
directors, officers or employees of the Manager, any Sub-Adviser or any
Administrator or of any affiliated person (other than a registered
investment company) of the Manager, any Sub-Adviser or any
Administrator;
(d) registration, filing and other fees in connection with
requirements of regulatory authorities;
(e) the charges and expenses of any entity appointed by the
Fund for custodial, paying agent, shareholder servicing and plan agent
services;
(f) charges and expenses of independent accountants retained
by the Fund;
(g) charges and expenses of any transfer agents and registrars
appointed by the Fund;
(h) brokers' commissions and issue and transfer taxes
chargeable to the Fund in connection with securities transactions to
which the Fund is a party;
(i) taxes and fees payable by the Fund to federal, state or
other governmental agencies;
(j) any cost of certificates representing shares of the Fund;
(k) legal fees and expenses in connection with the affairs of
the Fund, including registering and qualifying its shares with Federal
and State regulatory authorities;
(l) expenses of meetings of shareholders and trustees of the
Fund;
(m) interest, including interest on borrowings by the Fund;
(n) the costs of services, including services of counsel,
required in connection with the preparation of the Fund's registration
statements and prospectuses, including amendments and revisions
thereto, annual, semiannual and other periodic reports of the Fund, and
notices and proxy solicitation material furnished to shareholders of
the Fund or regulatory authorities; and
(o) the Fund's expenses of bookkeeping, accounting, auditing
and financial reporting, including related clerical expenses.
5. All activities undertaken by the Manager or any Sub-Adviser or
Administrator pursuant to this Agreement shall at all times be subject to the
supervision and control of the Board of Trustees of the Fund, any duly
constituted committee thereof or any officer of the Fund acting pursuant to like
authority.
6. The services to be provided by the Manager and any Sub-Adviser or
Administrator hereunder are not to be deemed exclusive and the Manager and any
Sub-Adviser or Administrator shall be free to render similar services to others,
so long as its services hereunder are not impaired thereby.
7. As full compensation for all services rendered, facilities furnished
and expenses borne by the Manager hereunder, the Fund shall pay the Manager
compensation in an amount equal to the annual rate of 0.40% of the first $100
million of the average daily net assets of the Fund and 0.30% over $100 million
of such assets, respectively (or such lesser amount as the Manager may from time
to time agree to receive) minus any fees payable by the Fund, with respect to
the period in question, to any one or more Sub-Advisers pursuant to any
Sub-Advisory Agreements in effect with respect to such period. Such compensation
shall be payable monthly in arrears or at such other intervals, not less
frequently than quarterly, as the Board of Trustees of the Fund may from time to
time determine and specify in writing to the Manager. The Manager hereby
acknowledges that the Fund's obligation to pay such compensation is binding only
on the assets and property belonging to the Fund.
8. If the total of all ordinary business expenses of the Fund as a
whole (including investment advisory fees but excluding interest, taxes,
portfolio brokerage commissions, distribution-related expenses and extraordinary
expenses) for any fiscal year exceeds the lowest applicable percentage of
average net assets or income limitations prescribed by any state in which shares
of the Fund are qualified for sale, the Manager shall pay such excess. Should
the applicable state limitation provisions fail to specify how the average net
assets of the Fund or belonging to the Fund are to be calculated, that figure
shall be calculated by reference to the average daily net assets of the Fund.
9. It is understood that any of the shareholders, trustees, officers,
employees and agents of the Fund may be a shareholder, director, officer,
employee or agent of, or be otherwise interested in, the Manager, any affiliated
person of the Manager, any organization in which the Manager may have an
interest or any organization which may have an interest in the Manager; that the
Manager, any such affiliated person or any such organization may have an
interest in the Fund; and that the existence of any such dual interest shall not
affect the validity hereof or of any transactions hereunder except as otherwise
provided in the Agreement and Declaration of Trust of the Fund, the partnership
agreement of the Manager or specific provisions of applicable law.
10. This Agreement shall become effective as of the date of its
execution, and
(a) unless otherwise terminated, this Agreement shall continue
in effect for two years from the date of execution, and from year to
year thereafter so long as such continuance is specifically approved at
least annually (i) by the Board of Trustees of the Fund or by vote of a
majority of the outstanding voting securities of the Fund, and (ii) by
vote of a majority of the trustees of the Fund who are not interested
persons of the Fund or the Manager, cast in person at a meeting called
for the purpose of voting on, such approval;
(b) this Agreement may at any time be terminated on sixty
days' written notice to the Manager either by vote of the Board of
Trustees of the Fund or by vote of a majority of the outstanding voting
securities of the Fund;
(c) this Agreement shall automatically terminate in the event
of its assignment;
(d) this Agreement may be terminated by the Manager on ninety
days' written notice to the Fund;
(e) if New England Funds, L.P., the Fund's principal
underwriter, requires the Fund or the Fund to change its name so as to
eliminate all references to the words "New England" or the letters
"TNE" pursuant to the provisions of the Fund's Distribution Agreement
relating to the Fund with said principal underwriter, this Agreement
shall automatically terminate at the time of such change unless the
continuance of this Agreement after such change shall have been
specifically approved by vote of a majority of the outstanding voting
securities of the Fund and by vote of a majority of the trustees of the
Fund who are not interested persons of the Fund or the Manager, cast in
person at a meeting called for the purpose of voting on such approval.
Termination of this Agreement pursuant to this Section 10 shall be
without the payment of any penalty.
11. This Agreement may be amended at any time by mutual consent of the
parties, provided that such consent on the part of the Fund shall have been
approved by vote of a majority of the outstanding voting securities of the Fund
and by vote of a majority of the trustees of the Fund who are not interested
persons of the Fund or the Manager, cast in person at a meeting called for the
purpose of voting on such approval.
12. For the purpose of this Agreement, the terms "vote of a majority of
the outstanding voting securities," "interested person," "affiliated person" and
"assignment" shall have their respective meanings defined in the 1940 Act,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under the 1940 Act. References in this Agreement to any
assets, property or liabilities "belonging to" the Fund shall have the meaning
defined in the Fund's Agreement and Declaration of Trust as amended from time to
time.
13. In the absence of willful misfeasance, bad faith or gross
negligence on the part of the Manager, or reckless disregard of its obligations
and duties hereunder, the Manager shall not be subject to any liability to the
Fund, to any shareholder of the Fund or to any other person, firm or
organization, for any act or omission in the course of, or connected with,
rendering services hereunder.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST,
By:
----------------------------
Name: Henry L.P. Schmelzer
Title: President
NEW ENGLAND FUNDS MANAGEMENT, L.P.
By NEF Corporation, its general partner
By:
----------------------------
Name: John E. Pelletier
Title: Managing Director, Senior Vice President, General Counsel, Secretary
& Clerk
<PAGE>
NOTICE
A copy of the Agreement and Declaration of Trust establishing New
England Tax Exempt Money Market Trust (the "Fund") is on file with the Secretary
of The Commonwealth of Massachusetts, and notice is hereby given that this
Agreement is executed with respect to the Fund on behalf of the Fund by officers
of the Fund as officers and not individually and that the obligations of or
arising out of this Agreement are not binding upon any of the trustees, officers
or shareholders individually but are binding only upon the assets and property
belonging to the Fund.
<PAGE>
EXHIBIT 99.5(B)
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST
SUB-ADVISORY AGREEMENT
(BACK BAY ADVISORS, L.P.)
Sub-Advisory Agreement (this "Agreement") entered into as of August 30,
1996, and amended this 1st day of May, 1998, by and among New England Tax Exempt
Money Market Trust, a Massachusetts business trust (the "Trust"), New England
Funds Management, L.P., a Delaware limited partnership (the "Manager"), and Back
Bay Advisors, L.P., a Delaware limited partnership (the "Sub-Adviser").
WHEREAS, the Manager has entered into an Advisory Agreement dated
August 30, 1996 (the "Advisory Agreement") with the Trust, relating to the
provision of portfolio management and administrative services to the Trust;
WHEREAS, the Advisory Agreement provides that the Manager may delegate
any or all of its portfolio management responsibilities under the Advisory
Agreement to one or more sub-advisers;
WHEREAS, the Manager and the trustees of the Trust desire to retain the
Sub-Adviser to render portfolio management services in the manner and on the
terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, the Trust, the Manager and the Sub-Adviser agree as
follows:
1. Sub-Advisory Services.
a. The Sub-Adviser shall, subject to the supervision of the
Manager and of any administrator appointed by the Manager (the
"Administrator"), manage the investment and reinvestment of the assets
of the Trust, and have the authority on behalf of the Trust to vote all
proxies and exercise all other rights of the Trust as a security holder
of companies in which the Trust from time to time invests. The
Sub-Adviser shall manage the Trust in conformity with (1) the
investment objective, policies and restrictions of the Trust set forth
in the Trust's prospectus and statement of additional information
relating to the Trust, (2) any additional policies or guidelines
established by the Manager or by the Trust's trustees that have been
furnished in writing to the Sub-Adviser and (3) the provisions of the
Internal Revenue Code (the "Code") applicable to "regulated investment
companies" (as defined in Section 851 of the Code), all as from time to
time in effect (collectively, the "Policies"), and with all applicable
provisions of law, including without limitation all applicable
provisions of the Investment Company Act of 1940 (the "1940 Act") and
the rules and regulations thereunder. Subject to the foregoing, the
Sub-Adviser is authorized, in its discretion and without prior
consultation with the Manager, to buy, sell, lend and otherwise trade
in any stocks, bonds and other securities and investment instruments on
behalf of the Trust, without regard to the length of time the
securities have been held and the resulting rate of portfolio turnover
or any tax considerations; and the majority or the whole of the Trust
may be invested in such proportions of stocks, bonds, other securities
or investment instruments, or cash, as the Sub-Adviser shall determine.
b. The Sub-Adviser shall furnish the Manager and the
Administrator monthly, quarterly and annual reports concerning
portfolio transactions and performance of the Trust in such form as may
be mutually agreed upon, and agrees to review the Trust and discuss the
management of it. The Sub-Adviser shall permit all books and records
with respect to the Trust to be inspected and audited by the Manager
and the Administrator at all reasonable times during normal business
hours, upon reasonable notice. The Sub-Adviser shall also provide the
Manager with such other information and reports as may reasonably be
requested by the Manager from time to time, including without
limitation all material requested by or required to be delivered to the
Trustees of the Trust.
c. The Sub-Adviser shall provide to the Manager a copy of the
Sub-Adviser's Form ADV as filed with the Securities and Exchange
Commission and a list of the persons whom the Sub-Adviser wishes to
have authorized to give written and/or oral instructions to custodians
of assets of the Trust.
2. Obligations of the Manager.
a. The Manager shall provide (or cause the Trust' Custodian
(as defined in Section 3 hereof) to provide) timely information to the
Sub-Adviser regarding such matters as the composition of assets of the
Trust, cash requirements and cash available for investment in the
Trust, and all other information as may be reasonably necessary for the
Sub-Adviser to perform its responsibilities hereunder.
b. The Manager has furnished the Sub-Adviser a copy of the
prospectus and statement of additional information of the Trust and
agrees during the continuance of this Agreement to furnish the
Sub-Adviser copies of any revisions or supplements thereto at, or, if
practicable, before the time the revisions or supplements become
effective. The Manager agrees to furnish the Sub-Adviser with minutes
of meetings of the trustees of the Trust applicable to the Trust to the
extent they may affect the duties of the Sub-Adviser, and with copies
of any financial statements or reports made by the Trust to its
shareholders, and any further materials or information which the
Sub-Adviser may reasonably request to enable it to perform its
functions under this Agreement.
3. Custodian. The Manager shall provide the Sub-Adviser with a copy of
the Trust's agreement with the custodian designated to hold the assets of the
Trust (the "Custodian") and any modifications thereto (the "Custody Agreement"),
copies of such modifications to be provided to the Sub-Adviser a reasonable time
in advance of the effectiveness of such modifications. The assets of the Trust
shall be maintained in the custody of the Custodian identified in, and in
accordance with the terms and conditions of, the Custody Agreement (or any
sub-custodian properly appointed as provided in the Custody Agreement). The
Sub-Adviser shall have no liability for the acts or omissions of the Custodian,
unless such act or omission is taken in reliance upon instruction given to the
Custodian by a representative of the Sub-Adviser properly authorized to give
such instruction under the Custody Agreement. Any assets added to the Trust
shall be delivered directly to the Custodian.
4. Proprietary Rights. The Manager agrees and acknowledges that the
Sub-Adviser is the sole owner of the name "Back Bay Advisors, L.P." and that all
use of any designation consisting in whole or part of "Back Bay Advisors, L.P."
under this Agreement shall inure to the benefit of the Sub-Adviser. The Manager
on its own behalf and on behalf of the Trust agrees not to use any such
designation in any advertisement or sales literature or other materials
promoting the Trust, except with the prior written consent of the Sub-Adviser.
Without the prior written consent of the Sub-Adviser, the Manager shall not, and
the Manager shall use its best efforts to cause the Trust not to, make
representations regarding the Sub-Adviser in any disclosure document,
advertisement or sales literature or other materials relating to the Trust. Upon
termination of this Agreement for any reason, the Manager shall cease, and the
Manager shall use its best efforts to cause the Trust to cease, all use of any
such designation as soon as reasonably practicable.
5. Expenses. Except for expenses specifically assumed or agreed to be
paid by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be liable for
any organizational, operational or business expenses of the Manager or the Trust
including, without limitation, (a) interest and taxes, (b) brokerage commissions
and other costs in connection with the purchase or sale of securities or other
investment instruments with respect to the Trust, and (c) custodian fees and
expenses. Any reimbursement of advisory fees required by any expense limitation
provision of any law shall be the sole responsibility of the Manager. The
Manager and the Sub-Adviser shall not be considered as partners or participants
in a joint venture. The Sub-Adviser will pay its own expenses incurred in
furnishing the services to be provided by it pursuant to this Agreement. Neither
the Sub-Adviser nor any affiliated person thereof shall be entitled to any
compensation from the Manager or the Trust with respect to service by any
affiliated person of the Sub-Adviser as an officer or trustee of the Trust
(other than the compensation to the Sub-Adviser payable by the Manager pursuant
to Section 7 hereof).
6. Purchase and Sale of Assets. The Sub-Adviser shall place all orders
for the purchase and sale of securities for the Trust with brokers or dealers
selected by the Sub-Adviser, which may include brokers or dealers affiliated
with the Sub-Adviser, provided such orders comply with Rule 17e-1 under the 1940
Act in all respects. To the extent consistent with applicable law, purchase or
sell orders for the Trust may be aggregated with contemporaneous purchase or
sell orders of other clients of the Sub-Adviser. The Sub-Adviser shall use its
best efforts to obtain execution of transactions for the Trust at prices which
are advantageous to the Trust and at commission rates that are reasonable in
relation to the benefits received. However, the Sub-Adviser may select brokers
or dealers on the basis that they provide brokerage, research or other services
or products to the Trust and/or other accounts serviced by the Sub-Adviser. To
the extent consistent with applicable law, the Sub-Adviser may pay a broker or
dealer an amount of commission for effecting a securities transaction in excess
of the amount of commission or dealer spread another broker or dealer would have
charged for effecting that transaction if the Sub-Adviser determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research products and/or services provided by such broker or
dealer. This determination, with respect to brokerage and research services or
products, may be viewed in terms of either that particular transaction or the
overall responsibilities which the Sub-Adviser and its affiliates have with
respect to the Trust or to accounts over which they exercise investment
discretion. Not all such services or products need be used by the Sub-Adviser in
managing the Trust.
7. Compensation of the Sub-Adviser. As full compensation for all
services rendered, facilities furnished and expenses borne by the Sub-Adviser
hereunder, the Sub-Adviser shall be paid at the annual rate of 0.200% of the
first $100 million of the average daily net assets of the Trust and 0.150% in
excess of $100 million of such assets, respectively (or such lesser amount as
the Sub-Adviser may from time to time agree to receive). Such compensation shall
be paid by the Trust (except to the extent the Trust, the Sub-Advisor and the
Manager otherwise agree in writing from time to time). Such compensation shall
be payable monthly in arrears or at such other intervals, not less frequently
than quarterly, as the Manager is paid by the Trust pursuant to the Advisory
Agreement.
8. Non-Exclusivity. The Manager and the Trust agree that the services
of the Sub-Adviser are not to be deemed exclusive and that the Sub-Adviser and
its affiliates are free to act as investment manager and provide other services
to various investment companies and other managed accounts, except as the
Sub-Adviser and the Manager or the Administrator may otherwise agree from time
to time in writing before or after the date hereof. This Agreement shall not in
any way limit or restrict the Sub-Adviser or any of its directors, officers,
employees or agents from buying, selling or trading any securities or other
investment instruments for its or their own account or for the account of others
for whom it or they may be acting, provided that such activities do not
adversely affect or otherwise impair the performance by the Sub-Adviser of its
duties and obligations under this Agreement. The Manager and the Trust recognize
and agree that the Sub-Adviser may provide advice to or take action with respect
to other clients, which advice or action, including the timing and nature of
such action, may differ from or be identical to advice given or action taken
with respect to the Trust. The Sub-Adviser shall for all purposes hereof be
deemed to be an independent contractor and shall, unless otherwise provided or
authorized, have no authority to act for or represent the Trust or the Manager
in any way or otherwise be deemed an agent of the Trust or the Manager.
9. Liability. Except as may otherwise be provided by the 1940 Act or
other federal securities laws, neither the Sub-Adviser nor any of its officers,
directors, partners, employees or agents (the "Indemnified Parties") shall be
subject to any liability to the Manager, the Trust, the Trust or any shareholder
of the Trust for any error of judgment, any mistake of law or any loss arising
out of any investment or other act or omission in the course of, connected with,
or arising out of any service to be rendered under this Agreement, except by
reason of willful misfeasance, bad faith or gross negligence in the performance
of the Sub-Adviser's duties or by reason of reckless disregard by the
Sub-Adviser of its obligations and duties hereunder. The Manager shall hold
harmless and indemnify the Sub-Adviser for any loss, liability, cost, damage or
expense (including reasonable attorneys fees and costs) arising from any claim
or demand by any past or present shareholder of the Trust that is not based upon
the obligations of the Sub-Adviser under this Agreement.
10. Effective Date and Termination. This Agreement shall become
effective as of the date of its execution, and
a. unless otherwise terminated, this Agreement shall continue
in effect for two years from the date of execution, and from year to
year thereafter so long as such continuance is specifically approved at
least annually (i) by the Board of Trustees of the Trust or by vote of
a majority of the outstanding voting securities of the Trust, and (ii)
by vote of a majority of the trustees of the Trust who are not
interested persons of the Trust, the Manager or the Sub-Adviser, cast
in person at a meeting called for the purpose of voting on such
approval;
b. this Agreement may at any time be terminated on sixty days'
written notice to the Sub-Adviser either by vote of the Board of
Trustees of the Trust or by vote of a majority of the outstanding
voting securities of the Trust;
c. this Agreement shall automatically terminate in the event
of its assignment or upon the termination of the Advisory Agreement;
and
d. this Agreement may be terminated by the Sub-Adviser on
ninety days' written notice to the Manager and the Trust, or by the
Manager on ninety days' written notice to the Sub-Adviser.
Termination of this Agreement pursuant to this Section 10 shall be
without the payment of any penalty.
11. Amendment. This Agreement may be amended at any time by mutual
consent of the Manager and the Sub-Adviser, provided that, if required by law,
such amendment shall also have been approved by vote of a majority of the
outstanding voting securities of the Trust and by vote of a majority of the
trustees of the Trust who are not interested persons of the Trust, the Manager
or the Sub-Adviser, cast in person at a meeting called for the purpose of voting
on such approval.
12. Certain Definitions. For the purpose of this Agreement, the terms
"vote of a majority of the outstanding voting securities," "interested person,"
"affiliated person" and "assignment" shall have their respective meanings
defined in the 1940 Act, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under the 1940 Act.
13. General.
a. The Sub-Adviser may perform its services through any
employee, officer or agent of the Sub-Adviser, and the Manager shall
not be entitled to the advice, recommendation or judgment of any
specific person; provided, however, that the persons identified in the
prospectus of the Trust shall perform the day-to-day portfolio
management duties described therein until the Sub-Adviser notifies the
Manager that one or more other employees, officers or agents of the
Sub-Adviser, identified in such notice, shall assume such duties as of
a specific date.
b. If any term or provision of this Agreement or the
application thereof to any person or circumstances is held to be
invalid or unenforceable to any extent, the remainder of this Agreement
or the application of such provision to other persons or circumstances
shall not be affected thereby and shall be enforced to the fullest
extent permitted by law.
c. This Agreement shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Massachusetts.
NEW ENGLAND FUNDS MANAGEMENT, L.P.
By NEF Corporation, its general partner
By:
----------------------------
Name: John E. Pelletier
Title: Managing Director, Senior Vice President, General Counsel,
Secretary & Clerk
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST
By:
----------------------------
Name: Henry L.P. Schmelzer
Title: President
BACK BAY ADVISORS, L.P.
By Back Bay Advisors, Incorporated, its general partner
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
<PAGE>
NOTICE
A copy of the Agreement and Declaration of Trust establishing New
England Tax Exempt Money Market Trust (the "Fund") is on file with the Secretary
of the Commonwealth of Massachusetts, and notice is hereby given that this
Agreement is executed with respect to the Fund by officers of the Fund as
officers and not individually and that the obligations of or arising out of this
Agreement are not binding upon any of the trustees, officers or shareholders
individually but are binding only upon the assets and property belonging to the
Fund.
<PAGE>
EXHIBIT 99.9(C)
POWER OF ATTORNEY
We, the undersigned, hereby constitute Edward A. Benjamin, Frank
Nesvet, Henry L.P. Schmelzer and John E. Pelletier, each of them singly, our
true and lawful attorneys, with full power to them and each of them to sign for
us, and in our names in the capacity indicated below, any and all registration
statements and any and all amendments thereto to be filed with the Securities
and Exchange Commission for the purpose of registering from time to time
investment companies of which we are now or hereafter a Director or Trustee and
to register the shares of such companies and generally to do all such things in
our names and on our behalf to enable such registered investment companies to
comply with the provisions of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, and all requirements and regulations
of the Securities and Exchange Commission, hereby ratifying and confirming our
signatures as it may be signed by our said attorneys and any and all
registration statements and amendments thereto.
Witness our hands on the 31st day of October, 1997.
- ----------------------------- -----------------------------
Graham Allison - Trustee Sandra O. Moose - Trustee
- ----------------------------- -----------------------------
Daniel M. Cain - Trustee John A. Shane
- ----------------------------- -----------------------------
Kenneth J. Cowan - Trustee Peter S. Voss - Trustee
- ----------------------------- -----------------------------
Richard Darman - Trustee Pendleton P. White - Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Edward A. Benjamin, Frank Nesvet
and John E. Pelletier, each of them singly, my true and lawful attorneys, with
full power to them and each of them to sign for me, and in my name in the
capacity indicated below, any and all registration statements and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time investment companies of which I am
now or hereafter a Director or Trustee and to register the shares of such
companies and generally to do all such things in my name and in my behalf to
enable such registered investment companies to comply with the provisions of the
Securities Act of 1933, as amended, and the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission, hereby ratifying and confirming my signature as it may be signed by
my said attorneys and any and all registration statements and amendments
thereto.
Witness my hand on the 31st day of October, 1997.
--------------------------------
Henry L.P. Schmelzer - Trustee
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 25 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated August 7, 1998 relating to the financial
statements and financial highlights appearing in the June 30, 1998 Annual Report
to Shareholders of New England Tax Exempt Money Market Trust, which are also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the heading "Financial Highlights" in the Prospectus
and under the heading "Independent Accountants" in the Statement of Additional
Information.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 25, 1998
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